economics


Economics denial 2   Recently updated !

In an event I attended this fall, a speaker claimed “there is no such thing as scarcity.” The absurdity of the claim should be obvious, but it’s a symptom of a common form of thinking. It’s denial of basic economic principles.

I’m not an economist. I don’t know a lot about demand curves and monetary reserves. There are some things, though, that everyone should understand about economics. I’m talking about understanding on the everyday level, just as we should have basic knowledge of the physical sciences. We should know that being hit by a massive, fast-moving object will have a big impact, that water expands when it freezes, that touching a high-voltage electrode is dangerous. Similarly, in economics we should know that resources exist in limited amounts, cost increases drive prices up, and shifting costs doesn’t make them go away.

Most people don’t think much about these things. Some actively reject basic economic principles, even when it means rejecting common sense. The “no such thing as scarcity” line is an example. Another is the notion that an increased minimum wage constitutes a “pay raise.” They can’t or won’t grasp that when the mandated wage goes up, something else has to yield. Employees will get fewer hours, be worked harder, or lose their jobs, or what they deliver will become more expensive or less available. Economics says there’s no such thing as a free lunch, but they imagine that governments can magick free lunches into existence. They’re economics deniers.

“Free” services on the Internet boost the illusion that economics is optional. People can access all kinds of information without paying for it. Actually, they pay, in the form of being exposed to advertising and having the content they see manipulated. If they use an ad blocker (as I do), they pay in inconvenience, as some sites don’t work properly or refuse access. Some sites offer a paid level of access with extra features. I’ve been paying for Dreamwidth and some other services for years, because I think they’re worth it. Many people, though, think they should get them for free.

Star Trek makes this idea into a futuristic reductio ad absurdem. Supposedly money is unnecessary because you can get anything you want from a replicator, including more replicators. Don’t ask where all the energy to power the replicators comes from. Don’t ask why Starfleet can’t defeat any enemy just by churning out starships without limit. Don’t ask why the streets aren’t overflowing with stuff people replicate on a whim.

People would laugh at a story that posited machines running forever without a power source, but they think economic resources can come out of nowhere. Eventually they discover the real cost of expecting “free” stuff.


The opaqueness of medical pricing 1

Go to almost any business for a product or service, and you can expect to be told what it will cost you, or at least to get a plausible estimate. The big exception is medicine. You’re never told what anything will cost. If you press your provider, the best you’ll get is a spread of a couple of orders of magnitude. People sometimes get hit with huge charges that they weren’t prepared for.

I recently experienced a bit of this. My medical provider billed me for $630 for a routine blood test as part of an annual physical. This came as a complete surprise. I called the billing department, and the man who took my call said that I should have been billed only for the copay, with insurance covering the rest. He filed an inquiry on it, which he said might take a couple of weeks to process. This left a big question open: Do blood tests by my provider routinely cost over $600? That’s a lot, regardless of whether I’m paying for it or Medicare is. Since he was working for billing, he wasn’t able to answer that question.
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Sunk costs and opportunity costs for writers

Economics is more personal than most people realize. Every choice about how to allocate your resources is an economic decision, and time is your most basic resource as a writer. You expend time on your work in order to get income. Sometimes you know exactly what you’re going to do today and what you’ll get in return. A lot of the time you face choices. Which of your customers should get your attention first? Should you put them aside for a while and look for new income opportunities? Should you keep working on a time-consuming project or give it up as a lost cause?

Two economic concepts are useful in making these decisions: sunk cost and opportunity cost.
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Overcharged: Why Americans Pay Too Much for Health Care 1

Charles Silver and David A. Hyman, Overcharged: Why Americans Pay Too Much for Health Care, Cato Institute, 2018.

Book cover for Overcharged It would be hard to believe all the outrages described in Overcharged if public information and personal experience didn’t back them up so much. We all know that medical costs are skyrocketing. This book goes into many of the details and provides a comprehensive explanation.

A number of my experiences make more sense in the light of what I’ve read there. One time a full surgical team, including an anesthesiologist, showed up for a procedure to remove a routine sebaceous cyst from my scalp. I had already said I didn’t want general anesthesia, and I continued to refuse it. I’m sure he got paid anyway. Fortunately, I had very good insurance at the time.

Another time I underwent a biopsy for prostate cancer because of elevated PSA. It turned out negative. I had recently had a bladder infection, which is a common cause of high PSA, but the doctor didn’t care that it was most likely a false positive. I won’t go into how disgusting the prep, the procedure, and the aftereffects are. Once I sued a doctor for overcharging, only to learn that in New Hampshire, you can’t sue a doctor in small claims court without an expert witness. (At least that was what he told the judge, and she didn’t contradict him.) In terms of practical economics, that means you can’t sue a doctor in small claims court. We all know that the very idea of getting a price or even an estimate in advance for a medical procedure is a joke, even though it’s expected for any other big-ticket expenditure.
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