Trust Experts vs Trust Knowledge + Reason + Candor

I previously wrote about experts vs non experts on Covid, but I now think that is not quite the right framing. When I’m deciding who to listen to on a topic, I am hoping to find someone with domain expertise (knowledge) AND great general reasoning skills AND who is truthfully sharing their best information. The problem is that on most topics, this person doesn’t exist. Covid is particularly challenging because its such a huge, fast-moving situation that no one can be an expert in all parts of it. Everyone’s domain expertise is partial at best, and there’s no guarantee that the most knowledgable people are also wise and honest. Instead, I must settle for listening to many people with varying levels of knowledge, reasoning, and candor. The tradeoffs among these three virtues are what I was trying to get at with “expert vs non expert”, but reality is messier than that binary.

The responsible-sounding thing to do is to trust the experts at the top of relevant scientific institutions like the CDC. But leaders like that haven’t had a great track record on Covid. 

Now-deleted tweet from 2/29/2020

People get to run institutions because they are skilled at running things or at maneuvering to get and keep top jobs- not because they are the most knowledgeable expert, not because they are the smartest, and definitely not because they tell the whole truth all the time. 

Before Covid, hearing that someone was at an agency like the CDC made me trust them more than someone with similar credentials (say, PhD and publications) in academia or the private sector, because I thought they would be more knowledgeable. Now their job title makes me trust them a bit less than otherwise- I’m no longer sure they are more knowledgeable, but I’m quite sure they are less candid. Former leaders, like ex-FDA head Scott Gottlieb, tend to be better- but they are always angling for the next position, which influences what they say.

One other update from Covid was the importance of learning from data and making accurate forecasts (and I say this as someone who already valued those things a lot). These are their own fields with their own domain experts (statistics / econometrics / ML/ et c), but learning from data is also a powerful general reasoning skill that works across many domains. Those who excel at it have a real shot at beating knowledgeable domain experts at what seems to be their own game- we’ve seen it in baseball, and now in public health (of course the learning can go both ways here, with subject-matter experts picking up data skills).

All this explains why the Rationalists have been ahead of the curve on Covid– great at general reasoning (including forecasting), honest to a fault, and so just need to pick up domain knowledge. Rationalists starting with partial domain expertise, like biologists and doctors, had a big head start.

It also explains why pseudonymous Twitter accounts were sometimes way ahead of the game. From the boring responsible point of view, this sounds crazy- would you really trust a Twitter anon over the Surgeon General? And trusting a typical Twitter anon would be crazy. But suppose the Surgeon General and the CDC Director actually do have anonymous Twitter accounts- wouldn’t these be amazing sources of information? They would have all the knowledge from their day job AND the ability to share their honest assessment without worrying about angering their boss, causing widespread panic, or inducing an N95 shortage. I think some people rely too much on the official/formal/institutional sources because they are choosing “who is higher status” or “who will others not blame me for listening to” rather than “who is most knowledgeable & accurate”. 

The opposite problem is also widespread, choosing first and foremost someone who is a “straight shooter” who “calls it as they see it”- but doesn’t see it well, because they lack domain knowledge and/or reasoning skills. Worse, people often mistake outrageousness for candor and wind up following those who are dishonest as well as ignorant. Disagreeing with the establishment is fine but making a big deal that “I’m telling you what the establishment won’t” tends to be a bad sign.

By ‘candor’ I mean more than not lying- to be a useful source you need to publicly share information, and keep doing it; many experts would never lie but simply don’t have the time or inclination to share much publicly apart from writing the occasional journal article.

To find accurate information, it is not enough to simply “trust the experts”, and worse to simply ignore the experts. Instead we must continually seek out new sources and re-evaluate old ones, finding the domain experts who are relatively open/honest/clear/brave/well-reasoned, and tracking which of the smart/wise/honest non-experts are doing particularly well at learning the subject.

P.S.- Give Helen Chu a medal already. Courage + expertise make a great combination.

