We only have one planet to inhabit. If we destroy the environment, then humanity is essentially screwed. It's why it is of vital importance to make sure we have a sustainable environment. Yes, it's possible to be capitalist and environmentalist, which is why it's important to distinguish between good environmental policy and policy that is simply feel-good. I wonder if we run into such a situation when discussing energy efficiency. The idea behind making items energy efficient is that they are to reduce consumption, which saves on energy costs and carbon emissions. I have no inherent objections towards greater efficiency, and I'm not against saving the environment, but I do have to ask how wary we should be of energy efficiency mandates.
Before beginning, I would like to preface that I am not going to cover energy efficiency when it comes to automobiles. I covered CAFE standards a little under a year ago, and let's just say that I'm not a fan because they increase auto prices, do little to nothing to improve energy efficiency, and actually cost lives. Now, do other forms of energy efficiency have similar effects?
The paradox behind energy efficiency is what economists refer to as the rebound effect (see here for further detail). Essentially, the energy efficiency gains are offset by behavioral or systemic changes. For instance, there have been greater efficiencies in heating and air conditioning. However, the average house has also increased by 1,000 square feet in the last forty years. A similar argument can be made for lighting (Tsao and Saunders, 2012) in that greater lighting efficiencies have resulted in greater demand for lighting products. This is in part that people find new ways to use lighting, such as illuminating office ceilings with LED virtual skies. In Melbourne, Australia, energy consumption has remained remarkably stable over 50 years, even with energy efficiencies. Why? Because homes have become larger, these areas have been heated over longer periods of time, and fewer people live in each house (Palmer, 2012). Even Arik Levinson, who is a senior environmental economist at Georgetown University who used to work in the Obama administration, found that energy efficiency regulations in California did not translate into houses using less energy than prior to to enactment of its building energy codes.
A 2015 working paper from Sofie Miller, who is a Senior Policy Analyst at George Washington University, looked at the energy efficiency mandates from 2007 to 2014. She found that most of the benefits are private, economic benefits for the consumer. The annual environmental benefits were only $3 billion, whereas the annual regulatory costs were $8 billion. What this means is that the costs cannot be justified based on environmental benefit alone. Additionally, the economic benefits for the consumer are overestimated by the Department of Energy (Miller, p. 25). The fact that the DOE even admits that many appliances already meet the new standards, and many customers opt not to buy the energy efficient versions implies that based on customer preferences and purchasing decisions, customers value the private benefits less than the DOE. Depending on the extent to which the DOE has overestimated private benefits, it is very well possible that there is not a net economic benefit with mandating energy efficiency.
This is not automatically to say that energy efficiency is inherently awful. The benefits derived from energy efficiency depend on the extent of the rebound effect for each appliance or good, and can be considered dubious. It is a matter of whether the government should be mandating it. Since the government believes that it will generate social benefits related to carbon emissions, it is going to enact these mandates across the board, which would be erroneous given how little effect it has on climate change (Gayer and Viscusi, 2012). Let's also not forget that energy efficiency disproportionately affects the poor. Higher prices due to the energy efficient products leads many to hold onto older versions for longer.
And it's not just the possibility of rebound effect of its effects on the poor that bother me. Even if rebound effect is not prevalent (Gillingham et al., 2014), the idea behind current federal energy efficiency mandates makes two erroneous assumptions, the first being that everyone consumes energy the same way, especially in terms that energy efficiency is the only thing that matters (e.g., cost, product quality, warranty, are factored into consumer decisions). If it were the only thing that matters, then energy efficiency mandates would be superfluous at best. The second issue is that under a liberalized market, the incentive to aim for energy efficiency already exists. If a company can find a way to consume less and gain a better performance as a result, it consumes less dollars and drives up profit. Greater energy efficiency predated the Department of Energy's existence or the upshot in energy efficiency regulations, and it easier for companies to innovate when needless regulations are in the way. Much like with CAFE standards for automobiles, the goal at the end of the day should be to find ways to increase energy efficiency while minimizing rebound, not impeding progress. If we are interested in reducing pollution or carbon emissions, let's find other ways to go about it instead of giving ourselves an unmerited pat on the back for passing more energy efficiency mandates.
Monday, August 29, 2016
Friday, August 26, 2016
Insurance Companies Leaving Exchanges Makes Obamacare More Unsustainable
It wasn't bad enough when UnitedHealth Group announced earlier this year that it was leaving the Obamacare healthcare exchanges. Earlier this month, Aetna and Oscar joined the bandwagon of abandoning the health care exchanges. Proponents advocated for Obamacare as a way to improve the competition in the marketplace which offering more affordable healthcare. It was supposed to a panacea for the healthcare market, but we have seen that it has been anything but.
Should this really come as a shock? When looking at the exchanges earlier this year, I pointed out that high medical loss ratios would mean that it becomes more difficult for healthcare providers to make money, and Aetna continues to corroborate that notion. If providers are making a loss, it provides little, if any, incentive to stay in business. To deal with the lack of profit, insurance companies will either have to scale back services, continue to raise premiums, or leave the exchanges entirely. We are seeing a combination of all three taking place. Aetna and UnitedHealth Care are learning about self-induced adverse selection the hard way.
Part of the issue is that there are not enough younger and/or healthier individuals enrolling. As Left-leaning economist Dean Baker points out, "The people who are signing up on the exchanges are proving to be less healthy than the population as a whole." It's not as if this were an unpredictable outcome. I brought this up a couple years back, and it is no shock that incentivizing less healthier individuals to enroll while sticking healthier individuals with the bill ends up in disaster.
Since healthier individuals are less inclined to enroll, costs continue to rise while enrollment rates remain lower than initially predicted. This has been an issue from the onset, and continues to be an issue to this day. This is not simply a concern coming from the Right-leaning Heritage Foundation. The Kaiser Family Foundation is also finding that 2017 premiums are going to increase considerably. Obamacare premiums are going to continue to rise. It's as much as it is basic economics as it is observable reality. Healthcare cannot simultaneously be comprehensive, affordable, and accessible, yet its attempt at all three has done disservice to affordability, which in turn makes it more difficult for many to access healthcare. The incentives in the Obamacare system have made healthcare all the more unaffordable, and I would not astounded if more insurance providers abandoned Obamacare exchanges. Without an actual competitive marketplace that provides all individuals with the incentive to buy insurance, we'll just run into more of the same. When will we learn that we cannot regulate our way to prosperity? When, indeed?
Should this really come as a shock? When looking at the exchanges earlier this year, I pointed out that high medical loss ratios would mean that it becomes more difficult for healthcare providers to make money, and Aetna continues to corroborate that notion. If providers are making a loss, it provides little, if any, incentive to stay in business. To deal with the lack of profit, insurance companies will either have to scale back services, continue to raise premiums, or leave the exchanges entirely. We are seeing a combination of all three taking place. Aetna and UnitedHealth Care are learning about self-induced adverse selection the hard way.
