Today (12/31/2008) Microsoft's Zune froze for its customers owning the 30 GB Ipod knock-off. We have all experienced Microsoft related technology failures, the ever infamous "blue screen of death" not withstanding. Why can't Microsoft seem to innovate well?
An annoying technological glitch reveals something deeper about Microsoft's corporate culture. McShane and Glinow write in their work Organizational Behavior, that the spirit of Microsoft captures "A tremendous work ethic; Bill Gates is always right; an us-versus-them mentality; and Bill Gates is always right.". Does anyone imagine how employees may freely share their ideas and foster an open environment of innovation?
Pascale, Millemann and Gioja's Self-Organization and the Corporation write that corporations that apply principles of self-organization can “exploit opportunities and improvise in highly advantageous ways.”
It is not surprising then that much of Microsoft's products capture the personality of its boss, Bill Gates, rather than the aggregate self-organized open environment of innovation that captures the spirit of Apple and Google.
Wednesday, December 31, 2008
Wednesday, April 9, 2008
Healthcare's Fatal Decoupling
Most innovative markets employ the following system of invention and devlopment. A would-be entrepreneur derives an idea by which existing resources might be newly combined to create an innovative product or service. Alternatively, they may innovate to discover errors in how resources are currently utilized for existing production. Kirzner writes in Discovery of Error, "entrepreneurship is evoked by the presence of as yet unexploited opportunities for pure profit".
This would-be entrepreneur takes this discovery to market. They set out to argue that their new combination of society's resources is better than existing combinations, i.e. existing products and services. Society then casts its ballot through a voluntary transfer of wealth if they believe that this entrepreneur did better than existing candidates.
Thus, there is a coupling of entrepreneur to the beneficiary of their efforts. Those whom derive their benefit of the entrepreneur's efforts anonymously and voluntarily cast their vote through the ballot of cash communicated through prices. Prices thus serve as that measurable entity by which society communicates to the entrepreneur that they agree with their stewardship of society's resources. This entrepreneur and other would-be entrepreneurs thus continue to bear the incentive to continue in their innovation efforts.
Most important in this coupling is that the prices of society's basket of products and services reflect the benefit society derives through this coupling. As Hayek writes in Use of Knowledge, "prices can act to coordinate the separate actions of different people in the same way as subjective values help the individual to coordinate the parts of his plan". Without this coupling, prices can only reflect the costs of production inputs and not the value of the final product.
Health care lacks this coupling. A would-be entrepreneur in health care discovers a new procedure, service or product that might have a benefit to society. However, those whom may benefit do not make that coupled transfer of cash for benefit. Albeit the cost of health care prohibits such, as is pedantically argued. This cost of care is not due to the nature of health care itself, but the original decoupling of benefit to cash transfer that continued its exasperation to higher and higher costs.
To understand this, we have to consider how prices in such a decoupled economy operate. Without this voluntary transfer of wealth, prices must reflect the costs of production. In the absence of coupling, a separate entity must decide on behalf of another the benefit of that resource to the beneficiary. They then decide through some cost-effectiveness analysis those combination of resources that provide the greatest benefit at the lowest cost.
Without this coupling, this separate decision maker is not punished nor rewarded for this process. They neither receive a benefit, aside from some merit, nor are they punished for this process. It is not their funds of which they allocate to acquire those resources. Nor is it their benefit they are estimating. Therefore, the prices they attribute to those resources only reflect their costs, and the benefit is simply a metric subject to bias, confounding, and error in measurement.
This is health care's fatal decoupling. Health care's resources of input reflect their cost, not their value. The entrepreneur is not rewarded for their actions. Thus, we have a never ending cycle of rising costs and slowing innovation.
This would-be entrepreneur takes this discovery to market. They set out to argue that their new combination of society's resources is better than existing combinations, i.e. existing products and services. Society then casts its ballot through a voluntary transfer of wealth if they believe that this entrepreneur did better than existing candidates.
Thus, there is a coupling of entrepreneur to the beneficiary of their efforts. Those whom derive their benefit of the entrepreneur's efforts anonymously and voluntarily cast their vote through the ballot of cash communicated through prices. Prices thus serve as that measurable entity by which society communicates to the entrepreneur that they agree with their stewardship of society's resources. This entrepreneur and other would-be entrepreneurs thus continue to bear the incentive to continue in their innovation efforts.
