What is this post about?

When I was in high school I was a big fan of regulation. For my 17-year-old-self regulation was equivalent to a magic wand with which politicians could make problems disappear. But for some reason, they were just too dumb to wave the magic wand. If companies polluted the environment in some way, the 17-year-old genius that I was would have regulated the shit out of them. If companies underpaid their staff in the gig economy I would have just forced them to pay more. If there was a problem, I would have waved my magic regulation wand and solved it. While this is exaggerated, it still captures the essence of my thinking back then. The reason why I thought this way - I presume - wasn’t that I truly believed the world would be so easy but rather related to signaling. Without responsibility, I can signal that I’m smart by telling my classmates that politicians are idiots and I could have easily solved their problems. Maybe I was even signaling more to myself rather than to others. Pretending the world is simple and problems aren’t hard at all is such an easy way to feel smart when you have no skin in the game. Since then I have shifted my economic positions quite drastically. I have listened to many podcasts and read books about different parts of economics ranging from macroeconomics over game theory to start-ups and debated for and against many different economic ideas within competitive debating. Most of my basic assumptions have turned out to be either too simple or wrong and I have gradually changed and refined my positions over time. The two largest shifts in beliefs I have observed are

  1. I now believe that markets usually work quite well. Supply and demand and competition between companies usually lead to the lowest prices for the consumer, more innovation, and better products. However, the outcome that this market produces might not necessarily align with the best long-term interests of society. A market might, for example, be really efficient in extracting oil and selling it at the lowest possible price even though this leads to more pollution and climate change. This doesn’t mean that the market is wrong or dysfunctional, it just means the goals have to be re-aligned with that of society. This also means that markets usually “find their way”, i.e. if there is a real demand for something and you regulate the supply there will be a black market or some shady alternative to provide the good.

  2. The economy is really complex. Regulating one bit has ripple effects and unforeseen consequences and is definitely not a magic wand you can just wave to solve problems. Regulating the gig economy too drastically can mean that many people will lose their job and are way worse off than they were before. Harsh climate regulations in one country can mean that companies relocate to others with even laxer regulation and thereby increase the net amount of CO2 emissions. This doesn’t mean that I hate regulation. It just means one has to very carefully check which kind of unintended consequences a piece of legislation could have and adapt accordingly.

By now I have so many specific views on markets, regulation, housing, game theory, climate change, etc. that I didn’t feel at all like I belonged to either of the classic left vs. right camps in economics. For example, I believe that markets are a good idea when the incentives align with those of society but I also want more redistribution. I think drugs should be legal but I think they should be regulated, e.g. advertising should be banned. I think companies are polluting too much but my approach to solving it would mainly involve Emissions trading. Given that I didn’t belong to either of the classic camps I thought my economic positions were just a pretty long list of specific policies that I like or dislike without an overarching concept. However, when I started using Twitter more regularly, I saw that people often used the term “Neoliberal” to describe my economic positions. When I started listening to the Neoliberal Podcast I found myself agreeing most of the time. So, maybe I’m a Neoliberal?!

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Clarification - What do I mean by Neoliberalism?

Many economic concepts are so loaded that they become completely meaningless. If you say you are economically conservative then that can either mean you are pro free trade or pro isolationism. If you say you think Communism could work you can either mean Norway is nice or you support the USSR under Stalin. Most of these words are just labels and tribal identities which are used to vilify each other in public discourse without talking about content. Thus I will try to define what I mean when referring to Neoliberalism.

