Sunday, November 03, 2013

And the Winner Is (and always will be): Arithmetic

Charlie Martin over at PJ Media has a great post on Obamacare vs. Arithmetic that explains why the promises of Obamacare can’t be kept and never could have been. You should go and read the whole thing of course but this part on Gammon’s Theory of Bureaucratic Displacement is worth excerpting:

What does change the relationship is that we start to run into something Milton Friedman called “Gammon’s Law,” which originated with a study of Britain’s National Health Service done by Dr. Max Gammon. Friedman called it the Theory of Bureaucratic Displacement:

In a bureaucratic system, increases in expenditure are paralleled by a corresponding decrease in production.

Translated from the economist-ese, that means in a bureaucratic system, the more you spend on something, the less you get of it.

Gammon’s original work in which he identified this found the correlation was very nearly perfect: as the number of pounds spent on the National Health System increased, the number of hospital beds declined. The correlation was    -0.99.

Aside: for those of you who don’t eat and breathe statistics. Imagine you have a loaf of sliced bread. You weigh the bread, then take out a slice, then weigh it again; keep taking out slices of bread and re-weighing.

The correlation between the number of slices taken out, and the weight of the remaining bread, will be around -0.99.

Why does this happen? There are at least a couple of reasons. As more money goes into the bureaucracy, there’s more pressure to make sure it’s being spent well, which means more forms, more auditors, more independent review boards. All of that takes time and money, and that time and money are being taken away from what used to be the goal.

The second reason is that as administration develops, it becomes its own constituency. Administrators are more important that the people doing the work — they must be, right? I mean, they’re the managers. Administrators get paid more, and in a bureaucracy, administration is the route to higher pay, better offices, and more perks. What’s more, the people doing the work have to do more work to support the administrators. Doctors are seeing that now — new record-keeping requirements, from HIPAA to electronic record systems.

The upshot, though, is that once a system becomes bureaucratic, adding money makes it worse.

And that’s the arithmetic of Obamacare. You start off with something that makes some sense — it’s perfectly reasonable to want insurance against the chance you’ll be hurt in a car accident or develop cancer. Then, because of weird tax incentives, you start doing something that makes less sense: asking insurance companies to pay for things instead of giving you the money to pay for them yourself. Then we start mandating coverage too — so I have to pay for maternity and OB/GYN coverage, even though I’m a 58-year-old single man with no obvious prospect of impending pregnancy.

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