Markets Produce Excellent Failures

How many Target stores should there be? Pose that question to an economist and prepare for an enthusiastic lecture on the magic of markets and distributed decision-making to guide outcomes. That rhapsody is likely to overlook an important real-world detail. It is actually someone’s job to make that call. Like some Soviet apparatchik, there’s a man or woman in a position of authority in the company who owns that decision. After Smith’s “Invisible Hand” completes its mysterious wave, someone in a senior role has to choose. How many stores? Where and when?

They don’t always get it right.

We are living through a crisis in the power and relevance of government, undermining the democratic institutions on which on our freedom and security have depended. Amid this turmoil, private, profit-driven institutions like corporations are thriving, taking on roles and services in public life that our ancestors never imagined. It makes sense to look carefully at the structural advantages of market-driven institutions to understand why they seem to outperform public institutions in so many ways. If we hope to leverage the power of private organizations toward the public good, we must also be conscious of how those companies fail and why.

It seemed like a good idea at the time. Canadian retailer, Zellers, was in deep trouble in 2011 and looking for help. Target had lagged behind Wal-Mart which had begun its foreign expansion in the 90’s and was well-established in Canada. Zellers’ distress offered a great leap forward that could catapult Target into a powerful market position. Instead of buying Zellers outright, along with its existing supply chain and infrastructure, they leased and closed 220 of their locations, retaining none of the Canadian staff. Zellers briefly retained a few dozen stores, but was left to wither and die.

It turns out that Zellers was struggling for some good reasons. Buildings poorly configured for Target’s operations were sitting in locations inconvenient for Target’s shoppers. Having acquired no senior Canadian talent in the deal, Target struggled to navigate supply chain, marketing, regulatory and cultural crosscurrents. As the new ventures began opening in 2013, Canadians with favorable Target experience from the US were greeted by ugly new stores with empty shelves.

Capital costs imposed by such a massive push piled up while revenues disappointed. Within less than a year, the young president of Target Canada who had worked his way up the chain after starting at the company out of college, was fired. In January 2015 the company announced a $5.4bn loss on the project and began shutting down Canadian operations.

Target isn’t alone. Wal-Mart experienced similar failures in Germany and Japan. Its German debacle alone racked up nearly a billion in losses. Lessons from these failures have some relevance to public policy. Trying to go big, fast, in an unfamiliar environment brings inevitable costs and errors. Wal-Mart’s success in Canada and Mexico came relatively slowly, with a run of test stores and intense efforts to incorporate local knowledge. On-premise retail is a very personal exchange even in a large store. The larger the cultural distance between a company’s C-suite and its retail customers, the greater the cost of bridging that divide and achieving success.

When the national enrollment website for Affordable Care Act was rolled out at the end of 2013 it was a disaster. Its original budget was roughly $90m. By the time the site was available costs had risen to nearly $500m. When most major issues had been resolved a year later costs were approaching $2bn. Throughout this time, many state level exchanges were operating their websites at very low cost with high levels of customer satisfaction.

Needless to say, the cost overruns and efficiency problems with Healthcare.gov were issues of huge national prominence, casting doubt on the ability to government to deliver key health services. Interestingly though, no one looks at the inefficiency or incompetence of Wal-Mart’s foreign expansion to paint corporations as inept. There is an important difference in these stories of institutional failure, public and private. In the private sector, failure tends to come quickly. Consequences aren’t suspended while politicians bicker and voters make up their minds. The axe falls.

The bright young face who climbed from the bottom ladder of the company’s merchandizing ranks to captain Target Canada is no longer leading a major corporate operation. A company backed with billions of dollars in investment capital along with the expertise and infrastructure of a corporate giant lived to the ripe old age of four.

Corporations aren’t thriving because markets are perfect or because corporations possess some virtue missing from public institutions. Corporations are thriving relative to public institutions thanks to their relentless exposure to competition and failure.

Out of that rapid evolutionary churn has emerged a decisively important trait – an increasingly superior capacity for parallel processing. Someone made the final decision to invest in Target Canada, but that project wouldn’t have been possible absent a lower-level decision structure in which millions of decisions are distributed out across masses of people and time. In order to survive, businesses distribute rather than centralize their decisions to a much greater degree than governments in a liberal democracy, bound by rule of law, are allowed to achieve.