The Wikipedia article on Neoliberalism really does NOT capture very well what I think Neoliberalism is about. To me, the Wikipedia article reads like a definition of Libertarianism, i.e. markets solve everything, deregulation, and small government. While a pro-market stance seems to be an essential part of Neoliberalism it misses an important component. This part is captured better in the definition that Sam Bowman provides on the Neoliberal Podcast episode “I’m a Neoliberal, and maybe you are too ft. Sam Bowman” where they define Neoliberalism as “Neoliberal = Markets + Redistribution”. A more elaborate definition can be found in the blog post What Neoliberals Believe or the accompanying podcast episode. To extrapolate a bit from this definition I would say that Neoliberalism claims that markets are a good tool to achieve a goal but states have to make sure that this goal also aligns with the values of society and therefore shape the incentives that companies have. I also found that the people who identify as neoliberal often call themselves “radical pragmatics”, i.e. they have a strong desire to think about the consequences of a piece of legislation independent of its ideological connotation and then support whatever does the job - which I find very appealing. When, for example, the laws that were supposed to protect a group of people, e.g. laws banning employers from identifying whether their potential employee is an ex-convict, turned out to be very bad for people who are stereotypically associated with crime, e.g. young black men, the Neoliberal position probably would be to remove these bans and come up with a better solution. In contrast, people towards the left end of the economic spectrum did not want to repeal the ban even after the research showed it was an ineffective tool (see e.g. Probable Causation).

While I was writing this post the article on What Neoliberals Believe and the accompanying podcast episode were released. They cover a lot of things I had in my original draft. Therefore I decided that I won’t repeat what has already been said but focus on the issues that I think aren’t covered sufficiently. These are a) trying to understand when markets and governments fail, b) designing systems such that goals of the public and the incentives of economics actors align, c) restoring people’s agency, e.g. through nudging, and d) some miscellaneous considerations. On the flip side this means that you should at least skim the What Neoliberals Believe article to understand the context of the following.

Clarification: The purpose of this article is not to bash left leaning people. I would consider myself a culturally progressive person and this article is only restricted to my economic positions. Those come from large parts of the conventional left-right spectrum (as you can see in the following).

Framing - a false Dichotomy

One of the biggest baits within economic discussions is the markets vs. government dichotomy. To this is like asking whether living in the city or on the countryside is better because the answer clearly depends on the person and situation. If you are a young cosmopolitan the city will suit you better. If you are searching for a place to retire and be close to nature, the countryside is probably better. Similarly, there are conditions in which governments are better suited than markets and the other way around. The important question is which conditions these are.

And I think that these conditions are very tightly related to the incentives governments and companies have. Optimally, companies have a financial profit incentive by providing a service or product that many people are willing to pay more money for than it costs to produce. However, sometimes parts of the cost are externalized to the general public or to future generations, e.g. in the case of pollution where an unregulated market might be the wrong actor.

Governments’ incentive structures are definitely more complicated than always and only to maximize the public good. Governments are pretty large bodies made up of individuals that all have their own goals, e.g. promotion to a better position or winning a re-election campaign. Furthermore, the different subunits of governments often have incentives that are very different from maximizing the public good. Health ministries, for example, are often much more concerned with deflecting responsibilities so that they are untargetable for lawsuits than creating an optimal situation for the hospitals, doctors, and patients they are supposed to serve.

Clearly, these are all situations in which the incentives of individual institutions, be those companies or governments, do not align with the public interest. Thus pretending that either markets are always better than governments or the other way around is pretty flawed and the correct comparison is institutions whose incentives align with the public good vs. institutions that don’t. Therefore, I will further investigate different conditions and situations in which different institutions work or fail.

