A simple Coasian test for some kinds of economic bollocks

by Daniel on January 11, 2006

Steven Landsburg, perennial bete noire of people who want to say that economists aren’t an entirely baleful influence on public debate, is doing his poor man’s version of Freakonomics again over at Slate and attracting an entirely fair amount of opprobrium for doing so (via Matthew). This week, we have the “counterintuitive” “result” (note two different flavours of scare quotes here; the first set are mocking Landsburg for constantly referring to things as “counterintuitive” when they are actually just silly, while the second set is there in order to indicate that his argument is intended to resemble a result from economics, but is no such thing) that turning off the ventilators of patients too poor to pay their medical bills is the right and even the moral thing to do. I don’t think anyone was ever likely to have been convinced by this, but below I present an argument which might help to sort out cases in which economists might have something useful to add to a debate of this kind, from cases like this where they probably don’t.

Landsburg’s argument is more or less as follows:

1. Society has a fixed amount of resources which can be allocated to helping the poor (call this the “Lump of Charity” claim). He doesn’t explicitly make this claim, but the argument doesn’t make sense without it; the tradeoffs he is talking about wouldn’t exist if the amount of funds available for helping poor people were able to vary with the number of them who were in imminent danger of death. I also don’t see how the sentence ” A policy of helping everyone who needs a ventilator is a policy of spending less to help the same class of people in other ways” can be interpreted in any other way.

2. We therefore ought to allocate this fixed sum optimally, based on the revealed preferences of poor people (this appears to be a sort of non-paternalism condition and appears to me to be arguable but not completely illogical)

3. Lifetime insurance against being on a ventilator with no funds to keep it pumping would cost about $75. This is a “back of envelope” calculation by Landsburg and it doesn’t look very solid to me. At a zero interest rate, assuming ventilator care costs $1000/day (this website reckons $785) and assuming that a terminal cancer patient on a ventilator lasts 3 months, a $75 premium would be actuarially fair if there was a 0.075% chance that you would end up in this situation. This in turn would imply that you would expect to see, in a normal year (assuming 300 million Americans with a life expectancy of 75, giving 22.5bn person/years) 16,875 people making a claim on their insurance; since I’m assuming about a 90 day treatment period this would imply that on any given day there would be about four thousand claimants on ventilators. According to the same link, there are, on average, 11,500 Americans on ventilators on any given day, not all of whom will be terminal patients. I don’t think it’s realistic to suggest that a third of the total ventilator population are in the situation where they have no way of paying their medical costs without charity. If you take account of the time value of money it looks much worse for the calculation; people don’t often get diseases that put them in terminal wards on ventilators until they’re old, and if that $75 was invested at a money market rate of interest for fifty years it would be more like $677. I suspect that an actuarially fair insurance premium against this very rare and specific state of affairs – being a terminal patient[1] dependent on a ventilator but having no health insurance or assets, and being in a state where local laws don’t oblige the hospital to keep treating you (Texas in this case, “culture of life” how are ya[2]) – would be between a tenth and a hundredth of this estimate. This case is in the news precisely because it is extremely rare, not because it is the sort of thing that happens five times every day.

4. Poor people, if you offered them the choice of this very strange and limited insurance policy, or $75 cash, would take the money. This is “argument by hypothetical revealed preference”, a favourite device of economists when talking about people with lives wildly different to their own but who are not interesting enough to do proper research on.

5. Therefore, we should spend the fixed sum of money we have for poor people on things other than providing the ventilator insurance policy and therefore we should allow people currently alive on ventilators in this situation to die. This looks to me like a bit of fast and loose with the concepts of ex ante and ex post, but I am more interested in assumption number 4.

As you can see, I find a lot to argue with here. But my real issue here is that this is clearly not the sort of situation where normal economic argumentation is going to work. I don’t mean this in the normal sense in which people are revolted by economists; I have nothing in particular against cold-blooded utilitarian calculation and am reasonably well known in weblogs for staking out a position on the Iraq war based on expected and estimated body counts. I’m not even in principle opposed to the practice of argument by hypothetical revealed preference – I think it’s quite funny to be all opposed to paternalism in premis 2 but then to bring it all back in by saying “I know what these people want” in premis 4, but it is not in principle an illegitimate way to think. My opposition to this economic argument is itself economic in nature.

