Free to choose


I’ve been lucky enough to have savings to enjoy my unemployment, and two of my friends and I spent a week in Jamaica in late February. It’s a lovely place: deep blue oceans, sandy beaches, clean and cool waterfalls, jungle wildlife, and delicious food. Traveling to a new place, or better yet living there, forces you to reckon with unstated assumptions you had made about how society should function. (I would like to think that more Americans would support single-payer healthcare, high speed trains, and cheap education if they lived in a place where the government did those things!).

In Jamaica, every transaction was a negotiation. We got dinner at a local jerk shop where the prices were unlisted. We spent a few minutes negotiating over an amount (a dollar or so) that would have been irrelevant under most circumstances.

(As an aside, we also saw some slightly irrational economic behavior. The owner tried to convince us to order side dishes, and, when we demurred, he simply ladled the food onto our plates and tried to charge us for it. We got into an argument, backed down partially by paying a nominal charge, and vowed never to return. Each day after, we’d pass by that shop, where the owner would implore us to enter, and we’d refuse. It made me wonder about the economics of tourism. In a one-off transaction, where you never see your counterparty again, there is no incentive for good behavior. The best strategy is simply to gouge them. In contrast, if there are repeated transactions, then a “tit-for-tat” strategy makes more sense, and a cooperative equilibrium could arise. Perhaps the owner of the shop failed to consider this longer-term perspective, or just assumed we were only staying a night.)

Taxis were also an adventure. Public transit was basically non-existent in the northeast part of the island, which meant that you’d get from place to place by waiting at the side of the road and hailing a car, which was either marked as a taxi or, more likely, unmarked. Regardless, there were no set rates, and, if you didn’t know what you were doing, you might end up paying five times as much as everyone else. Along the way to your destination, the driver might pick up additional passengers, which led to the slightly comical situation of four drunk dudes in the back of a sedan being forced to squish together or sit on each other’s laps (who said manspreading was incurable?).

Markets that are unregulated are often thought to be “efficient” and “free”. This makes sense in a certain respect. Buyers and sellers — in this case, the driver and the passengers — set their own prices and eventually reach consensus. Because the marginal cost of a taking an additional passenger is basically negligible, the agreed-upon price is determined by the customer’s knowledge of the market and their patience: i.e., whether they are willing to wait an indefinite amount of time for the next car if the current one offers an unacceptable rate. This amounts to a soft sort of socialism where tourists, whose time is more valuable and knowledge of the market is spottier, end up paying far more and therefore indirectly subsidizing the rides of others. An economist might look at the market for taxis in Jamaica and conclude that it was functioning in everyone’s best interests. Tourists, who are able pay more, do, and locals, who aren’t, don’t; drivers extract as much value as they can from everyone: price discrimination in the best sense.

I would contend, though, that these markets are actually rather inefficient. The costs of haggling add up. Each tourist who is picked up has the opportunity to enter into a negotiation of a few minutes. Meanwhile, the other passengers in the car are left waiting. Failed negotiations can lead to threats and even violence. In one case, we were quoted one price upon entering and charged a completely different price upon exiting. When we protested, the driver started shouting at us; one of my friends defused the situation by offering to pay the higher amount, which started yet another argument (just between us) about whether the taxi fare was a “matter of principle” or not. This will undoubtedly sound privileged to say, but, by the end of the trip, we were somewhat worn down by the endless haggling: over food, activities, and transportation. I began to sympathize with the perspective of one of my friends, who would have rather paid (much) more to buy an all-inclusive package.

I was thinking about all of this in the context of healthcare. I am currently unemployed (although I do have a job offer I intend to take), which means that I also don’t have health insurance. I can keep my old health insurance if I pay $500/month for COBRA. I can also apply for a plan on the individual market, through the Obamacare exchanges. The lowest premium “bronze” plan there costs $440/month and has a $4500 deductible. Finally, I can choose to go without insurance temporarily, and wait to be eligible for Medicaid or my new job’s insurance.