Free from the constraints of electoral politics, businesses can also react more quickly to changing conditions and cut off failed policies. While Target Canada lands in a dumpster, the federal government continues to billions into the F-35 fighter jet. That private sector parallel processing advantage threatens to open into a chasm as opportunities emerge to leverage cheap massive computing power and AI for smarter decision-making.

If you want to ruin the power of businesses to innovate and succeed, just insulate them from competition and protect them from failure. Likewise, if you want to see public institutions adapt some of the habits and characteristics of the best private entities, expose them to forces that weed out poor performance and open up massive new channels for decision-making and experimentation. There are aspects of public institutions that make this kind of flexibility difficult, especially in a liberal democracy, but they do not close off every such option.

Liberal democracy may be sputtering, but we may have remedies available to keep it healthy if we have the simple humility to recognize them. Our founders organized our system with some built-in options for distributed decision-making. Our states, along with a dense network of relatively powerful local governments, form a ready-made test ground for policy innovation.

If “Medicare for all” is such a great idea, why hasn’t California or New York already done it? We already possess a system allowing for a great diversity of localized experimentation and innovation, we just don’t recognize its power. Massachusetts already enjoys a 95% rate of health insurance coverage and almost universal coverage for children. Our attempt to port their plan onto the federal level has been a sputtering, costly failure. We don’t all live in Massachusetts. What works there will not necessarily work in Mississippi or Oregon. Our system makes local innovation possible, an option for democratic success we ignore at our peril. Did free markets work for Target Canada? Yes and no. Exposure to market forces did not lead Target’s executives toward optimal decisions in the style that economists draw up in the classroom. Someone made a choice and that choice was a multi-billion dollar bankruptcy accompanied by many lost jobs. On the other hand, the operation’s swift bankruptcy is the kind of evolutionary cleansing that eludes public sector institutions.

As data becomes the currency of a new world, speed is key to survival. If we value our public sector institutions, we need to learn how and when to let them fail.

***

This post is part of a series exploring what’s next after liberal democracy and what we should do to prepare. Much of this material was covered in The Politics of Crazy, though from the perspective of a more optimistic era. The work fits better as a whole, but reading through a 6000+ word piece on a computer seems impractical. When these are complete I’ll gather them into a series of links on a single page.

24 Comments

  1. I’m a bit tired of all this talk of competition. Companies obfuscate their products and services to the point where there is no competition. Health insurance is a prime example of where it is impossible to determine the best value. Most people throw their hands up and just pick one. It more about has the best marketing department and not about who has the best product for the price.

  2. New York and California don’t have Medicare for all, or any other kind of universal health care, because taking that step is bold, scary, and politically risky. It is much easier to complain about Congressional failure than to tackle a hard problem. As long as voters can be convinced to ignore the failure of their state level leaders to solve problems, those state level leaders will decline to solve problems.

    California and Vermont have also discovered that the existence of federal programs like Medicare and Medicaid makes this problem harder to solve. They don’t have the freedom to go back to first principles and design a sober, intelligent approach from the ground up because whatever they create must somehow fit inside the federal scheme. This is one of the reasons I’d like to see the feds back off into more of a pure tax/distribute role in healthcare financing. We shudder at the thought of letting Mississippi decide what to do with their health care budget because they’ll spend it on magic stones and prayer napkins, but by insisting on holding that much power in Washington we also stifle progress that might have some from Minnesota or Oregon. We end up living under a system in which we’ve given the Mississippis of our world far more power over our lives than we should. If you want to live in a democracy, you gotta let some idiots live with the consequences of their choices.

    As for the things that make state level universal health care impossible, I call BS. The adverse selection problem is particularly easy. A state could enact rules that impose higher premiums and deductibles for new arrivals, surcharges, pre-existing condition rules, etc. There are hundreds of options for this. But it would be largely unnecessary.

    Every European system faces adverse selection risk, thanks to an open-borders policy much like our federal system. Why isn’t every sick person in Poland pouring in France? I’ve never heard of it becoming a problem.

    We already have this risk in our system. Medicare and Medicaid outlays and coverages vary by state in ways that should attract adverse selection, especially for things like nursing care. It just doesn’t happen on an economically meaningful scale because human beings do not operate that way, often even when they could just cross a river and get better coverage.

