People like me often rail against the inefficient and corrupt US health care system. I'll remind you of some of the worst problems.

1. About 47 million or 16% of the population has no health insurance.
   
2. Drug companies promote me-too and lifestyle drugs rather than doing basic research on life saving treatments.
   
3. Drug companies use the patent system to charge monopolist prices for life and death drugs.
   
4. Private insurance companies siphon off 30% of the money they get in premiums.
   
5. Specialist doctors charge what they wish, drawing doctors away from family medicine where payments are limited by insurance contracts.
   
6. Too many hi-tech medical procedures are pushed when cheaper alternatives are available.
   
7. Too much money is spent on useless end-of-life care and too little on preventive care.
   

The core principle of economics is the law of supply and demand. Raise the price and demand will go down and vice versa. Common experience tends to confirm this, although with a fudge factor called "elasticity". If the demand doesn't go down as much as one would expect then it is said that demand is inelastic.

As the world enters into a period of fossil fuel limits, and as demand increases due to developing countries and overall population growth, discussions of using pricing to control demand have become popular.

This is all part of the "magic of the market" and "invisible hand" that has been standard fare since the rise of mercantilism in the 16th and 17th Centuries. The sensible economists are pushing for an increase in the cost of fuel through distinctly non-free market mechanisms. The most common idea being some sort of new tax plan.

This story gets to the heart of the economic basis of our society - that we are all "rational" consumers:

An Update on Gardasil: Marketing Trumps Science - Billions Spent; Risks Remain Unknown

Now that the world is going through one of its periodic economic convulsions there is increased activity among the chattering classes as to what went wrong (this time). First I'll lay out the types of criticism of the situation. Second I'll explain what "capitalism" is. Last I'll go into why capitalism needs to be replaced and how to design the new economic system. If you aren't interested in the definitions, skip to the last part.

There is a nice Wikipedia article about "comparative advantage". It even cites one of the newest works by Economist Ha-Joon Chang where he argues that this idea worked adversely for developing countries.

I've decided, after seeing a lot of shoddy and self-serving economic research being passed off as science that we need to take a new approach. The era of the MBA and the bottom line has to come to an end.

The golden rule does not state "do unto others...as long as it is cost effective".

Promoted by afew

I'm confused about the present meltdown, the blame is focused on risky loans and those who facilitated them, but I think the problem lies elsewhere.

In the old days, if you wanted to borrow money you went to the bank, and if your prospects were good enough, and you had adequate collateral, they lent you the money. The money they lent you was obtained from depositors. The bank made money by paying interest to the depositors which was less than they charged to borrowers. When everything worked right, everyone came out ahead, and the banker was ensured a steady income. Banks were low growth businesses. Many were even mutual savings associations which meant they were owned by their depositors.

The myth of Ricardo is that each country does what it is best at and then trades with its neighbors. Each produces at the lowest cost, since it is an expert, and everyone benefits. This may have been true in some limited areas when countries were at similar levels of development so that labor cost difference were due to specialization and not to the general standard of living.

Factor in natural resource and climate benefits and it makes for a good theory. Recent developments have led to questioning the model. So the question is not should a society be self-sufficient, but can it?

Diary rescue from July 18 by afew

John Edwards has spoken frequently of the "Two Americas" so what I'm about to say isn't totally original. His focus has been on how much the "haves" have and how little the rest of us don't.

I want to focus on what the haves have that the rest of us don't.

There was a comment on my Grump diary about the EU Constitution, given my poor opinion of European leaders, so I thought I write one (as requested).

OK, I'm not actually going to write one, just highlight the problems (as if you all didn't know already).

Perhaps it's the hot weather, but I think the meltdown in the financial markets has something to do with it. I've been involved long enough that I've lived through several of these ups and downs before, but this time seems different.

In no particular order, my complaints:

One of the stories of our age has been that there was a cultural revolution which started during the Nixon era and reached its culmination with Reagan. There are three parts to this view of history.

1. Conservative "values" became the majority viewpoint in the nation
   
2. Evangelical Christian views on social issues were made into policy
   
3. Libertarian style economic policies became the norm

The press and many politicians have certainly acted as if these were widely accepted ideas. Recently, as the age of Rove winds down, people have been discussing the fall in the power of the GOP and implicitly equating its political power with the conservative themes listed above.

The justification for enhanced security and the extra limits on civil liberties is not primarily to prevent physical attacks, but to defend our "way of life". As George Bush said, "they hate us for our freedoms".

One can debate the best methods to prevent physical attacks, but these are usually similar to defending against any form of lawlessness. Some combination of policing, intelligence gathering and observation. Any police official will explain that the goal of preventing, say, all armed robberies is impossible, the best one can do is to keep the level as low as possible. To expect otherwise in the case of politically motivated violence is unrealistic.

