Market Forces and Health Care

Posted by PITHOCRATES - March 4th, 2013

Economics 101

Keynesians try to reduce Human Behavior down to Complex and Confusing Math

We hear a lot about introducing market forces into health care.  But what does that mean?  What exactly are market forces?  Are they like magnetic forces?  Electric forces?  Hydraulic forces?  No.  Market forces are not forces that conform to the laws of science.  Rather, they belong in the realm of the social sciences.  That are less science.  And more opinion.  Where there are a lot of theories.  And politicians massage the data to fit their theory.  As Mark Twain said, facts don’t lie but liars figure.  And politicians figure.  A lot.

So there are no hard rules when it comes to the social sciences.  Just a lot of theorizing.  And a lot of drawing conclusions.  Based on the data.  And how some massage the data.  Something to keep in mind whenever anyone discusses economic numbers.  For the accepted school of economics most politicians adhere to is the Keynesian school.  The dirty little whore of economics.  For there is a whole lot of massaging going on with Keynesians.  With the data.  Not each other.  Politicians love Keynesian economics because this school of economic thought calls for governments to tax, borrow, print and spend.  Empowering government.  Making government grow.  And become more intrusive in our personal lives.  All things politicians love.  Which is why they massage the economic data.  They have to.  Because this school of economic thought doesn’t work.

Keynesians make economics very complex.  Open a text book and you will find a lot of graphs and formulas.  Where they try to reduce human behavior down to math.  Very complex and confusing math.  And you can’t do that.  Humans have free will.  They make decisions based on any number of things.  One influencing factor more or less could change the way they decide.  And there’s no way we can quantify all the variables in our lives.  Therefore, there’s no way to reduce human decision-making down to math.  Which is what drives market forces.  Our decision-making process.  That point in time that triggers the free exchange of money for goods and/or services.

When it comes to the All-You-Can-Eat Buffet Customers think more in Terms of Quantity than Quality

Consider an all-you-can-eat buffet.  And how it changes your decision-making process.  But first let’s look at some typical behavior at a normal restaurant.  Where you may spend $15 for a 4-course meal and drink.  Soup, salad, entrée and dessert.  Which you enjoy with a friend.  You have pleasant conversation as you enjoy each of your 4 courses.  Taking your time.  Enjoying each course.  Slowly getting full.  And satisfied.  The portion sizes are just right.  Leaving just enough room for dessert.  You’re full.  But not too full.  Comfortable.  You’re able to go for an after-dinner walk.  Even take in a movie.

Now let’s consider the all-you-can-eat buffet.  Where you may pay $20 for unlimited access to the buffet.  You’re paying more than for a sit-down service.  Why?  Because you plan to eat more.  You will maximize the value you get for your $20.  Which means you’ll probably skip the soup and salad.  And start loading your plate with the expensive entrées.  You’ll probably go back once or twice.  Making sure you get a taste of everything.  And a lot of anything that is expensive.  Again, to maximize your value.  In fact you maximize so much that you become uncomfortably full.  Too full to sit through a movie without nodding off.  And too full for a walk.  All you want to do is go home and nap.

The restaurant sees this from a slightly different perspective.  The all-you-can-eat buffet is simple to serve.  You mass produce food to load up the buffet so it’s ready at the beginning of the buffet hours.  You replace the items people eat most.  While the less popular items sit longer in the buffet.  Becoming less fresh.  Also, the buffet is a good way to get rid of things approaching their ‘serve by’ dates.  Saving the freshest food for the made-to-order sit-down service.  And putting the older food in the buffet.  Because when it comes to the buffet you know customers are thinking more in terms of quantity than quality.  The food is good in the buffet.  But not as good as the food for the sit-down clientele.

