MIT Economists in the New York Times
By Arnold Kling
1. Twenty years ago, Peter Diamond wrote,
suppose individuals could be grouped independent of their health needs and work status. What if government simply assigned people to groups, ranging in size from 10,000 to 100,000, based solely on where they live? Everyone would automatically receive basic coverage and could, if they desired, purchase additional insurance. High-risk individuals wouldn’t be excluded or charged enormous rates. Cross-subsidization of premiums can equalize insurance payments between urban ghettoes, where health is relatively poor, and more affluent neighborhoods in the same city or region.
Government-created groups as a way to manage risk aren’t novel. Consider the market for residential mortgages. Any mortgage poses a risk of default. But a large bundle of mortgages poses a more predictable risk, with little threat of default. The Federal National Mortgage Association (Fannie Mae) groups individual mortgages together into securities that are sold to private investors.
I assume that Diamond would stand by the first paragraph. The second one, maybe not so much. Although in Diamond’s health insurance scheme, I wonder why you wouldn’t just go to a system where government assigns people to insurance programs randomly, without regard to geography. Thanks to Mark Thoma for the pointer.
2. More recently, this article quotes Robert Solow.
“One point I always make to my graduate students is, avoid sound bites. Never sound more certain than you are.”
To explain the case for humility in economics, Mr. Solow said, look no further than the stimulus bill: “It has run its course over the past year and a half, but it is not an isolated event. One thousand other things were happening that had an effect on employment and real G.D.P.,” a measure of a nation’s total output adjusted for changes in prices. “You want to trace the effect of one of a very large number of significant causal effects, and that’s a very hard thing to do.”
I find that the economists I am most drawn to are those with the greatest willingness to express self-doubt. The arrogant bullies, on either side of the ideological debate, leave me cold.