    As for deliberate interference from federal authorities, that might get interesting. Even with a liberal state trying to enact reforms under a Democratic president, you could see bureaucrats in DC tempted to muck with their efforts out of nothing more than turf protection. Still, that’s politics. If state level officials felt enough organized pressure from their constituents then the federal politics would just be one more obstacle to dismantle.

    Finance sounds like more of an obstacle than it is. Again, the federal government has more tools thanks to currency control and it would be nice if they’d help. But even with hostility from the feds a state could tackle this problem. There’s a dirty secret hiding in the details. Universal health care sounds expensive, but it is actually far cheaper than our present system. Hearing that a state will impose new taxes amounting to roughly $3-4K per person to fund healthcare sounds exorbitant only if you have no idea how much health care currently costs. Even a very generous program, like the French system, would cost a fraction of what we pay today.

    As for borrowing costs during recessions, we already back that into our current system. Part of what drove California’s borrowing binge during the financial collapse was its healthcare costs. They trimmed other programs and borrowed wads of money and now they’re seeing surpluses again, with debt levels running about average for states.

    If voters recognized the opportunity to use state power for this purpose, we could make a lot of progress very fast. Our imagined dependence on the federal government has become worse than a crutch. It’s become an excuse for governmental malpractice.

    1. While I list some reasons why CA and NY haven’t tried Medicare-for-all yet, I don’t mean to imply I’m happy that they haven’t or to excuse them for it. I actually agree with you that probably 90% of the problem is the lack of political will, even among democrats. After all, it took a Democrat (well, an Independent Lieberman) to kill the public option in obamacare. And some of the choicest epithets for liberals who dared to push for a public option came from their fellow Democrats. The corporate wing of the Democratic party is deathly scared of pushing for Medicare-for-all, largely for the same reasons that Republicans are (it will upset their donors, who are used to extracting hundreds of billions of dollars in profit from us, and have no problem using it to Harry-and-Louise them out of office).

      And that’s why the Bernie wing of the Democratic party is as focused on ousting those Dems as they are in ousting Republicans.

  3. Chris, I think WX nailed it.

    Regarding banks, we have made the public the insurers of bank losses. The taxpayer is now bearing the risk of the big banks’ forays into whatever they want, while there is virtually zero exposure to blowback for the execs and shaareholders.

    There are two options as I see it:

    1. The government DOES regulate the activities, and more importantly, the size a financial institution can grow to, based on the impact a failure would have on the general public.
    2. The government continues with the laissez-faire approach, but when a massive financial institution, or car company, fails, they let it die, and well, whatever social impact there is, so be it.

    The second option of course means massive risk to the entire economy, and ends up getting governments voted out. But in NEXT, these governments have so little power, guess it is irrelevant what happens at the ballot box.

    I for one, vote for option 1.

    1. Needless to say, I like option 2, which is how our banking system worked until the Clinton Administration.

      Insured financial institutions should be relatively unprofitable, operating under stringent regulation with few options for innovation. Rules for investment banking should be built with an emphasis on disclosure and fraud prevention, with no safety nets and tight rules to limit the size of individual institutions and their ability to collude. Next-gen financial institutions should be allowed to emerge with little regulation, no safety net, and an emphasis on disclosure.

      Bankers should regularly go to jail. There is enormous incentive for fraud and theft in any dynamic financial system. If bankers aren’t going to prison on a regular basis, it’s because the system has failed and systemic risks are piling up. A healthy, dynamic capitalist system should have hundreds of federal and thousands of state DA’s busy prosecuting banking fraud. I can’t remember the last time I heard of a banker going to prison.

      1. “Rules for investment banking should be built with an emphasis on disclosure and fraud prevention, with no safety nets and tight rules to limit the size of individual institutions and their ability to collude”

        Sounds to me like you chose option 3, where banks are regulated in what they can do wrt to investment banking (the part that went so badly in 2008). I don’t see how you can have disclosure without regulation. What would be the point of disclosure if there are no rules, no oversight, on what an next-gen bank does with some new financial product?