If you Pay Cash at the Pharmacy you are more likely to Ask for the Less Expensive Generic Drugs

These are market forces.  People have come together to make voluntary exchanges.  The quantity of food available makes some people opt for the more expensive all-you-can-eat buffet.  Others may opt for the less expensive but higher quality made-to-order sit down service.  For the person who places the greatest value on eating mass quantities of food will choose the buffet.  The person who places the greatest value on the dining experience (quality of food, made-to-order, conversation, after-dinner walk or movie, etc.) will choose the sit-down service.  If more people are choosing the buffet the owner may extend the buffet hours.  If fewer people are choosing the buffet and leave a lot a food to throw away the owner may end the buffet service.  These are market forces.  Buyer and sellers coming together in the marketplace.  Seeing what each has to offer.  If they come to a mutual agreement they make an economic exchange.  The buyer willingly exchanges his or her money for goods and/or services.  The seller willingly accepts an amount of money in exchange for his or her goods and/or services.

The private economy works because it is buyers and sellers meeting and making exchanges they both freely agree to.  This is the key of market forces.  It’s what makes people with money go to the marketplace.  And it’s what makes people bring goods and/or services to the marketplace.  Because they will seek each other out and make these exchanges.  After which both buyer and seller will come away with something they value more.  This is what is missing in health care.  Buyer and sellers aren’t meeting to make exchanges.  In fact, the buyer and seller do not even meet.  Patients never ask for any prices.  Because they aren’t paying for anything.  Their insurer is.  And the medical provider will always provide the most expensive treatment billing guidelines will allow.  For that’s who they must please.  The people paying them.  Not the patient.  And they have to charge as much as they can to cover all the things they won’t get paid for.  People they treat without insurance who can’t pay.  And for the billings the insurers deny.

So this changes the decision making process.  For everyone.  Introducing a third party into the equation removes market forces.  If you pay cash at the pharmacy you are more likely to ask for the less expensive generic drugs.  If you get free prescription coverage you will ask for the most expensive name-brand medicine they have.  For when you’re not paying price is no object.  But when you are paying price is a very important object.  Because when it’s our money getting value for our money is very important.  So we’ll ask if the name-brand has any more value than the generic.  For who would spend more for something that doesn’t give you any more value than something you can get for less?

When it comes to medical tests and procedures patients aren’t going to ask for more than they absolutely need.  And doctors aren’t going to prescribe any more than a patient needs.  Because they aren’t billing a faceless bureaucrat.  They’re billing someone they have a close and personal relationship with.  And they sure aren’t going to try and bill someone they have a close and personal relationship with for someone else’s unpaid bill.  Not if they want to keep them as a patient.  Because a doctor-patient relationship is a long-term relationship.  A doctor could lose a lot of business by mistreating a patient to make an extra buck.  These are market forces.  Which makes the private sector work so well.  And why their absence makes the health care system not work so well.  Transforming our health care from a moderately priced, high quality, custom, sit-down service to a higher priced, mass-produced, lower quality, all-you-can-eat buffet.

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Boolean Algebra, Logic Gates, Flip-Flop, Bit, Byte, Transistor, Integrated Circuit, Microprocessor and Computer Programming

Posted by PITHOCRATES - February 1st, 2012

Technology 101

A Binary System is one where a Bit of Information can only have One of Two States 

Parents can be very logical when it comes to their children.  Children always want dessert.  But they don’t always clean their rooms or do their homework.  So some parents make dessert conditional.  For the children to have their dessert they must clean their rooms AND do their homework.  Both things are required to get dessert.  Or you could say this in another way.  If the children either don’t clean their rooms OR don’t do their homework they will forfeit their dessert.  Stated in this way they only need to do one of two things (not clean their room OR not do their homework) to forfeit their dessert. 

This was an introduction to logic.  George Boole created a mathematical way to express this logic. We call it Boolean algebra.  But relax.  There will be no algebraic equations here.

In the above example things had only one of two states.  Room cleaned.  Room not cleaned.   Homework done.  Homework not done.  This is a binary system.  Where a bit of information can only have one of two states.  We gave these states names.  We could have used anything.  But in our digital age we chose to represent these two states with either a ‘1’ or a ‘0’.  One piece of information is either a ‘1’.  And if it’s not a ‘1’ then it has to be a ‘0’.  In the above example a clean room and complete homework would both be 1s.  And a dirty room and incomplete homework would be 0s.  Where ‘1’ means a condition is ‘true’.  And a ‘0’ means the condition is ‘false’.