Conditions for markets to work

  1. Incentives: They are the most obvious - if people can’t make any money they probably won’t bother engaging in the market.
  2. Inability to externalize the costs: If you allow a market to reap the rewards but externalize the cost it will almost surely create a lot of problems. This is most clearly seen with climate change where companies profit from polluting the environment because the costs are externalized to governments and future generations.
  3. Perverse Incentives: In some situations companies have incentives that lead to harmful outcomes. These might be regulation failures where government agencies are drained out of money so that they have to rely on self-reports of the private sector to enforce their regulation, e.g. when water providers are responsible to monitor and report their own water quality. But this can also happen in cases where the entire industry is a problem-solution mismatch such as private prisons. If you want to profit from running a prison you will treat inmates badly to save costs and lobby for laws that put lots of people in prison. Both seem like very bad outcomes for society.
  4. No natural monopolies: Natural monopolies can occur in situations where you either have very high entry cost, i.e. you need to invest hundreds of millions of dollars to build a railway network, or where the good that is being sold relies on a distribution network that exists only once. For example, when one company owns the railway network, the water pipes, or the telecommunication network of a country it does not make sense for a competitor to build a second network next to it. Therefore, you have no competition and the service will decline while the prices rise. I think this can be seen by how bad the results of the privatization of water have been for most countries.
  5. No infrastructure: I think infrastructure should be built and maintained by states most of the time. This is for the simple reason that the costs of infrastructure are local but the benefits are global. Building a new and larger road, for example, is a money drain most of the time. You need to service it properly, fix all the holes, etc. The benefits of the road, however, mostly come from the access that companies now have to faster transportation of goods and people. This means that the profits of infrastructure are very indirect, namely the increasing economic value and the taxes that are generated by it. A single company has to make a profit directly from operating the road. This means they either have to take charges, which decreases the number of people using it and thereby its functionality or they don’t build the road in the first place because it is not profitable. A government, on the other hand, can take a loss for the road every single year and still make up for it due to the increase in tax revenue.
  6. Limited possibility to change the outcome: I think betting markets are generally a good tool to get accurate predictions about future events. A betting market for the weather, for example, might yield more accurate predictions than choosing your favorite weather station. However, these ideas only work if the outcome cannot be tampered with. An interesting idea, for example, would be to have betting markets on the likelihood of re-offense for prisoners. There are lots of biases in the judicial system and a market could overcome those. However, someone who has bet a lot on a person re-offending might try to actively increase the probability for this event by attacking the person or mentally bullying them. The weather on the other hand is harder to fuck around with.

The default should be markets

When the above conditions are fulfilled the default should be to let markets rule.

This is for the simple reason that competition drives down prices and increases innovation. When a company can produce a good at a lower price than all others they will gain market share and we, the consumers, profit. Similarly, if a company has a new idea for an existing problem they will win out against their competition and consumers have more innovative products. I know this is econ 101 and the real world is much more complicated but in my opinion, governments should try to create situations in which these mechanisms can kick in and markets can work as they are supposed to rather than install systems that work against these basic economic mechanisms such as applying rent control.

Regulation

Similar to how I don’t think markets are always correct or governments are always correct, I don’t think regulation is either always bad like maybe a libertarian would suggest, or always good, like other positions would suggest. Liking regulation is not necessarily a leftist position, many conservatives are often also in favor of regulation but for different areas and different reasons. To understand when and why regulation makes sense, I want to look at a prominent failure mode - housing.

In the context of housing, a prominent group of advocates is referred to as NIMBYs (Not In My BackYard). Their general stance could be described as “people should have housing but new houses shouldn’t be built in my neighborhood”. They can have this stance because of reasons connected to the newcomers, e.g. that their community could be flooded with “bad people”, because of aesthetic reasons, e.g. that they want to protect old buildings or dislike skyscrapers, or they could have it because of financial reasons, e.g. they own property in an area and its value would fall if new houses were built.

Within the housing market, there are multiple ways in which incentives are not aligned.

  1. The people who use political capital are disproportionately NIMBYs. They are often older folks who are worried about the integrity of their neighborhood or people who already own a home and are worried it falls in value. Additionally, they are often the only ones willing to show up at town halls or write angry letters to the local politicians because they have the time to do so or they are sufficiently emotionally invested. This leads to a situation where local politicians are incentivized to cater to NIMBYs because they win votes if they do and gain nothing if they don’t since the average person doesn’t vote on housing policy.
  2. The people who are most in need of more housing often wield no political power. They are the ones who want to live in San Francisco but because it is too expensive they can’t move there and vote in local elections. Thus, by definition, the game is rigged in favor of people who often have an incentive to defend the status quo, and the people who want change have no say at all. Thus there is an inadequate equilibrium where a minority decides on an outcome that is bad for the powerless majority.
  3. Fixing housing is often a long-term project where the benefits are gained in years but the harms come immediately. So let’s say you are the mayor of SF and decide to give permission for new houses in some neighborhood. Then it would take some time to do the bidding to find a company, prepare the ground, deal with some lawsuits from the local population and ultimately build a house. So if the house is finally finished after 5 years you might not be in office anymore and you won’t profit from it politically. However, the lawsuits and the angry NIMBY population will directly oppose you once you grant the building permits. They will campaign against your re-election and come to your office and town halls to express their anger. Thus the way of least resistance is to just not build new houses.

