Healthcare and Hayek

Matthew Yglesias enlists no less a figure than Hayek to the cause of government run insurance, citing him as saying that state involvement in a plan to insure some risks is not necessarily a threat to individual freedom. I'll leave it to the Hayek scholars as to whether or not this is an accurate representation of his views.

Yglesias goes on from here and says this:

One interesting issue here regards preventive care. Things like regular checkups, wellness advise, basic screening, etc. don’t meet the definition of “genuinely insurable risks.” At the same time, based on what we actually know about medicine an ounce of prevention really is worth a pound of cure and as long as you’re going to be having the state pick up the tab for illness it seems very practically sound to also have the state invest in prevention. But defining what does and does not count as “prevention” would entail a degree of non-Hayekian planning. My take would be that these medical issues are sufficiently technical to think that Hayek’s general point about the superiority of the market to technocracy in organizing knowledge almost certainly doesn’t hold.[E.A.]

I'm not convinced by this argument at all. While it's no doubt true that the science of medicine has grown quite complex and technical, so has our society's ability to receive, analyze, and share information. This ability puts us in a good position to determine what constitutes effective care.

I think that this would be especially true in the case of preventive care, which is likely to tend toward the basic end of the treatment spectrum. In the case of more advanced treatments, it should still be the case that the non-expert can educate himself about the effectiveness of various treatment options, even if the underlying biological or chemical mechanisms of the treatment are not well understood.

We're All Austrians Now...Or Not

When I linked the Keynes vs. Hayek rap video the other day, I mentioned that I wasn't convinced this was really an accurate description of the debate playing out in the country as a whole. In fact, I don't think this is an accurate description for the debate that is playing out in the United States Congress.

It is the case the Keynes has received a lot of attention lately due to the debate over the need for, and effectiveness of, fiscal stimulus in response to the economic crisis, but Hayek simply hasn't gotten the same visibility.

Freidrich August Hayek was an economist affiliated with what is now known as the Austrian School. Some of his major work was on business cycles, the booms and busts that economies experience. Here is a description of one of his insights (from the Library of Economics and Liberty):

One cause, he said, was increases in the money supply by the central bank. Such increases, he argued in Prices and Production, would drive down interest rates, making credit artificially cheap. Businessmen would then make capital investments that they would not have made had they understood that they were getting a distorted price signal from the credit market....he concluded, artificially low interest rates not only cause investment to be artificially high, but also cause “malinvestment”—too much investment in long-term projects relative to short-term ones, and the boom turns into a bust. Hayek saw the bust as a healthy and necessary readjustment. The way to avoid the busts, he argued, is to avoid the booms that cause them.

Sound familiar? You would think with an insight that so nearly describes our recent history, lawmakers, and everybody else, would be beating down the door to the Austrian School, and that this would show up in their decision making.

Well, the Senate recently had a chance to demonstrate whether or not they had made such a conversion with the confirmation vote on the guy who exerts an enormous amount of control on our money supply, Ben Bernanke. The result? Sean Scallon at the @TAC blog said it best:

Yes the two political parties may have bitter disagreements when it comes to abortion, or climate change, or health care reform, but when it comes to benefiting themselves and the establishment they serve they do know how to come together for a common purpose.

I mean you had Sen Thad Cochran, Republican of Mississippi and Charlie Schumer of New York, as different as two men can possibly be from two completely different places and backgrounds, and yet Ben Bernanke brought them together. Not only can he drop money from out of the sky, not only is he’s Time’s Man of the Year, he’s also a peacemaker as well. Perhaps he should nominated for a Nobel Peace Prize as well. Ain’t he swell?

So, rumors of a Hayekian awakening are, I fear, greatly exaggerated. We now return you to your regularly scheduled boom and bust cycle already in progress.

Keynes v. Hayek Video

Just in case this is the only blog you read that addresses economics, here is the Keynes vs. Hayek rap video that has been making the rounds this week.

I'm generally skeptical of these attempts to shoehorn important concepts into popular media formats, but this is really well done. Just don't let this be your only source of information. It's OK to put ketchup on your fries, just don't count it as a vegetable.



I'll say something more substantive about the debate in the future. While it's clear Keynes is getting a lot of discussion these days, I'm not convinced that the opposing argument in the popular discourse is Hayek's. (It's seems more like Hayek-lite.)

One nitpick with respect to the video. Near the beginning, Keynes calls Hayek on the phone and Hayek's body language seems to suggest he is not exactly sure what that strange ringing object is. Hayek died in 1992, so I don't think he would be surprised by a ringing telephone in a hotel room. Even one appointed in such a modern style.