Part of the issue is that there are not enough younger and/or healthier individuals enrolling. As Left-leaning economist Dean Baker points out, "The people who are signing up on the exchanges are proving to be less healthy than the population as a whole." It's not as if this were an unpredictable outcome. I brought this up a couple years back, and it is no shock that incentivizing less healthier individuals to enroll while sticking healthier individuals with the bill ends up in disaster.
Since healthier individuals are less inclined to enroll, costs continue to rise while enrollment rates remain lower than initially predicted. This has been an issue from the onset, and continues to be an issue to this day. This is not simply a concern coming from the Right-leaning Heritage Foundation. The Kaiser Family Foundation is also finding that 2017 premiums are going to increase considerably. Obamacare premiums are going to continue to rise. It's as much as it is basic economics as it is observable reality. Healthcare cannot simultaneously be comprehensive, affordable, and accessible, yet its attempt at all three has done disservice to affordability, which in turn makes it more difficult for many to access healthcare. The incentives in the Obamacare system have made healthcare all the more unaffordable, and I would not astounded if more insurance providers abandoned Obamacare exchanges. Without an actual competitive marketplace that provides all individuals with the incentive to buy insurance, we'll just run into more of the same. When will we learn that we cannot regulate our way to prosperity? When, indeed?
Monday, August 22, 2016
Adding The Matriarchs in the Amidah Prayer and Fixed Versus Spontaneous Jewish Prayer
It was recently when I was studying Mishneh Torah, Maimonides' legal magnum opus. We started on the chapter about prayers (Tefillah u'Birkat HaKohanim). In it, Maimonides starts off by saying that it's a positive Torah commandment to pray. Then he says that the number of prayers one is to say is not in the Torah, nor is the formula for prayer prescribed. Also, there is no fixed time for prayers. All of these ideas contradict what I know about Jewish prayer. Observant Jews pray three times a day. There are a fixed number of prayers with fixed wording. Maimonides seems to contradict himself later by talking about how prayer became fixed during the time of Ezra the Scribe, and how at least in the Amidah, the text is fixed, although we can add our own prayers during the middle fifteen blessings in the Amidah.
This got me thinking about the structure of prayer. If one contrasts the traditional form of Jewish prayer with many forms of Christian prayer, for instance, one would notice that the Christian version of prayer is much more free-form, and much less structured in comparison. Here are some of my own personal thoughts. I think we are seeing another example of how Maimonides presents two seemingly contrasting, but valid viewpoints. It might seem difficult at first to get past the contradiction, but it's more of a paradox that is saying that "there is a time for fixed prayer, and there is a time for unstructured prayer." Although it might not seem like it at times, there is a place for both within Judaism. Clearly, there is fixed prayer, but there is also unstructured prayer called hitbodedut (התבדדות).
Maimonides seems to be saying that in an ideal world, we can always communicate with G-d in the sense that we always know what to say and how to say it. However, we could be having a bad day or a day that is so exciting that it overwhelms the senses to be able to allow the verbal language for self-expression. Even on a "normal" day, finding adequately expressive words can be challenging. When one cannot find the words to say, there is always a text that one can fall back on to make sure that one can communicate with G-d.
On the other hand, too much rigidity can mean not being able to accurately express to G-d because the words might not convey what is stirring up in the soul. Treating prayer simply as a magic formula can become a mechanical, soulless, rote exercise. Sometimes, prayer needs to be more personalized so you feel invested in it. If not, prayer can get stale, and I can tell you, if you're saying the same Amidah three times a day, 365 days a year in the solar calendar, it can get stale. That can be problematic, especially since the Talmud states that one must direct one's heart to Heaven when praying (Berachot 31a). That is why there needs to be a proper balance between the two concepts, and why Maimonides allows for passages to be added to most blessings within the Amidah, as well as why there is still some structure: because he is recognizing that we both need structure and some free space to express our own individualism.
A follow-up question is how we deal with the Amidah. Both the Conservative and Reform movements have already altered the text of the Amidah. In the early 1990s, the Conservative movement released a responsum on whether it's possible to modify the Amidah, in this case, to include the Matriarchs alongside the Patriarchs. Even as an Orthodox Jew, I find for it to make for interesting reading, at least in part because it helps us answer the question about the extent to which prayer is an extension of ourselves, our desires, or what our souls yearn for (Spoiler: the short version of the Conservative responsum is that as the blessing mentions G-d ineffable name and His Kingship, the blessing is valid). I came across this point a few years back when I was struggling with the Jewish morning blessing of "thanking G-d for not making me a woman." Looking at the Jewish law on the flexibility of prayer, as well as the legal permissibility, I found it possible to modify the prayer somewhere along the lines of thanking G-d for creating me in His Image.
The more legalistic arguments notwithstanding, I feel that there is a non-legal argument to be made. I wouldn't be surprised if there are certain feminists out there who want to add the Matriarchs to "stick it to the man." However, both men and women are created in G-d's Image, so no sense in pitting one against another. If we want to express gratitude for all that the Matriarchs did, then I do not see an issue. Much like the Patriarchs, the Matriarchs made positive contributions to their families and communities. And this doesn't even get into just how non-uniform prayer books were before the invention of the printing press.
It's one thing for Conservative liturgy to change. It's a whole different question of whether Orthodox liturgy will change. Even with a history of liturgy being added or modified, I find the probability dubious mainly because of sociological norms. Regardless of whether Orthodox publishers start adding the Matriarchs into the Amidah or even decide to modify other prayers (e.g., much like when they added in the prayer for the State of Israel), it still brings us back to the tension between fixed and spontaneous prayer. Prayer without structure might leave some thoughts unexpressed or have us confront less thoughts than we would have otherwise. Prayer can be considered incomplete without structure. On the other hand, the high level of rigidity can leave us with a lack of expressiveness that defeats the purpose of prayer. Maimonides teaches us the importance of balance. May we find that sense of balance in all our prayers so that we may become closer to G-d!
This got me thinking about the structure of prayer. If one contrasts the traditional form of Jewish prayer with many forms of Christian prayer, for instance, one would notice that the Christian version of prayer is much more free-form, and much less structured in comparison. Here are some of my own personal thoughts. I think we are seeing another example of how Maimonides presents two seemingly contrasting, but valid viewpoints. It might seem difficult at first to get past the contradiction, but it's more of a paradox that is saying that "there is a time for fixed prayer, and there is a time for unstructured prayer." Although it might not seem like it at times, there is a place for both within Judaism. Clearly, there is fixed prayer, but there is also unstructured prayer called hitbodedut (התבדדות).