Miniaturization allowed us to place more Transistors onto an Integrated Circuit

Logic gates are electrical/electronic devices that process these bits of information to make a decision.  The above was an example of two logic gates.  Can you guess what we call them?  One was an AND gate.  The other was an OR gate.  Because one needed both conditions (the first AND the second) to be true to trigger a true output.  Children get dessert.  The other needed only one condition (the first OR the second) to be true to trigger a true output.  Children forfeit dessert. 

We made early gates with electromechanical relays and vacuum tubes.  Claude Shannon used Boolean algebra to optimize telephone routing switches made of relays.  But these were big and required big spaces, needed lots of wiring, consumed a lot of power and generated a lot of heat.  Especially as we combined more and more of these logic gates together to be able to make more complex decisions.  Think of what happens when you press a button to call an elevator (an input).  Doors close (an action).  When doors are closed (an input) car moves (an action).  Car slows down when near floor.  Car stops on floor.  When car stops doors open.  Etc.  If you were ever in an elevator control room you could hear a symphony of clicks and clacks from the relays as they processed new inputs and issued action commands to safely move people up and down a building.  Some Boolean number crunching, though, could often eliminate a lot of redundant gates while still making the same decisions based on the same input conditions. 

The physical size constraints of putting more and more relays or vacuum tubes together limited these decision-making machines, though.  But new technology solved that problem.  By exchanging relays and vacuum tubes for transistors.  Made from small amounts of semiconductor material.  Such as silicon.  As in Silicon Valley.  These transistors are very small and consume far less power.  Which allowed us to build larger and more complex logic arrays.  Built with latching flip-flops.  Such as the J-K flip-flop.  Logic gates wired together to store a single bit of information.  A ‘1’ or a ‘0’.  Eight of these devices in a row can hold 8 bits of information.  Or a byte.  When a clock was added to these flip-flops they would check the inputs and change their outputs (if necessary) with each pulse of the clock.  Miniaturization allowed us to place more and more of these transistors onto an integrated circuit.  A computer chip.  Which could hold a lot of bytes of information. 

To Program Computers we used Assembly Language and High-Level Programming Languages like FORTRAN

The marriage of latching flip-flops and a clock gave birth to the microprocessor.  A sequential digital logic device.  Where the microprocessor checks inputs in sequence and based on the instructions stored in the computer’s memory (those registers built from flip-flops encoded with bytes of binary instructions) executes output actions.  Like the elevator.  The microprocessor notes the inputs.  It then looks in its memory to see what those inputs mean.  And then executes the instructions for that set of inputs.  The bigger the registers and the faster the clock speed the faster this sequence.

Putting information into these registers can be tedious.  Especially if you’re programming in machine language.  Entering a ‘1’ or a ‘0’ for each bit in a byte.  To help humans program these machines we developed assembly language.  Where we wrote lines of program using words we could better understand.  Then used an assembler to covert that programming into the machine language the machine could understand.  Because the machine only looks at bytes of data full of 1s and 0s and compares it to a stored program for instructions to generate an output.  To improve on this we developed high-level programming languages.  Such as FORTRAN.  FORTRAN, short for formula translation, made more sense to humans and was therefore more powerful for people.  A compiler would then translate the human gibberish into the machine language the computer could understand.

Computing has come a long way from those electromechanical relays and vacuum tubes.  Where once you had to be an engineer or a computer scientist to program and operate a computer.  Through the high-tech revolution of the Eighties and Silicon Valley.  Where chip making changed our world and created an economic boom the likes few have ever seen.  To today where anyone can use a laptop computer or a smartphone to surf the Internet.  And they don’t have to understand any of the technology that makes it work.  Which is why people curse when their device doesn’t do what they want it to do.  It doesn’t help.  But it’s all they can do.  Curse.  Unlike an engineer or computer scientist.  Who don’t curse.  Much.

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