Thursday, December 23, 2010

Brad DeLong explains

Read his "Inflation Economics" Lecture. It explains the state of the US govt. financial situation and how we got here.

Then read his comment on the financial and health care service industries. Here's how it ends.
Do not get us wrong: we do not hate service industries. But most service industries produce something of value in return for their profits. Health care administration simply produces denials of coverage. Finance as currently construed simply produces portfolios for individuals that involve them bearing extraordinarily large and idiosyncratic risks that they had no idea they were bearing.

There are two ways to make money in health care: (i) by providing people with valuable treatments that they are willing to pay for, and (ii) by collecting insurance premiums and finding some excuse not to pay them out when people get sick.

There are two ways to make money in finance: (i) to find people who are willing to bear risks that they understand, selling them risks that offer attractive risk-return tradeoffs, and collecting a commission; and (ii) by selling people risks that they don't understand.

It looks to us very much as though our modern health-care administration and financial sectors are good at the second but not the first.

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