And the argument is simply that Landsburg is making use of far stronger simplifying assumptions than he has any right to. In making the hypothetical revealed preference argument, he is saying that exchanging the ventilator insurance policy for $75 would be a clear gain for the poor person; that if offered this trade, they would take it. In order to make use of this (and certainly in order to give people pissy little lectures about economics), he therefore has to assume that the preferences of the poor person are well-ordered enough to support the conclusion that trading the policy for the cash is a clear utility gain.

But as we are economists, we know that a set of preferences which can deliver that result, are sufficiently well-defined to be independent of a lot of other things about the world. In particular, they should be independent of the initial endowment of wealth. This is the fundamental point underlying Coase’s Theorem; if a solution is genuinely optimal it can be reached by free negotiation from any starting allocation of rights and privileges. So let’s test the robustness of Landsburg’s hypothetical revealed preference shall we? If we were to start from a point of view in which it was illegal to turn off someone’s ventilator because they lacked funds to pay your bill, how many poor people would sell that right for $75? My guess is that Landsburg would not do very well touting that offer round town; you might get a few drunks, junkies and the truly desperate, but most people would not be prepared to sell this right even for a sum of money that I believe is much greater than its actuarial value. The “endowment effect” is hardly unknown in experimental economics (I would be amazed if Steven Landsburg hadn’t written at least one annoying article about it himself) and it seems to me that there would be a very significant endowment effect with respect to one’s right to be rescusitated[3].

And this means that it is probably correct to say that people’s preferences with respect to being kept alive on a ventilator in hypothetical situations are almost certainly not well enough defined to base any economic argument on them at all. In particular, it is very wrong indeed to claim that

” Accounting for “economic considerations” means—by definition—trying to give people what they’ll value the most”
. In the normal neoclassical sense of “economic”, economic considerations over a lot of important areas of what people value, don’t have a definition, because the associated preferences aren’t well-behaved.

I think this is a general test that can be applied to lots of these damnable “Everyday Economics” arguments; if the argument appears to be dependent on a particular assumption about the distribution of property rights, and if a different distribution of rights would make things different, then this is probably not, at base, an economic argument, and economists are very likely to be making things less clear rather than more by making plausible-sounding but spurious cases for propositions that they have decided to favour for independent reasons. Or in the case of Landsburg, for the sake of saying something mindlessly controversial.

[1] Note that this is important; there is no hospital in America which would turn off someone’s ventilator if they had a chance of living. We’re talking here about prolonging life for a short period at the end of the life of a very ill person. I’m not sure that Landsburg realizes this; he describes the patient in the actual case as “terminal” in paragraph 1 but later on in the piece he is talking about “critical” ventilator care which is not the same thing at all.
[2] An entirely unfair political cheap shot; as far as I’m aware, the Christians are not being hypocritical at all and are going absolutely mental about this case.
[3] Note by the way that my case is actually much closer to the real world than Landsburg’s assumption; although people don’t currently have a legal right to free ventilator treatment in terminal cases, it is actually much more normal behaviour of hospitals to provide it anyway and wear the cost of doing so.

{ 42 comments }

1

Delicious pundit 01.11.06 at 6:45 pm

And if Landsburg is truly a poor man’s Freakonomist, then does he have an unlimited right to ventilate his own hot air for as long as he likes? Perhaps the truly moral answer to that question is no.

2

derek 01.11.06 at 7:21 pm

Stephen Landsburg and I sort of agree in a funny way: we agree that if there are people going around accepting $75 in exchange for having their ventilator taken away when they need one, that’s a sign that we as a society are allocating our resources all wrong. Where we disagree is that while his next step is to take people’s ventilators away until they stop selling them for $75 to relieve their poverty, mine is to relieve their poverty until they stop selling their ventilators for $75.

Mr. Landsburg’s philosophy is an old one, and one that was behind means-tested benefits in Britain in the bad old days: if you hadn’t sold everything you owned, you weren’t yet poor enough to need help. The trouble is that that definition of “poor enough to need help” was a guarantee that the recipients of aid would never get out of poverty, because between “having nothing and needing help” and “having something and not needing help”, there was an inevitable no-mans-land of “having something but not yet beyond needing help”, and means-testing set up a barrier to occupying that no-mans-land that made it impossible to cross.

