Tuesday, December 26, 2006

Too Many Econ Blogs I: Friedman's Factoids

Reading too many economics blogs may be bad for one's blood pressure, and I predict I will be driven to vent at least once more after this.

There is a class of factoid that is so plausible that invoking it tends to force one's opposition to concede immediately, without trying to squabble about nuances like how it was collected. From the left, e.g., wait for an argument about how much of women's historical difficulty in becoming tenured university professors is because of their inferior job performance, perhaps due to their tendency to work fewer hours and have more career interruptions and such. Then bring up one of those nasty little studies about how people rate the exact same paper higher when it has a man's name on top than when it has a woman's name on the top. Lo, one's opponents tend to concede the relevance of pure discrimination. At some level they basically knew it already, even if that knowledge hadn't stopped them from closed-mindedly pegging you as a closed-minded fanatic before.

From the libertarian direction, studies by Milton Friedman and others on how prices increased as doctors were given the power to limit the number of competing doctors seem to have something of this invincible factoid character. Once presented, even people who previously sincerely believed that the regulations didn't raise prices scurry to some other point to defend. It seems to be hard to summon one's courage to search for data to defend one's belief that "no, it didn't raise prices when we gave the doctors broad legal power to choke off their competition." (For another Friedman-on-the-AMA factoid, see the block quote in the last paragraph of this post.)

This is a somewhat understandable game when played in casual conversations of nonexperts, but it becomes more than a little irritating when experts are involved. If an expert on racial or sexual discrimination says that university grading is a system of pure merit, then even if he backed down immediately when reminded of studies on how changing the name on top of a paper can have a significant effect, one could still tend to go away mad that he had said it in the first place, even if he said it carefully in measured tones without resorting to sarcasm and without previous maneuvers that suggested perhaps he was well aware of the studies and was just hoping that no one else knew.

I read several blogs by ideologically sympathetic academics and journalists. In an effort not to lose my perspective completely, I also read DeLong and Thoma. So presently I stumbled upon two rather different treatments of the same question of how free the health care market is.

Commenting on the complaint of John Derbyshire and the followup of Kevin Drum remarking how this shows the importance of his preferred policies, "Jane Galt" wrote

Kevin Drum offers John Derbyshire's experience as an argument for national health care. [...] I gather that Mr Derbyshire lives in New York State. If so, I can cheerfully attest that the problem is not "the market", but "the government", whose thicket of minimum coverage, community pooling, and like regulations has made New York State's health insurance the most expensive in the nation.
while Brad DeLong wrote
John Derbyshire encounters the free market in health care, and recoils in horror. [...] Now we liberals have lots of reasons and arguments for why we would not expect free markets in health insurance to work very well, and Derbyshire has just encountered one of them: it looks as if his particular health plan is entering an adverse-selection death spiral.

The juxtaposition between "Galt's" take and DeLong's take was bad for my blood pressure. "The free market in health care," hmm? Brad DeLong is a professor of economics at a prestigious university and spent a year or so working in government on health care policy. He is not excused from knowing about the heavy-handed government interventions in the insurance layer of the market in health care described by Galt, and he is not excused from knowing about the strict barriers to entry in the provision of health care services which are familiar to damned near everyone. (It is not so easy to find people who think it would be legal to just hang up a shingle and open a little medical business, perhaps starting small with something like vaccinations at a convenient location. Especially for anything involving prescription drugs, restrictive licensure is a rather in-your-face system, and "gosh, doctors get to charge a lot of money [I wish I could be one]" is not such a complicated thought that only an economics rocket scientist can think it.) I wouldn't mind someone saying "the market" about health care, and I am not such a free market fanatic that I would mind someone saying "free market" about most aspects of the computer hardware or software market, but for the US health care market, as for the old USSR election system, using "free" as a qualifier is Orwellian given that the choices are so strongly restricted by the government.

However, it also gets a little worse, DeLong happens to be the author of the Slate obituary for Friedman. I well remembered this particularly because of the way DeLong wrote

He [Friedman] scorned government licensing of professionals -- especially doctors, who heard over and over again about how their incomes were boosted by restrictions on the number of doctors that made Americans sicker.
He didn't mention how Friedman's scorn was backed up by his empirical work (including his doctoral thesis, also published as a book Income From Independent Professional Practice coauthored with his advisor Kuznets). The question of how much regulation there should be is highly politically charged, and it's common for people to scorn some policy choice or other, all too often with inadequate justification. A more noteworthy fact here is that Friedman won professional respect among economists for his statistical work both in general and in this area in particular. I had a nasty suspicion that DeLong intended that his readers would combine his formulation of Friedman's position with their their confident belief that heavy government regulation is vitally important, and reach the logical conclusion that Friedman was a blindered ideological extremist. Admittedly that intent is not so obvious, and perhaps I should even be ashamed of my nasty suspicion that DeLong had a political ax to grind and planted it in the back of the dead. However, it is at least very obvious that in November, DeLong had no fear that puzzled readers would think "restrictions on the number of doctors? what restrictions? in the free market in health care!?" You get extra demerits in my book for referring to the "free elections" in Xamplestan when just the previous month you had written
He [Fredmannov] scorned government selection of electoral candidates --- especially by the Party, and Party members heard over and over again that their power was boosted by restrictions on nonmembers entering government elections, making government worse.
Possibly Fredmannov could be being dogmatic when he makes these claims of corrupt interest of Party members and reduction in quality of government. Possibly Fredmannov's statistical work that you declined to mention could be misleading or incompetent. But whether or not their unfreeness benefits the general population of Xamplestanians, those are definitely not free elections.

Caveat: Actually, I have never looked at the Friedman/Kuznets book, and my local university library is closed for the Christmas holidays, so take my claims about the contents of Friedman's thesis work with a grain of salt. But it's clear from what others have written that a lot of it was empirical work on the effects of licensing. E.g., the NY Times obituary mentions "one finding of the book was that the AMA exerted monopolistic pressure on the income of doctors," and that the AMA "forced the publisher to delay publication" though "the book was eventually published, unchanged." And before the library closed for the holidays, I was able to check out Capitalism and Freedom. (I had asked the library to recall it for me shortly after Friedman's death, because some tributes had made me curious how Friedman's evaluations of and predictions about oft-cited free-economy/mixed-economy examples like Hong Kong and Sweden might have changed over time.) I still have it checked out, and peering past various post-publication scrawled annotations (such as "This title is an oxymoron", "Apologist Reactionary", "Utopia", "Fascist!", "Perhaps hell! What about Germany, or don't you know what happened?" and "I'm surrounded by unthinking hulks") I can see that Friedman wrote a chapter on occupational licensure. The chapter is full of empirical stuff which seems impossible to reconcile with "free market" even when embellished with Berkeley rocket scientific concepts like the death spiral. E.g.,

A dramatic piece of evidence on the power and potency of the [American Medical] Association as well as on the lack of relation to quality is proved by one figure that I have always foundstriking. After 1933, when Hitler came to power in Germany, there was a tremendous outflow of professional people from Germany, Austria, and so on, including of course, physicians who wanted to practice in the United States. The number of physicians trained abroad who were admitted to practice in the United States after 1933 was the same as in the five years before. This was clearly not the result of the natural course of events. The threat of these additional physicians led to a stringent tightening of requirements for foreign physicians which imposed extreme costs on them.
Capitalism and Freedom doesn't have many footnotes, and there is no footnote for that 1933-effect figure, but it is my impression (from something read long ago) that that figure is the primary result of a research paper in economics that Friedman himself published back in the day.