So to defend "our freedoms" the first thing that a society should do, one would think, was to maintain those freedoms that already exist. Otherwise the "terrorists have won". How has the record been in the US so far? I'll list just a handful of disturbing examples where the infringements on civil liberties have led us towards a society just like the ones we claim to oppose.

This is an attempt to start an occasional feature where interested visitors can highlight books that they think might be of interest to a wider audience.

I don't think there are any ground rules, the books could be recent or classics, fiction or not, and in any language with or without translations.

I guess there could even be suggestions for books to avoid. Right now in the US there is a rash of what I call BSO's (book shaped objects) which are appearing at a great rate to piggyback on the implosion of the Bush regime, or to justify the author's role in it. I've read a few and not one should have been more 1500 words long.

The US congress has been updating its surveillance policies again and has finally succeeded in removing the last shred of civil liberties based upon prior law. There are a few groups which understand the importance of ensuring the privacy of the average person and have been objecting to the wholesale intrusion on this privacy, but I think this is not the most important violation.

For example, there is some concern about getting a court-issued warrant before surveillance can take place. This is based upon the provision in the fourth amendment:

Warrants shall issue, but upon probable cause, supported by Oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized.

However, in practice this is a sham requirement. The FISA court set up to "protect" the rights of those being spied upon has approved all but a handful of such requests, so whether a warrant is "required" these days makes no difference in practice.

The other day I floated an idea about having a spot for short items - something less than a full diary and more than a comment in a open thread. Here's my attempt at such an idea. [Actually this turned out a bit longer than I intended...]
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The market for gas guzzlers in the US has collapsed. On a radio show this morning one such owner (8 mpg) said that the original prices was $50K, he had paid $40K for a used one off lease a few years ago, and was now thinking of selling it. The "book" value or nominal resale historically for the vehicle was about $25K given the additional age, but that dealers would only offer him $8K.

My suggestion: a government program to have car makers accept such unsalable vehicles in exchange for a much higher mileage alternative with two incentives. The one for the seller would allow him to claim a "casualty" loss of the difference between the historical trade-in value and the new reality. Let's say in this case $17K (25-8). This loss could then be declared on the seller's income tax along with other traditional casualty losses.

The car maker would have to give a higher than current trade in allowance subject to two conditions: the gas guzzler would have to be scrapped and the replacement vehicle would have to be new and meet certain performance standards. In exchange the car maker would also get some sort of incentive from the government. This could be in the form of a tax credit or something similar.

The net effect: gas guzzlers get off the road quicker, new car sales get a boost and fuel consumption declines.

In a news story today several ISP's have agreed with the Attorney General of New York to filter content which promotes child "pornography". This is the first time that ISP's have agreed to censorship not forced upon them by an authoritarian regime.

There has been much criticism, for example, of Google for agreeing to filter search results to conform to Chinese demands, but the actual blocking of traffic is handled by the government-controlled network providers. Google doesn't filter content, it only makes it harder to find. This new agreement is something else.

Until now the telecom companies have always maintained that they are "common carriers". They provide the road and what sort of vehicle you drive or where you are going is of no concern to them. This kept them away from some very ticklish political situations. There was supposed to be a complete separation between content and delivery.

I've long complained about the lack of any economic models which weren't predicated on capitalist principles.

Even when the government of a country claims to be "communist" or "socialist" the individual enterprises are run along capitalist lines. All that changes is where the source of capital comes from and where the "profits" go.

So it is encouraging to see this first essay by a well-known economist questioning the need for capital formation as a prerequisite for economic growth.

My recent comment on the problem of the "tyranny of the majority" in a democracy with regard to conservation led to a request that I expand this into a separate diary.

Here's a recent essay of mine on an allied subject, measuring how "democratic" a society is.

I still maintain that democracies lead to better overall economic conditions and more equity, but there are many degrees of democracy and some states are far from the ideal.

One can look to the current situation in the US where universal health care has been favored by the vast majority of the population for over 60 years, but has been thwarted by special interests. Hardly a fully functional democracy.

Sorry, this is a bit indirect, but here's a copy of a book review of James Galbraith's new book:
Predator State: How Conservatives Abandoned the Free Market and Why Liberals Should Too, by James K. Galbraith. New York, London, Toronto, Sydney: Free Press, 2008.

Review

The copy is from economist Mark Thoma's blog where there is also a lively discussion going on. (The original review seems to be behind a pay wall.)

As some of you may know I have a web site where I post many of my essays. This way I can refer back to them when I want to quote myself and also give others an opportunity to read them regardless of how long ago they were created.

Recently I decided it would be nice if I gathered up the collection and made a hard copy of them. I explored several ideas. First I thought of printing out the web pages using a browser's print page capability. This seemed somewhat slow and would consume a great deal of expensive ink and paper.