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A Critical Economics Lesson Hidden In A Lame Joke


Unlike lawyers, there aren’t a lot of quips or jokes about economists and economics (although much of what passes for economic wisdom in many circles does qualify as a cruel joke, such as the argument that raising the minimum wage doesn’t reduce opportunities for entry-level workers).

There is of course the infamous (at least among some) joke Bob Dole used to tell during the Reagan years: “The good news is that a busload of supply-side economists went over a cliff, and everybody was killed… the bad news is that two seats were empty.”

But aside from that knee-slapper, there aren’t a lot of choices for people wanting to take a humorous poke at what has been called ‘the dismal science’ for more than a century and a half. There is one that I heard a long time ago, though, that actually reveals a pretty important lesson about economics that seemed worth sharing, particularly in light of what appears to be the looming failure of Obamacare’s primary goal, to dramatically expand health insurance coverage among Americans.

Here’s the line: “An economist is someone who knows the price of everything, but the value of nothing.” *

Hilarious, huh? (The line is actually a misquote of Oscar Wilde, who was talking about cynics.)

The line actually gets half of it wrong though. It’s certainly true that economists know the value of nothing, but a good economist will also admit that they don’t know the price of anything either, at least not as a static number. Real prices change regularly, and are often different for the same good or service depending on a wide variety of factors including location, provider, available substitutes, and at least a multiplujillion other reasons that competitive markets usually do a reasonably decent job of taking into account.

But that’s not the economics lesson here. Instead, let’s go back to that whole value thing. As the quip notes, economists know the value of nothing (with one qualification – back to that in a second), but a good economist also knows that everybody else also knows the value of nothing (same qualification, and please excuse the mangled verbiage, I’m just trying to stick to the original form).

What this means is pretty simple – value is HUGELY subjective, meaning that what one person puts a high value on, others may well put a low value on. Consider the following: how much is a ticket to a Justin Bieber concert worth?

In one of the more excruciatingly painful Google searches I’ve ever undertaken, I was able to find information showing in 2013 tickets to a Bieber concert in the Dallas area went for between $45 and $95.

Does that mean that the value of a Bieber concert ticket was in the range of $45 and $95? The answer is, for some yes, for others no. In fact, I’ve personally calculated the amount of money that someone would have to pay me to attend a Bieber concert (about $250, more if the seats are towards the front) as well as how much I’d be willing to pay to avoid having to attend a Bieber concert (about $100 bucks, again more if the seats are towards the front).

So despite the market having apparently settled on the range of $45 to $95 as the price for a ticket to a Bieber concert, suggesting some sort of median value among Bieber fans in that range for concert tickets, that value is hardly universal, or even representative of more than a tiny fraction of the public. Different people place different values on identical goods and services, and those that find value in or above the market price will purchase the good or service, while the rest of us go on without it – quite happily, in many cases.

The one qualification to my statement that everybody else also knows the value of nothing, of course, is that we are all quite capable of determining how much we value something. If that weren’t the case I could never have arrived at my conclusion that not only does a ticket to a Bieber concert have zero positive value to me, you’d actually have to pay me to attend.

And here’s where we get to one of the fundamental misunderstandings on the part of the architects of Obamacare about value and price, one that is likely to explain a good portion of the relatively poor signup numbers for private coverage through the exchanges.

And here’s where we get to one of the fundamental misunderstandings on the part of the architects of Obamacare about value and price, one that is likely to explain a good portion of the relatively poor signup numbers for private coverage through the exchanges.

Simply put, the people who decided what ‘real’ health insurance would be under Obamacare, to borrow from Secretary Sebelius’ statement, decided that the overwhelming majority of the uninsured really wanted to buy insurance that paid first-dollar for a lot of their healthcare and that covered a wide range of services, and that the insured wanted the same thing.

This is how you wind up with 60-year-old nuns being told they need maternity coverage, and single men being required to buy infertility coverage.

They also decreed that value was uniform as well, at least along a sliding subsidy scale that determined the out-of-pocket cost for coverage after tax credits were calculated. So you wind up with Obamacare essentially deciding that someone earning 200% of federal poverty (about $22,980 for a single person) should give a value of at least $1,448 for a year’s coverage, or 6.3% of income, while someone with income at 350% of federal poverty (about $40,215) should value health insurance as being worth at least $3,820 for one year’s coverage, or 9.5% of income.

And here’s where things start to fall apart. To be sure, there are a lot of people who value insurance at these levels, or even more. But many people do not, and in attempting to force their own valuation of health insurance on the public at large, the designers and defenders of Obamacare are making a mistake that any good economist knows should never be made – assuming that people place roughly identical values on goods and services  as they themselves do.

You can see this in the frequent writings of Ezra Klein, attempting to explain why Obamacare is destined to be a smashing success. Here, for example, is Mr. Klein’s writeup (joined by Sarah Kliff) from July of last year writing about the challenges of Obamacare’s rollout (emphasis added):

The Obama administration believes it has four ways to pull people — both young and old — into the market. There are the subsidies. There’s the individual mandate. There’s the hoped-for ease and transparency of the new marketplaces. And then there’s the fact that people want health insurance…

Polling shows that young adults overwhelmingly want health insurance…

Well, there you have it – people want health insurance, and Obamacare helps people get health insurance. No reason to examine the matter any further!

Unless, of course, you understand that saying “people want health insurance” is a pretty vague and vapid thing to say, and even disastrous when you’re trying to build a major public policy change around that assertion. It’s like watching a Van Halen concert sell out in minutes, deciding that “people like concert tickets,” and then building a universal-concert-ticket-access program without understanding that some people aren’t going to be real happy when you hand them Justin Bieber concert tickets.

So the administration and Congressional Democrats apparently failed to realize that going from “people want health insurance” to “people will want the health insurance that we think is best for them” skips a step, namely asking themselves “will people find value in the health insurance we’re offering/mandating?”

Judging by the fact that a large majority of people who have signed up for health insurance through the exchanges were previously insured, it appears to be the case that many of the people who previously valued insurance enough to pay for it in the individual market continue to value it and are continuing to purchase it, while large numbers of the people who previously didn’t find enough value in the health insurance that was available to them continue not to find value in what is now available.

This very simple proposition, that it’s impossible for one person to know the value that others will place on something, would have saved the architects and defenders of Obamacare a lot of grief had they just understood it and embraced it. Instead they assumed that while economists know the value of nothing, they in fact knew the value of health insurance to the 45 million or so Americans who did not have it, and there was no need to look into whether some people value the health insurance products that are available at the given prices about as much as I value a Justin Bieber concert ticket – i.e. I am literally willing to pay to avoid it.

In the end it’s likely that tens of millions of Americans will decide to opt-out of Obamacare (and if this is of interest to you I’d recommend my blog post ‘How to Opt-Out of Obamacare’) for the simple reason that they do not find value in what is available, at least not at the current prices. And many of them are more than willing to pay the tax on being uninsured, as they find greater value in that than they do in the available insurance products, while others will dodge through a variety of means, such as joining a health care sharing ministry or because their premiums would exceed 8% of their income.

Regardless, it’s becoming increasingly clear that in failing to account for the fact that value is a subjective idea different for everyone, the architects of Obamacare have likely doomed the whole enterprise by assuming they knew what the economists didn’t.

Sean Parnell is the author of The Self-Pay Patient: Affordable Healthcare Choices in the Age of Obamacare and blogs at