Maimonides seems to be saying that in an ideal world, we can always communicate with G-d in the sense that we always know what to say and how to say it. However, we could be having a bad day or a day that is so exciting that it overwhelms the senses to be able to allow the verbal language for self-expression. Even on a "normal" day, finding adequately expressive words can be challenging. When one cannot find the words to say, there is always a text that one can fall back on to make sure that one can communicate with G-d.
On the other hand, too much rigidity can mean not being able to accurately express to G-d because the words might not convey what is stirring up in the soul. Treating prayer simply as a magic formula can become a mechanical, soulless, rote exercise. Sometimes, prayer needs to be more personalized so you feel invested in it. If not, prayer can get stale, and I can tell you, if you're saying the same Amidah three times a day, 365 days a year in the solar calendar, it can get stale. That can be problematic, especially since the Talmud states that one must direct one's heart to Heaven when praying (Berachot 31a). That is why there needs to be a proper balance between the two concepts, and why Maimonides allows for passages to be added to most blessings within the Amidah, as well as why there is still some structure: because he is recognizing that we both need structure and some free space to express our own individualism.
A follow-up question is how we deal with the Amidah. Both the Conservative and Reform movements have already altered the text of the Amidah. In the early 1990s, the Conservative movement released a responsum on whether it's possible to modify the Amidah, in this case, to include the Matriarchs alongside the Patriarchs. Even as an Orthodox Jew, I find for it to make for interesting reading, at least in part because it helps us answer the question about the extent to which prayer is an extension of ourselves, our desires, or what our souls yearn for (Spoiler: the short version of the Conservative responsum is that as the blessing mentions G-d ineffable name and His Kingship, the blessing is valid). I came across this point a few years back when I was struggling with the Jewish morning blessing of "thanking G-d for not making me a woman." Looking at the Jewish law on the flexibility of prayer, as well as the legal permissibility, I found it possible to modify the prayer somewhere along the lines of thanking G-d for creating me in His Image.
The more legalistic arguments notwithstanding, I feel that there is a non-legal argument to be made. I wouldn't be surprised if there are certain feminists out there who want to add the Matriarchs to "stick it to the man." However, both men and women are created in G-d's Image, so no sense in pitting one against another. If we want to express gratitude for all that the Matriarchs did, then I do not see an issue. Much like the Patriarchs, the Matriarchs made positive contributions to their families and communities. And this doesn't even get into just how non-uniform prayer books were before the invention of the printing press.
It's one thing for Conservative liturgy to change. It's a whole different question of whether Orthodox liturgy will change. Even with a history of liturgy being added or modified, I find the probability dubious mainly because of sociological norms. Regardless of whether Orthodox publishers start adding the Matriarchs into the Amidah or even decide to modify other prayers (e.g., much like when they added in the prayer for the State of Israel), it still brings us back to the tension between fixed and spontaneous prayer. Prayer without structure might leave some thoughts unexpressed or have us confront less thoughts than we would have otherwise. Prayer can be considered incomplete without structure. On the other hand, the high level of rigidity can leave us with a lack of expressiveness that defeats the purpose of prayer. Maimonides teaches us the importance of balance. May we find that sense of balance in all our prayers so that we may become closer to G-d!
Monday, August 15, 2016
Why It Should Be Lights Out on Teen Curfew Laws
Curfews have existed since the ninth century. By the time we reached the middle of the twentieth century, many cities in the United States instituted youth curfew laws, and became even more popular during the Clinton administration. The main reason for these teen curfew laws is safety. Teen curfew laws are supposed to deter disorderly behavior, such as vandalism, shootings, and property crime. However, they come with their drawbacks. For one, the laws are unenforceable. Even if they were enforceable, would we want the government trying to verify the whereabouts and age of every juvenile out on curfew? Curfew laws don't just limit juveniles, but also parents' rights the government is telling parents that they know what's best for their children. Sure, if we keep teenagers locked at home, the probability of being stolen from, kidnapped, robbed, or even committing crimes is infinitesimally small. However, if we want child security to be above all else, we should just mandate permanent house arrest. Even if we aren't willing to go that far, there is still the issue of giving up liberty for security. And here's an equally important question: do these curfew laws even work? While the research on this topic seems to be limited, the short answer to this questions is "not so much."
- A 2003 meta-study found that juvenile crime and victimization remains unchanged after the implementation of curfew laws, as did a 2016 study (Wilson et al., 2016).
- Five years ago, Politifact found that these curfew laws are not effective because the curfew laws presuppose that all teens are equally likely to commit a crime, i.e., it's a poorly targeted policy.
- An 18-year analysis of 21 cities in California found that the curfew laws are ineffective or worse (Males and Maccalair, 1999).
- A study that was supposed to affirm that curfew laws work inadvertently found that criminal arrests of teenagers fell more quickly across the country than they did in cities that enforce their curfew laws (Kline, 2011).
- A 2012 meta-study found that teen curfew laws do not have any positive effect on decreasing crime and increasing public safety (Adams, 2012).
- A working paper found that curfew laws actually increase gun incidents (Carr and Doleac, 2015).
As the Brookings Institution brought up in an article last year, the evidence in favor of these curfew laws is lacking. At best, there is no measurable, positive effect on juvenile crime, which means that there is no real reason to keep these laws on the book. Let's repeal these laws. If we want to address juvenile crime, let's find targeted policies that can actually lower crime rates instead of rallying around feel-good policy.
Friday, August 12, 2016
Tisha B'Av Mincha: Transitioning from Mourning to Recovery
During the Three Weeks period, the Jews undergo a period of mourning the fallings of the First and Second Temples. The Three Weeks period starts with a fast, which leads to mourning practices. Those practices intensify during the beginning of the Jewish month of Av. The Three Weeks period reaches its climax during Tisha B'Av, the annual fast day that commemorates the anniversary of many tragedies that have befallen the Jewish people. It is the saddest day on the Jewish calendar that involves six main prohibitions: eating or drinking; washing or bathing; application of creams or oils; wearing leather shoes; sexual relations; Torah study.
What is particularly interesting is the progression of the day. We start of by wallowing in misery about all of the catastrophes that have befallen the Jewish people. The Scroll of Lamentations is read in the evening. There are special elegies (קינות), dirges rather, that are read in morning services. However, as the day continues, the mourning practices start to let up. We put on tefillin and the tallit during Mincha, as well as hear Torah and Haftarah portions that mention G-d's Thirteen Attributes of Mercy. At the end of Tisha B'Av, we are not only permitted to eat again, but it is tradition to say Kiddush Levanah. The practices of Tisha B'Av seem to suggest something about how to deal with loss and tragedy.
