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The Lighthouse

The Lighthouse is the weekly email newsletter of the Independent Institute.
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Volume 20, Issue 41: October 9, 2018

  1. How Employers Can Slash Health Costs
  2. Capitalism as a Buffer Against Disasters
  3. Pay to Bully: College Football’s Worst Scandal?
  4. The Vision of Economist Gordon Tullock
  5. The Beacon: New Blog Posts


1) How Employers Can Slash Health Costs

Healthcare costs are a major concern to business managers, yet few have taken the steps available to address the problem. In his latest column at Forbes, Independent Institute Senior Fellow John C. Goodman argues that a quiet revolution is happening in healthcare delivery and that companies who stand on the sidelines do so at their own peril.

The need for major change in healthcare delivery should be apparent to anyone familiar with the third-party payment system. When Blue Cross, Medicare, or employers are involved in healthcare, incentives to hold down costs are lacking, and costs rise. In contrast, when third-party payers are absent, as is the case with cosmetic surgery and LASIK eye surgery, price transparency and price competition are the norm. “In both markets the real price has been falling over the past decades, even as the real price for every other kind of surgery has been rising,” Goodman writes.

Fortunately, transparency and competition are spreading through “retail medicine”—an alternative to the broken third-party payment system. Examples include CVS’s MinuteClinics, HealthCare Partners Medical Group in California, Atlas MD, the Surgery Center of Oklahoma, MediBid, and Ameriflex, “a company that helps employers set up a platform for employees to connect with concierge doctors—bypassing insurance companies together,” Goodman writes. “I am often asked if the free market can work in health care. My quick reply is: That is the only thing that works. At least, it is the only thing that works well.”

Employers Could Slash Their Health Costs Overnight. So, Why Don't They?, by John C. Goodman (Forbes, 10/2/18)

A Better Choice: Healthcare Solutions for America, by John C. Goodman

Priceless: Curing the Healthcare Crisis, by John C. Goodman

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2) Capitalism as a Buffer Against Disasters

The mounting death toll from Indonesia’s earthquake and tsunami offers a grim reminder of an enduring principle: Wealth gives an economy a “margin of safety” when disaster strikes; poor countries, in contrast, are more vulnerable because they have weaker physical infrastructure, less resilient networks, and smaller reserves of capital—symptoms of a less-developed economy. At the core of this observation lies another truth: Capitalist economies outperform non-capitalist ones when it comes to wealth creation. This is why they are more successful at disaster mitigation, explains Independent Institute Senior Fellow Benjamin Powell in a recent op-ed in The Hill.

“The greater economic development that accompanies economic freedom increases a society’s ability to weather natural disasters,” Powell writes. “Early warning systems, stronger buildings, and better infrastructure to aid in evacuation and emergency response all come with increased incomes.”

Before disaster fell last week on the Indonesian island of Sulawesi, the world’s eyes were focused on another natural disaster in East Asia. Typhoon Mangkhut claimed at least 127 lives in the Philippines, but as far as we know, no lives were lost when it struck Hong Kong. Here’s some context: The Philippines ranks 39th on indices of economic freedom, whereas Hong Kong ranks number one. Of course, this difference isn’t the only one that explains how each fared relative to the other. But it is in some sense fundamental. As University of Southern California economics professor Matthew Kahn notes in The Review of Economics and Statistics, “Economic development provides implicit insurance against nature’s shocks.”

Capitalism Mitigates Natural Disasters, by Benjamin Powell (The Hill, 9/22/18)

Making Poor Nations Rich: Entrepreneurship and the Process of Economic Development, edited by Benjamin Powell

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3) Pay to Bully: College Football’s Worst Scandal?

If you still entertain the notion that college football is devoted primarily to teaching student athletes the importance of grit, team work, and good sportsmanship, then Independent Institute Senior Fellow Richard K. Vedder has a bridge to sell you. In a recent column at Forbes, he reports a scandal that should have students and parents up in arms: the practice of strong teams paying money to weak teams who will play them, so the former can rack up wins early in the college football season and enhance their prospects for selling more tickets and profiting from lucrative television coverage contracts.

Decisionmakers for both the strong teams and their weak rivals are culpable. The main victims in the scandal are players on the weaker teams, and especially the struggling student athletes pressured to play ball on school nights, Vedder explains. “The schools in the lesser conferences typically lose huge amounts annually (often $20 million or more) on college sports, and desperately seek to reduce those losses, so they willingly play a top team in, say, the Big Ten athletic conference, for a cash payment as compensation for the humiliation they will take when the Big Ten team typically (but not always) smashes them.”

Payments to Mid-American conference schools have recently ranged from $200,000 to $400,000. “All told, in one weekend, over $7 million changed hands in just one athletic conference,” Vedder continues. The spectacle amounts to physical abuse—for fun and profit—which may help explain why college football attendance has been trending downward.

Bullying for Dollars: American College Football, by Richard K. Vedder (Forbes, 9/17/18)

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4) The Vision of Economist Gordon Tullock

Humanity’s most important thinkers often remain unknown to the general public. Such is the case with Gordon Tullock (1922–2014) who, along with Nobel laureate economist James M. Buchanan (1919–2013), developed public choice: the academic subdiscipline that applies economic reasoning to the analysis of politics and government. Because Tullock’s contributions were often overshadowed by those of the better known Buchanan (who won the Nobel Prize in Economic Sciences in 1986), The Independent Review’s Fall 2018 issue features a symposium on Tullock and his legacy.

If you’ve heard of “rent-seeking” behavior, you’ve been touched by Tullock’s shadow. As Virgil Henry Storr notes in his introduction, although Tullock never obtained a Ph.D. in economics, he developed powerful ways to understand constitutional construction, the challenges of bureaucracy, the nature of government regulations, the problem of special interests, and the limits of voting. Tullock was not a disciple of Ludwig von Mises, yet they shared an underlying conviction of “economic man” as a purposive agent for whom choice is open-ended. according to Peter J. Boettke and Rosolino A. Candela. Tullock and Mises also held the same overall goal for the social sciences: to show how various institutional settings influence human action.

Too often Tullock’s legacy is conflated with that of Buchanan. One reason is that the two were early writing partners and comrades-in-arms. Another reason, explains Richard E. Wagner, is that Tullock rarely mentioned that his own research program—and even his basic starting point—departed from the aims and approach of his former collaborator. Tullock was one of a kind. Although his academic allies generally hold favorable views of the common law tradition, Tullock found it rife with flaws, explains Independent Research Director William F. Shughart II. Closing the symposium, Independent Institute Research Fellow Randall G. Holcombe weighs in on Tullock’s relevance for current debates regarding inequality and redistribution. If Tullock is vulnerable to the charge that he didn’t consider every motive behind a certain policy view, it’s only because his voluminous, creative output inadvertently caused his readers to expect even more from the proverbial oracle.

Gordon Tullock’s Legacy: An Introduction, by Virgil Henry Storr (The Independent Review, Fall 2018)

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5) The Beacon: New Blog Posts

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