Thus much regulation is rigged in favor of building fewer houses even though it is not a societal optimum. The results of this is a housing crisis in the entire Bay area where people have to move in their car or out of the region even though just building houses with 10 floors and stop wasting so much space on single-family housing would probably already solve most of it.

There are multiple other reasons why regulation can be unaligned or suboptimal.

  1. The risk-reward trade-off is unbalanced. For example, people in the drug administration or health care officials, in general, are often punished for medication that caused harm when it was released too early but not rewarded for the harm that could have been prevented by releasing a medication earlier (I can recommend the clearer thinking podcast episode with Rob Wiblin on this issue). Thus their incentive is to be as risk-averse as possible rather than balancing benefit and risk.
  2. Often regulation is done in a very reactive way, i.e. people see a problem and think of a quick-fix solution to the problem instead of asking what the underlying reason for the problem is or whether it has unintended side effects. Only allowing cars with certain number plates on even days to drive into the city and others on odd days sounds like a good way to half the number of cars on a given day. What actually happened though was that many people got a second car with the corresponding number plate because it didn’t solve the underlying problem that people need to get into town.
  3. Sometimes regulation is much more about sending a signal than achieving a certain outcome. Banning plastic straws is a prime example of “doing something for the environment” without actually doing anything. The effect is so marginal that the benefits are basically negligible. However, people forget that there are real costs to some individuals who are disabled and thus can’t drink without a straw. And sure, you can replace them with non-plastic alternatives and whatnot but it’s one of these situations where I can’t stop asking myself “Why are we focusing our energy on this dumb issue at all? Can’t we go think about solutions to more important problems?”.
  4. Often there are tons of regulatory debt. Whenever a new government is elected they might have a specific view of how a certain issue should be regulated. They then introduce new legislation which often only changes a specific aspect of the existing regulation or is just an addition to all current rules. Thus regulation tends to increase over time and it gets even more complicated for citizens to understand what is going on. In the context of housing, this might mean you need to get a permit from a local housing agency, from an agency on the state level, from the environmental agency, and from some cultural institution. Sometimes the requirements for permits are mutually exclusive, e.g. you have a certain type of isolation but you are not allowed to change existing walls because of historic reasons. It is not surprising that people then give up after months of trying and stop building houses or starting companies because it’s too complicated or impossible.

There is an unlimited supply of examples or analyses on regulation done badly which I will not further elaborate on. But don’t get me wrong here - ultimately, I think regulation is good when implemented correctly. Being able to have standards for water and securing health regulations in food and medication are good causes and areas where I would want regulation to exist. The question, therefore, is how to design regulation that prevents these failures. While I clearly can’t give any definitive answer to that, here are some thoughts that helped me.