Most important in this coupling is that the prices of society's basket of products and services reflect the benefit society derives through this coupling. As Hayek writes in Use of Knowledge, "prices can act to coordinate the separate actions of different people in the same way as subjective values help the individual to coordinate the parts of his plan". Without this coupling, prices can only reflect the costs of production inputs and not the value of the final product.
Health care lacks this coupling. A would-be entrepreneur in health care discovers a new procedure, service or product that might have a benefit to society. However, those whom may benefit do not make that coupled transfer of cash for benefit. Albeit the cost of health care prohibits such, as is pedantically argued. This cost of care is not due to the nature of health care itself, but the original decoupling of benefit to cash transfer that continued its exasperation to higher and higher costs.
To understand this, we have to consider how prices in such a decoupled economy operate. Without this voluntary transfer of wealth, prices must reflect the costs of production. In the absence of coupling, a separate entity must decide on behalf of another the benefit of that resource to the beneficiary. They then decide through some cost-effectiveness analysis those combination of resources that provide the greatest benefit at the lowest cost.
Without this coupling, this separate decision maker is not punished nor rewarded for this process. They neither receive a benefit, aside from some merit, nor are they punished for this process. It is not their funds of which they allocate to acquire those resources. Nor is it their benefit they are estimating. Therefore, the prices they attribute to those resources only reflect their costs, and the benefit is simply a metric subject to bias, confounding, and error in measurement.
This is health care's fatal decoupling. Health care's resources of input reflect their cost, not their value. The entrepreneur is not rewarded for their actions. Thus, we have a never ending cycle of rising costs and slowing innovation.
Tuesday, April 8, 2008
Thursday, April 3, 2008
Cost Benefit Analysis - A Tool In The Hands of A Planned Economy
It should seem common sense that something is wrong with an economic order when it is plagued with inflation and blunts in innovation. Hayek writes in Use of Knowledge,
prices can act to coordinate the separate actions of different people in the same way as subjective values help the individual to coordinate the parts of his planWhat is chiefly wrong with health care? To what shall we owe its sickening inflation and its frailty of innovation. When we perform cost benefit analysis we take macrostatistical values that may or may not apply to our population of interest. We then assess their impact on a subjective score of quality of life determine through surveys. Then we crunch those numbers through a simulator through which we input prices. Mind you we assume these prices will not fluctuate through our 10 year horizon. Then we finally discover that magical incremental cost effectiveness ratio. This number tells us that introduction of a medication, procedure or diagnostic test is worthy of its cost. We use these methods to allocate resources on behalf of the whole. We decide what medications are right for others given our estimation of their quality of life. This is none other than a planned economy.
Saturday, February 23, 2008
Econometrics and Its Zero-Sum Game
Hayek writes in Cosmos and Taxis,"There exist orderly structures which are the product of the action of many men but are not the result of human design". Econometrics concerns itself with the measurement and relationship of these components to derive an economic order either a priori or a posteriori.
In order for an econometricist to subscribe to a Cosmos order, they must conceive its reality in a measurable and deducible manner. By stroke of habit in constructing their economic and social worldview through its components, they begin to see the world in Taxis. To the econometricist, they seek to measure the components in order to manipulate and achieve in their mind a desirable economic order.
In the measurement of population behavior, an investigator cannot measure with simultaneous certainty, the movement of a population and its position. By measuring any component's movement, you by nature fix its position. By measuring its position, you by nature fix it's movement. By fixing, one component's movement or position, you by nature fix another component. A Taxis construct contains less dimensions of reality than its larger Cosmos reality. The Taxis reality is true and reasonable, but merely a snapshot of a fixed component measurement of the larger Cosmos reality.
In fixing the economic order, there is a constant in its total value. When one component variable gains, another must lessen. The net sum of the movement or position of its components converges to zero. Therefore, a Taxis reality is by nature a zero-sum economic game.
Implications? Econometricists are slaves to limits. By advising policy makers, they map for government a world that cannot exist larger than what is measured. Thus by nature, society converges to a Taxis order and a zero-sum game.