        Goldman Sachs: “FYI: We are going to roll up all this bad debt with good debt and resell it at AAA ratings, thanks to the complicity of the ratings agencies.”
        Government: “We don’t think that is a great idea. Our experts say it will lead to disaster.”
        Goldman Sachs: “Well, we really don’t care what you think since you have zero control over us until things go wrong, and we think our experts are smarter than your guys.”

        The only way it works is if the government goes Chinese model and replies:
        “OK, knock yourself out. But do keep in mind, if things go sideways, we will:

        1. Strip your company of all its assets.
        2. Execute every person involved in designing, marketing, and selling these products, plus every exec from senior manager upwards, including all board members.
        3. We will also strip every personal asset from all these criminals’ families and throw their families in the street.

        You have been warned.”

        Is that draconian and highly undemocratic? Damn right it is. And what should have happened in 2008, given the global carnage that was created by these psychopaths.

        You talk about DA’s prosecuting people for bank fraud. Unless the punishment is truly horrifying, nothing will change.

  4. EJ

    I dunno, Chris. I realise this is ideological rather than empirical for you, but I think the theory does not translate to practise.

    Let’s look at probably the biggest topic facing our world: climate change. Our current civilisation may have difficulty surviving a raise of more than one degree. Current mapped oil reserves already contain three times as much oil as will cause that rise. (Not an exact number, I can get a source if you want one.) That oil reserve is a known quantity: it’s been factored into the global energy price, which in turn has been factored into the price of energy-intensive commodities like aluminium. In other words, the current wholesale price of energy already assumes civilisation-destroying quantities of carbon dioxide. It’s already too late, unless someone agrees to give up a large amount of the money they’ve already counted.

    Of course, they have not done this.

    If markets could deal with such information, energy companies would have acted immediately, by cancelling all future oil exploration forever, announcing that over two-thirds of known reserves will go untapped forever, and adjusting global commodity prices and share prices to account for this. They have opted not to do this. Instead, they have announced that they’re going to diversify into renewables while still drilling the known reserves, an action similar to putting a plaster on the head of a man suffering a sucking chest wound.

    If we can’t trust behemoths like Shell, BP and Texaco to act according to the wider needs of civilisation (and thus their own shareholders’ long-term needs) then surely our definition of “thriving” is a poor one?

    1. That’s not how markets work. Markets process information at the transaction level. Pollution, climate change, even death by electrocution thanks to cheap wiring is not incorporated into a single transaction unless it affects both of the parties. Even then it may not be priced in unless the consequences are relatively immediate. That’s what government is for. It doesn’t mean markets don’t work, it just means that we have to be sensible about what we ask markets to do and how we structure their rewards. You can build a market for child automobile safety (we already did it) with the right rules and rewards, it just doesn’t appear like magic on its own.

  5. I look forward to your next article which hopefully will tell us exactly how we can preserve this competition. I’m in 100% agreement that the only way to preserve effective companies is to allow them to fail. During the financial crisis, in 07/08, I argued vociferously that even if the govt needs to intervene to preserve specific *markets* (e.g. various credit markets), it should not do so by bailing out specific companies *within* those markets. So Goldman Sachs should have been allowed to fail, and money should have been pumped directly into vital credit markets as needed. FWIW, I felt the same way about GM: the market cap of GM was so low at that point, it was cheaper for the govt to buy the entire company and give the factories away for free to whichever carmaker was willing to keep them running for 5 years, rather than bail out GM. And it would have accomplished the same goal of preserving jobs.

    But from where I sit, we’re going backwards: fewer companies are allowed to fail, in fewer sectors. Companies know the gig: merge, merge, merge, until you get too big to fail, and can buy yourself a market / regulatory structure that allows for rentier-class profits with minimal risk / innovation / competition. And so far, the justice dept (under both Dems and Repubs) seems happy with it.

    I would also add one thing: making the private markets more efficient is not just about allowing them to fail, but ensuring that they internalize their long-term costs. The most obvious one is pollution: if you don’t force companies to internalize the long-term costs of their pollution, and allow them to foist them on the public, then all the competition in the world isn’t going to keep companies from destroying the environment. I’m absolutely for conversative, market-based solutions like cap-and-trade here.