Besides being monstrous, it was also a false economy, because it kept people on handouts forever, instead of letting them stand on their own feet with pride again, to become tax-payers instead of tax-consumers. Doubtless this is not a problem Mr. Landsburg would encounter, as he would take the philosophy to its limit in these days of transplants, and refuse aid to anyone who had not sold so many of their organs that they were at death’s door anyway, and thus in no danger of draining the public coffers for long.

“If they be like to die, they had better do it, and decrease the surplus population.”

3

stostosto 01.11.06 at 7:22 pm

Economics as religion: An exercise in legitimising the total disregard of spontaneous empathy with fellow human beings in the name of some abstract principle. In this case, Landsberg even does one better. He not only legitimises and rationalises the decision to turn the ventilator off. He actively encourages it by arguing it’s ethically bad not to do it. He is not an economist so much as a demagogue. A demagogueonist. Yes. That’s what he is.

4

joe o 01.11.06 at 7:23 pm

> it is actually much more normal behaviour of race to the bottom hospitals to provide it anyway and wear the cost of doing so.

How can Landsburg be sure this informal norm really is so irrational? Is he suggesting some sort of market failure in killing poor people.

5

JR 01.11.06 at 7:30 pm

This is all very interesting, but it is completely beside the point.
The young woman in question, Tirhas Habtegiris, was conscious and wanted to live.

“She wanted to get her mom over here or to get to her mom so she could die in her mom’s arms,” says her cousin Meri Tesfay.

http://www.wfaa.com/sharedcontent/dws/wfaa/latestnews/stories/wfaa051214_lj_african.bb0e76d.html

Tirhas Habtegiris was a living, breathing, feeling human being. She was smothered to death, just as surely as if someone had pressed a pillow over her face.

There are many people whose murders could be justified on economic grounds. We don’t praise their murderers. We don’t analyze whether the murders they committed were justified. We lock them up for life.

6

y 01.11.06 at 7:53 pm

I think the primary reason why prose like Landsburg’s makes economists seem so hateful is that there are quite clearly no living, breathing human beings anywhere in it.

The whole thing is hypocritical from start to finish. Landsburg has no intention of giving anyone anything, or even of supporting giving anyone anything, whether $75 or some hypothetical unobtainable ventilator insurance or anything else, so he has no business discussing which one the non-recipients would hypothetically prefer.

Economists are fond of saying that some change is optimal in the sense that the winners could compensate the losers and still have something left over. I tend to dismiss such arguments and their proponents out of hand, because it is usually evident that there is no thought of ever actually compensating any losers.

7

Canadian 01.11.06 at 7:58 pm

DD:

Many psychological models (such as models with endowment effects) violate transitivity of preferences. If we admit non-transitive preferences generally, its not clear that any of the standard philosophical positions, such as utilitarianism, are even coherent.

8

Donald Johnson 01.11.06 at 8:09 pm

See Daniel, this kind of thing is much more fun and much more useful than bashing Landsburg over some esoteric question involving game theory and Bell’s inequality, or whatever it was.

I’m glad you included footnote 2. I’m friends with some politically conservative evangelical Christians and without asking them I can safely say they’d be utterly revolted by Landsburg’s argument.

9

Andrew 01.11.06 at 9:25 pm

jr says -“This is all very interesting, but it is completely beside the point.” not if your point is that Landsburg’s argument is poorly concieved. It seems to me that Landsburg was trying to be controversial rather than trying to put together a well reasoned argument. This man is an economist who argues for more choice, but then argues that there are too many books (he did so over at marginal revolution about a year ago).
Seriously, he loves being contrarian. This man argued for keeping terry schiavo alive, but against keeping Miss Habtegiris alive long enough to see her mother a final time:
http://www.slate.com/id/2115875/
Compare the arguments used in schiavo article to the arguments used in Habtegiris article and you’ll see he is not being consistent.

My question is: How could pulling the plug on this woman possibly be legal and euthanasia be illegal?

10

Blar 01.11.06 at 9:31 pm

Landsburg’s New, Improved, More Counterintuitive Argument:

Instead of paying to give Tirhas Habtegiris a ventilator, the money required to pay for the ventilator should have been destroyed.

