Progress on drug reform in Latin America

The international rules on prohibition were laid down by the United Nations more than 50 years ago, making drug policy difficult for individual countries to reform. But diplomats and do-gooders are finding ever more chinks in prohibition’s legal armour. 

The latest attempt came on May 17th, when the Organisation of American States (OAS), a regional inter-governmental club, presented a report that pushed the limits of what can be said about drugs in polite diplomatic company. Drawn up with the input of academics, officials, policemen and others (including a journalist from The Economist), it envisioned a future in which by 2025 cannabis is legal in much of Europe and the Americas, a regional market for coca-leaf (cocaine’s raw ingredient) is in operation, and the UN’s anti-drug conventions are up for renegotiation. 

This was only one of four “scenarios”; the OAS took pains to make clear it was not advocating or even forecasting such changes. The approach was suggested by Juan Manuel Santos, the president of Colombia, where the same technique has been used to negotiate with rebels in past peace talks. Three other scenarios outlined in the report were worthy but tame. None contained new policy proposals. Nonetheless, it is the first time legalisation has been seriously explored by an inter-governmental organisation.

That's from the Economist.  The failure to shift the debate on drug reform has been one of the biggest disappointments from the Obama administration.  This is an issue that has the potential to save tens of thousands of lives and greatly improve the lives of many (who will otherwise end up in prison).  It's hard to feel optimistic about a shift in policy at this point.  If the Obama administration was going to transform its drug policy, it seems that it would have started before now.  

In the Obama administration's defense, there is an argument to be made that, by getting out ahead of public opinion, Democrats would only harm this debate in the long term.  

Price controls v. price signals in the U.S. health care market

Peter Sudeman argues that liberalizing the health care market will drive down the growth in health care costs.  That may be, and the article is mostly insightful, but I found this argument not at all compelling:

Market-driven price signals, on the other hand, do a remarkable job of restraining price growth—and even lowering prices—in the few instances where we actually see buyers and sellers negotiating as they do in functional markets. A recent report by Devon Herrick of the National Center for Policy Analysis, for instance, notes that between 1999 and 2011, the price for corrective eye surgery dropped by about 25 percent. Quality and service improvements, meanwhile, helped create space for price and service competition. “Eye surgeons who wanted to charge more had to provide more advanced Lasik technology, such as Custom Wavefront and IntraLase (a laser-created flap),” Herrick explains. “By 2011, the average price per eye for doctors performing Wavefront Lasik was about what conventional Lasik had been more than a decade ago; but the quality is far better. In inflation-adjusted terms, this represents a huge price decline.

I don't find it very useful to compare Lasik surgery to most of the services we consumer in our health care system.  Unlike most medical services, Lasik surgery is planned well in advance.  Consumers know that it is a luxury, not a medical necessity.  Consumers shop around for the best bargains, and, basically, the market for Lasik works like the market for most common goods.  But Lasik surgery is so far removed from most medical care that it seems almost irrelevant to compare them.  Most medical services are unplanned.  People not only lack the time to shop around for lower prices, but also the knowledge of whether or not a given service is necessary, instead relying on the doctor's word.

None of this is to say that I don't think that medical services like Lasik surgery should be liberalized.  I absolutely do believe that this market should not be too heavily regulated, since it is, as Suderman says, a mostly functioning market.  I just don't think it's very relevant to compare the market for Lasik to the rest of the health care market.

Should I be a worldchanger?

This Dylan Matthews article has sparked a fun blog debate on how best to save the world:

Trigg makes money just to give it away. His logic is simple: The more he makes, the more good he can do.

He’s figured out just how to take measure of his contribution. His outlet of choice is the Against Malaria Foundation, considered one of the world’s most effective charities. It estimates that a $2,500 donation can save one life. A quantitative analyst at Trigg’s hedge fund can earn well more than $100,000 a year. By giving away half of a high finance salary, Trigg says, he can save many more lives than he could on an academic’s salary.

Chris Blattman has an interesting post on the topic here.  

I have a few thoughts on the issue as well.  First, I think it's worth adding that there is an increasing amount of research that shows that simply transferring cash to the poor is more effective than most aid projects.  If so, there are probably too many people working (like my future self) in the aid and development industry.  This is to say that there are too many non-poor people drawing salaries that could be better used in cash transfers programs for the poor.  Some development work is important and useful (transferring institutional knowledge surely has useful effects), and there will inevitably be problems created by cash transfer programs, but it seems like a dollar spent on a cash transfer is more effective in alleviating poverty than a dollar spent on traditional development project. There are some compelling arguments to suggest that giving money away is more effective in alleviating poverty than working in development.  

Second, and more obviously, it's worth noting that not all aid and development projects are created equally.  Many of us select our field of work because we feel that it is most impactful.  We also believe that we are capable of some unique contribution that will make our efforts at development more worthwhile than the average development worker.  This belief is irrational for most people (myself included), but there will be some people who make an outsized contribution and their career in development does more good than the average career in development work.  

I want to work in development out of a desire to make the world a better place.  Given how competitive the field is, there is probably little difference between me and the next candidate.  I am aware enough of this that it should sap most of the psychic benefit I gain from working in development.  Cognitive dissonance is an amazing thing.  Maybe I will lose most of this cognitive dissonance when I gain more experience.  There certainly seem to be a lot of people who become "disillusioned" with development work.  

Summing up the U.S. health reform debate

Jaan at DMCB sums up the U.S. health reform debate very nicely in just five points.

2. The conservative vs. liberal debate over how to reduce health care costs for the U.S. government is ultimately about transferring its insurance risk.  The conservatives want to transfer risk to patients in the form ofvouchers, while the liberals want to transfer risk to providers in the form of bundled payments and gain-sharing.  The liberals, so far, are handily winning the debate.