    But it goes beyond just the environment. How about the costs of educating their workers? Workplace training used to be a thing. No longer. US airlines cry about a pilot shortage (more accurately, a lack of pilots willing to work at the wages they provide; supply and demand works both ways), because they never had to set up formal pilot training programs like most foreign carriers. They could just depend on the enormous US military to train pilots and lose them after just a few years of service. How stupid is it for the US govt to spent $1 million to train a pilot in the specialized skills of supersonic flight and aerial combat, then have him go work at a commercial airliner, when you can train a commercial pilot for $50-100k? Force the airlines to pay back Uncle Sam for the [over-]training their pilots received, and they’ll quickly setup their own flight schools which ends up being far more cost-efficient for both the military and the commercial airlines.

    Anyway, I do agree with you about competition and the ability to fail. I believe in capitalism red-in-tooth-and-claw. I’m just not sure how we get there from here. Looking forward to your ideas though!

    1. Don’t get me started on the bank bailouts. And let’s not forget that Democrats had supermajority control of the federal government during the critical period of that era. Our banking system has been essentially nationalized, but without any of the profits going to the public. This is especially true for home mortgages, which are now almost 100% underwritten with federal funds. We can complain about this all we want, but this new structure was built under Democratic control, not that Republicans wouldn’t have done something worse.

      Pricing-in externalities like pollution are one of the things governments do well, and it’s a pretty easy process. It gets harder as bureaucracies grow more entrenched and their relationships with regulated industries grows more incestuous. You can tell that oversight it starting to fail when the rules get so complex you can’t read them. Cap and trade=good. Six thousand pages of indecipherable operating instructions published by a federal agency=not-so-good.

      1. Yeah, I fully recognize that most of the Wall St. bailouts were done by the Democratic supermajority. Hence why I supported Bernie instead of Hillary 🙂
        At the tail end of 2007, when GWB was still in office, for the life of me, I couldn’t figure out why the Dems were delivering the votes for the $700 billion bailout that Hank Paulson was asking for, when Bush’s own Republicans were voting against it. Obama the Senator was in charge of whipping one of the votes. Which means he was literally responsible for rounding up the votes to write that blank check, while he was campaigning about “reigning in Wall St. fat cats”. I mean, it was bad policy, *and* it was bad politics. The only conclusion is that they are so much more dependent on Wall st. money that they’ll actually coddle bankers even more than Republicans.

        It’s actually one reason why I considered supporting John McCain (until he selected Palin as his VP): Republicans, whom the public traditionally thinks of as being the party of bankers, would feel somewhat constrained in how far they could carry Wall St’s water. The Dems, knowing that the public thinks they’re anti-Wall St., would be much freer to work for Wall St. interests without upsetting their voters. Which is what happened. GWB, for all his faults, put his own big-time supporter Ken Lay in jail when Enron rolled around. And that scandal didn’t even involve any public money. Meanwhile, Jamie Dimon, Dick Fuld, and Lloyd Blankfein are still free, doing “God’s work”.

        And you’re absolutely right about mortgages. I want to get in on that racket. Let’s see: borrow from the Fed at 2%, lend to a homeowner for 4%, sell the loan to Fannie Mae so you don’t even carry the foreclosure risk, pocket the 2% and call it a day. Or to put it in a way that might actually get taxpayers upset: *we* the public, lend the banks *our* money, for them to lend back to us at a higher rate. And we keep the default risk. Anybody here want to start a bank?

        (This is also why for me the top 10 issues in any recent election have been economic / / financial, and it really annoys me when SJWs and identity politics are used to distract from what’s really causing most of us misery…)

  6. Hi Chris
    You are looking through your rose tinted glasses

    The reason that big companies are successful in the USA is NOT because they are more efficient or winnowed by competition

    It’s simpler than that – they are successful because they buy the legislation and use that to get a “competitive advantage” –
    One of the main reasons that they fail when they expand to Europe is because that tactic does not work as well away from for “Finest Democracy that Money can Buy”

    Capitalism is GREAT for the working model – production
    But crap to get that first working model
    AND – this is the BIG problem in the USA – your companies are reducing competition by amalgamating and also by “buying the levers of power”

    Remember what Adam Smith said –

    “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.”

  7. Chris, you brought up healthcare, so I ask the question.
    What makes the U.S. unique among the G7 countries that universal healthcare is not possible?