There are decisions layered on decisions. If I think I’ll be healthy for the next few weeks, I can save a few hundred dollars by forgoing insurance. If the risk of injury or illness (for instance, coronavirus) ticks up, I should revise that calculation. If I can estimate my medical expenditures, then either COBRA or the Obamacare exchange policies might make more sense, depending on the precise details of my estimates. Within the exchange, there is a plethora of data to compare different plans. Each plan has a combination of premiums, co-pays, and deductibles. If I think I won’t require any costly medical procedure, I should choose a high-deductible, low-premium, “catastrophic” or “bronze” plan. Otherwise, I should make the opposite decision, and choose a “gold” or “silver” plan. Within each metal tier, there are dozens of plans with slight variations. The website tries to be helpful by offering a quality rating, from one to five stars, which in turn is divided into three components: the “member experience” (“Based on member satisfaction surveys about their health care, doctors, and ease of getting appointments and services), “medical care” (“Based on the plan’s network providers improving or maintaining the health of its members with regular screenings, tests, vaccines, and monitoring of some conditions”), and “plan administration” (“Based on certain measures of how well a plan is run, including customer service, access to needed information, and network providers ordering appropriate testing and treatment”). The “member experience” of the particular bronze plan I quoted above was two stars, and the other categories were three stars. Some of the other plans rate more highly in some of the categories, and worse in others. What exactly this means for me I’m not sure.

If I had endless time and perfect foresight about my medical future, I could set up an Excel spreadsheet, lay out the data, and crunch the numbers. Doing this might save me a few hundred bucks. Even if I lacked perfect foresight, I might be able to divine scenarios, like the IPCC climate change forecasts, and figure out my utility under each and expected utility overall. I do those sorts of calculations for a living, or at least I used to, so it would be easier for me than for the other 99.9% of Americans. Yet even I abhor the idea.

There are two related strains of thinking in American political economy, one libertarian, one more technocratic. The first says that markets behave more efficiently (which is equated with “better”) without regulation. I’m reminded of Milton Friedman’s declaration that the Federal Drug Administration (FDA) shouldn’t exist, and customers should make their own assessments of whether drugs are safe. (He also assumed that drug manufacturers would never sell an unsafe drug, because their reputation would be irreparably harmed.) Removing decision-making power from the government — in this case, to decide whether a drug is safe — shifts that power to the individual. Setting aside the obvious question of whether an individual is qualified to judge drug safety, do they even want to be forced to make that decision? This is when freedom (Milton Friedman’s book, pictured above, was titled “Free to Choose”) becomes a burden; when a right we didn’t ask for becomes a responsibility that we also didn’t ask for.

The second strain of thinking is that, in the context of markets, people want more information, and that more information helps the market function more efficiently. This strain is more widespread across the political spectrum; it’s associated with Democrats and Republicans. Think of efforts to force fast food chains to disclose calorie counts, or car companies to disclose emissions and fuel efficiency, or clothing brands to disclose their supply chain. Although transparency is undoubtedly better than the lack thereof, I think the problem with the contention that markets work better with more data is that someone has to process that data. I, an individual, need to calculate how the calories and protein and salt fit into my daily budget, and adjudicate whether a particular garment shop in Bangladesh is treating its workers fairly. The alternative, which is admittedly heavy-handed (and problematic in certain respects), is to regulate, not just disclose. Force fast-food chains to make acceptably healthy foods. Force auto manufacturers to adhere to standards for fuel economy. Force clothing companies to contract only with garment shops that respect labor standards. Free us from making the decisions that are better left to others that we can make the ones that we truly do care about. Ethical consumption under capitalism, or really any consumption at all, is so tiring.

I’ll point out that the market for healthcare in America is different from the market for taxis in Jamaica in that prices are stated upfront in the former. I don’t have to (and, indeed, cannot) bargain with my insurer over my premium or deductible based on whether I am a foreigner or not, or whether I have the ability to pay or not. The commonality between these markets, though, is the mental tax that they extract: what I was talking about above. I don’t want an infinite number of possible rates for a taxi and to have to haggle with a driver over which particular one he deems appropriate for me. I also don’t want dozens of choices for a healthcare plan. I would like to get from point A to point B, and to be treated when I am sick. If someone else could take care of the details of those transactions, I would find that much more thrilling than to have the “freedom” to do it on my own.


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