The Dictator’s Handbook as development book

Bueno de Mesquita, author of The Dictator’s Handbook, is a political scientist but his analysis is very much economic, in both the methods (rational choice & methodological individualism) and in the focus on material incentives as the main driver of behavior. The book is good as a manual for aspiring tyrants, but suprisingly great as an explanation for why many poor countries stay poor.

In short, leaders’ primary goal is to stay in power, and their secondary goal is to enrich themselves. 

Staying in power is easier when the people have little freedom and little ability to communicate and coordinate, but restricting these freedoms also tends to suppress economic activity. Leaders then aim to appropriate as much of the economy as possible for themselves (and, where necessary to maintain support, their essential backers). This further harms ordinary people, both by directly taking resources from them and by disincentivizing economic growth (because corrupt politicians or their cronies will just take what you build). Thus, poor countries are stuck being poor unless they get lucky with a benevolent dictator (though even a dictator who isn’t personally greedy may be pushed by his greedy essential backers to plunder) or if the dictator is willing to risk losing power to grant more economic freedoms (so he can tax a larger economy, perhaps because another source of revenue like oil money or foreign aid is running out).

It gives a visceral feel for the reasoning behind the resource curse that I didn’t have before: resources provide enough revenue to let a dictator be rich and pay off his key backers without needing to allow the freedoms necessary for broad economic prosperity and a broad tax base.

Favorite Books 2020: Non-Fiction

5-stars:

Range: How Generalists Triumph in a Specialized World– inspiring stories of people succeeding after a late start or in fields outside their speciality, with theories of why this happens. Many examples from sports and science, argues that good generalists will become more important in science as there are more siloed specialties that could benefit from connections. The irony of economics: economists emphasize the value of specialization but economics itself is, according to the author, one of the best forms of “generalist” training.

Reality Ahead of Schedule: How Science Fiction Inspires Science Fact– shows the power of imagination and inspiration, and the ability of some generalists to forecast scientific developments

The 10,000 Year Explosion: How Civilization Accelerated Human Evolution– perhaps this should be 4 stars, because it was written in 2009 and historic genomics has moved very quickly since then (see Who We Are and How We Got Here for an excellent and more up-to-date book on the subject). But there are so many cool facts I hadn’t heard, and powerful general theories that are used to explain these facts and to make speculative predictions- some of which, like Homo Sapiens interbreeding with Neanderthals, have since been proven correct.

Murder-Bears, Moonshine, and Mayhem: Strange Stories from the Bible to Leave You Amused, Bemused, and (Hopefully) Informed– Crazy stories you might have missed, and digging in to stories you have heard of to show key details you might have missed. For instance, people have generally taken the story of Onan to mean one thing, but if you read the actual verse they are referring to it means something else, then if you read the story in context it means something different still. Funny but not just funny.

The Man Who Solved the Market: How Jim Simons Launched the Quant Revolution– Math professor gives up tenure, becomes a codebreaker, then starts one of the most profitable hedge funds of all time. Book is excellent on both the personal stories of Simons and the people around him, and on explaining as much as possible of how Simons did what he did when he goes to great lengths to keep it secret. Makes it clear just how far you have to go to consistently beat the market, getting data that no one else had and analyzing it with supercomputers and quant PhDs at the top of their fields.

The 4-Hour Chef: The Simple Path to Cooking Like a Pro, Learning Anything, and Living the Good Life– I finally started really cooking this year, and I credit this book more than the lockdowns

4-Stars-

The Millionaire Next Door; I Will Teach You to Be Rich; and Rich Dad Poor Dad– See my full review of these 3 personal finance books here

10% Less Democracy: Why You Should Trust Elites A Little More and the Masses a Little Less– Its an academic book, more convincing but less interesting/provocative than you’d think from the title

Dignity: Seeking Respect in Back-Row America– Physicist-turned-finance-quant Chris Arnade turns into a photojournalist who talks to people in ‘the bad part of town’ and in out-of-the-way towns that many have left. 5-star book for anyone who hasn’t heard of the author; I give it 4 stars because I’ve followed him on Twitter for years and had seen much of the material.

