Let Markets Be Markets

Joseph Stiglitz is a Nobel-prize winning economist. He is also a former Chief Economist of the World Bank. He resigned / was forced out in 2000 because of his criticism of IMF and US Treasury policies in forcing “free-market fundamentalism” onto developing and emerging market countries in the 1990’s. He has been a sharp critic throughout his career of the free-markets-are-always-right view that has often characterized the “Chicago boys”. Indeed, the theoretical work for which he was awarded the Nobel Memorial Prize demonstrates how markets will not achieve desirably outcomes without some forms of government regulations and institutional restrictions.

In this short video (8 min) he talks about how U.S. financial markets aren’t really “free markets” – they don’t meet the conditions for a functioning “market”.

Healthcare: Do It Because It’s the Right Thing To Do

The following is important enough to repeat in full from Krugman at Demons And Demonization.

What I want to add is that the opponents of Healthcare Reform claim to be supporters of “liberty” and “free  markets” and claim to be opposed to the “tyranny” of government involvement.  Yet what is very clear (and this story is only one of many examples) is that the current “market” for healthcare insurance does not function as a true market, let alone a free market by any stretch of the imagination.  There is no functioning “market” if participants to contracts can regularly renege, cancel, and deceptively hide their tracks.  The insurance company here  is not engaged in “voluntary, privately-entered contracts in a market”.  They are engaged in predation, deception, and fraud.  Enforcement of contracts is indeed a valid function for government, even for extreme ‘free market’ fundamentalists.  That’s why we need healthcare reform now.

The usual suspects have been attacking Obama for “demonizing” insurance companies; but saying that people do terrible things isn’t demonization if they do, in fact, do terrible things.

And health insurers do, because they have huge financial incentives to act in an inhumane way — most obviously, by revoking coverage when people get sick, using whatever rationale they can devise.

Read this report by Murray Waas on Assurant Health (previously called Fortis), which used a computer algorithm to identify every client with HIV, then systematically revoked coverage on the flimsiest of grounds — and appears to have systematically hidden any paper trail showing how it made its decisions:

The South Carolina Supreme Court, in upholding the jury’s verdict in the case in a unanimous 5-0 opinion, said that it agreed with the lower court’s finding that Fortis destroyed records to hide the corporation’s misconduct. Supreme Court Chief Justice Jean Hoefer Toal wrote: “The lack of written rescission policies, the lack of information available regarding appealing rights or procedures, the separate policies for rescission documents” as well as the “omission” of other records regarding the decision to revoke Mitchell’s insurance, constituted “evidence that Fortis tried to conceal the actions it took in rescinding his policy.”

And what basis did the company use for revoking coverage?

Fortis canceled Mitchell’s health insurance based on a single erroneous note from a nurse in his medical records that indicated that he might have been diagnosed prior to his obtaining his insurance policy. When the company’s investigators discovered the note, they ceased further review of Mitchell’s records for evidence to the contrary, including the records containing the doctor’s diagnosis.

Still, this must have been an outlier, a scuzzy company that wasn’t at all typical, right? But in that case, why was the CEO one of the people who testified on behalf of the insurance industry?

On June 16, 2009, the House Energy and Commerce Committee, held a hearing on the practice of rescission by health insurance companies, and among the industry executives who testified was Don Hamm, the CEO and President of Assurant Health.

Hamm insisted before the committee that rescission was a necessary tool for Assurant and other health insurance companies to hold the cost of premiums down for other policyholders. Hamm asserted that rescission was “one of many protections supporting the affordability and viability of individual health insurance in the United States under our present system.”

And as the story points out, the evidence is that the overwhelming majority of rescissions, not just at Assurant but across the board, are, in fact, without justification.

The crucial thing to understand is that depending on how a few Democrats vote sometime soon, stories like this will either cease happening — or continue, and get much worse. The proposed health care reform would end discrimination based on pre-existing conditions, and therefore end the threat of rescission as well.

And to repeat what I and other have repeatedly explained, you need the whole package to make this work. You can’t end discrimination based on medical history unless you require that health as well as sick people have insurance, to broaden the risk pool. And you can’t mandate coverage unless you provide aid to those who otherwise couldn’t afford it.

Right now, we have a system that creates huge incentives for bad, one might say demonic, behavior: Assurant made $150 million by revoking coverage, almost always without cause. We can end all of that — not in some indefinite future, but with a single vote right now.

Just do it.

“We do not expect substantial further declines in unemployment this year”

As I’ve feared, it looks like a long, slow recovery.  For employment, it hardly looks like a recovery at all.  Even if employmnent (# of jobs) grows by say 100,000 per month, that means no improvement in unemployment rate because population and workforce participation continue to grow. Also note the reference that inflation is NOT what we have to fear now.

Administration advisors Geithner, Orzag, and Romer advise in a Joint Statement:

Because of normal growth in the population and the fact that some workers are likely to reenter the labor force as the economy improves, it typically takes employment growth of somewhat over 100,000 per month to bring the unemployment rate down. Because we do not expect job growth substantially over 100,000 per month over the remainder of the year, we do not expect substantial further declines in unemployment this year. Indeed, the rate may rise slightly over the next few months as some workers return to the labor force, before beginning a steady downward trend. …

As the pace of job creation picks up in 2011 and 2012, there is likely to be greater progress in reducing unemployment. Nonetheless, because of the severe toll the recession has taken on the labor market, the unemployment rate is likely to remain elevated for an extended period. The forecast projects that in the fourth quarter of 2011, the unemployment rate will be 8.9 percent, and that by the fourth quarter of 2012, it will be 7.9 percent.

# Inflation. Because of the high levels of slack in the economy, we expect inflation to remain low and see little risk of substantial increases in inflation. At the same time, inflation expectations appear to be well anchored, and so we do not expect inflation to fall substantially further or turn into outright deflation. We project inflation (on a fourth-quarter-to-fourth-quarter basis, as measured by the GDP price index) of 1.0 percent in 2010, 1.4 percent in 2011, and 1.7 percent in 2012.

via Calculated Risk: Geithner, Orzag, Romer: “We do not expect substantial further declines in unemployment this year”.