  1. Design systems, don’t plug holes: With this umbrella term I mean a few different things. a) First, one should determine the underlying causes for a given problem as best as possible, e.g. living costs rise but salaries don’t, b) then think about which goal should be achieved with a specific solution, e.g. people should always earn at least as much to support a certain basic lifestyle. c) Then think about a system that improves the causes instead of only fixing the symptoms, e.g. imposing a minimum wage that is tied to inflation and markers of living costs. d) Lastly, making sure that the incentives of the individual actors within the system align with the overall goal of the system, e.g. by tying the minimum wage to measurable quantities one can prevent the endlessly reoccurring political debates on minimum wage every few years where nobody really has an incentive to compromise. Obviously this, once again, requires careful thinking about unintended consequences. I think it is especially important to think about whether a specific piece of regulation could lead to inadequate equilibria (see Eliezer Yudkowsky’s book). Inadequate equilibria describe situations which is suboptimal but no actor has an incentive or the power to escape it. A prominent example is the two-party system in the USA. While Democrats and Republicans might not agree on anything politically, they will unite behind the fact that there should only be two parties. Since they are the only ones who could change the system it will likely be bad for a long time. Thinking of such problems before putting a law into place can save a country 50 years or more of gridlock and archaic policies.
  2. Trade-offs: There are some forms of regulation that are no-brainers, e.g. if a company uses poisonous ingredients to increase their profit you ban the use of that ingredient and make the fine much larger than their profit. However, I would pose that most kinds of regulation are actually much more complicated and actually have meaningful trade-offs. Thus I think regulation should be thought about and framed in terms of these trade-offs. Suddenly it’s not a question of “Do we have long testing procedures for medication to prevent harm?” but “Do we have long testing procedures for medication to prevent harm at the cost of potential benefits from earlier deployment?”. Just asking it like this doesn’t mean you automatically have to favor deregulation it just means you are aware of the trade-off you are facing and could potentially design a system that would optimize for both sides of the trade-off instead of just one, e.g. the more severe your condition the earlier you can get the medicine even if it isn’t yet fully tested.
  3. Be willing to update a lot: Most systems are complicated and even if you think a lot about a problem there is always a high probability of misjudging something. Thus it is important to be willing to update legislation if it turns out not to work or if times change. This sometimes involves pretty drastic changes and you should be willing to take them. If, for example, you wanted to fix the housing problem by introducing rent control and realized that it doesn’t work at all, you should be willing to do a 180-degree turn on the ideological spectrum and instead remove existing rules, e.g. on the height of buildings to incentivize new and bigger houses.
  4. Make laws simpler: I feel like there is no strong mechanism that incentivizes to keep laws simple or unified in some way and laws thus become very complex and opaque. I’m not sure how exactly one could incentivize this reduced complexity but I feel like e.g. tax law would benefit from being more understandable even if it then covers fewer corner cases.

Agency to the people?

I hold two beliefs that seem contradictory at first sight but I don’t think they are. Firstly, I believe that people make a lot of dumb and irrational decisions, e.g. they drink alcohol, smoke, take drugs, etc. But secondly, I believe that many things that are currently illegal should be legal even though this makes it easier for people to potentially make the wrong decision.

This applies broadly to two scenarios. The first is grey areas such as drugs, alcohol, cigarettes, porn, or sex work. My approach for those would be to legalize or at least decriminalize all of them and impose taxes or nudges in some cases. The specific reasons vary from case to case, e.g. I just don’t see any strong reasons for the illegality of sex work (listen to Sex Workers and the State ft. Cathy Reisenwitz on the neoliberal podcast) but I think that smoking is just always a pretty bad deal. The overarching reasons for why I think these grey areas should be legal are