The Revolt of The Public and the Crisis of Authority in the New Millennium– Martin Gurri wrote this in 2014 and it has been incredibly prescient about politics around the world. As I said in a tweet liked by all 3 authors, if 10% Less Democracy is a thesis (trust elites) and Dignity is its antithesis (trust the public), Revolt of the Public is the synthesis of the two- describing from a neutral point of view how the relationship between elites & the public is being changed by the internet (Gurri doesn’t think either group is handling this well). Why just 4 stars when the book successfully predicted so much? Gurri lays out his theory early on but for whatever reason I kept losing interest before finishing the book.

The Complacent Class: The Self-Defeating Quest for the American Dream– Another book from a few years ago (2017) that looks especially prescient in 2020

How To: Absurd Scientific Advice for Common Real-World Problems

Science: Abridged Beyond the Point of Usefulness

Shakespeare’s Sonnets: Abridged Beyond the Point of Usefulness

SCIENCE: Ruining Everything Since 1543

RELIGION: Ruining Everything Since 4004 BC

Zillow Talk: The New Rules of Real Estate

The Hard Thing About Hard Things: Building a Business When There Are No Easy Answers

As you can see, one thing I tried to do this you was to read books in clusters- personal finance, elites vs the public, and books by the best webcomic writers were the big clusters this year. This worked well for getting a better sense of a subject and I’ll likely continue this with new subjects, though I see now that all the 5-star books were 1-offs. Overall I’d say Range was my favorite book of the year while The 4-Hour Chef is the one that most obviously made my life better.

The Best Personal Finance Books: A Portfolio

Economics is often mistaken for personal finance. They are different, but enough people ask me about personal finance that I decided to read all the books I’ve seen many smart/rich people recommend: The Millionaire Next Door, I Will Teach You to Be Rich, and Rich Dad Poor Dad. My goal was to pick the one best personal finance book to recommend to everyone who asks. If I have to pick I’ll say The Millionaire Next Door, but like with investments, its better to pick a diversified portfolio than to put all your eggs in one basket. Some of these books are better at teaching the basics of how to avoid costly mistakes, others are more aspirational; some focus on details, others the big picture; some focus on sure things, other on riskier big bets.

In principle I see 4 ways people get wealthy (not mutually exclusive):

  1. Get a big chunk of wealth all at once, like through inheritance or lottery.
  2. Earn a high income for years.
  3. Save an unusually high proportion of your income.
  4. Invest your savings unusually well, so that it grows quickly.

In practice #1 depends on luck, and #4 does too (or if you really are that good, you start a hedge fund and this shades into #2). Therefore, these books focus mostly on numbers 2 and 3: earning lots of money and/or saving a lot of what you earn.

I Will Teach You to Be Rich

The title sounds a bit scammy; it is misnamed, but not in the way you might think. Rather than offering bad or high-risk advice on how to become rich, it offers good advice about how not to be poor. “I will teach you not to be poor” “I will teach you reasonable financial practices” or at most “I will teach you to be upper middle class” would be appropriate. The advice about how to get out of debt, save for retirement, and manage credit is good, and the writing style is engaging. But the advice is all of the saving/investing sort, with nothing about how to increase earnings. No one is going to get rich by following the advice in this book unless they already have a high income. This makes the book good but not sufficient by itself; pair it with something that focuses more on the earning side. The material is stuff I have mostly figured out for myself by my early 30’s, but its a nice presentation and all in one place- would be nice for a college student or someone at their first real job.

Most distinctive key idea: as long as you are hitting your overall savings goals (e.g. maxing the 401k and paying bills on time) you shouldn’t feel guilty about spending on things that make you happy. “Spend extravagantly on the things you love and cut costs mercilessly on the things you don’t…. get the Big Wins right and you can order as many lattes as you want”

Rich Dad, Poor Dad

Almost the opposite of I Will Teach You To Be Rich- focused on an inspring big picture of high earning instead of the details of saving. Great storytelling but high-risk advice. Kiyosaki wants people to go into business and “make money work for them” rather than focus on earning a salary. Taking this book literally increases your odds of becoming very rich, along with your odds of becoming bankrupt. I’m sure some people have read the book and started flipping / renting houses and built a real estate empire, while others quit their job to join a multi-level marketing scam and lost their savings and their friends. To get the most out of the book, read it for inspiration rather than specifics and take it “seriously but not literally”.

