[ExI] More on Health Costs

[Dan]

--- On Wed, 5/27/09, Lee Corbin <lcorbin at rawbw.com> wrote:
> I'd like to quote all of Dan's
> excellent post, but
> instead I should just go back myself and read the
> whole thing once more. And probably a certain number
> of other people here should too.

Thanks, Lee.  All of this should be common economics knowledge -- not some arcane subject that only a few experts understand and care about.  (And economics should be important because it is the science of action; we all act and any objective economics should reveal important and relevant features of action.)
 
> Dan wrote:
> 
> >> Health Industry means jobs for people.
> >
> > ...My guess is you're talking about more public
> > funding of healthcare meaning more jobs overall
> > -- as if the same or less public funding of
> > healthcare must be the same or less jobs overall.
> > There seems to be no reason to believe there's a
> > relationship here.
> >
> > My guess is more public spending on healthcare
> > might mean more healthcare jobs, but less jobs
> > in other sectors of the economy.
> 
> What matters is not the number of jobs, but how
> much wealth is produced by jobs. Paying people
> to do nothing or to just fool around destroys
> wealth.

Yes.  The problem is, modern societies, the focus tends to be on job creation rather than wealth creation.  Why this is might have to do with mainstream economics, with politics, with the Protestant Work Ethic, or something else.  (I can offer speculations on all of these.  Mainstream economics tends to focus on employment, especially since Keynes.  Its theories of the business cycle see it in terms of employment and unemployment.  It lacks a good theory of capital, so capital -- which Austrians rightfully (IMHO) see as central to explaining the cycle -- is treated too simply when it's treated at all.  Democratic politics tends to focus on vote-getting and vote-keeping.  If capital can be consumed -- lowering long run wealth potential -- to create jobs -- think of using up the seed grain to make more jobs for planters, bakers, and bread salespeople -- this can lead to a boom with immediate vote gains and future office-seekers are left to deal with the
 problems of the bust.  The Work Ethic already tends to take a dim view of the capitalist as a non-worker and treats work as an end in itself -- as morally uplifting rather than work as a means to an end, the end being wealth or a betterment of conditions.  Etc.)

> But you summed up this whole train of
> thought in referencing the "Parable of the broken
> window":
> 
> The parable describes a shopkeeper whose
> window
> is broken by a little boy. Everyone
> sympathizes
> with the man whose window was broken, but
> pretty
> soon they start to suggest that the
> broken window
> makes work for the glazier, who will then
> buy
> bread, benefiting the baker, who will
> then buy
> shoes, benefiting the cobbler, etc.
> Finally, the
> onlookers conclude that the little boy
> was not
> guilty of vandalism; instead he was a
> public
> benefactor, creating economic benefits
> for everyone in town.
> 
>> http://en.wikipedia.org/wiki/Parable_of_the_broken_window
> 
> The key phrase is "the broken window makes work...".
> It sure does, but no wealth at all is created in the
> process.

Yes, this is one of the most important take aways from economic thinking.  I think Extropians and people in general should learn NOT to create broken windows in hopes of making things better.  (Broken windows, of course, happen regardless, but the point is NOT to make more of them.)
 
> It's very similar to the way that people believe you
> can spend your way out of a recession. Sometimes I
> think that the Keynesians suppose that if we just had
> the right kind of magic pill that everyone could take,
> ---which would simply restore complete full confidence
> in everyone that everything is fine---all the problems
> associated with a recession would disappear.

A reductio ad absurdum of the Keynesian view is if spending to wealth worked, why wait for a recession?  Why not always keep immediately consuming our total incomes -- never saving at all?  (Saving is really postponed consumption, but it's from such postponed consumption that all economic progress aside from pure luck arises.)

This might seem a side issue for Extropians, but to arrive at ever greater technological progress -- Singularity or no -- someone has to postpone consumption.  And the more postponement -- the more savings -- all else being equal, the lower the cost of making long-term investments and the higher the productivity -- as the same amount of labor can be combined with ever more and more complex capital structures to yield more.  (Of course, the limit of how much can be saved is the need to consume to survive, but the higher the productivity of labor-capital combinations, the easier it is to survive, all else being equal, and even survive with class.)
 
>> Actually, I think one effect of a recession --
>> basically, the
>> process by which the economy tries to recoordinate
>> after an
>> unsustainable boom -- is unemployment as people shift
>> from
>> unsustainable jobs -- e.g., in the US, from finance,
>> real estate,
>> home construction, and related industries that were
>> obviously not
>> sustainable to ones that are (a priori, no way to tell
>> exactly what
>> these are).  But the more important aspect of the
>> recession is
>> cleaning up malinvestments from the (unsustainable)
>> boom.
> 
> Artificially low interest rates will always create
> malinvestment,
> as should be obvious to everyone. That it isn't obvious to
> everyone causes my paranoid circuits to fire, and wonder
> just
> how much in the grip of financial elites are all of our
> habits
> and prejudices, and even our whole economy.

Well, to be sure, that business cycles are caused by inflation is not obvious.  Empirically, it's hard to trace the process as it usually takes years from the inflation -- from, e.g., artificially lowering interest rates or otherwise creating new money -- until a boom runs its course.  The immediate or near term pay off from an unsustainable boom -- e.g., asset prices rise, new jobs are created, incumbents get re-elected so it looks like the policy is the right one -- also is tempting.  This is no different than the temptation to party today and let tomorrow take care of itself.
 
> It's those who are nearest the new, hot money who prosper,
> (the big players and insiders of your footnote), and it's
> everyone else whose money depreciates in value.

Yes, this is the feature of the money system under statism -- whether with a central bank (as in the US today) or via other interferences (e.g., legal tender laws and other interventions in money and banking*): big players, including the state (which is often the biggest of big players in any economy), tend to reap benefits and the cost are distributed to those who benefit the least and are the least organized.  This was exactly the process that played out up until 2008.  This resulted in real shifts in wealth too -- as the inflated money first buys up real goods that only in the later stages of the inflation go up in price.  (Were the effects of inflation instantaneous, there would be no big benefits to anyone and no calls to inflate.)
 
Regards,

Dan

*  See "An Evolutionary Theory of the State Monopoly Over Money" by David Glazer in _Money and the Nation State_ edited by Kevin Dowd and Richard H. Timberlake, Jr.  (You'd think the EP crowd would jump on an article with that kind of title.:)  I'm not sure how historically accurate Glazer's view is, but the basic idea is that states have a tendency to interfere in and gain monopolies over money to deny financial resources being used to overthrow their rule.  (This need not be seen as a conscious policy.  States that arose that were didn't try to control money might find themselves, on average, losing to those that did -- as a short run inflation could pay to keep a regime in power until a crisis or war was over.  This does seem to have some historical data to back it.  The pattern of inflations prior to the widespread use of paper monies and even well after and until the 20th century was usually inflationary boom during war followed by a recession
 after.  (The problem for earlier states was raising money for war via taxes often resulted in a revolt of the taxed classes.  Even after states developed the means to efficiently tax populations, taxes remained unpopular as the taxed could easily link a given policy with a tax increase.  If taxes rise to pay for a war, all else being the same, a given war is that much less popular -- and the demand to end the war or limit it in other ways is much stronger.)  The usual way inflations were carried out before the widespread use of paper monies was by "inflating" coins -- e.g., clipping and "sweating" coins to make more coins from the same total amount of money metals, debasing coins by alloying them with cheaper metals, and the like -- and forcing people to use the lower value new coins at par with the older full value ones.)