Showing posts with label Hayek. Show all posts
Showing posts with label Hayek. Show all posts
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.
Friday, October 12, 2007
Clinical Trials versus Online Health Information - A Case In Cosmos Versus Taxis
In the Economist's recent article entitled, "Health 2.0", it explores the merits and risks of online health information. Dr. Daniel Hoch, quoted in this article states, "[Many doctors] don't get the wisdom of the crowds". Hayek writes in Individualism, “[Reason] is a product of an acute consciousness of the limitations of the individual mind which induces an attitude of humility toward the impersonal and anonymous social processes by which individuals help to create things greater than they know, while the latter is the product of an exaggerated belief in the powers of individual reason and of a consequent contempt for anything which has not been consciously designed by it or is not fully intelligible to it.”
According to Hayek, the aggregate or the whole has greater knowledge than any individual, including an expert. Critics argue the potential inaccuracy of online health information. Health 2.0 cites a 2004 study in the British Medical Journal that showed 6% of online information posted by an epilepsy support group was inaccurate.
As clinicians, we make clinical decisions based on clinical trials. However we all know the limitations of these trials, particularly in safety information. The challenge of every clinician is the answer to what degree our particular patient in question is represented in a given clinical trial population. This is key particularly in assessing the risk of adverse events.
Online health information is a form Hayek would describe as cosmos. It captures the local knowledge, disbursed in the aggregate, embodying the complex wisdom of the aggregate. Clinical trials represent Taxis, whereby a limited number of experts dictate the relevance of central knowledge not necessarily applicable to the whole.
According to Hayek, the aggregate or the whole has greater knowledge than any individual, including an expert. Critics argue the potential inaccuracy of online health information. Health 2.0 cites a 2004 study in the British Medical Journal that showed 6% of online information posted by an epilepsy support group was inaccurate.
As clinicians, we make clinical decisions based on clinical trials. However we all know the limitations of these trials, particularly in safety information. The challenge of every clinician is the answer to what degree our particular patient in question is represented in a given clinical trial population. This is key particularly in assessing the risk of adverse events.
Online health information is a form Hayek would describe as cosmos. It captures the local knowledge, disbursed in the aggregate, embodying the complex wisdom of the aggregate. Clinical trials represent Taxis, whereby a limited number of experts dictate the relevance of central knowledge not necessarily applicable to the whole.
Monday, October 1, 2007
Democracy Is No Safeguard For Free Markets
Hayek writes in True Individualism “[Reason] is a product of an acute consciousness of the limitations of the individual mind which induces an attitude of humility toward the impersonal and anonymous social processes by which individuals help to create things greater than they know, while the latter is the product of an exaggerated belief in the powers of individual reason and of a consequent contempt for anything which has not been consciously designed by it or is not fully intelligible to it.”
Here Hayek contrasts reason in the singular and Reason in the aggregate. The anonymous movement of the whole to reason on its own behalf far excels over any one individual. Consequently any individual assuming commanding heights over how the whole distributes its resources elects the economy into destined failure.
We learned in the 20th Century the failure of such economies governed by a single or elite few of individuals. This is due to limits every actor in an economic process bear in assessing the position and direction of markets. Hayek writes in Use of Knowledge In Society, “[the economic process is the] problem of the utilization of knowledge which is not given to anyone in its totality.” The failure of single or few individuals commanding market movements rests in this failure of comprehensive knowledge.
What of any sum of individuals commanding the distribution of resources for the whole? What if a majority in a democratic process voted to command the distribution of resources for the whole?
More members deciding the fate of markets likely bears more knowledge as a whole than the single or elite group. However, history shows that the parliamentary or legislative process embodies individuals who lack relevant knowledge regarding the market process.
A democratic process is just as prone to market assessment errors as dictators and elite governing bodies. Markets fail to be markets when individuals either in singular, minority, and majority take rein of the commanding heights of the economy on behalf of the whole.
Here Hayek contrasts reason in the singular and Reason in the aggregate. The anonymous movement of the whole to reason on its own behalf far excels over any one individual. Consequently any individual assuming commanding heights over how the whole distributes its resources elects the economy into destined failure.
We learned in the 20th Century the failure of such economies governed by a single or elite few of individuals. This is due to limits every actor in an economic process bear in assessing the position and direction of markets. Hayek writes in Use of Knowledge In Society, “[the economic process is the] problem of the utilization of knowledge which is not given to anyone in its totality.” The failure of single or few individuals commanding market movements rests in this failure of comprehensive knowledge.
What of any sum of individuals commanding the distribution of resources for the whole? What if a majority in a democratic process voted to command the distribution of resources for the whole?
More members deciding the fate of markets likely bears more knowledge as a whole than the single or elite group. However, history shows that the parliamentary or legislative process embodies individuals who lack relevant knowledge regarding the market process.
A democratic process is just as prone to market assessment errors as dictators and elite governing bodies. Markets fail to be markets when individuals either in singular, minority, and majority take rein of the commanding heights of the economy on behalf of the whole.