    As far as I can tell, the only difference is that Americans are OK with other people getting rich as middlemen between the sick person and the healthcare providers. I call these middlemen parasites, but that is just me.

    There are certain things that transcend market solutions.

    1. ***What makes the U.S. unique among the G7 countries that universal healthcare is not possible?***

      So many things, first of all of course: race. But then there are some practical issues that get in the way of a national insurance scheme.

      For starters we’re big. There isn’t another country with a health insurance system that covers half or even a third of the population of our system. Big isn’t necessarily a problem in insurance. In fact, scale is supposed to make a system cheaper, but we also have some other issues.

      We do not live under a unitary central government, like France or Denmark. We live in a system of 50 federated states. This matters in practical and legal ways.

      In practical terms you experience significant differences in the functional medical-delivery needs of a population in the northern peninsula of Michigan or people living in the MS Delta or St. Louis or Phoenix. The French, even with their large population and relative geographic distribution, can implement a relatively unitary system of healthcare delivery, which simplifies billing, approvals, prescription-management and other processes by orders of magnitude over what we would need nationally. Some things just work better, cheaper, and more effectively when they are more artisanal.

      Medicare actually incorporates some of these realities into its structure, just not quite enough of them. Medicare is 50(+) different systems, all crammed under the same complex regulatory umbrella.

      The world’s finest healthcare systems are in Europe, particularly France, Holland and Norway. Those systems are complex, but they share some characteristics. They were all developed under relatively conservative doctrines. Unlike systems in the UK and Canada, they evolved incrementally, preserving much of what was best in their old systems. Almost all doctors and hospitals are private sector institutions, not government or civil service employees. In the best systems, the state took over health care financing, not health care delivery.

      It should also be noted that although health care in those systems is delivered by the private sector, most of those insurance companies, hospitals and medical practices are organized as not-for-profit entities (there are some exceptions, again it’s complicated). So capital markets have little involvement in health care delivery even though almost all care if delivered via the private sector.

      The important lesson for us from the European experience, as compared to the much less happy experience of the British in particular, is that you should use what’s best about your existing system rather than trying to remake an entire healthcare system out of thin air. Here, that probably means leveraging private sector, for-profit insurers and hospitals simply because that’s what we’ve already learned to do. If there are practices or habits of those institutions that pose problems, then build rules to address those practices rather than trying to burn it all down.

      Chances are, if you offered Americans universal access to our existing private health care system at prices comparable to Europe (including both taxes and premiums) we would all be thrilled. And any state could do it if they simply ginned up the political will.

      1. I have to really disagree with you on this one Chris.

        The reason CA and NY don’t have Medicare for all is because a) you can’t control for adverse selection (sick, uninsurable people moving to your state for the insurance, and healthy people moving out) and b) they can’t get waivers from the Federal govt (specifically re: medicaid) to set it up. The Federal govt is happy to grant waivers if you’re a red state looking to slash medicaid benefits below federal minimums. They do not grant them (especially under Republican administrations) if you’re looking to take your medicaid money and pool it into a larger universal coverage plan. Also, c) I agree with Creigh: public insurance is countercyclical spending (i.e. spending goes up when the economy goes down) which is very, very dangerous to undertake if you don’t control your own currency (since spending goes up just when tax receipts fall), especially with a large program like healthcare.

        Despite that, states do and have tried. Oregon has a medicaid-based coverage plan that has resulted in consistently lower uninsurance rates than the nation. Hawaii, where adverse selection is less of a problem due to its geographic isolation, mandated employers to provide health insurance back in *1974*, and it has worked well for decades since. Maryland has an all-Payer model (in which the state negotiates with providers and sets 1 fee schedule, which all insurance companies — including Medicare and Medicaid — must use) which reduces costs and allows them to implement quality measures that a fully private, fragmented market wouldn’t allow. Each one of these programs works better than the private system, and yet, for ideological reasons, they’re all pooh-pooh’ed at the Federal level. The reason MA’s system works and the Federal system doesn’t is because the Republicans ensured that the Federal system would be broken. Obama bargained with the Repubs and ultimately didn’t get a single vote from them. Yet somehow, the crappy compromises he made for them (like no public option) stayed in the final legislation. Despite that, and for all its warts (I was not a supporter, trust me) it’s significantly reduced uninsurance rates.

