“Lots of very very good people went on with the missing parameter for three hundred years—theory has the blinding effect that you don’t even see the problem, because you are so used to thinking in its terms. There is a way it’s always done, and it takes somebody who is naïve, as I was, to see that there is something very odd, and it’s because I didn’t know this theory that I was in fact able to see that.”
—Daniel Kahneman [link]
As the sibling of a surgeon, and having been forced into relations with other ‘doctors’ by the big black box in the sky, I often find myself in the middle of conversations about how tough it is to make a living these days. This group is invariably, in my experience, the one amongst the graduate/professionally-educated bunch that does the most complaining. The problem is not that a quarter million annual salary used to be a princely sum, but is now paltry in the neighborhood circles they’ve grown accustomed to but that are now populated with financiers and their peripheral support staffs (even the women employed solely for the purpose of answering phones and setting up conference calls in ‘these neighborhoods’ are better compensated than many a general practitioner –year-end bonus included, of course). Rather, the problem lies in the fact that this self-selected group (more often than not, and of course there are exceptions, those choosing this path do so because of the ease in which the life unfolds once accepted to a medical school –as in, life becomes about getting into medical school, every decision after that is determined by a lottery system or similar, and provided you don’t fall asleep during your boards and are open to changing to an easier specialty, your future can be set without your having to make decisions or exert much initiative), has never experienced the challenge of having to produce an original thought, which also applies to task of earning their living. You go where the system puts you. Period. But, if you’re one of those on the cultural fringe, you say ‘fuck the system’ and you make your own way; case in point: Jay Parkinson, M.D. Instead of complaining about the wealth being made from web revolutions, simply chocking it up to the stilted nature of medicine in the world upon us, and trudging back to his private practice in some New York suburb with his tail between his legs, Mr. Parkinson put his private practice online.
Strange. How does this work?
According to Dr. Parkinson’s website, patients sign up to receive his services by paying an annual fee (currently $500/annum). Dr. Parkinson then contacts the patient, and the two chat about the patient’s medical history. After that, you contact him (via phone, email, IM, or video chat) when you need him and he will respond by ‘getting you exactly what you need.’ Hypotheticals exhibiting how he might service you range from sprains requiring the assistance of specialist to the more frivolous.
Good for patients, bad for Dr. Parkinson?
This system provides obvious benefits to patients. First, care isn’t restricted to an eight-hour window –a window observed by most business, thereby increasing the opportunity cost of spending time in your physician’s office (lost wages, etc…). Second, the time normally lost to patients waiting around for the doctor to finish up with the last guy is reduced, or at least more pleasurable. Imagine you fracture your wrist in the park. You email Parkinson on your Blackberry, he texts you saying he’s busy, but can come down in a half hour. In the meantime, you take a picture of your arm and send it to Parkinson, then duck into a coffee shop. A quick look at the picture and he texts back saying you’ll need to do x, y and z, and he sends you along to a specialist who he has just called…
But, in order for Dr. Parkinson to make ends meet in the village, he’s going to need at least 200 patients (give or take some). With this business model, the doctor has every incentive to increase either the number of patients or the annual service fee…which raises a fundamental issue: moral hazard. When people pay a flat fee for a service, they tend feel the need to abuse it. Dr. Parkinson’s ‘examples’ includes a case in which he provides services to a woman who enlists his help because her boyfriend calls her fat. Patients might be more likely to bombard poor Dr. Parkinson with such requests than they would if they were forced to walk into an office or pay a premium for that visit. Does the service really allow Parkinson to service more patients if he’s receiving more requests but the marginal savings to time expended per patient is minimal? At some point, I imagine Parkinson will raise his fee in order to better serve patients if requests get out of hand. He might even apply a small premium per call received, so as to combat the frivolous requests that would never illicit demand for institutionalized medical services otherwise. The beauty of this business model is that Dr. Parkinson is in control of his fee structure, and can change it to meet his own and his patient demographics’ changing demands without the constraint of hefty fixed costs associated with the traditional system. HT: [Gawker]
A wise man who drives a yellow Porsche –but refuses to buy the stock on the basis that the approx. third of revenues from the U.S, renders Porsche “too dependent on debt-ridden Americans”–once said: “U.S. consumers won’t benefit much from cheaper loans if their bank is too worried about liquidity to give them one.” [Germany’s Ehrhardt Drives Porsche, Shuns Its Stock on U.S. Link, Bloomberg]