Monday, July 2, 2007
On Humility In Human Progress - Implications For Entrepreneurial Awareness
Entreprenuers often fail. Most envision ideas of invention or theory in their own sphere of grandeur, ignorant of how the rest of the world fails to attribute their value. To what should entreprenuerial awareness focus? Kirzner in Action and Alertness writes of awareness to error and discovery as a source of entrepreneurial activity. I propose an additional source. Successful entrepreneurial awareness arises from awareness to economic orders developing en masse.
Hayek writes in Individualism, “[Reason] is a product of an acute consciousness of the limitations of the individual mind which induces an attitude of humility toward the impersonal and anonymous social processes by which individuals help to create things greater than they know, while the latter is the product of an exaggerated belief in the powers of individual reason and of a consequent contempt for anything which has not been consciously designed by it or is not fully intelligible to it.”
An individually successful entrepreneur merely stakes claim to the recognition of a newly established economic order, unrecognized beforehand. This is the reason with a capital R, Hayek discusses. True entrepreneurial activity is a humble and anonymous process. There is no fantasy of something new. It is a recognition of an economic, scientific, or social movement already in progress.
Hayek writes in Individualism, “[Reason] is a product of an acute consciousness of the limitations of the individual mind which induces an attitude of humility toward the impersonal and anonymous social processes by which individuals help to create things greater than they know, while the latter is the product of an exaggerated belief in the powers of individual reason and of a consequent contempt for anything which has not been consciously designed by it or is not fully intelligible to it.”
An individually successful entrepreneur merely stakes claim to the recognition of a newly established economic order, unrecognized beforehand. This is the reason with a capital R, Hayek discusses. True entrepreneurial activity is a humble and anonymous process. There is no fantasy of something new. It is a recognition of an economic, scientific, or social movement already in progress.
Thursday, May 10, 2007
A possible Hayekian solution to a likely pandemic
My prior post talked about the problem with the CDC or a central authority stock piling and determining the need or our country in case a pandemic arises. I thought of an idea using Hayek's principles that may be a possible solution.
Allow individual pharmacies the right throughout the country to stockpile their own store of antivirals. Then give pharmacies the right to sell "Call" options to companies, health insurers, or individuals that would give the option purchasers the right to buy from the stockpile at a given price for a period determined by the option's expiration date.
If a pandemic should arise, these individuals owning their Call options could exercise them and purchase the antivirals at the guaranteed price. Even more interesting, if an individual, company or insurer had excess Call options they could trade them in an open market.
As Hayek says, "the arbitrageur gains from local differences in [antiviral prices]". Local pharmacies and individuals can adjust their purchase "Call" options and antiviral stockpiles depending on their local need, dictated by local prices.
The premium generated by individual pharmacies from selling the options contracts could in turn support the cost of acquiring, storing, and replenishing the stock when it expires. They may even make a profit if they figure out a way to make the cost of this procedure less than the premium accrued.
My prediction is that this would lead to not only a more efficient distribution of antivirals in preparation for the pandemic, but also, a means for individuals and companies to profit from its anticipation, further driving the preparation.
Allow individual pharmacies the right throughout the country to stockpile their own store of antivirals. Then give pharmacies the right to sell "Call" options to companies, health insurers, or individuals that would give the option purchasers the right to buy from the stockpile at a given price for a period determined by the option's expiration date.
If a pandemic should arise, these individuals owning their Call options could exercise them and purchase the antivirals at the guaranteed price. Even more interesting, if an individual, company or insurer had excess Call options they could trade them in an open market.
As Hayek says, "the arbitrageur gains from local differences in [antiviral prices]". Local pharmacies and individuals can adjust their purchase "Call" options and antiviral stockpiles depending on their local need, dictated by local prices.
The premium generated by individual pharmacies from selling the options contracts could in turn support the cost of acquiring, storing, and replenishing the stock when it expires. They may even make a profit if they figure out a way to make the cost of this procedure less than the premium accrued.
My prediction is that this would lead to not only a more efficient distribution of antivirals in preparation for the pandemic, but also, a means for individuals and companies to profit from its anticipation, further driving the preparation.
Centralized authority preparing for our next influenza pandemic?
The CDC is preparing for our next influenza pandemic which our recent SARS scare gave us figures of a possibility of 1 and 8 deaths. According to Hayden F.G. (2001), we have available antiviral agents should a pandemic arise, which due to analysis of human historical frequency is due in our lifetime. So, the question is, can a central authority, like the CDC, adequately prepare us for the next influenza pandemic?
Put this question in economic terms: Can a central authority plan for the efficient distribution of resources? Can the CDC plan for the efficient distribution of antiviral agents? This depends on knowledge in totality of all the needs of the country in case of a flu pandemic.
According to Hayek in Use of Knowledge, "it is a problem of the utilization of knowledge which is not given to anyone in its totality." Hayek would worry that the CDC is planning the fate of our safety by determining the needs of antivirals in case a pandemic does arise. So would I.