        But my bigger problem is this: I strongly disagree that the US is *so* different from the rest of the world that none of their examples can be used here. We already have Medicare-for-all. You just have to be 65 years old to access it. Do racial tensions in this country automatically disappear when you hit 65? The number of retiree Trump supporters argues otherwise. And yet Medicare works. France modeled its program on *our* Medicare program, as did Canada.

        The truth is, we don’t have to use other countries as examples. We have implemented every type of public, universal health care system in existence right within our borders, and then for ideological reasons, deliberately restricted their reach, even though they *all* work better than the private system, specifically to preserve the profits of the private insurance industry.

        Do you like France’s system (public health financing, with actual care provided by private entities)? They modeled it after our own Medicare (restricted to >65 year olds).

        Do you like Canada’s system (state-implemented payment systems, with federal regulations on minimum care, funding, etc.)? We have medicaid: a state-based system, with federal cost-sharing and minimum coverage regulations (restricted to poor people).

        Do you like Britain’s NHS (fully federally funded and owned, providing care in an integrated model, with the option of going outside if you have private insurance)? We have the VA (restricted to veterans).

        Do you like the German or Swiss model (strictly regulated private insurance companies that compete to offer a standardized package of coverage options)? We have the Federal Employee Health Benefits Plan (FEHBP) in which the federal govt sets standards, private insurance companies compete to offer the standardized plans, and employees select whichever plan they want, with their employer (the fed govt) paying for it (restricted to federal employees).

        Every single one of these systems is in place today, cares for a legislatively restricted population (so restricted in order to deliberately leave a large chunk for private insurance to profit off of), and does it better than the private market. Every single one of those plans (including the VA and medicaid) beats the private market in quality, cost, coverage, and even customer satisfaction. They manage to do so while navigating all of the political constraints like race that you mention. Why am I not allowed to purchase Medicare coverage for myself? Why doesn’t the government figure out my actuarial cost and sell it to me in a revenue-neutral way? How about the VA? or FEHBP? Heck, I’d even buy medicaid over an Obamacare plan (far more extensive coverage, broader provider networks, and much less deductible / copays).

        Obamacare was a last-ditch attempt to preserve the private insurance market, with all its failures, by pumping enormous amounts of subsidies into making it work. Despite that, 70% of the net expansion of the insured population was from the medicaid expansion. IOW, we could have gotten 70% of Obamacare’s benefit, with much less cost, simply by expanding medicaid eligibility, and leaving the private market to wither and die off, as it has been gradually doing for decades (and as economic forces would dictate).

        Even now, according to a study by the NBER, the private market i.e. Obamacare, is such poor insurance, that people who don’t get any subsidy are financially *better off* paying the penalty and not buying the insurance product, even with the risk of catastrophic medical bills that that entails:

        http://www.thestreet.com/story/13298998/1/obamacare-actually-isn-t-all-that-affordable-unless-you-re-broke.html

        Here’s the choice quote:

        “At higher income levels, small or zero subsidies and currently modest penalties will not be enough to affect the large welfare losses that the middle class uninsured experience were they to buy coverage,” the report says. Those in good health were “consistently worse off from purchasing coverage regardless of the assumptions made,” according to estimates calculated by the researchers.

        The truth is, we’ve already figured out the hard part: how to cover people who are actually sick (the old, the poor, the disabled, military, etc). The private industry was left with the healthiest part of the population, and they can’t even manage to do that right, without bankrupting their customers or trapping them in a morass of bureaucracy that makes the DMV look like a model of efficiency. And as soon as they actually get sick, they get dumped on the public rolls anyway (lose your job and go on medicaid; get disabled and go on medicare). Right now, the govt (federal through local) already pays ~60% of the nation’s health bill. And that’s without the tax deduction that you astutely identify as a hidden public subsidy. We already have socialized medicine for the ones that need it, because private insurance has no interest in actually providing for the care of its beneficiaries. They dumped that obligation a long time ago to the government. It’s the rest of us that don’t actually need much care that private insurance jealously guards for the sole purpose of rent extraction.

