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The fatal flaws in healthcare reform (5)

A few weeks ago I posted a list of four fatal flaws in healthcare reform.

The fourth flaw is so gigantic and obvious that it promises to be the driving force behind a new political movement that is already expressing itself via Tea Parties. It could well prove to be The End of Big Government As We Know It. It is this: our economy is now so large and complex that it is impossible for government planning to reform any industry for the better. 

Eric Raymond has written a very good essay on this subject ("Escalating Complexity and the Collapse of Elite Authority") which complements Don Boudreaux's essay that I linked to and cited in my post. Here are some excerpts, but please read the whole thing:

Our “educated classes” ... have run the economy onto recessionary rocks with overly-clever financial speculation and ham-handed political interventions. Republicans have been scarcely less guilty than Democrats.

When I look at the pattern of failures, I am reminded of something I learned from software engineering: planning fails when the complexity of the problem exceeds the capacity of the planners to reason about it. And the complexity of real-world planning problems almost never rises linearly; it tends to go up at least quadratically in the number of independent variables or problem elements.

I think the complexifying financial and political environment of the last few decades has simply outstripped the capacity of our “educated classes”, our cognitive elite, to cope with it. The “wizards” in our financial system couldn’t reason effectively about derivatives risk and oversimplified their way into meltdown; [and] regulators failed to foresee the consequences of requiring a quota of mortgage loans to insolvent minority customers ...

The “educated classes” are adrift, lurching from blunder to blunder in a world that has out-complexified their ability to impose a unifying narrative on it, or even a small collection of rival but commensurable narratives. They’re in the exact position of old Soviet central planners ...

What do we do next?

The answer is, I think implied by three words: adapt, decentralize, and harden. Levels of environmental complexity that defeat planning are readily handled by complex adaptive systems. A CAS doesn’t try to plan against the future; instead, the agents in it try lots of adaptive strategies and the successful ones propagate. This is true whether the CAS we’re speaking of is a human immune system, a free market, or an ecology.

Since we can no longer count on being able to plan, we must adapt. When planning doesn’t work, centralization of authority is at best useless and usually harmful. And we must harden: that is, we need to build robustness and the capacity to self-heal and self-defend at every level of the system.

... the elite planner’s response to threats like underwear bombs is to build elaborate but increasingly brittle security systems in which airline passengers are involved only as victims. The CAS response would be to arm the passengers, concentrate on fielding bomb-sniffers so cheap that hundreds of thousands of civilians can carry one, and pay bounties on dead terrorists.
As I and many others have said before, the only real solution to our healthcare problem must begin with steps designed to reintroduce competitive, market forces to the healthcare industry. That includes fixing the tax code so that employer-provided health care is no longer tax-advantaged over individually-funded healthcare, removing interstate barriers to selling healthcare insurance, and eliminating government-imposed mandates on healthcare insurance, among others. Only market forces are capable of improving the healthcare industry, but we've got to give them a chance.

HT: Glenn Reynolds

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