During Yom Kippur services, we learn that we can only metaphorically beat ourselves up so much. Tisha B'Av recognizes a similar limitation of the fragile human soul. We can only mourn so much. If we wallowed for days, it would probably be an overload. The Torah and Haftarah portions remind us that even when angry, G-d still is a merciful G-d. Even when we are at our lowest, G-d reminds us that all is not lost. In the Mishneh Torah (Ta'aniyot 5:3), Maimonides quotes Micah 3:12, which says "Zion will be plowed like a field." Yes, the Temple was destroyed, but a field that is plowed is plowed in order to make way for new crops. I won't go as far as to put it in the public policy parlance of creative destruction, but I will say that letting up on the entire day of mourning shows mourning. Instead of despair, we can move onto consolation. From that consolation, we can begin to pick ourselves up. When faced with any tragedy or catastrophe, it is easy to stay stuck in the past. The mercy shown in these leniences is meant to give us the opportunity to get up and start anew, much like a phoenix that emerges from the ashes.
When tragedy strikes, we have to remember that once it does strike, it has already happened. As much as we wish it would not happen, it did. Our reaction to tragedy is a turning point. Some of our most important lessons come from failure or tragedy. Do we remain captive by the past? Or do we simultaneously recognize the tragedy that happened while remembering that there is, as Maimonides reminds us, a future where there can be growth and a way to grow anew? We're never the same after tragedy, but we're not destined to fail, either. Tisha B'Av is the emotional low point in which we are meant to spiritually lift ourselves up and gradually prepare for the upcoming weeks leading to the High Holy Days. Yes, tragedy strikes, but how we move forward is up to us.
What is particularly interesting is the progression of the day. We start of by wallowing in misery about all of the catastrophes that have befallen the Jewish people. The Scroll of Lamentations is read in the evening. There are special elegies (קינות), dirges rather, that are read in morning services. However, as the day continues, the mourning practices start to let up. We put on tefillin and the tallit during Mincha, as well as hear Torah and Haftarah portions that mention G-d's Thirteen Attributes of Mercy. At the end of Tisha B'Av, we are not only permitted to eat again, but it is tradition to say Kiddush Levanah. The practices of Tisha B'Av seem to suggest something about how to deal with loss and tragedy.
During Yom Kippur services, we learn that we can only metaphorically beat ourselves up so much. Tisha B'Av recognizes a similar limitation of the fragile human soul. We can only mourn so much. If we wallowed for days, it would probably be an overload. The Torah and Haftarah portions remind us that even when angry, G-d still is a merciful G-d. Even when we are at our lowest, G-d reminds us that all is not lost. In the Mishneh Torah (Ta'aniyot 5:3), Maimonides quotes Micah 3:12, which says "Zion will be plowed like a field." Yes, the Temple was destroyed, but a field that is plowed is plowed in order to make way for new crops. I won't go as far as to put it in the public policy parlance of creative destruction, but I will say that letting up on the entire day of mourning shows mourning. Instead of despair, we can move onto consolation. From that consolation, we can begin to pick ourselves up. When faced with any tragedy or catastrophe, it is easy to stay stuck in the past. The mercy shown in these leniences is meant to give us the opportunity to get up and start anew, much like a phoenix that emerges from the ashes.
When tragedy strikes, we have to remember that once it does strike, it has already happened. As much as we wish it would not happen, it did. Our reaction to tragedy is a turning point. Some of our most important lessons come from failure or tragedy. Do we remain captive by the past? Or do we simultaneously recognize the tragedy that happened while remembering that there is, as Maimonides reminds us, a future where there can be growth and a way to grow anew? We're never the same after tragedy, but we're not destined to fail, either. Tisha B'Av is the emotional low point in which we are meant to spiritually lift ourselves up and gradually prepare for the upcoming weeks leading to the High Holy Days. Yes, tragedy strikes, but how we move forward is up to us.
Monday, August 8, 2016
Abenomics and Further Descent Into Japanese Economic Dispair
Since the Japanese asset price bubble popped in the early 1990s, Japan has been marred with economic sluggishness and recessions. Although elected as Japan's Prime Minister for 2006-2007, Shinzo Abe was re-elected as Prime Minister back in December 2012, and has been in power ever since. In January 2013, Abe addressed the National Diet, which is the legislative branch, and said that economic revival is the greatest issue facing Japan. Abe's economic plan, which has been dubbed with the portmanteau of Abenomics, comes with "three arrows": monetary policy, fiscal policy, and structural reform.
Monetary policy came with the easing of monetary policy with the goal of 2 percent inflation. This easing included an unprecedented level of quantitative easing, and as of early 2016, negative interest rates. Fiscal policy consisted of a fiscal stimulus with economic recovery measures of 20.2 trillion yen ($210B USD), 10.3 trillion yen ($110B USD) of which was a direct government stimulus package for public works and priming smaller businesses. The third arrow is a bit more complex because of the hodgepodge of initiatives in the third arrow. Although it initially focused more on the Trans-Pacific Partnership, the third arrow included the liberalization of the agricultural sector, promoting women's participation in the labor market, measures to aid entrepreneurs via deregulation, overhauling healthcare regulations, and a modest cut in the corporate tax.
This mishmash of Keynesian stimulus with market deregulation has met up with its fair share of criticism over the past three years, and begs the question of whether Abenomics has brought the economic revival Abe was expecting. The International Monetary Fund (IMF) released a report on Japan's economic progress last week, and it was not particularly flattering: "While Abenomics made initial headway in boosting expectations and revitalizing the Japanese economy, structural impediments and policy shortfalls, especially not the structural side, are making it difficult to achieve a sustained lift off." As to whether or not Abenomics has been successful in the short-run, we play the statistics game and look through economic statistics to discern short-term success (see IMF figures below).
With a declining savings rate, maturing debt obligations, falling consumer prices, and an aging population, Japan has more than its fair share of problems if Abenomics is to actually be successful. As stated by the Council of Foreign Affairs, "Confidence [in the Japanese economy] must rest on something more substantive than inflation: meaningful structural reforms to reverse Japanese companies' lagging competitiveness." This is confirmed not only by the previously cited IMF and Brookings Institution research, but also by the Asian Development Bank Institute, which showed even with Keynesian theory, Japan is stuck in a liquidity trap, at which point monetary policy is ineffective (Yoshino and Taghizadeh-Hesary, 2015, p. 8-9). As the Brookings Institution pointed out, Abe's problem is that he put way too much emphasis on monetary easing and fiscal stimulus, and hardly any on the deep structural reforms of that "third arrow" that are needed (see Chamber of Commerce recommendations here), which is what the OECD postulated in its Economic Outlook on Japan earlier this year. Whatever Japan ultimately decides to implement, it needs to be as bold and impactful as the Meiji Restoration in the nineteenth century. Without something more drastic, Japan will continue to sink into an economic abyss.