The argument is simple, really. First of all, giving the money to poor people who wouldn’t be able to afford a ventilator is better than paying for the ventilators, since they can spend that money on more efficient purchases than ventilator insurance. Landsburg proved that last week.

Secondly, destroying the money is better than giving it away, since that spreads the benefit far and wide (by slightly lowering the price level). Landsburg proved this a few years back.

So by a simple application of transitivity, we can see that, if the people who are arguing that funds should have been used to keep Habtegiris on a ventilator were really compassionate, they would be arguing that those funds should be destroyed.

11

Dan Simon 01.11.06 at 9:43 pm

If we were to start from a point of view in which it was illegal to turn off someone’s ventilator because they lacked funds to pay your bill, how many poor people would sell that right for $75? My guess is that Landsburg would not do very well touting that offer round town; you might get a few drunks, junkies and the truly desperate, but most people would not be prepared to sell this right even for a sum of money that I believe is much greater than its actuarial value.

Well, my guess is the exact opposite. I’d guess that a hefty percentage of the population–rich or poor–would happily take this deal, either out of disgust at the idea of being kept alive on a respirator while decaying rapidly and inexorably towards death, or out of simple “live for the moment” unconcern for the last few hours or days of their lives.

Of course, many of them might well feel quite differently should they actually find themselves in this particular predicament. And I think it’d be a fine statement of respect for human life for society to provide all those people with respirator support, even if they had previously sold off their right to it, either literally or metaphorically. But that’s because I don’t necessarily consider people’s revealed preferences to be the last word on other people’s ethics, and not because I have any confidence that their preferences, even if carefully interpreted and understood, would demonstrate my position to be the economically sensible one.

12

Barry 01.11.06 at 9:47 pm

Daniel: “[2] An entirely unfair political cheap shot; as far as I’m aware, the Christians are not being hypocritical at all and are going absolutely mental about this case.”

Not that I’ve heard of. While not being plugged into the right-wing ‘Christian’ network, I’m sure that disturbances on the order of the Shiavo case would have caught my attention.

13

Gary Farber 01.11.06 at 10:26 pm

Said my piece here, back in the day.

14

Stewart Schoder 01.12.06 at 12:21 am

Daniel–Excellent, as ever. I would suggest only that (5) be amended to: ‘Therefore, we should spend the fixed sum of money we have for poor people on things other than providing the ventilator insurance policy–and, in fact, on people other than poor people–and therefore we should allow people currently alive on ventilators in this situation to die.’ For surely the upshot of the ‘argument by hypothetical revealed preference’ in (4) is, to a good Landsburgian, that the ‘lump of charity’ in (1) ought not to go to the poor at all….

15

Maynard Handley 01.12.06 at 3:40 am

Daniel, this is amusing and all, but what is your take on the larger issue —
(a) how much should be spent on health care and
(b) how much of that should be spent on preserving life for a few more days, as opposed to health measures (hip surgery, valve replacement, lasik etc) that improve long stretches of life.

There is a very real point here that there is not an infinite pot of money to give everyone all the health care they might ever want, and that it’s a lot easier to work up an emotional argument over someone about to die in two days than someone who has the alternatives of limping painfully for thirty or having their hip replaced. Forget the details of who pays for what, the larger picture remains of the two questions that I asked.

OF COURSE if I am the guy on the ventilator, or scheduled for some heart+lung+liver+kidney transplant that has one chance in 10,000 of working my vote is “damn the expenses, do what will save me”. But that’s not a feasible model for society as a whole to resolve these issues. So what is a feasible model?

Well you can have the US system where we pretend there is no tradeoff and try to arrange things, by closing emergency rooms and such, that the poor die somewhere rather than bothering the decent folks. This costs a fortune and seems to deliver results (both health measures and happiness with healthcare measures) that are far worse than the alternative.

And that alternative is a socialized system which decides “OK, the health budget is $x billion, the optimal amount of health available for that many dollars consists of so many mammograms, so many heart transplants, so many hip replacements and so on, each would-be-candidate for each procedure gets scored in some fashion, and those with the highest scores get the procedure”. Now we can quibble about the details of whether the system in any country actually works as well as this ideal,, and every Canadian, British, European, NZ and so on citizen can pipe up with some anecdote about how stupidly their system behaves in practice, but I think most citizens would agree that in principle that’s the how the system should run, and most medical professionals would agree that, accepting all the massive room for disagreement about how painful it is to live for two years with a bad hip versus living an extra six months with terminal cancer, their system broadly does function that way.