        As much of a supporter of Medicare-for-all as I am, I could be more accurately described as anti-private-insurance. I’d be glad to have FEHBP-for-all, medicaid-for-all, or even VA-for-all. Every single one of those is a better option than the current private world. Politically, it’s easier to sell Medicare because everyone has a grandmother / grandfather on Medicare, whereas not everyone has someone on the other programs. Which is why that’s what’s being pushed. But literally any system would be better than the private system we have now (and that’s not conjecture; that’s proven, within our own borders).

      2. “In the best systems, the state took over health care financing, not health care delivery. ”

        Hmmm…Medicare for all sounds like (a) we have a system already in place to be able to do exactly that, and (b) we have a proposal from some of our politicians to do it.

      3. I want to thank WX Wall for his comparison of systems that work in other countries to *portions* of the mosaic of American healthcare. That whole post (it’s more than a “comment”) is well argued.

        I’d like to expand on his Obamacare comments. Not only were most of the flaws in the legislation the result of negotiation with Republicans (and a couple of conservative Ds) but the problems of the federal exchange website were also partially a result of Republican non-cooperation. Chris notes that many State exchange websites worked well from the beginning. Those were States that wanted O-care to work. The federal exchange was burdened by (a) more States than expected not creating their own, and (b) larger volumes of customers due to States refusing the Medicaid expansion. The federal exchange was massively under-budgeted to begin with and then had to handle a larger and more complex set of features and customers. (But OK, yeah, the feds were also not set up to manage a large software development project.)

  8. “If “Medicare for all” is such a great idea, why hasn’t California or New York already done it?”

    Government finance is completely different at the Federal and state levels. Federal spending is financed by printing money (not by collecting taxes. Federal taxes serve to create a need for acquiring US dollars to pay taxes by the private sector–on pain of confiscation of property or even imprisonment–thus giving value to the dollars spent by the Federal Government).

    State governments do not print money. They can’t run a true deficit, they must tax or borrow in order to spend. This gives the Federal Government policy options that aren’t available to state governments.

    There’s also an issue of border control. States have no ability to control movement of citizens and goods across their borders.

    1. Also, I loved WX Wall’s comment from a few threads ago:

      “Public policy is hard, something that people in the private world forget as they contemptuously dismiss politicians and public servants as stupid, corrupt, and hidebound. They may be all those, but it doesn’t make public policy any easier. Just ask Rex Tillerson”

    2. “Federal spending is financed by printing money.”

      Are you sure about that? Your claim that state governments can’t run deficits is interesting given the scale of debt taken on by many state governments. State level finance is different, but those differences have more to do with process than outcomes.

      As for the borders, your health insurance plan only applies in your state. It is illegal to sell health insurance across state lines. Yet, I can work for a company based in California that arranges health insurance for its employees nationally and internationally. And I can go see a doctor in Indiana or Wisconsin. The portability issues of single payer are just another detail. They are detail, by the way, that would likely topple the whole private system once one large state bit the bullet and took that step, since major employers based there would start scaling back, de-emphasizing, or even ending their private coverage for all employees.

      This is a problem that will only be solved once states take the lead.

      1. I’m have to grudgingly admit that states will have to take the lead, if for no other reason than senators representing 18% of the US population can and will block anything national. (It seems to me–listening to the Kavanaugh hearings, among other things–that state and municipal governments are going to have to find ways to get around Federal roadblocks put up by the Republican minority.)

        And yes, I’m sure that Federal spending is financed by printing money. In the bad old days, when the King needed sailors for his warships, he sent out press gangs. And when he needed quarters for his soldiers, he put them up in your bedroom, board included. And if you refused there were draconian consequences. Today, we do it differently. The Federal Government prints* up a bunch of things it calls “dollars,” and offers them to the private sector (us) as payment for wages and salaries, goods and services, entitlements, etc. It motivates us to accept them by requiring that we pay taxes with these “dollars” And if you refuse there are draconian consequences.

        People often say that commercial banks create money. That’s true given the appropriate definition of money** but misleading. What banks create–out of thin air–is deposits. Which are not “a pile of money in a vault with your name on it” but are promissory notes payable in Federal Government dollars, which banks do not create.

        *The term “printing” is metaphorical; mostly it’s just done electronically.

        **Money is a promissory note denominated in units of currency.

      2. One of the things candidate Gillum has proposed is Florida banding with other states to create a form of state run universal health care. I think too that this problem can be best solved at state level.

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