In order for an econometricist to subscribe to a Cosmos order, they must conceive its reality in a measurable and deducible manner. By stroke of habit in constructing their economic and social worldview through its components, they begin to see the world in Taxis. To the econometricist, they seek to measure the components in order to manipulate and achieve in their mind a desirable economic order.
In the measurement of population behavior, an investigator cannot measure with simultaneous certainty, the movement of a population and its position. By measuring any component's movement, you by nature fix its position. By measuring its position, you by nature fix it's movement. By fixing, one component's movement or position, you by nature fix another component. A Taxis construct contains less dimensions of reality than its larger Cosmos reality. The Taxis reality is true and reasonable, but merely a snapshot of a fixed component measurement of the larger Cosmos reality.
In fixing the economic order, there is a constant in its total value. When one component variable gains, another must lessen. The net sum of the movement or position of its components converges to zero. Therefore, a Taxis reality is by nature a zero-sum economic game.
Implications? Econometricists are slaves to limits. By advising policy makers, they map for government a world that cannot exist larger than what is measured. Thus by nature, society converges to a Taxis order and a zero-sum game.
Sunday, January 6, 2008
An Evaluation of Obama's Health Care Plan - Part I
The following is an evaluation of Barack Obama's Health as transcribed from the candidate's website (see video).
Obama: "The system's broken, I think people all across the country recognize that."
He is correct. We spend more of our GDP on health care expenditure's with less return on life expectancy.
Obama: "I don't accept the idea that in the richest country on earth we should have 47 million people without health insurance, and millions more being bankrupt from medical bills."
Herein lies Obama's first failed assumption regarding economics. Riches and resources do not lead to economic welfare. The protection of that property of resources leads to welfare. He views economics as the job of distributing scarce resources. Economics is rather mobilizing a market aggregate such that existing resources of production, however abundant or scarce, are combined in news ways to create new value.
Yet, he is also right. It is unacceptable. Many remain without access to a regular health provider. Many remain without access to needed medications. But you have to ask to what degree to individuals reap what they sow? The American College of Preventative Medicine (ACPM) estimates that 90% of current diseases are preventable, most of which are caused by a lifetime of smoking and obesity.
So is it acceptable, that individuals who take personal responsibility on their health then pay through tax dollars for individuals that abuse their bodies through smoking and poor eating?
Obama: "And I know something about this personally. My mother died of ovarian cancer when she was 53. And in the waning months of her life, she was not spending time thinking about how to get well or even how to come to terms with her own mortality. She was spending time thinking about how the insurance company was going to cover her expenses, because she had gotten sick just before taking a new job. It wasn't clear whether this would be considered a pre-existing condition. And that's wrong. There's something fundamentally wrong about that."
First, allow me to say my respects for Sen. Obama and his family for their loss. His mother would be proud of her son at this time. The risk-factors related to cancer in general, and ovarian cancer specifically still argue for the need to stimulate the economy of health care toward preventative health measures.
Cancer is still a medical mystery, but we are learning its risk factors, namely ovarian cancer. Despite uncontrollable factors such as age and genetic predisposition, obesity remains as an important risk factor for developing ovarian cancer, as well as the use of fertility drugs and oral contraceptives.
In a system of health care outlined by Sen. Obama, people do not own their own risk. They transfer that risk to someone else, namely the government. Therefore they do not bear the incentives to adopt preventative health measures in order to lower that risk.
Obama: "Which is why as President of the United States, my goal is to adopt a health plan that covers all Americans. The very first promise I made on this campaign was that as President, I will sign a universal health care plan into law by the end of my first term in office. The key to making this happen is to overcome the resistance we will see from drug companies, insurance companies, HMOs..."
The graph below illustrates the consequence of this reform and the reason why several entities in the health care market resist this plan.
As the quantity of enrollee's, Q, increases, the cost (the bottom curve) rises exponentially for insurance providers to manage the cost. The erroneous assumption is that costs per member will decrease as members, Q, increase. Yet, the current model of health care lacks an economy of scale allowing such an effect. What a comprehensive coverage entails is that Q is fixed at some value (the right red dotted vertical line). This, presumably above equilibrium would force the prices of health provision by the plan higher.
This alone argues against the proposal. However, there is a deeper problem, having to do with innovation. Individuals do not entrepreneur on property they do not own. In this case, we are dealing with the property of health risk. When an individual enrolls into an insurance plan, they transfer their risk to the insurer. The insurer owns their risk. There is a loss of incentive for reducing that risk aside from the rise in premium.
