The Ring of Gyges & Health CareBy: hawkgrrrl
Last week we talked about the temptations individuals would have if there were no accountability and no consequences for their actions. What about in society at large? We see the same effect whenever there is a lack of transparency which creates exploitable loopholes that benefit some at the expense of others without consequences.
I recently watched a great movie called Margin Call about a company of stock traders. Some low level traders discover that their company is holding some very toxic assets and that the market is on the verge of collapse. [spoiler alert!] In response, their board of directors instructs the sales force to dump those assets and will reward them $1.7M each if they reach their targets within 3 hours, knowing that after that time, their credibility will be completely shot and nobody will buy anything they are selling ever again. Of course, $1.7M is pretty great inducement for 3 hours of screwing your former trading partners. All accept the challenge and immediately begin the process of self-justification. After all, if they were clever enough to find the problem, obviously they are the fittest to survive the crisis.
Obviously the movie mirrored the Wall Street crisis that resulted in the crash of Lehman Brothers, a case of art imitating life. But it’s an age old story. Corporations will act in their own interest, including unethical behaviour and cheating, but only up to the point that they can self-justify or feel their actions will not be detected or cannot be punished.
Economists speak of “externalities”—the costs (or benefits) incurred by third parties who did not agree to the transaction causing the cost (or benefit). For example, if a farmer begins using a new kind of fertilizer that increases his yield but causes more damaging runoff into nearby rivers, he keeps the profit but the costs of his decision are borne by others. If a factory farm finds a faster way to fatten up cattle but thereby causes the animals to suffer more digestive problems and broken bones, it keeps the profit and the animals pay the cost. Corporations are obligated to maximize profit for shareholders, and that means looking for any and all opportunities to lower costs, including passing on costs on to others (when legal) in the form of externalities.
I am not anticorporate, I am simply a Glauconian. When corporations operate in full view of the public, with a free press that is willing and able to report on the externalities being foisted on the public, they are likely to behave well, as most corporations do. But many corporations operate with a high degree of secrecy and public invisibility.
When corporations are given the ring of Gyges, we can expect catastrophic results (for the ecosystem, the banking system, public health, etc.). I think liberals are right that a major function of government is to stand up for the public interest against corporations and their tendency to distort markets and impose externalities on others, particularly on those least able to stand up for themselves in court (such as the poor, or immigrants, or farm animals). Efficient markets require government regulation. Liberals go too far sometimes—indeed, they are often reflexively antibusiness, which is a huge mistake from a utilitarian point of view.
Haidt, Jonathan (2012-03-13). The Righteous Mind: Why Good People Are Divided by Politics and Religion (p. 298). Random House, Inc.. Kindle Edition.
This is why government regulation and media scrutiny are necessary. Because unrestricted corporations will damage others if there is little chance of them being caught or held accountable.
So, if government is our bulwark between corporate greed and the second coming of the Love Canal, should we worry that governments also subject to the same Ring of Gyges effect? Absolutely, and for the same reasons. When government officials can benefit at the expense of others without being caught or without consequences, they will likewise do things that are unethical at the expense of others. And government as a whole is also prone to the same problem as corporations. For example, if there is no accountability for a balanced budget, why would a politician balance their budget, a thankless and difficult job?
Often, politicians are easily caught in the same ethical snares as corporations, and sometimes even by entanglement with those corporations. Campaign contributions from lobbyists create an environment in which a politician’s own interests are served by turning a blind eye to the damage done by an industry or corporation. While we’d like to see our elected leaders as representing the people, too often they represent the interests of their backers – unless those backers and their interests are made public. Public sentiment can be a great motivator to regulate the behaviours of politicians if they believe their actions will be disapproved and known.
Additionally, politicians will use their own entitlements and loopholes to behave in ways that benefit them at the expense of others if that is allowed by the system.
Health Care Industry
A few years ago, when my company went from a tradition HMO type of health insurance to an HSA style (with a limited flexible spending account that employees put their own money into and much higher deductibles), there was a wave of disillusionment. For the first time, employees became aware of the actual cost of procedures. Some health care providers were reluctant to share what the cost of procedures was or said it would depend on the insurance provider (which was code for “we charge as much as the insurance provider is willing to pay and not a penny less”). One woman called multiple Houston-based clinics for an MRI scan and was quoted prices from $100 to $500, all for an identical procedure.
Consider this analogy:
Suppose that one day all prices are removed from all products in the supermarket. All labels too, beyond a simple description of the contents, so you can’t compare products from different companies. You just take whatever you want, as much as you want, and you bring it up to the register. The checkout clerk scans in your food insurance card and helps you fill out your itemized claim. You pay a flat fee of $10 and go home with your groceries.
A month later you get a bill informing you that your food insurance company will pay the supermarket for most of the remaining cost, but you’ll have to send in a check for an additional $15. It might sound like a bargain to get a cartload of food for $25, but you’re really paying your grocery bill every month when you fork over $2,000 for your food insurance premium. Under such a system, there is little incentive for anyone to find innovative ways to reduce the cost of food . . . The cost of food insurance begins to rise as supermarkets stock only the foods that net them the highest insurance payments . . .
As the cost of food insurance rises, many people can no longer afford it. Liberals (motivated by Care) push for a new government program to buy food insurance for the poor and the elderly. But once the government becomes the major purchaser of food, then success in the supermarket and food insurance industries depends primarily on maximizing yield from government payouts . . . As long as consumers are spared from taking price into account—that is, as long as someone else is always paying for your choices—things will get worse . . . Only a working market can bring supply, demand, and ingenuity together to provide health care at the lowest possible price.
Clearly, the grocery store analogy works best for wellness and prescriptions, but not quite as well for serious injuries or long-term illnesses that can far exceed our normal “grocery bill.” Should insurance only be used for these catastrophic illnesses?
The grocery store analogy also doesn’t take into account the high costs of malpractice insurance in the US which drives the costs of routine wellness visits, prescriptions, and more serious procedures much higher than in other countries. My own experience is that I’ve never spent anywhere near as much for a doctor visit outside the US (Singapore, Spain, Philippines, and Australia as comparisons) as inside the US for comparable services. IOW, even if the method for insurance payments wasn’t inflating prices, our litigious culture would also keep those costs higher than other countries. Living abroad, I’ve found that American democracy runs on lawsuits in a way that other countries do not. People elsewhere accept that doctors will make mistakes sometimes and people won’t live pain-free and healthy forever. And yet they are also often healthier due to lifestyle differences: walking more places and not being obese.
Let’s talk about health care reform.
- Should people be allowed to refuse to have health insurance? If they do, how do we avoid free riders? Do doctors have to allow people to die if they can’t pay? Should government (meaning the taxpayers) pay for those who are uninsured by choice?
- Should there be a limit on how much care a person with a terminal condition can receive without being able to pay for the excessive amount personally?
- How do we reduce the need for malpractice in the US given that voters will feel legislators are not protecting victims of negligent doctors?
- How do we create transparency and accountability in our incredibly flawed health care system?
- Who do you think is wearing the Ring of Gyges: government, corporations, free riders, insurance companies, Americans in general?