Most distinctive key idea: Focus on cash flow. “An asset is something that puts money in my pocket. A liability is something that takes money out of my pocket…. if you want to become rich, simply spend your life buying assets. If you want to be poor or middle class, spend your life buying liabilities. It’s not knowing the difference that causes most of the financial struggle in the real world”

The Millionaire Next Door

The book is built around surveying millionaires and finding the commonalities in what they did to get wealthy. The core idea is that Americans with millions saved tend to have moderately high incomes but very high savings rates. Someone with a normal income can become a millionaire- income is different from wealth. The key is to live frugally and let the compound returns on your savings work for you. The original version of the book is inspiring but with out of date numbers; the author’s daughter recently updated it (The Next Millionaire Next Door) with more current numbers though it loses some of the inspiring voice.

Some of those updated numbers from the survey of millionaires:

  • Median net worth: $3.5 million
  • 94% married (69% to first spouse)
  • 87% male (not sure how it makes sense to talk about individual net worth when 94% of the sample is married and 80% said their spouse was a critical factor in their economic success; survey sampling strategy is not described in book)
  • Median age 61
  • Median income $250k (but was 89k when first became millionaire)
  • 93% w college degree, 60% w graduate degree. Common careers: business owner, manager, attorney, physician, consultant, engineer

Tries to downplay the importance of education and intelligence, but their own data shows that 60% of millionaires have a graduate degree (compared to 13% of adults generally) and the average SAT of millionaires was 1190 (which they seem to think is low but in fact is the 68th percentile of test-takers, and the pool of test-takers is likely smarter than average). Yes it is possible to get rich without much intelligence or education and they have nice anecdotes about this but their data show it is rare and becoming more so.

Most distinctive key idea: The author hates the idea of fancy cars. Notes that people often confuse high income and high consumption with high wealth; but if you see someone with a fancy car you should think not “they must be wealthy” but instead “they put their money in a depreciating asset instead of an appreciating one, and so are becoming poorer”. Notes that the median millionaire spent $35k on their last car. “The most popular brands among millionaires are Toyota, Honda, and Ford, followed only then by BMW” “Only a minority of millionaires has ever owned a vacation home, boat, plane, wine collection, prestigious make of motor vehicle, or expensive suit.”

Other books?

I welcome more recommendations. I tried to stay away from pure “how to invest” books, which is its own large genre. I almost included Think and Grow Rich here, but decided it was like Rich Dad Poor Dad only more so: focused on the big picture of inspiring people to earn more but short on details and long on risk. Its key idea- “riches come from persistent determination to achieve a definite goal”- seems likely to push some to great success and others to stay stuck in failure.

Of the 3 books I reviewed here, I think The Millionaire Next Door is the safest to recommend to everyone. Rich Dad Poor Dad is good for those capable of taking it seriously but not literally. I Will Teach You To Be Rich is good for anyone under 25 or who feels like they have yet to get a good handle on how to manage their credit and saving.

We Need Better Experts- and a Better Public

Experts are often wrong. Non-experts are even more often wrong.

These two statements are both true and important but it is hard to keep both of them in mind at the same time. Experts and members of the public both misunderstand this, and each ‘side’ can err by being either too humble or too arrogant:

ExpertFailureModes

COVID has provided many examples of all 4 failures. The expert institutions that were supposed to handle this best, the WHO and CDC, kept being arrogantly wrong thoughout the first quarter of 2020- saying that there was no human-to-human transmission, that travel bans were unnecessary, that masks don’t work, and in the case of CDC producing a botched test kit while preventing the use of alternative tests. Throughout this time, much of the public, and even experts outside the institutions, humbly deferred.