For one, Japan needs to get past its ethnocentrism and bring in more immigrants. Otherwise, it cannot sustain its population with its current marriage rates, birth rates, and life expectancy. Passing the Trans-Pacific Partnership is also important, as the IMF predicts that it would grow the GDP by 2-3 percent in the long-run (IMF, p. 7). Japanese companies also need to integrate its operations into the greater global economy so it can speed up the economy. Lowering the punitively high corporate tax rate can allow for greater foreign direct investment. Lowering the VAT would also create greater consumer confidence. Japan should modify its bankruptcy laws to shrink corporate cash holdings so that those holdings can be invested in the Japanese economy. Fiscal consolidation and special economic zones would be other alternatives. Whatever structural reform that Abe does end up taking, it needs to be bolder than what he has done so far.
Monetary policy came with the easing of monetary policy with the goal of 2 percent inflation. This easing included an unprecedented level of quantitative easing, and as of early 2016, negative interest rates. Fiscal policy consisted of a fiscal stimulus with economic recovery measures of 20.2 trillion yen ($210B USD), 10.3 trillion yen ($110B USD) of which was a direct government stimulus package for public works and priming smaller businesses. The third arrow is a bit more complex because of the hodgepodge of initiatives in the third arrow. Although it initially focused more on the Trans-Pacific Partnership, the third arrow included the liberalization of the agricultural sector, promoting women's participation in the labor market, measures to aid entrepreneurs via deregulation, overhauling healthcare regulations, and a modest cut in the corporate tax.
This mishmash of Keynesian stimulus with market deregulation has met up with its fair share of criticism over the past three years, and begs the question of whether Abenomics has brought the economic revival Abe was expecting. The International Monetary Fund (IMF) released a report on Japan's economic progress last week, and it was not particularly flattering: "While Abenomics made initial headway in boosting expectations and revitalizing the Japanese economy, structural impediments and policy shortfalls, especially not the structural side, are making it difficult to achieve a sustained lift off." As to whether or not Abenomics has been successful in the short-run, we play the statistics game and look through economic statistics to discern short-term success (see IMF figures below).
- Debt and GDP Growth. The past two years of real GDP growth have been at an anemic 0.25 percent (see quarterly GDP figures). The reason for this was instead of investing the stimulus money in creating jobs, companies tended to stash it in corporate cash holdings. This doesn't compare to what Japan has been raking up in debt in recent history. In terms of debt as a percent of GDP, Japan continues to wade in further disastrous territory. In 1980, Japan only had a debt-to-GDP ratio of 50 percent. With stimulus packages it has been enacting since the 1990s to deal with that initial asset bubble burst, debt-to-GDP ratio has more than quadrupled to 248 percent. The IMF predicts that it will reach 280 percent by 2030 (p. 48).
- Stock Market: If we need more proof, look at the Nikkei 225, which is Japan's stock market index. In 1990, the Nikkei 225 reached a high of 38,712. Now, it hovers slightly higher than 16,000.
- Tax Burden: Tax rates in Japan were already high, and are getting higher. At the beginning of 2015, Japan increased its marginal income tax rate from 40 to 45 percent. Having one of the highest statutory corporate tax rates in the developed world doesn't help. Although they are cutting the corporate tax rate to 29.97 percent, a high corporate tax rate like that still adversely affects the economy. In 2014, Japan greatly increased its value-added tax (VAT) from 5 to 8 percent. The Japanese government is looking to increase it to 10 percent in 2017, although that will probably have to wait until 2019. The VAT has adversely affected consumption in Japan (ibid., p. 5), which can further be illustrated with Japan's consumer price index. Even with higher taxes, Japan has not been able to collect beyond 13 percent of the GDP (World Bank).
- Monetary Policy: The U.S. Federal Reserve recognized that quantitative easing might have helped Japan avoid deflation, but did not do nearly enough to meet inflationary target goals (De Michelis and Iacovellio, 2016). While the Brookings Institution was initially happy with Abenomic's results, it since changed its tune in October 2015, when it found that the monetary policy [of quantitative easing] had no visible effects (Hausman and Wieland, 2015, p. 2). If we need more proof, take a look at the inflation rates. Per the annual IMF data above, there was some success with meeting inflation targets. However, looking at the monthly breakdown, those figures were most probably brought about by the outliers right around when the VAT was increased in April 2014.
- Currency Appreciation. Negative interest rates have been a relatively untested form of monetary policy. The reason for implementing the negative interest rates and the quantitative easing is to depreciate the yen, which in turn, makes the yen more attractive relative to other currencies. These more attractive rates make purchasing Japanese assets more likely, hence boosting the economy. What Japan has ironically received is an appreciating yen, which not makes these assets less attractive to purchase, but also makes yet another recession more likely.
- Lower Unemployment Rate. Japan not only has an unemployment rate of about 3 percent, but it has an increasingly high labor force participation rate of about 76 percent, which is higher than the United States. While this is certainly preferable to mass unemployment, it hides another issue in play in addition to the high rate of part-time work: demographics.
- Demographic Considerations: Part of why Japan is able to keep such pristine employment statistics is because of the aging populations. Japan is experiencing a contracting workforce, and is expected to lose more than a third of its population over the next fifty years. Look at the United Nations 2015 demographic figures for dependency ratios, particularly with the old-age dependency ratio (p. 411). By 2050, the old-age dependency ratio will be at an alarmingly high rate of about 70 percent, which signals an incapability of Japanese to be able to support their elderly in the future. While Abe is trying to focus on policies targeted at increasing the birth rate, there is still a question of whether Abenomics can alter this demographic decline.
With a declining savings rate, maturing debt obligations, falling consumer prices, and an aging population, Japan has more than its fair share of problems if Abenomics is to actually be successful. As stated by the Council of Foreign Affairs, "Confidence [in the Japanese economy] must rest on something more substantive than inflation: meaningful structural reforms to reverse Japanese companies' lagging competitiveness." This is confirmed not only by the previously cited IMF and Brookings Institution research, but also by the Asian Development Bank Institute, which showed even with Keynesian theory, Japan is stuck in a liquidity trap, at which point monetary policy is ineffective (Yoshino and Taghizadeh-Hesary, 2015, p. 8-9). As the Brookings Institution pointed out, Abe's problem is that he put way too much emphasis on monetary easing and fiscal stimulus, and hardly any on the deep structural reforms of that "third arrow" that are needed (see Chamber of Commerce recommendations here), which is what the OECD postulated in its Economic Outlook on Japan earlier this year. Whatever Japan ultimately decides to implement, it needs to be as bold and impactful as the Meiji Restoration in the nineteenth century. Without something more drastic, Japan will continue to sink into an economic abyss.