A consumer health participant could entrepreneur on their own bodies to envision measures for themselves to lower risk in collaboration with their communities and health providers. Without bearing the cost of this risk, they lack the incentive toward this innovation.
Obama: "Over the last ten years alone, the drug and insurance companies spent one billion dollars in preventing health care reform from happening."
Companies perform actions to increase the wealth of owners through profits. I do not condone nor have intimate knowledge of all the details of this expenditure. However, Obama paints a picture that it is the people vs. the insurance/drug companies. The real picture is freedom versus advocacy and reform of any nature. We live in a health care system rot with bureaucracy that taxes the system billions of dollars. We don't need more government. We need less government.
Obama: "That's going to require then a mobilization of the American people to insist on a Congress and a White House that are actually going to deliver this time. It is also going to have to have someone with the capacity to bring people together across various divides - getting business, getting labor, getting doctors, getting nurses, consumers joined together to craft this kind of legislation. I think it is going to be difficult, but I think it is going to be possible. The time is right, because nobody is satisfied with the system."
In 2006, there were 633,000 physicians and surgeons according to the US Dept. of Labor. There were 2.5 million Registered Nurses, including Nurse Practitioners. There were 66,000 Physician Assistants. There were 99,000 Occupational Therapists. There were 173,000 Physical Therapists. Finally, there were 243,000 Pharmacists. There are currently 25 million individuals with chronic illness. Consider then, the logistics of getting "doctors, nurses, and consumers joined together to craft this kind of legislation". How many would have to agree in order to adopt such a reform? In 2006, it would require 28,714,000 individuals to join together to make such a reform.
Obama: "My plan begins by covering every American. If you already have health insurance, the only thing that will change for you is the amount of money you will spend on premiums; that will be less than what you are spending now."
The graph below illustrates the consequence of this reform and the reason why premiums would actually INCREASE rather than remain or even decrease.
As the quantity of enrollee's, Q, increases, the cost (the bottom curve) rises exponentially for insurance providers to manage the cost. The erroneous assumption is that costs per member will decrease as members, Q, increase. Yet, the current model of health care lacks an economy of scale allowing such an effect. What a comprehensive coverage entails is that Q is fixed at some value (the right red dotted vertical line). This, presumably above equilibrium would force the prices of health provision by the plan higher. This is happening currently in Massachusetts with their state comprehensive health coverage.
Obama: "But if you are one of the 45 million Americans who don't have health insurance, you will have health insurance available to you."
If you hurt yourself or need care, better bring a good book because you are going to wait a long time.
Obama: "No one will be turned away because of a pre-existing condition or illness. Everyone will be able to buy into a new health insurance plan, similar to the one that every federal employee from a postal worker in Iowa, to a congressman in Washington currently has for themselves. It will cover all essential medical services including preventative, maternity, disease management, and mental health care. It will also include high standards for quality and efficiency."
How will the 28,714,000 individuals described above, not including other stakeholders, agree on "essential medical services"? Every special interest will vie their piece of the pie in argument for what service or product is "essential". In addition, there is difficulty in agreeing on standards of care and standards for efficiency of delivery.
Obama: "If you can't afford this insurance, you'll receive a subsidy to pay for it. If you change jobs, your insurance will go with you."
In health disparities research, it is a continuing question of what came first. Did the burden of illness and disease arrive in individuals prior to their poverty, or did their poverty beset their chronic illness? People today on medical assistance, in the form of medicaid, still fail to rise out of their poverty. They don't necessarily abuse the system. However, there is a lack of cognitive awareness with regard to their inherent life value. They cannot translate the quality of their health with the ability to increase their earning potential. My suspicion is they will remain on subsidies forever.
Obama: "If you need to see a doctor, you will not have to wait in long lines for one."
Britain's National Health Service is notorious for waiting times.
Obama: "The system's broken, I think people all across the country recognize that."
He is correct. We spend more of our GDP on health care expenditure's with less return on life expectancy.
Obama: "I don't accept the idea that in the richest country on earth we should have 47 million people without health insurance, and millions more being bankrupt from medical bills."