So isn’t this ultimately what Landsburg is saying, stripped of all the pseudo-scientific crap in the middle? Of course once you bring in the issue of who is to pay for this you have a whole new kettle of worms, and perhaps that is the aspect you believe should be focussed on. But, as I said, IMHO that is a distraction from the larger issue on which he is substantively correct.

16

Daniel 01.12.06 at 5:48 am

what is your take on the larger issue

that it’s a political question, not an economic one and is precisely the sort of thing that ought to be decided democratically. It’s the pseudo-scientific crap that I object to; I think it’s more pernicious than risible because it’s (yet) another way in which economists try to push a political agenda by pretending to be neutral technocrats.

17

Alex 01.12.06 at 6:18 am

As I commented on this elsewhere: would Landsburg pass the Voight-Kampff test?

18

abb1 01.12.06 at 6:48 am

I don’t understand: is he saying that all 100% of the poor would refuse the $75 insurance? Obviously not all would refuse. Maybe only a few drunkards would refuse, maybe a lot more, but obviously some would want to buy the insurance – what about them?

But if we give everyone $75 cash, then those who do want the insurance would have to pay a lot more than $75 for it, because the pool is smaller now – and they won’t be able to afford it.

So, assuming we have a fixed sum, it’s insurance for everyone or for no one.

So, in the end this is a political decision, not economic; but we already (intuitively) know that.

19

abb1 01.12.06 at 6:59 am

Wait. Perhaps, it’s still only $75 for those who want it, because the pool is still large enough and those who opted aren’t less likely to need the ventilator?

Then, I suppose, from the libertarian perspective it’s OK to offer them a choice: insurance or 75 bucks cash. Or, perhaps, $1/year for 75 years?

20

SamChevre 01.12.06 at 8:46 am

A very good commentary on the mistakes in Landsburg’s reasoning is here, by Mark Kleiman; basically, average lives are not valued the same as identified lives, in any valuing of preferences.

21

John Emerson 01.12.06 at 9:34 am

I would be interested in seeing an anthology of writings by “people who want to say that economists are an entirely baleful influence on public debate.”

I’d write the book myself if I knew enough. Economics has enormous blind spots, which are deliberate (and not merely incidental, or scientifically justified), and these have the outcome of skewing the political dialogue whenever economic thinking is used as a resource.

Economists are modest, cute, and funny when these blind spots are pointed out to them in low-pressure contexts, and really they don’t deny anything, but once they start giving policy advice they just point out that they have scientific reasoning and hard numbers, whereas their opponents only have subjectivity, sentiment, and fairy stories.

“Learn to think like an economist” is an economist’s mantra. “Learn not to think like an economist” is a required supplement.

The really impossible right-wingers I have run into in my life got that way either through chauvinist/ racist sentiments, Bible-reading, or a fundamentalist interpretation of economics. The first two are atavistic and uncontrollable, but economic fundamentalism is a respectable intellectual position.

22

Mr. Bill 01.12.06 at 9:46 am

Thanks, Alex, for the Phillip K Dick/Bladerunner reference.
We live in strange times…

23

Simstim 01.12.06 at 10:23 am

The Voight-Kampff Test has already been used in mayoral politics.

24

paul 01.12.06 at 11:24 am

First, I’d like to take issue with footnote [1]. We’re all ultimately terminal, after all. Perhaps what Daniel means is something more like “no hospital would remove a ventilator from someone they thought had a reasonable chance of leaving the hospital in a conscious state and without a ventilator in place, and who had expressed a wish to be kept alive by ventilatory support.” All of these caveats are important. Someone might be terminal, but not nearly so terminal as to be not “worth” ventilating.

But as far as my preferences go (and, I think, the preferences of a whole lot of people) the distinction isn’t so much terminal/nonterminal as conscious and unconscious. Sure, I would rather my soulless husk not be kept around by mechanical means (unless I was in a position to be an organ donor), but if saying goodbye to my family required a few hours or days or even weeks on a painful tube, damned if I wouldn’t go for it.

This in turn changes both the actuarial tradeoff and the value of the thing being offered rather substantially. Replace $75 to be “kept alive on a ventilator” with $10 or $1 to be “kept alive long enough to say goodbye to friends and family” and whee!

