13 April 2012

the Fed and government independence

The Fed is an insurance coop among large banks. It is arguably anti-competitive towards smaller and newer banks, but does generate increased lending among member banks via risk abatement. Member banks ascribe to certain behaviors, and should they fail while acting in accordance to Fed terms, have access to cheap loans to recapitalize (bailed out). Whether this agreement's benefits (increased lending), outweigh the costs of decreased basic competition today is an open question.

If the benefits outweigh the costs, which i believe they do slightly, a new type of competition could be free to emerge. coalitions of fed non-members could unite, and build a competitive bank insurance program (that is, if the government didn't endorse the fed) and issue their own currency just like the article points out that Ron Paul said Wal-mart is capable of.

Therefore, where the clear trouble arises is with the government involvement in the agreement. It has been at least somewhat beneficial to the banks and the government for the government to get involved. The government endorses the agreement rather than bring anti-trust suites to bear on it, and this prevents competition from insurance coalitions of non member banks. But the government also gets access to Fed low-interest emergency lending, and gets a big say in Fed activity (chairman appointments, and banking regulations).

A final note on the quotation "the Fed stopped the the financial panic from becoming a global depression." This line embodies so much popular sentiment about the Fed.  Sure, it helped, but remember it's imperfect stimulation attempts prior in the decade are what is mostly responsible for the panic in the first place! The article does point this out at the end.

In conclusion, the idea of a banking coop is not evil.  The coop being in bed with the government is. That relationship with the government is what explicitly prevents competition between fed-like bodies, and competitions in currencies. This is a personal position, and is similar, but slightly different than that of Congressman Paul.

06 April 2012

health care tactful improvements

I concede the healthcare market is definitely subject to asymmetric information which leads to self selection bias (more appropriately called adverse selection) where a disproportionate share of unhealthy seek health insurance and therefore insurers must expend a lot of resources to conduct costly screening thereby raising the cost for all to get insurance and leading to inefficiently low allocations of health insurance.

The solution of mandating all to get insurance can decrease the per capita insurance screening expenditures, but by itself is not efficiency improving. Some people may have individually chosen not to get insurance even at the lower prices induced by the mandate, and so to be truly efficiency improving the policy should include compensation for being forced to take an a policy they didn't want. But, how should the government identify and compensate those individuals. Even the insurance companies that screen for as a profession couldn't cheaply identify those who didn't really need insurance. this is an infringement on liberty for those individuals.

Alternatively, there are non-governmental solutions to asymmetric information market failures (just like Coasian bargaining can be to externalities). Here's the idea. The solution is for both parties to contribute toward improved/additional screening and toward improvements and R&D in screening (medical assessment) technologies. if you are someone who wants insurance and isn't trying to currently mask risky conditions you should be willing to contribute toward this, as should the insurance provider if they see you are willing to.

To me the biggest existing problem in the current insurance market is the monopsony power of the health insurance provider. they have a strong lobby and have earned a political exemption from anti-trust legislation. removing that will increase competition and increase amount of people who can get coverage.

In conclusion, there is currently a market failure, but the mandate is not the most minimally intervening way to do this. A more choice preserving solution that is still redistributive would be to give poor money for healthcare, but require it to go towards the costly healthcare screening via a voucher type stipulation. This new money flowing toward screening should improve screening and generate innovation in that industry thereby could possibly eventually diminish the information asymmetry.