At the same time, many people who had figured out what was really happening were too humble to speak out, or too scared, or simply didn’t think of it. In the second quarter of 2020, expert institutions gradually figured things out, but much of the public still arrogantly dismisses their advice.

There are a few reasons this isn’t easy to get right.

Generalizability- Sure, in early 2020 on COVID you would have been better off listening to the Bay Area technologists I follow on Twitter than to the WHO and CDC- but is that generally the best way to get health advice? How many people are capable of listening to both groups and evaluating their specific arguments to figure out who is right?

Bias- experts really are biased, but it isn’t always obvious in which directions this matters, and members of the public have their own biases. For instance, are the public health agencies overstating the risk of COVID in order to get more funding and power, or understating it so as not to embarrass the governments that fund them? Both sounds plausible in the abstract, and you could say either in order to justify your own biases. In this case I do think they understated risks due to political pressure, but its also possible they simply weren’t as smart as we, or they, thought they were.

Expert, compared to who?- For quasi-experts, its important to keep in mind what your audience knows and where their information will come from if not from you. Many economists get annoyed and don’t answer when regular people ask them about the stock market- “I’m not an expert, that’s not what economics is really about”- but I think this is a bad response. We’re not true experts, but we should know much more than the average person, and be glad for the opportunity to share the basics (save through your 401(k) and put it in low-fee diversified index funds) and point them to the true experts. On the other hand, if you think your quasi-expertise means you can beat the market day-trading you’re likely to have a bad time.

How can members of the public know who are the real relevant experts? This is often far from obvious. Should I trust epidemiologists at the CDC more or less than those at universities? When evaluating potential treatments should I most trust virologists, epidemiologists, medical doctors, or someone else? If I want to know how COVID will affect the economy should I ask epidmiologists, economists, or someone else? If economists, who or which subfield? For forecasting COVID cases, is the relevant expertise domain knowledge like epidemiology or is it general forecasting ability?

Getting experts to be less biased and to have the appropriate level of confidence in their abilities and predictions is vital. So is getting members of the public to know who the relevant experts are, and how much to defer to their judgement in various situations- yet none of this is explicitly taught.

A parting thought, paraphrasing Garett Jones‘ twist on an old William Buckley quip- “I’d rather be governed by the first 2,000 names in the Boston phone book than by the faculty of Harvard, but I’d rather be governed by the faculty of MIT than either”

Related reading:

Inadequate Equilibria, Eliezer Yudkowsy is all about this issue: “the single most obvious notion that correct contrarians grasp, and that people who have vastly overestimated their own competence don’t realize: It takes far less work to identify the correct expert in a pre-existing dispute between experts, than to make an original contribution to any field that is remotely healthy.”

“inside a civilization that is often tremendously broken on a systemic level, finding a contrarian expert seeming to shine against an untrustworthy background is nowhere remotely near as difficult as becoming that expert yourself. It’s the difference between picking which of four runners is most likely to win a fifty-kilometer race, and winning a fifty-kilometer race yourself. Distinguishing a correct contrarian isn’t easy in absolute terms. You are still trying to be better than the mainstream in deciding who to trust. For many people, yes, an attempt to identify contrarian experts ends with them trusting faith healers over traditional medicine. But it’s still in the range of things that amateurs can do with a reasonable effort, if they’ve picked up on unusually good epistemology from one source or another.”

Myth of the Rational Voter, Brian Caplan: Argues that the public is rationally ignorant of issues (like public policy and politics) where more knowledge would not personally benefit them. But also shows that experts have systematically different political views than the general public, and showcases a statistical method to “correct” for this and show  what economists would think on various policy issues if their income level and general political views matched that of a typical person.

The Lancet on Medicare for All: Optimistic Yet Depressing

This Lancet article gives an optimistic but plausible take on what would happen to health spending if we expanded the current version of Medicare to cover all Americans: a 13% drop in health spending.

