Anyone who has sat through Econ 102 and higher understands that while lots of things work well in theory, in real life they bump up against human beings who are not nearly as rationally self-interested as theory would have us believe.
Noah Smith likens belief in free markets to idolatry and calls its unblinking supporters “the free-market priesthood.” The good news, he says, is that among econ academics, a little nuance is finally starting to creep into an area of thought that had been dominated for decades by the free-marketeers. The bad news, though, is that popular economics, which is the only kind most Americans are aware of and espouse, hasn’t gotten the memo.
One guy who should know better is Steven Levitt, co-author, with my acquaintance Stephen Dubner, of the “Freakonomics” books. Their new book is called “Think Like a Freak” — i.e., like them. I haven’t read it and so won’t pass judgment on it, but the behavior of Levitt himself is, by his own description in the book, apparently … questionable.
In their latest book, Think Like a Freak, co-authors Steven Levitt and Stephen Dubner tell a story about meeting David Cameron…They told him that the U.K.’s National Health Service — free, unlimited, lifetime heath care — was laudable but didn’t make practical sense.
“We tried to make our point with a thought experiment,” they write. “We suggested to Mr. Cameron that he consider a similar policy in a different arena. What if, for instance…everyone were allowed to go down to the car dealership whenever they wanted and pick out any new model, free of charge, and drive it home?”
Rather than seeing the humor and realizing that health care is just like any other part of the economy, Cameron abruptly ended the meeting…
So what do Dubner and Levitt make of the Affordable Care Act, aka Obamacare, which has been described as a radical rethinking of America’s health care system?
“I do not think it’s a good approach at all,” says Levitt, a professor of economics at the University of Chicago. “Fundamentally with health care, until people have to pay for what they’re buying it’s not going to work. Purchasing health care is almost exactly like purchasing any other good in the economy. If we’re going to pretend there’s a market for it, let’s just make a real market for it.”
Smith brings the pain:
This is exactly what I call “free market priesthood”. Does Levitt have a model that shows that things like adverse selection, moral hazard, principal-agent problems, etc. are unimportant in health care? Does he have empirical evidence that people behave as rationally when their health and life are on the line as when buying a car? Does he even have evidence that the British health system, specifically, underperforms?No. He doesn’t. All he has is an instinctive belief in free markets. Of course David Cameron didn’t “realize that health care is just like any other part of the economy” after a five minute conversation with Levitt. Levitt didn’t bring any new ideas or evidence to the table.And it’s not like Levitt’s idea was new or creative or counterintuitive. Does anyone seriously believe that the question of “why is health care different from other markets” had never crossed David Cameron’s mind before? Obviously it has, and obviously Levitt knew that when he asked his question. He wasn’t offering policy advice – he was grandstanding. Levitt wants to present himself as “thinking like a freak” – offering insightful, counterintuitive, original thinking. But if this is “thinking like a freak”, I’d hate to see what the normal people think like!Surely it has not escaped Levitt’s notice that the countries with national health systems spend far less than the United States and achieve better outcomes. How does he explain this fact? Does he think that there is an “uncanny valley” halfway between fully nationalized health systems and “real markets”, and that the U.S. is stuck in that uncanny valley? If so, I’d like to see a model.But I don’t think Levitt has a model. What he has is a simple message (“all markets are the same”), and a strong prior belief in that message. And he keeps repeating that prior in the face of the evidence.