3. Risk is only half the health reform story.  The other half is quality. There is bipartisan consensus that a) U.S. health care quality could be better, and b) greater quality will mitigate insurance risk, resulting in fewer medical complications, emergency room visits and readmissions.
    
4. There is additional bipartisan consensus that a) insurance risk can be managed and b) quality can be increased when care is provided in large vertically integrated and regional provider systems.

I'm frustrated that I don't know enough about European health systems to have a strong opinion about whether moving to vertically integrated and regional provider systems would improve the quality of our system.  Also, I'm a bit more skeptical than he is about the possibility of a public option seriously entering the public debate in the next few years (although I am very curious to see how it fares in Vermont).  

Paradigm shift: from development programs to cash transfers

This terrific blog post on cash transfers from Chris Blattman has sparked a lot of discussion in the development blogosphere over the past week:

So we don’t know a lot about giving cash to the very poor and unemployed, or how to help people shift from agriculture to cottage industry–the structural change so fundamental to modern economic growth. 

Enter our study. We look at a large, randomized, relatively unconditional cash transfer program in Uganda, one the government designed to stimulate this kind of job growth and structural change. 

The Ugandan government did what dozens of African governments are doing under the guise of “Social Action Funds” and “Community Driven Development”: they sent $10,000 to a group of 20 or so young people who applied for it. This is about $400 a person, equal to their annual incomes. 

To many people, this sounds like a crazy development strategy. We don’t trust the poor (let alone a bunch of rural 25-year olds) to spend that kind of money responsibly. We want to tie their hands, or make the decisions for them, or at least make them dig useless ditches for three months in exchange for cash.

We wanted to know. So we worked with the government and World Bank to randomize the grants, and followed nearly 2500 people two and four years afterwards. 

So is it time to stop giving people skills? Not entirely. Part of the reason these Ugandan youth did well is that they invested some of their grants–maybe a third–in skills training. But mostly they invested the grant in tools and inventory and inputs. It was their choice. 

I used to think skills and capital were like right and left shoes: one’s not so useful without the other. Now I think of capital like the shoes and skills like the laces: if I have capital, i can jog a good pace, but I can’t really run unless I have the skills. But first I need the shoes. (And cash can buy me both.)  

The problem is: too many programs just hand out laces. Old, ratty laces that don’t even fit people’s shoes. I don’t know why we do that. Maybe because we academics and NGO workers and elite government officials all live in a world where we ourselves invest in skills because there are things out there called firms and bureaucracies that have capital, and will pay us to use it. 

The poorest don’t have firms ready to hire them. Perhaps we need to stop projecting our own labor markets and biases and low opinions of our own self-control onto the poor, and show them the money.

Here’s the “surprise”: Most start new skilled trades like metalworking or tailoring. They increase their employment hours about 17%. Those new hours are spent in high-return activities, and so earnings rise nearly 50%, especially women’s.

I wonder if we're in the midst of a paradigm shift on this issue.  I've followed this debate in the blogosophere, but have yet to read many of the academic papers on the issue, yet I'm very surprised at how few serious thinkers seem to be coming to the rescue of the aid industry.

From what I've read, the cash transfer believers seem to have the more compelling arguments on their side.  This is something that's been building for awhile, first with the skepticism of Easterly and then Moyo over the traditional aid model, and now with the increasing swell of studies showing the success of cash transfer programs.  In fact, one of the reasons that I shifted from the field of aid and economic development more generally to the field of global health was that the global health sector seemed to provide a lot more opportunity to do good whereas a lot of the aid programs were of questionable usefulness.  I'm looking forward to seeing how this debate plays out in the coming years.

New Zealand's Health Care System

Eric Crampton, at Offsetting Behavior, likes New Zealand's health care system:

Things I have never ever here had to do: 

• Worry about whether our preferred GP, obstetrician, or specialist takes the insurance that we have;
• Have to take the insurance recommended by our employers;
• Have insurance tied to employment;
• Save receipts for reimbursement later on [we just mailed the bills to the insurer];
• Add up total health expenditures for a tax form to get a deduction;
• Wait in really long queues (Canada);
• Pay tons for private health insurance.

I really enjoyed this analysis and these all sound like significant improvements over the U.S. health care system.  Of particular appeal are the separation of insurance from employment and the prominence of high deductible plans in New Zealand.  And I believe that the U.S. system would function significantly better if we could accomplish these two objectives.

All that being said, a couple of potential flaws do jump out of this description.  I know nothing about New Zealand's health care system beyond what is presented here, but it seems significant and problematic that only 30% of the country subscribes to private insurance.  It's not clear to me what is covered by the public insurance system, but there seem to be some large gaps in the public insurance if a gallstone removal is not covered under public insurance.  Knowing only that gallstone removal must be paid for through private insurance (or out-of-pocket) and that 70% of the population does not have private insurance, I see the potential for some significant problems.  None of this is to argue that the U.S. health care system is "better"; just attempting to analyze some of the potential problems of New Zealand's system (of which, again, I am ignorant beyond Crampton's blog post).

Also, this is a bit of a semantic criticism, but I'm not sure it's fully accurate to say that "America has decided to make it difficult to get inexpensive high-deductible insurance coverage."  Under the ACA, the maximum limit for deductibles in 2014 will be over $6,000, triple the deductible paid by Crampton in New Zealand.


Addendum: See Eric Crampton's comment below for correction of my error in this post.

Buying low on primary care medicine

Dave Chase of Forbes on why the primary care industry is due for a renaissance:

Studies such as IBM ’s global study on the $2B they spend annually on healthcare have produced a consistent conclusion. That is, the formula is quite simple. The countries with the highest proportion of primary care have the healthiest populations and spend lower per capita on healthcare. Every government and business is budget constrained and these findings will be hard to ignore.