Why Optimistic

The big problem I see in the article is that it claims to be evaluating what would happen if we passed the Sanders Medicare for All proposal, which involves changing current Medicare in a way that would make it much more expensive- removing coinsurance and deductibles. Removing cost-sharing would increase utilization for most everyone, not just people who are currently uninsured or “underinsured” (which they count at a combined 79 million); studies on Medigap insurance suggest this could raise spending 33% relative to standard Medicare. The Lancet study ignores this, but it would turn their predicted 13% spending reduction into a nearly 20% spending increase.

Why Depressing

Still, I like having a study like this around, as it gives a clear presentation of what one version of Medicare for All might look like and where various savings and costs might come from. The depressing part is that even if all of their optimistic projections are true, and if a giant reform like Medicare for All actually happened, America would still have by far the highest health care spending in the world, with at-best average results. The latest OECD data shows the US spending 16.9% of GDP on healthcare, with Switzerland in a distant second place spending 12.2%. If Medicare for All, the biggest reform of the US health care system since at least 1965 and possibly ever, actually worked as predicted here, we would be spending 14.7% of GDP on health care- still far more than Switzerland or anywhere else (which makes sense as Medicare is costly by international standards). The article doesn’t put their mortality estimates into life expectancy terms, but the 68000 fewer annual deaths they predict represents a 2.4% drop; a 2.4% increase in life expectancy would bring us from 78.6 years to 80.5 years, still on the low end for rich countries.

This shows how our problems are bigger than just insurance and health financing, but even ‘just’ fixing the financing part (either with M4A or any other major reform) is unlikely.

Why It Won’t Happen

The authors argue that Medicare for all is politically feasible because, under their somewhat optimistic assumptions, the average American saves some money, while the average doctor and hospital roughly breaks even (Medicare generally pays less than private insurance but more than Medicaid and charity care), with the savings coming from lower administrative costs, lower fraud, and lower pharmaceutical prices. But I think this misreads the politics; while the Median Voter Theorem can be a good first approximation, the US political system tends to favor the well-off, special interests, and those who trying to maintain the status quo rather than change it. The paper itself makes clear who some of the losers from Medicare for All would be: private insurers, pharmaceutical companies, doctors and hospitals with a higher-than-average share of privately insured patients, and most people who spend a less-than-average share of their income on health care (which higher-income people tend to do; they also vote at higher rates). Further, “936,000 administrative positions and 746,600 positions in the health-care insurance industry are estimated to become redundant”. Many influential groups would suffer concentrated costs that would motivate dedicated lobbying effort against, while the largest benefits would be concentrated among the ~10% of Americans who are uninsured, who tend to be relatively poor. The ACA was a much smaller reform that did much more to buy off or otherwise placate most of these interest groups, and it still barely passed and lead to a huge political backlash, a lesson that at least some major relevant political figures took to heart.

Which Countries Have Single-Payer?

This seems like the kind of question that should have a straightforward, generally agreed-upon answer. But right now, it doesn’t.

I can only find a single attempt to answer it, from a random blogger whose original post describing the methods seems to have disappeared. This should really be a job for a big respected organization like The WHO or OECD, but barring that, I can be the next random blogger to update the answer.

There are two challenges to getting a good answer to “which countries have single-payer?”: choosing a good operational definition of “single-payer”, and then researching every country’s health-care system to see if it qualifies.

First, the definition. Literal single-payer would mean there is a single entity, presumably a national government, that pays 100% of health care expenses; but this would imply no countries currently have single-payer, since every country has some out-of-pocket spending:

OECD Chart: Health spending, Out-of-pocket, % of health spending, Annual, 2016

At the other extreme, a broad definition would count any country with universal government-sponsored insurance, even if it covers so little that most spending still comes from individuals or supplemental private insurance. Other important questions are whether any private insurance can exist, and whether all spending has to go through the national government or if many states/provinces operating their own insurance systems still counts as “single”.

Some day I will state 5+ alternate definitions of single-payer and do the deep institutional research to say whether each of the 188+ countries qualifies based on each of the 5+ definitions, the sort of deep dive that was done for 12 countries here. But today, you aren’t getting the thorough answer, you’re getting the quick answer, because today I decided its ridiculous that no one has provided any real answer.