For one, Japan needs to get past its ethnocentrism and bring in more immigrants. Otherwise, it cannot sustain its population with its current marriage rates, birth rates, and life expectancy. Passing the Trans-Pacific Partnership is also important, as the IMF predicts that it would grow the GDP by 2-3 percent in the long-run (IMF, p. 7). Japanese companies also need to integrate its operations into the greater global economy so it can speed up the economy. Lowering the punitively high corporate tax rate can allow for greater foreign direct investment. Lowering the VAT would also create greater consumer confidence. Japan should modify its bankruptcy laws to shrink corporate cash holdings so that those holdings can be invested in the Japanese economy. Fiscal consolidation and special economic zones would be other alternatives. Whatever structural reform that Abe does end up taking, it needs to be bolder than what he has done so far.
Thursday, August 4, 2016
Parsha Masei: Is Settling in the Land of Israel an Actual Mitzvah?
From the sound of it, Jews are moving to Israel, or making aliyah, in droves. The Jewish Agency claims that 30,000 Jews made aliyah in 2015 (see here for World Bank migration data). Since the creation of the modern nation-state of Israel in 1948, Israel has been a focal point of Jewish identity. Even with the anti-semitism in France and the Ukraine helping maintain aliyah numbers, many in the Diaspora feel comfortable living in the Diaspora. There are pros and cons about making a move all the way to Israel, but I was wondering about religious arguments about living in Israel. Since the destruction of the Second Temple in 70 C.E., Jews have had to deal with exile. The vast majority of Jews did not live in the land of Israel for centuries. Modern-day Zionism was formed in the late nineteenth-century, and was predominantly secular in nature. While there were some Orthodox figures that were Zionist when Zionism began, it really didn't start to take off in religious circles until the 1950s. Although many Jews throughout history did not have the option of living in the land of Israel, those of us in modern-day times have the option of moving to Israel. The question here is whether Jewish law mandates that a Jew live in the land of Israel (ישוב ארץ ישראל).
The biblical text from which one commonly derives a sense of obligation to live in the land of Israel is in this week's Torah portion:
והרשתם את הארץ וישבתם בה. כי לכם נתתי את הארץ לרשת אתה
And you shall drive out the inhabitants of the land, and dwell therein; for unto you, have I given the land to possess it. -Numbers 33:53
With the centrality of the land of Israel in Jewish tradition, one would expect an unambiguous mitzvah to live in Israel. However, as we will see shortly, that is hardly the case. Ramban (Nachmanides) argues that "the fourth mitzvah that we were commanded [is] to conquer the land that G-d gave to Abraham, Isaac, and Jacob, and not to abandon it to the hands of other nations or to emptiness." He uses the Talmud, Ketubot 110b, which states it is better to live in the land of Israel in a town surrounded by non-Jews than it is to live in the Diaspora. This Talmudic passage even goes as far to say that living in the Diaspora is as if one worships idols. The words of Ramban can also be supported by the Midrash Sifre, Re'eh 80, which states that dwelling in the land of Israel is equal to performing all the commandments in Torah.
Rambam (Maimonides), on the other hand, does not even include living in the land of Israel in his list of 613 mitzvahs. His view is enigmatic. On the one hand, he says that it is permitted to live anywhere in the world (Mishneh Torah, Melachim 5:7), except Egypt. On the other hand, he states that it is preferable to live in Israel (ibid., 5:12), and that living outside of the land of Israel is not considered pious (ibid., 5:9). For Rambam, there is enough in his worldview that has a yearning to live in the land. Even so, he did not force that obligation through his codifications. Why Rambam didn't add it to the list seems to be the technicality that it is subsumed in the commandment to conquer the land. But again, Rambam does state that it is permitted to live outside the land of Israel. Also, Maimonides himself visited Israel in 1165, but did not remain in Israel. Actions speak louder than words, which should tell us how Rambam really felt about living in Israel being a mitzvah.
In his text Megilat Esther, R. Issac de Leon defends Rambam's stance by arguing that the obligation only can exist in Messianic times. However, many reject de Leon's argument, one reason being that Rambam enumerates laws about the sacrificial system, even though they are not currently in play.
Even with that caveat, R. de Leon brings a number of arguments to the table, including that of the Tosafot in Ketubot 110b. Tosafot cites two reasons why the mitzvah does not apply in his times. One is that the journey and subsequent life in Israel are full of danger. The second reason, quoting R. Chaim HaKohen, is that it is not possible to fulfill the agricultural commandments connected to Israel (mitzvot ha'teluyot ba'aretz) because of the poverty and other difficulties as a result of moving. It might seem that the argument of the Tosafot is no longer relevant. On the other hand, if moving to Israel would cause considerable financial hardship, especially given Israel's high cost of living, then perhaps the Tosafot still have a point. R. de Leon also brings the Talmudic passage of the Three Oaths, which is still used by certain ultra-Orthodox Jews that we should not enter the land until the Messiah shows up. This point is upheld by Ketubot 111a, which uses Jeremiah 22:27 to point out that G-d needs to be instrumental in bringing the Jewish people back to Israel. Religious Zionists counter by saying that the oaths are indeed being fulfilled, which is why it is acceptable to make aliyah prior to the Messianic Era.
What is more interesting is the opinion of R. Moshe Feinstein on the matter, with which R. Josef Dov Soltoveitchik agreed. When asked whether it was an obligation, he argues that while there exists a biblical mitzvah, the nature of the mitzvah to settle the land of Israel is different than other mitzvahs. For R. Feinstein, if one does move to Israel, he does fulfill an optional mitzvah (mitzvah kiyumit), although one does not have an obligation to move Israel (mitzvah chiyuvit). Think of it being like in school: you don't get a lower grade in class for not doing it, but if you do it, you get extra credit. Additionally, two other medieval rabbis echoed this viewpoint. R. Israel Isserlein thought that while it was praiseworthy to live in Israel, each individual should assess their own situation to determine whether to move. R. Meir of Rothenburg thought that while making aliyah is not a mitzvah, anyone who moves to Israel for the sake of Heaven and conducts their life in holiness and purity will experience considerable reward in the afterlife.
Having settling the land as an obligation brings about one other qualm. For most of history, Jews did not live in the land of Israel. If it were truly obligatory, then the vast majority of Jews have been living in sin, and I find that to be problematic. This is why I look at the laws, and agree with Maimonides and R. Moshe Feinstein. There is a compelling religious case for it to be considered preferable, even though the extent of its application is disagreed upon by rabbinic authorities. Nevertheless, it is not an obligation to live in Israel. There are a number of Jews, many of whom are religious, who do not presently live in the land of Israel.