  1. For all of the grey areas above there is a large demand and there is the possibility to supply the good or service even when it’s illegal - you will always find someone who supplies you with some drugs. Thus, the fact that it is illegal will not prevent most consumers but rather just make it more difficult for them to consume it safely. So if the drug addict gets a bad product there is no way to sue the dealer or spread information to other consumers efficiently and if the prostitute gets beaten up or a customer isn’t willing to pay they are unable to sue them or take any other legal action.
  2. A legal but regulated product provides more agency to the consumer even if, at surface level, it opens up a possibility of making dumb decisions. If a product is legal, states can apply rules that ultimately help the consumer to make a more informed decision. In the context of cigarettes and alcohol a state could force companies to print images of the long-term health consequences of the product on the packaging or they could impose sin taxes. In both cases agency is increased. In the case of the images, it means that the long-term consequences of smoking/drinking are salient to you at the moment you choose to buy the pack thus improving your understanding of the true trade-off you are making. Sin taxes improve your own agency because they highlight the fact that you are in fact harming society at large because you already pay for the problems your behavior will potentially create.
  3. Legality reduces stigma. I think the stigma against the people in the porn industry, sex workers, or drug addicts is unjustified and thus shouldn’t exist. I could understand a stigma against people who smoke or drink a lot of alcohol because they not only harm themselves but also others. But even in these cases, I think a social stigma is not an effective tool. Whenever something is stigmatized it is easier to spiral things out of control because people are less likely to talk about the problem with their friends or seek professional help. Once caught in the spiral it is harder to escape because of the stigma.
  4. Taxes are nice. If a product is illegal the state doesn’t profit from taxation. Usually, they still have to bear the costs eventually though, i.e. when people overdose. Thus I would argue that states should just make things that people do anyways legal and use the money to pay for the costs, i.e. finance support lines, social workers, or harm reduction programs such as providing fresh needles for long-term addicts.

Miscellaneous

Taxation & Redistribution

Taxation is a very complicated issue and I won’t be able to present a model that gets even close to covering everything. Thus I will only focus on the high-level things that I’m most certain about.

Firstly, states should have steep progressive individual taxes, i.e. if you are very rich the state might tax you around 75% of your personal income but if you are poor you pay basically nothing. Business tax on the other hand should be low and either flat or only very mildly progressive and it should be very easy to start a new company, e.g. through tax benefits or lax regulation. This combination has the advantage of enabling people who want to take on risks to start companies, let these companies flourish, and employ others but it also means that those who were less fortunate in the lottery of birth or are more risk-averse are not left behind.

Secondly, states should have a broad safety net. This has the advantage that people who are in unfortunate circumstances - be that through their own choices or external factors - have a decent life. I support this from a moral perspective but I also think it is net beneficial for the state. If people are in a situation where they constantly have to fear that they won’t be able to feed themselves and their families or might be evicted from their houses they are much less productive and thus create opportunity costs. Additionally, a broad safety net also allows for more risk-seeking endeavors such as founding a company. If you expect to be completely broke if your start-up fails many people won’t bother to try and thus many good ideas are never realized.

Climate Change

I basically agree with everything that is discussed in the article and podcast, i.e. climate action should be global and drastic. I just want to add one piece of framing that I changed my mind on over the last years. Originally, I thought the fight against climate change is also one against big companies because they are the largest polluters. Now I think focussing primarily on fighting large corporations is a bad strategy because it incentivizes them to lobby against climate legislation in general and thus delays important changes. Therefore, at the center of my solution would be cap and trade schemes that give companies direct monetary incentives to reduce their own pollution and create solutions that store carbon or reduce CO2 in other ways. With schemes that focus only on regulating current pollution the incentives for decarbonization exist but are much smaller than they should be. I would still try to stop companies from polluting but I think the climate movement should be less “fuck big companies” and more “let’s incentivize large polluters to pollute less but also endorse the companies that do comparatively well”.

Clarification: I am, in general, in favor of introducing systems that price in the expected cost of future harm for today’s products. This might be a cap and trade system but could also be a CO2 tax. Furthermore, my approach would include relatively steep increases in costs for CO2 intensive products but I am convinced that the increase shouldn’t be all at once. If a progressive country or block of countries such as the EU would introduce very heavy climate measures and it would cripple their economy, I am pretty sure that the US and China, who pollute much more than the EU, are less likely to implement these measures and thereby decrease the overall CO2 reductions. Thus, I would try to min-max regulations in the sense that they should attempt to reduce as much CO2 as possible while not setting a bad precedent for other countries.