So my working definition of single-payer, which doesn’t make the most sense but has the great virtue that it can be calculated quickly from existing data, is:

Single-payer: A country has a “single-payer” health system if at least 75% of health spending is done through government.

Why 75%? I originally thought 90% made sense, then looked at the WHO health expenditure data and saw that this would only count 6 countries. In the archetypical single-payer system, the United Kingdom, only 79% of expenditure is from government, and so 75% is the lowest round-is number that will count the UK. Even this doesn’t count Canada (69%), but I can’t bring myself to put the bar below 70. If you want to make your own map with a different cutoff, the Excel file with 2016 government spending as a % of all health spending is here.

Single-Payer Health Care Map

SinglePayerMap
Source: Calculated from 2016 WHO Global Health Expenditure Database

Update: The WHO numbers for government spending do not include compulsory social insurance programs that many people would consider part of government spending (see table 7.2 here for an explanation of these and other spending categories; basically “social insurance” is tied to individual contributions to a fund, like in Medicare, though in the case of German sickness funds this is really stretching the ‘single’ in single-payer). If I add “social insurance” and “government schemes” together, several more countries hit 75%+ of spending:

Alternate Single-Payer Map (Includes Social Insurance)

SinglePayerCountingSocial
Source: Calculated from 2016 WHO Global Health Expenditure Database

It’s worth repeating one more time, these are preliminary numbers made using a definition that prioritizes ease of calculation over accuracy, and I encourage others to make their own maps, especially if you have the time or resources to study the institutional details of every country.

Who gets health insurance from their employer?

I’ll be writing at some other sites as I do a deep dive into data on health insurance and health care that might interest a wider audience.

The first post in this series, on what kinds of people get employer health insurance and what kinds of jobs offer it, is up at Medium.

 

Why US Health Spending is So High: The Beginnings of an Answer

The US spends twice as much on health care as the average developed country, and three times as much as a percentage of GDP as we did in 1965, but our life expectancy is below average for a developed country. These facts are a regular refrain for health economists like me, and are often given as a motivation for our research. But one year ago I realized I had no good answer for why US health spending is so high, and no one else seemed to either. I’m still not close to finishing a book about it, but I’m finally starting to feel like I have the beginnings of an answer.

First, that even by developed country standards we are quite rich, and richer countries spend more on care.

Second, the biggest single mechanism driving this higher spending seems to be the particular design of Medicare reimbursement, especially for outpatient care. That’s the high spending.

Why don’t we seem to get much for it? Here, I think the thing is simply that life expectancy is not primarily about medical care, and that the factors driving out life expectancy down are mostly or entirely outside the medical system (obesity, overdoses, accidents, violence, et c).

In fact it is possible, though not firmly established, that our medical system really is the best in the world; that if Americans got the English or Japanese medical system our life expectancy would be even shorter, and that if the English or Japanese got the American medical system their life expectancy would be even longer. The world-beating 86 year life expectancy of Asian-Americans, a group that gets US medical care while mostly avoiding the worst of US health behavior, is suggestive of this.

Though, even if the US medical system is the best in the world, I still think it is unlikely that quality is ahead of other countries by anything like as much as spending is. We might spend a lot more and only have a slightly better quality medical system because of classic diminishing returns, or inefficiency, or because part of our high spending is on developing and implementing new technology that everyone else quickly adopts once it is cheap.

In short: it shouldn’t seem mysterious that a very rich country, especially one with insurance designed like Medicare, spends a lot on health care; and it shouldn’t seem mysterious that this high spending is unable to fully overcome the life-expectancy-dropping effects of the American lifestyle.

What does still seem mysterious to me, but I hope won’t in another year: To what extent can high private spending be explained by the influence of Medicare? Does any other rich country have an insurance design resembling Medicare Part B, and if so why has it not yielded similarly high spending? Where exactly does our higher spending go to? In particular, how much is price vs quantity vs quality today vs new tech dev vs pure inefficiency? How would the US medical system compare to other countries in a ranking of value added (contribution to life expectancy)- rather than the usual rankings that measure only inputs or outcomes?