Herein lies Obama's first failed assumption regarding economics. Riches and resources do not lead to economic welfare. The protection of that property of resources leads to welfare. He views economics as the job of distributing scarce resources. Economics is rather mobilizing a market aggregate such that existing resources of production, however abundant or scarce, are combined in news ways to create new value.
Yet, he is also right. It is unacceptable. Many remain without access to a regular health provider. Many remain without access to needed medications. But you have to ask to what degree to individuals reap what they sow? The American College of Preventative Medicine (ACPM) estimates that 90% of current diseases are preventable, most of which are caused by a lifetime of smoking and obesity.
So is it acceptable, that individuals who take personal responsibility on their health then pay through tax dollars for individuals that abuse their bodies through smoking and poor eating?
Obama: "And I know something about this personally. My mother died of ovarian cancer when she was 53. And in the waning months of her life, she was not spending time thinking about how to get well or even how to come to terms with her own mortality. She was spending time thinking about how the insurance company was going to cover her expenses, because she had gotten sick just before taking a new job. It wasn't clear whether this would be considered a pre-existing condition. And that's wrong. There's something fundamentally wrong about that."
First, allow me to say my respects for Sen. Obama and his family for their loss. His mother would be proud of her son at this time. The risk-factors related to cancer in general, and ovarian cancer specifically still argue for the need to stimulate the economy of health care toward preventative health measures.
Cancer is still a medical mystery, but we are learning its risk factors, namely ovarian cancer. Despite uncontrollable factors such as age and genetic predisposition, obesity remains as an important risk factor for developing ovarian cancer, as well as the use of fertility drugs and oral contraceptives.
In a system of health care outlined by Sen. Obama, people do not own their own risk. They transfer that risk to someone else, namely the government. Therefore they do not bear the incentives to adopt preventative health measures in order to lower that risk.
Obama: "Which is why as President of the United States, my goal is to adopt a health plan that covers all Americans. The very first promise I made on this campaign was that as President, I will sign a universal health care plan into law by the end of my first term in office. The key to making this happen is to overcome the resistance we will see from drug companies, insurance companies, HMOs..."
The graph below illustrates the consequence of this reform and the reason why several entities in the health care market resist this plan.
As the quantity of enrollee's, Q, increases, the cost (the bottom curve) rises exponentially for insurance providers to manage the cost. The erroneous assumption is that costs per member will decrease as members, Q, increase. Yet, the current model of health care lacks an economy of scale allowing such an effect. What a comprehensive coverage entails is that Q is fixed at some value (the right red dotted vertical line). This, presumably above equilibrium would force the prices of health provision by the plan higher.
This alone argues against the proposal. However, there is a deeper problem, having to do with innovation. Individuals do not entrepreneur on property they do not own. In this case, we are dealing with the property of health risk. When an individual enrolls into an insurance plan, they transfer their risk to the insurer. The insurer owns their risk. There is a loss of incentive for reducing that risk aside from the rise in premium.
A consumer health participant could entrepreneur on their own bodies to envision measures for themselves to lower risk in collaboration with their communities and health providers. Without bearing the cost of this risk, they lack the incentive toward this innovation.
Obama: "Over the last ten years alone, the drug and insurance companies spent one billion dollars in preventing health care reform from happening."
Companies perform actions to increase the wealth of owners through profits. I do not condone nor have intimate knowledge of all the details of this expenditure. However, Obama paints a picture that it is the people vs. the insurance/drug companies. The real picture is freedom versus advocacy and reform of any nature. We live in a health care system rot with bureaucracy that taxes the system billions of dollars. We don't need more government. We need less government.
Obama: "That's going to require then a mobilization of the American people to insist on a Congress and a White House that are actually going to deliver this time. It is also going to have to have someone with the capacity to bring people together across various divides - getting business, getting labor, getting doctors, getting nurses, consumers joined together to craft this kind of legislation. I think it is going to be difficult, but I think it is going to be possible. The time is right, because nobody is satisfied with the system."
In 2006, there were 633,000 physicians and surgeons according to the US Dept. of Labor. There were 2.5 million Registered Nurses, including Nurse Practitioners. There were 66,000 Physician Assistants. There were 99,000 Occupational Therapists. There were 173,000 Physical Therapists. Finally, there were 243,000 Pharmacists. There are currently 25 million individuals with chronic illness. Consider then, the logistics of getting "doctors, nurses, and consumers joined together to craft this kind of legislation". How many would have to agree in order to adopt such a reform? In 2006, it would require 28,714,000 individuals to join together to make such a reform.