Reference:
Hayden, F. G. (2001) “Perspectives on antiviral use duringpandemic influenzae” Philos. Trans. R. Soc. London B, Biol.Sci., 356 1877-84
Social Justice Abolishes Free Trade
Hayek writes in Social or Distributive Justice, "To assure the same material position to people who differ greatly in strength, intelligence, skill, knowledge and perseverance as well as in their physical and social environment, government would clearly have to treat them very differently to compensate for those disadvantages and deficiencies it could not directly alter."
Government's attempt to make everyone on the same level field would abolish the spontaneous aggregation of free trade arrangements. We all learned in economics about the one farmer who is more productive than another. He can produce meat and potatoes more than the other farmer. However, the less productive farmer can produce potatoes at a lower opportunity cost than the first farmer. As Hayek describes they "differ greatly in strength, intelligence, skill, knowledge and perseverance as well as in their physical and social environment".
If left alone they spontaneously choose to trade. The first farmer could specialize in meat and the second in producing just potatoes. Together they produce more meat and potatoes by trading and specializing than the sum of their individual production alone. Their differences in ability while one greater than the other were mutually beneficial. The differences in comparative advantage made them mutually attractive to create a spontaneous trade relationship.
Government's attempt to make everyone on the same level field would abolish the spontaneous aggregation of free trade arrangements. We all learned in economics about the one farmer who is more productive than another. He can produce meat and potatoes more than the other farmer. However, the less productive farmer can produce potatoes at a lower opportunity cost than the first farmer. As Hayek describes they "differ greatly in strength, intelligence, skill, knowledge and perseverance as well as in their physical and social environment".
If left alone they spontaneously choose to trade. The first farmer could specialize in meat and the second in producing just potatoes. Together they produce more meat and potatoes by trading and specializing than the sum of their individual production alone. Their differences in ability while one greater than the other were mutually beneficial. The differences in comparative advantage made them mutually attractive to create a spontaneous trade relationship.
The True Fuel of True Individualism
Paraphrasing Hayek in Individualism: True and False, "The individual pursing true order should expect objective results and payment for the results of his efforts rather than their subjective merits. The individual should bear the risk attached to that choice as well as the reward."
The fuel of spontaneous social order is that the individual efforts result in measurable rewards comensurate with the effort. Every individual is pursing the order for themselves. In a spontaneous social order these incentives are aligned such that the pursuit of one's self interest benefits the self-interest of another.
Hayek quotes Adam Smith as being a true individualist. Smith says, "It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest" (Wealth of Nations, p. 119). The order of markets is from the aligning of individual self-interests so that all players benefit from entering the game.
The fuel of spontaneous social order is that the individual efforts result in measurable rewards comensurate with the effort. Every individual is pursing the order for themselves. In a spontaneous social order these incentives are aligned such that the pursuit of one's self interest benefits the self-interest of another.
Hayek quotes Adam Smith as being a true individualist. Smith says, "It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest" (Wealth of Nations, p. 119). The order of markets is from the aligning of individual self-interests so that all players benefit from entering the game.
COSMOS AND TAXIS IN COUNTER-TERRORISM STRATEGIES
In a talk televised on cspan, May 7, 2005, Mr. Ganor talks about two different strategies for counter-terrorism. One strategy involves removing the terrorists' ability to strike by military means. Another involves addressing the incentives behind a terrorists desire to attack. The former is a short-term solution, while the latter is a long term solution. Mr. Ganor discussed that the men of impoverished families join radical islamic mosques in order to gain job training, food, and financial assistance for their families. In time they are converted into the radical islamic ideology leading to acts of terror.
I believe, the military solution is a taxis solution. It is the intention of a few to impose order on many through brute force. While successful possibly in the short term, the movement will reorganize itself. The long term solution is a cosmos solution. Address the economic disparities of the populations susceptible to recruitment. Allow them to reorganize toward constructive societal structures rather than destructive terrorist cells.
References:
Ganor, Boaz. "The Counter-Terrorism Puzzle". Center for Peace and Security Studies. Georgetown University. May 7, 2005. http://www.booktv.org
Ganor, Boaz; Interdisciplinary Center; International Policy Institute for Counter-Terrorism. The counter-terrorism puzzle : a guide for decision makers. New Brunswick, N.J.: Transaction Publishers; 2005.
I believe, the military solution is a taxis solution. It is the intention of a few to impose order on many through brute force. While successful possibly in the short term, the movement will reorganize itself. The long term solution is a cosmos solution. Address the economic disparities of the populations susceptible to recruitment. Allow them to reorganize toward constructive societal structures rather than destructive terrorist cells.
References:
Ganor, Boaz. "The Counter-Terrorism Puzzle". Center for Peace and Security Studies. Georgetown University. May 7, 2005. http://www.booktv.org
Ganor, Boaz; Interdisciplinary Center; International Policy Institute for Counter-Terrorism. The counter-terrorism puzzle : a guide for decision makers. New Brunswick, N.J.: Transaction Publishers; 2005.
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