25

Alex 01.12.06 at 12:07 pm

And, for raw moral purposes, if you aren’t conscious you can’t suffer, a key issue in this case.

Essentially, I think Landsburg’s argument falters on two basic points – one is consistency. If he believes this and is consistent, if his brother was in the same position and by some chance didn’t have insurance, surely he would not only refuse to intervene but also consider himself obliged to pull the plug himself – but I suspect (despite the Voight-Kampff issue) that were the issue to be put in these terms his reaction would be substantially different.

The other is that he has missed out the marginal propensity to save function. $75 in consumption now is considerably more valuable to a poor person than $75 later. The marginal propensity to save increases with income – if you give a rich person $75 in extra income, they are likely to put more of it away.

As the insurance in his example is deferred consumption, it’s essentially saving. You don’t save if you need the money for food. Bit of a big and elementary consideration for a professional economist to miss.

26

Walt Pohl 01.12.06 at 1:45 pm

John E: If 98% of economists were card-carrying Marxists, and 2% were Landsburg clones, what do you think the distribution of economists appearing in the media would be?

27

John Emerson 01.12.06 at 2:27 pm

Walt, even the nice Marxists, DeLong for example, boggle me sometimes. I suppose that economics has changed since I last had much contact (about 20 years ago), but I suspect that a high proportion of them still lack either Brad’s historical interests or his political interests., and a lot still seem to be free-market ideologues.

28

steve kyle 01.12.06 at 2:28 pm

What rot. The whole thing is completely bogus.

He is asking people who DONT need a ventilator how much money they need now to be happy to not get a ventilator IF they need one decades in the future and IF they cant afford one by that time.

Here is a question for you. IF I dont become a millionaire by the time I am 60 and IF I start wanting a yacht by then, how much money do you have to give me now to make it OK to FORBID me to have one at that point?

29

John Emerson 01.12.06 at 2:34 pm

CORRECTION: “Walt, even the nice economists, DeLong for example….”

30

kaw 01.12.06 at 5:21 pm

Relevant here is Frank, Gilovitch, and Regan’s article (Journal of Economic Perspectives (1993, 7[2]: 159-171; at JSTOR for those of you with subscriptions) on whether exposure to the self-interest model (i.e., studying economics) generates self-interested behavior. Obviously, it’s a tough question to answer definitively because of selection effect problems. But even if the evidence isn’t up to the task of demonstrating a causal relationship, it pretty clearly shows a correlation between studying economics and acting selfishly. E.g., economics professors donate less to charity than comparably paid professors in other disciplines, economics students default at a higher rate in the Prisoner’s Dilemma, etc.

31

Keith 01.13.06 at 8:37 am

Actually, Landsburg’s right, and Davies is making a dishonest argument by asserting an initial right to a ventilator. Davies just dodges the question.

Given that the right to a ventilator incurs costs, would people prefer to use those costs on ventilator insurance or would they prefer to have some other right?

More to the point, should the right to a ventilator be part of the social contract or shouldn’t it? And Landsburg’s right. If people have better uses for resources than ventilator insurance, then it shouldn’t.

However, people’s atavistic and primitive response to Landsburg betrays another human tendency; that when somebody is hurt, we have a natural tendency to want to help them. This is a very healthy thing at the individual level. At the social contract/insurance level, however, this instinct leads to a social contract and social insurance far more extensive than people actually want or prefer. In short, I would have more faith in left-liberalism if liberals could appreciate Landsburg’s point.

32

Elton 01.13.06 at 9:59 am

It was astonishing to read Landsburg’s fatuous, smarmy article, and then google him and find out he’s apparently a published and respected (in some quarters) economist. Mindlessly controversial indeed.

Oh, and that link to San Francisco mayoral candidates being given the replicant test was excellent. Thanks simstim.

33

Walt Pohl 01.13.06 at 10:10 am

Keith: You have completely misunderstood Daniel’s argument. His argument is that if you offered people $75 to forgo the right to a ventilator, they would turn it down. Ergo, Landsburg’s argument about poor people’s revealed preferences does not hold. Daniel doesn’t dodge the question: he attacks Landsburg’s argument head-on.