Obama: "My plan begins by covering every American. If you already have health insurance, the only thing that will change for you is the amount of money you will spend on premiums; that will be less than what you are spending now."
The graph below illustrates the consequence of this reform and the reason why premiums would actually INCREASE rather than remain or even decrease.
As the quantity of enrollee's, Q, increases, the cost (the bottom curve) rises exponentially for insurance providers to manage the cost. The erroneous assumption is that costs per member will decrease as members, Q, increase. Yet, the current model of health care lacks an economy of scale allowing such an effect. What a comprehensive coverage entails is that Q is fixed at some value (the right red dotted vertical line). This, presumably above equilibrium would force the prices of health provision by the plan higher. This is happening currently in Massachusetts with their state comprehensive health coverage.
Obama: "But if you are one of the 45 million Americans who don't have health insurance, you will have health insurance available to you."
If you hurt yourself or need care, better bring a good book because you are going to wait a long time.
Obama: "No one will be turned away because of a pre-existing condition or illness. Everyone will be able to buy into a new health insurance plan, similar to the one that every federal employee from a postal worker in Iowa, to a congressman in Washington currently has for themselves. It will cover all essential medical services including preventative, maternity, disease management, and mental health care. It will also include high standards for quality and efficiency."
How will the 28,714,000 individuals described above, not including other stakeholders, agree on "essential medical services"? Every special interest will vie their piece of the pie in argument for what service or product is "essential". In addition, there is difficulty in agreeing on standards of care and standards for efficiency of delivery.
Obama: "If you can't afford this insurance, you'll receive a subsidy to pay for it. If you change jobs, your insurance will go with you."
In health disparities research, it is a continuing question of what came first. Did the burden of illness and disease arrive in individuals prior to their poverty, or did their poverty beset their chronic illness? People today on medical assistance, in the form of medicaid, still fail to rise out of their poverty. They don't necessarily abuse the system. However, there is a lack of cognitive awareness with regard to their inherent life value. They cannot translate the quality of their health with the ability to increase their earning potential. My suspicion is they will remain on subsidies forever.
Obama: "If you need to see a doctor, you will not have to wait in long lines for one."
Britain's National Health Service is notorious for waiting times.
Wednesday, January 2, 2008
A Misnomer About Resources
What drives an economy? Is it technology? Is it government? Many say resources. Many in China, for example, view their over-population as a drain on the economy, inspiring the one-child policy. Consider also the Simon-Ehrlich wager. Here, Dr. Ehrlich's work, "The population bomb", predicted a catastrophe of resource limitation because of population explosion. However, he was proved wrong in the wager by Dr. Simon who showed the prices of selected resources decreasing instead of increasing.
It is not technology. It is not government. It is not resources that drive the economy. People drive the economy; and not just one or few. The late Dr. Julius Simon in his work, "Ultimate Resource", argues this. Raw resources such as oil, copper, paper, etc. are never destroyed; they are transformed, albeit into unusable forms. However, humans are innovative creatures, if owning their own resources, are able to entrepreneur to discover new uses for their economy.
What are its implications? Many view the goal of economics as the distribution of scarce resources and hence adopt a view toward its equal distribution. Economics is rather the inspiration of many toward the utilization of existing inputs of production toward the creation of new value.
(This is inspired by an unpublished lecture by Professor Howard Baetjer)
It is not technology. It is not government. It is not resources that drive the economy. People drive the economy; and not just one or few. The late Dr. Julius Simon in his work, "Ultimate Resource", argues this. Raw resources such as oil, copper, paper, etc. are never destroyed; they are transformed, albeit into unusable forms. However, humans are innovative creatures, if owning their own resources, are able to entrepreneur to discover new uses for their economy.
What are its implications? Many view the goal of economics as the distribution of scarce resources and hence adopt a view toward its equal distribution. Economics is rather the inspiration of many toward the utilization of existing inputs of production toward the creation of new value.
(This is inspired by an unpublished lecture by Professor Howard Baetjer)
Subscribe to:
Posts (Atom)
Posts
