Nonsense, horsefeathers, and idle musings from a decade in South Korea (2002-2012).

19 November, 2012

A Hope Without Historical Precedent

By Aaron
19 November, 2012

John H. Cochrane. Professor of Finance, University of Chicago.

[Obamacare] and the health‐policy industry are betting that new regulation, price controls, effectiveness panels, “accountable care” organizations, and so on will force efficiency from the top down. And the plan is to do this while maintaining the current regulatory structure and its protection for incumbent businesses and employees. Well, let’s look at the historical record of this approach, the great examples in which industries, especially ones combining mass‐market personal service and technology, have been led to dramatic cost reductions, painful reorganizations towards efficiency, improvements in quality, and quick dissemination of technical innovation, by regulatory pressure.

I.e., let’s have a moment of silence.

No, we did not get cheap and amazing cell phones by government ramping up the pressure on the 1960s AT&T. Southwest Airlines did not come about from effectiveness panels or an advisory board telling United and American (or TWA and Pan AM) how to reorganize operations. The mass of auto regulation did nothing to lower costs or induce efficient production by the big three. When has this ever worked? The post office? Amtrak? The department of motor vehicles? Road construction? Military procurement? The TSA? Regulated utilities? European state‐run industries? The last 20 or so medical “cost control” ideas? The best example and worst performer of all,..wait for it...public schools?

It simply has not happened. Government‐imposed efficiency is, to put it charitably, a hope without historical precedent.

That is from "After the ACA: Freeing the Market for Healthcare," a new paper by John Cochrane of the University of Chicago. In the paper, Cochrane urges policymakers and the public to get past their fixation on health insurance and instead focus on the more important issue of health care.

The piece is worth reading in its entirety, but should you not care to peruse a non-technical paper written in an enjoyable voice (evidence: the above passage), you can hear Cochrane discuss this very piece on the most recent episode of EconTalk. My advice: read and listen, especially if you're of the opinion that health insurance and health care must be provided by - or, at least, heavily regulated by - the government.

Cochrane's blog, The Grumpy Economist, is also worth an RSS subscription.