34

alexandre 01.13.06 at 12:28 pm

Landsburg’s argument is not convincing. But considering the case “is it right to unplug people who are about to die with no chance of survival, except if they pay?” I find it difficult to answer clearly. After all :
– Many people die in hospitals, and many of them die because doctors decide that more work on them is a waste of resources. Even without talking of euthanasia, we can consider as a normal thing that at a given moment, when there is no more hope and they are about to die, people are “unplugged” – because it already happens every day.
– Now suppose that a person is about to die, and someone (or him) tells the doctor “don’t unplug : I will pay the hospital whatever it takes”. Does the hospital accepts the money or has to say no?
“the hospital has to say no” is a strange answer :After all, if the person pays enough, it is not a waste of medical resources : it can even provide some good (the hospital can use the money to buy a new respirator, that will be used on later patients for example). It can be said that it is a pareto-improvement that the hospital accepts this offer.
But accepting this offer means that people are unplugged unless they pay enough… and that is exactly the rule that we consider abhorrent.

Other question : in a country in which, whatever their pain, people are never unplugged until their death; A man in dying pain tells the doctor “I am in pain, please unplug me, I will pay you very well”. It is exactly the same kind of unjust treatment : only people who pay enough have the right to be unplugged when they want it. But this unequal treatment is less shocking than “you are unplugged unless you pay”. I don’t have a good answer for these paradoxes, but I find them disturbing.

35

Keith 01.13.06 at 12:29 pm

Well, Walt, I guess we have convergence, then.

Just hold a reverse auction on who wants to forgo ventilator insurance, and both Davies and Landsburg would be happy, yes?

36

Keith 01.13.06 at 12:31 pm

And actually, I think Landsburg’s Armchair Economist is better (and more intellectually honest) than Freakonomics, which I also liked.

I thought Levitt engaged in some simplistic explanations and ignored some important research to avoid confusing or offending people.

37

Daniel 01.13.06 at 12:50 pm

Keith: if you are proposing to hold such an auction in a Rawlsian state of uncertainty, then I would say go for it. What I am entirely against, is holding the auction in some particular state of the world and then presenting it as if it were the result of one held behind a Rawlsian veil.

I thought that Freakonomics was an extraordinarily slippery book and will post a long and strident denunciation of it the minute I finish writing it.

38

Keith 01.13.06 at 4:52 pm

Daniel, Landsburg wasn’t doing what you claim, and that’s pretty clear in his piece. He’s saying that in the Rawlsian state, the woman would not have bought ventilator insurance (or would have sold it).

When one looks at the facts of the case, the hospital was wrong. The woman did not want to be kept alive indefinitely. She just wanted to be kept alive long enough to see her mother one last time. Generally, the cost of keeping her alive long enough to do that would be low, the cost of such “temporary ventilator insurance” would be low, and just about anybody would buy it (or not sell it).

39

Russell Nelson 01.14.06 at 2:05 am

It’s funny how many people objecting to Steve’s post obviously have no clue about economics, and yet they feel qualified to object to his conclusions. Amazing. When people do this in the realm of physics, we call them cranks and we laugh at them and ignore them.
-russ

40

Ray 01.14.06 at 8:53 am

Keith, Landsburg was talking about the choices that poor people would make. If they are poor people, they are not in a Rawlsian state.
Second, Daniel’s agument is that Coase’s theorem says that if the trade-off of ventilator insurance was optimal, it would apply whether people were being asked if they wanted to buy such insurance or if they were being asked to sell a right. If people value a ventilator differently depending on whether it’s something they think they already have or something that they have a chance to buy, then they don’t really have a well-ordered set of preferences.

41

Walt Pohl 01.14.06 at 2:58 pm

Russ: Do you think maybe it has something to do with the fact that physics has earned that kind of respect, and economics has not? Or do you also feel that only sociologists should comment on sociology.

42

dcpi 01.15.06 at 11:50 am

This debate is so typical of economists who convert the concrete into the abstract. It seems that it will only take a few dollars or tens of dollars in donations from everyone who is upset by this case to create a fund for the terminally ill indigent in need of ventilators.

So who is going to create the fund for us to donate to? Post the name of the charity and I will donate my $75 (or $175) so no hospital is put in this Hobbesian situation.

Rather than argue about how to spend our neighbors’ funds we should put our own money where our mouths are.

Comments on this entry are closed.