Consider the following, a hypothetical…hypothetically posed in your upper division Macroeconomics course in undergrad, lower division where I come from, but hey each economics department has it’s own virtues:
The introduction of a seductive new credit tool and homeownership promotion by the central bank of Country X has led to an age of irrational homeownership (see chart, source: US Census). A few years and a peak in single-family home sales later, talk of defaults and spiking foreclosure rates populate the pages of most mainstream national newspapers. In response, there’s a threat of some irresponsible homebuilders and mortgage lenders seeing bankruptcy [for the 101B folks (who can handle noise for what it is): investment entities holding assets packaged with home loans cannot calculate returns for anal investors b/c the terror -and subsequent downgrades by credit rating agencies that should have been doing their jobs- has eliminated demand for said assets, thus wiping out the semblance of any functioning, liquid market for the things and rendering their values unknown –this forces a few investment managers into selling boats, helicopters and vacation homes]. You are primarily worried about inflation and preserving what little value your currency maintains against those of robust economies around the globe. At the moment, gold, oil, wheat, and other commodities are at multi-year highs. Your currency is about as valuable as baby wipes bought with ₤s. Oh, and a newscaster has a breakdown on network television (he yells at you, are you going to take that?)Q: You sit on the FOMC, and for the purpose of this exercise your vote is the only one that matters, how should you enact monetary policy to best respond?
I’m almost certain that if I had answered with ‘lower both the discount and federal funds rates by 50bps’ the GSI grading my exam for Janet Yellen would not have even offered partial credit. But, anyway thank you for the rally –great opportunity to dump US equities and move cash offshore.
In the spirit of running experiments that explore the evolution of capitalist systems on children [Why We Banned Legos, 2006], consider a Russian version:
Nikolaevena had run the Krupskaya Camp since 1969… Despite her obvious misgivings about the new order, Nikolaevna was an indoctrinator by profession and said it was now her duty to prepare children for the coming times. ‘We have to teach the young what a free-market system is’…In this remote region, they recreated the prevailing market conditions of any big Western city…‘Just like in New York. If you didn’t work, you didn’t eat.’
For five days, the camp’s Red Square parade ground was transformed into a capitalist labor exchange where the 413 campers bid on work assignments. The children were paid in the camp’s own currency [ecus], redeemable at the cafeteria, confectionery, and entertainment center. Nikolaevna played mayor while Anrei put his economics training to use as head of the central bank. The remainder of the staff and counselors ran the labor shop. The oldest campers were appointed police officers…
On the second day of the exercise, Andrei noticed that there was more money in circulation than had originally been printed. After some inquiry, he discovered that a few of the kids had taken it upon themselves to set up their own little printing press and crank out ecus to satisfy their sweet tooth. The camp police were dispatched to apprehend the culprits, but the kids bought off the lawmen with a case of chocolate bars and continued to operate with impunity. Some other policemen, lured by the promise of Pepsi and chewing gum, threw in their lot with the counterfeits. This prepubescent mafia began to bully other campers and exacted payments for such offenses as profanity –either fifty ecus or two waffles.
Taking one counselor’s words (‘there is no higher law than money’) to heart, a group of overly enthusiastic kid-capitalists stormed Andrei’s office (the central bank), and in the ensuing melee made off with the labor exchange’s payroll. Andrei was forced to print extra money, which caused the campers to increase the price of chocolates and services. Just as in the real post-Soviet world, hyperinflation was born…
On the third day of the Economic Game, the Krupskaya camp suffered a spectacular bankruptcy. A would be Donald Trump had bought the rights to the dormitory and demanded rent from all the campers. Unfortunately, the kids started sneaking in through the back window to sleep, and the budding landlord ended up owing more ecus to the labor exchange for rental rights than he was receiving from the campers. He abandoned his property deal and joined the police-force-cum-mafia.
By the afternoon of the fourth day, chaos reigned. Zhanna Nikolaevna, in her role as mayor, called a general meeting to resore order. When she proposed firing the corrupt police force and replacing it with a newly formed ‘national guard’ composed of camp counselors, the police staged a coup d’état and threatened to hold her for ransom. The coup d’état proved to be the coup de grace. The game was called off…
‘If this is how people act in capitalism,’ [Zhanna Nikolaevna] said softly, ‘then I fear for the future of Russia.’
—Casino Moscow, Matthew Brzezinski
the empirical skeptic 