Nasri and money

Today brings us to a post by Forbes and Samir Nasri. The argument made is that anyone would move to another job at double the pay. Yes, entirely correct. Especially when you don't make footballer money.

The author says that Nasri is just like everyone else. He goes to work for three things: money, money, and money. This is just the same tired right wing thinking that the only utility function involves money and that people (all of them) maximize utility (money making!).

This is just an absurd argument. Yes, there are people that do this, but there are many more that use other variables to maximize their utility.

If you make the average wage and someone offers you double the money for the same job, of course you'd go! If you make more money in a week that most make in 2 years, isn't there a diminishing marginal return to money? How much is too much? How much is enough? Should Nasri be content making only $150K a WEEK? Or would he be twice as happy making $300K a week?

The thinking that people are out to maximize one variable just doesn't work in the real world. That idea is a simplification to make predictions. When I studied the behavior of people on eBay that used posted prices (fixed) versus an auction, many sellers used a fixed price offering to their own detriment. They responded that they think they know what the market is for an item and set it accordingly. Others said they just wanted to clear inventory and were willing to accept something less than market value.

The author sums up his argument as such:

"So, before falling into the cliche, knee-jerk reaction of calling Nasri (and others) a greedy so-and-so, we should perhaps consider the realities of life."

Yes, that poor life a star footballer has. How could he have fed his family on $150K a week? They (footballers), the author argues, have a short career and basically become unemployed after football. Sure, that's probably true of the marginal, every day type of player. They make some money. But they don't make star player money. And unless the star players are incredibly stupid (probably not a bad assumption), they're set for life after 4 years!

Rep. Ryan, magic, and pixie dust

I just finished watching Rep. Ryan's saving medicare video.

I'm completely lost on how this is supposed to work economically. His argument is that because the person getting care is disconnected from the bill (and thus the cost), he doesn't care what it costs and has no incentive to seek the lowest cost and highest quality care. I guess this is supposed to be moral hazard.

Ryan theorizes that the best way to control cost is to have those seeking care pay for it. He doesn't mention that this is done through a voucher system and if those vouchers don't cover the cost of the care...well, the government has succeeded in transferring the cost of Medicare to seniors. Thus, if you are in that group and you can't afford the difference...you're shit out of luck.

Ryan argues that a single payer system (that's Medicare) has no incentive to lower cost and improve quality. But why not? A single buyer has tremendous leverage (monopsony power) in negotiating cost and potentially quality.

But let's get back to Ryan's plan. He wants to have people buy their own insurance. With the idea that this will somehow be competitive and that health care "customers" have the incentive to seek the best care at the lowest price and will "punish" those care givers that don't meet their needs. But this assumes that the market for medical care is competitive. Is it?

Many years ago, Kenneth Arrow tackled this. Basically, a market solution for medical care is not possible. Consumers cannot discipline sellers because the demand for the services is not regular. In fact, it is uncertain. Is there a menu for treatment at your doctor's office? Nope.

Even if consumers were "empowered" to get the best insurance, there is no incentive on the part of the consumer to shop around. Why? They, according to Ryan, don't pay for it. The insurance company does. So what Ryan proposes is replacing one form of bureaucracy with another. Except, the insurance company has an incentive to deny coverage to those that need it and cover the people it believes won't need a lot of care. The money is in the insurance premiums, not in finding the lowest cost of care.

Which leads to another question, if the key to Ryan's plan is to give individuals power to find the best care, how can an individual enforce quality when the individual (likely) does not know as much as the doctor in regard to the best course of action in care? This is what we like to call an information asymmetry. What's needed is a third-party to reduce this asymmetry or some mechanism that weeds out good from bad.

A market solution won't solve the problem simply because the market is in it for profit, not for your well-being.