Monopolies are much harder to achieve than I thought

Some companies’ business models rely on achieving a monopoly or at least on large market shares, e.g. Facebook, Uber, or Netflix. Most of them burn a lot of money in the short-term in the hopes of achieving a monopoly and becoming a cash cow in the future. However, I updated on how easy it is to achieve and hold a monopoly. You can only milk your cash cow if people keep using your platform and decide against changing the product and I think some of these companies overestimate the cost of changing. Just because I am used to the Uber-app does not mean I am not willing to download Lyft as soon as Uber raises their prices. If Netflix is too expensive I don’t see any reason not to just switch to Amazon prime, Disney plus, or other online streaming platforms. Clearly, there are examples where the cost of switching is higher because of compatibility, i.e. having an Apple iPhone and MacBook or network effects on Facebook. But even these domains showed strong market shifts in the past. Remember Blackberry and MySpace? They had nearly complete market dominance and got completely crushed by the competition after some bad management decisions. I guess my best conclusion from these observations is that people are likely to switch even if there is some cost attached to it as long as the difference in quality is felt through higher prices or worse quality. One thing that I find quite funny is that most of the efforts to achieve market dominance and milk a monopoly cash cow have actually lead to effects that are opposite to what the investors desire. They burn lots of money and hope that they can then reap the benefits later. If the monopoly is never achieved, they essentially redistributed their money to the masses by providing underpriced services. In the end, they might be the cash cow that we were milking all along.

In areas that tend to have natural monopolies, e.g. water or infrastructure, I have updated in the other direction for the reasons outlined in the “Conditions for markets” section.

I’m unsure about health care

Health care is always a dilemma for me. Market solutions have the problem that the incentives of companies, i.e. profits, don’t always align with that of the recipients of their care. In the worst cases, they have an active incentive to create a problem, e.g. Purdue pharma aggressively advertising their painkillers and understating its addiction to selling more and thereby accelerating the opioid epidemic. But also in the average case markets don’t really work well. People are usually not sufficiently informed about their treatments because medicine is very complicated but also because people usually don’t do cost-benefit analyses when it comes to their health. You just don’t want to be the parent that only buys the second-best treatment for their child to save costs. A good discussion of the problems with markets in health care can be found in Why does US health care cost so much? ft. Arielle Kane.

On the other hand, the government probably has better incentives but is much less efficient and innovative. This is especially problematic in the context of health because inefficiency directly translates to lives lost or suffering not treated. I find it hard to quantify the inefficiency of public solutions but I think there are some indicative examples. While public health solutions are becoming increasingly digital they are a bit late to the party compared to their private counterparts. In general it feels like the public sector is always 5 years behind the private sector when it comes to digital solutions. Secondly, public systems slowly start to adapt to insights from behavioral economics but they are - once again - lagging behind their private counterparts. Regular reminders to do routine checks or to get vaccinated and other forms of nudging should be the norm not the exception. I would expect that one of the reasons why public health care systems had to digitize and nudge more in the last couple of years is because most health care systems are hybrid in the status quo and the public options thus faced private competition.

Given that both have clear problems and it’s basically a choice between bad options, my personal conclusion is that states shouldn’t implement a system that is on either extreme of the spectrum. Rather I’m in favor of hybrid options that use the best of both worlds, i.e. parts are ruled by the free market and others through government systems.

An example of this might be the health insurance sector in Germany. Here the default is a government system but you can buy private insurance if you want to. Private insurance plans are usually disproportionally more expensive compared to their added value and thus rich people indirectly subsidize poorer people for small privileges. The system is not optimal since e.g. some doctors have decided to only serve private patients to get rich but I think the overall idea of basic coverage by the state and more expensive and diverse private options is a good one.

An example of a trend that I find worrying is the continuous privatisation of elder care homes. All research I read on the issue suggests that prices increase while quality of care decreases. There seem to be many possible explanations for this trend, including a) that it might be hard to compare a priori and not easy to switch later on or b) the people who receive the care are not the same as the people who pay for it (usually their children). The situation is obviously much more complicated but I think it is a good example to further understand the limits of markets in health care.

Conclusion

My economic opinions have changed in broadly two ways.

  1. On average I have become much more market-friendly and now tend to believe that the default should be markets.
  2. The variance of my positions has increased at least when considering a classical economic left-right spectrum.

One last note

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