For those of us who opt not to live in the land, we need to figure out how to still make the mitzvah have some relevance. Traveling to Israel is one way. The Magen Avraham argued that visiting Israel is a partial fulfillment of the mitzvah, and he based this on the Gemara (Ketubot 111a) that says that one who even walks steps four cubits in Israel attains atonement for one's sins. There is also the option of buying real estate in Israel. Although not a fulfillment of the letter of the law, giving money to Israel, buying Israeli agricultural products, getting involved with a Zionist organization, praying for the State of Israel, or helping others make aliyah would be in the spirit of the law. In an even more general sense, the Lubavitcher Rebbe maintained that for those of us Jews living in the Diaspora, if you are making a positive difference with your Jewishness, you have a purpose of elevating and revealing holy sparks that exist, thereby engendering the holiness of Israel throughout the world. Regardless if a Jew decides to live in or outside of Israel, there is no doubt that the land of Israel plays a vital role in the context of the Jewish religion.
Rambam (Maimonides), on the other hand, does not even include living in the land of Israel in his list of 613 mitzvahs. His view is enigmatic. On the one hand, he says that it is permitted to live anywhere in the world (Mishneh Torah, Melachim 5:7), except Egypt. On the other hand, he states that it is preferable to live in Israel (ibid., 5:12), and that living outside of the land of Israel is not considered pious (ibid., 5:9). For Rambam, there is enough in his worldview that has a yearning to live in the land. Even so, he did not force that obligation through his codifications. Why Rambam didn't add it to the list seems to be the technicality that it is subsumed in the commandment to conquer the land. But again, Rambam does state that it is permitted to live outside the land of Israel. Also, Maimonides himself visited Israel in 1165, but did not remain in Israel. Actions speak louder than words, which should tell us how Rambam really felt about living in Israel being a mitzvah.
In his text Megilat Esther, R. Issac de Leon defends Rambam's stance by arguing that the obligation only can exist in Messianic times. However, many reject de Leon's argument, one reason being that Rambam enumerates laws about the sacrificial system, even though they are not currently in play.
Even with that caveat, R. de Leon brings a number of arguments to the table, including that of the Tosafot in Ketubot 110b. Tosafot cites two reasons why the mitzvah does not apply in his times. One is that the journey and subsequent life in Israel are full of danger. The second reason, quoting R. Chaim HaKohen, is that it is not possible to fulfill the agricultural commandments connected to Israel (mitzvot ha'teluyot ba'aretz) because of the poverty and other difficulties as a result of moving. It might seem that the argument of the Tosafot is no longer relevant. On the other hand, if moving to Israel would cause considerable financial hardship, especially given Israel's high cost of living, then perhaps the Tosafot still have a point. R. de Leon also brings the Talmudic passage of the Three Oaths, which is still used by certain ultra-Orthodox Jews that we should not enter the land until the Messiah shows up. This point is upheld by Ketubot 111a, which uses Jeremiah 22:27 to point out that G-d needs to be instrumental in bringing the Jewish people back to Israel. Religious Zionists counter by saying that the oaths are indeed being fulfilled, which is why it is acceptable to make aliyah prior to the Messianic Era.
What is more interesting is the opinion of R. Moshe Feinstein on the matter, with which R. Josef Dov Soltoveitchik agreed. When asked whether it was an obligation, he argues that while there exists a biblical mitzvah, the nature of the mitzvah to settle the land of Israel is different than other mitzvahs. For R. Feinstein, if one does move to Israel, he does fulfill an optional mitzvah (mitzvah kiyumit), although one does not have an obligation to move Israel (mitzvah chiyuvit). Think of it being like in school: you don't get a lower grade in class for not doing it, but if you do it, you get extra credit. Additionally, two other medieval rabbis echoed this viewpoint. R. Israel Isserlein thought that while it was praiseworthy to live in Israel, each individual should assess their own situation to determine whether to move. R. Meir of Rothenburg thought that while making aliyah is not a mitzvah, anyone who moves to Israel for the sake of Heaven and conducts their life in holiness and purity will experience considerable reward in the afterlife.
Having settling the land as an obligation brings about one other qualm. For most of history, Jews did not live in the land of Israel. If it were truly obligatory, then the vast majority of Jews have been living in sin, and I find that to be problematic. This is why I look at the laws, and agree with Maimonides and R. Moshe Feinstein. There is a compelling religious case for it to be considered preferable, even though the extent of its application is disagreed upon by rabbinic authorities. Nevertheless, it is not an obligation to live in Israel. There are a number of Jews, many of whom are religious, who do not presently live in the land of Israel.
For those of us who opt not to live in the land, we need to figure out how to still make the mitzvah have some relevance. Traveling to Israel is one way. The Magen Avraham argued that visiting Israel is a partial fulfillment of the mitzvah, and he based this on the Gemara (Ketubot 111a) that says that one who even walks steps four cubits in Israel attains atonement for one's sins. There is also the option of buying real estate in Israel. Although not a fulfillment of the letter of the law, giving money to Israel, buying Israeli agricultural products, getting involved with a Zionist organization, praying for the State of Israel, or helping others make aliyah would be in the spirit of the law. In an even more general sense, the Lubavitcher Rebbe maintained that for those of us Jews living in the Diaspora, if you are making a positive difference with your Jewishness, you have a purpose of elevating and revealing holy sparks that exist, thereby engendering the holiness of Israel throughout the world. Regardless if a Jew decides to live in or outside of Israel, there is no doubt that the land of Israel plays a vital role in the context of the Jewish religion.
Monday, August 1, 2016
Healthcare Price Transparency Isn't Enough to Drive Down Medical Costs
One of my bigger criticisms of Obamacare has been that it drives up healthcare prices by design. Obamacare is a subsidy for demand, and without addressing supply, prices are bound to go up. That is the economic theory, but also what has happened with healthcare prices (see here and here), and that is what is expected to happen with prices in the foreseeable future. Here we were supposed to have the so-called "Affordable" Care Act, and healthcare has become less affordable. Something needs to be done to contain price amidst the mess. One idea that has been popular for quite some time with those who are labeled "free-marketers" is that of healthcare price transparency. Even when I first started blogging in 2009, I thought that healthcare price transparency was a good idea. What makes it an easier sell is that there is a demand for such transparency. However, I read this article that the Brookings Institution wrote last week, and I had to start questioning that assumption. What happened?
The idea behind healthcare transparency is the following, and it is something I explained when writing about why price gouging is actually a good thing. Prices are not just arbitrary numbers. In a free or liberalized market, they signal supply and demand. In the case of healthcare, procedures that require highly-trained specialists or rarer and/or more high-quality equipment are going to be more expensive than a pap smear or an office visit with a generalist. If a consumer is able to compare prices across practices in the area, state, or country, a consumer is more savvy and well-informed to make a decision that best suits their financial situation. This transparency leads to doctors better competing for patients, thereby further driving down prices, or so goes the argument. Normally, I would accept the argument because that is how it works in just about any other market. However, the healthcare market is not like any market, which is all the scarier considering that as of 2014, healthcare accounted for 17.5 percent of the U.S.' GDP.
Unlike most markets, prices in the healthcare industry do not reflect supply and demand, largely because of government intervention and third-party payment systems are in place, and do not help contain prices. Medicare and Medicaid have become a strong enough force in the healthcare market that in 2014, they accounted for 36 percent of national healthcare expenditures. The U.S. government has stringent price controls that make it more difficult to a) know the actual price of drugs, and b) lower prescription prices in the long-run. There is employment-sponsored health insurance, which I think is the worst tax break in this country. The employment-sponsored health insurance is compounded by the fact we have a third-party payment system. With the third-party payment system, patients do not see the prices of the non-refundable service until after it is consumed, which creates little incentive for people to look for prices in the first place, thereby leading to more frivolous healthcare spending (e.g., Desai et al. 2016).
There is also the lack of portability of health insurance, not only with regards to employment-sponsored health insurance, but also the inability to sell health insurance across state lines. Then there is how Obamacare has affected healthcare prices, and I'm not just talking about price increases. Two measures within Obamacare demolished the price's role as a carrier of information and a signal of market conditions: the mandate to cover pre-existing conditions and the provision to limit age rating, the latter of which means that one can only charge so much for older individuals. If insurance companies cannot assess risk, how can we expect prices to be contained, and how can we expect them to signal what in the world is going on in the healthcare market? All of these policies have created a lack of a feedback loop between the producer and consumer, which makes prices severely malfunctioning at best. If those were not enough impediments, there is also the "wide variety of insurance benefit structures, a lack of standard formatting for reporting prices, and the difficulty of determining prices when changes originate from multiple providers," not to mention legal hurdles, especially contractual obligations.
In addition to government intervention, it is difficult to navigate the healthcare market. It is not as simple as buying groceries or filling up a tank of gas at the gas station. For one, the healthcare system is so convoluted that it is often difficult to find sources for prices, let alone being able to determine what is going on. This leads to my second point. Quality and price are unrelated in the current healthcare system because prices have been so distorted, which is why quality ratings are needed to supplement price transparency. Price is not the only factor in a healthcare decision, and using price as the sole factor potentially masks malpractice and doctors who don't know what they're doing. Quality and safety have to be accounted for, as well, which is why quality ratings help. This is all the more the case when there is not a particularly strong correlation between price and quality. We can also try implementing reference pricing. However, reference pricing would be limited to more standardized services since quality differentials are not a concern. There is also an issue that reference pricing only applies to the 43 percent of healthcare services that are "shoppable."
Something I have advocated for a while, which is to remove employer-sponsored health insurance from the tax code. It would most probably provide the price transparency without the unintended consequences. At the end of the day, keep in mind that I am not arguing against healthcare price transparency. It would be a step in the right direction, as the Robert Wood Johnson Foundation illustrates. However, we cannot delude ourselves in thinking that mere price transparency would solve healthcare cost woes. Without supplementing price transparency with other much-needed reforms to untangle the behemoth that is our healthcare system, healthcare price transparency will only have a very limited effect on healthcare costs.
The idea behind healthcare transparency is the following, and it is something I explained when writing about why price gouging is actually a good thing. Prices are not just arbitrary numbers. In a free or liberalized market, they signal supply and demand. In the case of healthcare, procedures that require highly-trained specialists or rarer and/or more high-quality equipment are going to be more expensive than a pap smear or an office visit with a generalist. If a consumer is able to compare prices across practices in the area, state, or country, a consumer is more savvy and well-informed to make a decision that best suits their financial situation. This transparency leads to doctors better competing for patients, thereby further driving down prices, or so goes the argument. Normally, I would accept the argument because that is how it works in just about any other market. However, the healthcare market is not like any market, which is all the scarier considering that as of 2014, healthcare accounted for 17.5 percent of the U.S.' GDP.
Unlike most markets, prices in the healthcare industry do not reflect supply and demand, largely because of government intervention and third-party payment systems are in place, and do not help contain prices. Medicare and Medicaid have become a strong enough force in the healthcare market that in 2014, they accounted for 36 percent of national healthcare expenditures. The U.S. government has stringent price controls that make it more difficult to a) know the actual price of drugs, and b) lower prescription prices in the long-run. There is employment-sponsored health insurance, which I think is the worst tax break in this country. The employment-sponsored health insurance is compounded by the fact we have a third-party payment system. With the third-party payment system, patients do not see the prices of the non-refundable service until after it is consumed, which creates little incentive for people to look for prices in the first place, thereby leading to more frivolous healthcare spending (e.g., Desai et al. 2016).
There is also the lack of portability of health insurance, not only with regards to employment-sponsored health insurance, but also the inability to sell health insurance across state lines. Then there is how Obamacare has affected healthcare prices, and I'm not just talking about price increases. Two measures within Obamacare demolished the price's role as a carrier of information and a signal of market conditions: the mandate to cover pre-existing conditions and the provision to limit age rating, the latter of which means that one can only charge so much for older individuals. If insurance companies cannot assess risk, how can we expect prices to be contained, and how can we expect them to signal what in the world is going on in the healthcare market? All of these policies have created a lack of a feedback loop between the producer and consumer, which makes prices severely malfunctioning at best. If those were not enough impediments, there is also the "wide variety of insurance benefit structures, a lack of standard formatting for reporting prices, and the difficulty of determining prices when changes originate from multiple providers," not to mention legal hurdles, especially contractual obligations.
In addition to government intervention, it is difficult to navigate the healthcare market. It is not as simple as buying groceries or filling up a tank of gas at the gas station. For one, the healthcare system is so convoluted that it is often difficult to find sources for prices, let alone being able to determine what is going on. This leads to my second point. Quality and price are unrelated in the current healthcare system because prices have been so distorted, which is why quality ratings are needed to supplement price transparency. Price is not the only factor in a healthcare decision, and using price as the sole factor potentially masks malpractice and doctors who don't know what they're doing. Quality and safety have to be accounted for, as well, which is why quality ratings help. This is all the more the case when there is not a particularly strong correlation between price and quality. We can also try implementing reference pricing. However, reference pricing would be limited to more standardized services since quality differentials are not a concern. There is also an issue that reference pricing only applies to the 43 percent of healthcare services that are "shoppable."
Something I have advocated for a while, which is to remove employer-sponsored health insurance from the tax code. It would most probably provide the price transparency without the unintended consequences. At the end of the day, keep in mind that I am not arguing against healthcare price transparency. It would be a step in the right direction, as the Robert Wood Johnson Foundation illustrates. However, we cannot delude ourselves in thinking that mere price transparency would solve healthcare cost woes. Without supplementing price transparency with other much-needed reforms to untangle the behemoth that is our healthcare system, healthcare price transparency will only have a very limited effect on healthcare costs.
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