For that matter, why does anyone make as much as they make?
For starters, here are some things that, in isolation, do not affect what people make:
Effort and Hard Work
Painting your house with a toothbrush requires lots of effort, but any painter who proposes such a method will not make much money.
Skills
Good musicians, artists, and jugglers are highly-skilled; most need day jobs.
High Costs
You cannot simply "pass costs onto the customer"; most often, high costs will ruin your business.
Greed
Setting aside the ambiguous definition of this term, the desire for money does not make one rich (though it would be nice if it could).
***
Compensation for services is based on:
- Value created for others
- Opportunity costs
- The scarcity of the service
- The demand for the service
- The seller's competition
1. Value Added
How much value is added during brain surgery? How can you tell? How much value is added during a check-up? Which would you rather do without: A) A check-up for five years, or ) Water for two days? Should water cost more than a doctor's visit? A physician can save your life, but most often, you see a physician for routine advice for relatively minor problems. Regardless, whether or not you are a physician, if you don't add value, then you will make no money. (At least, you won't make it honestly.)
2. Opportunity Costs
This is just what you are forgoing when you see the doctor. If you only pay an insurance co-payment, then the opportunity cost of seeing a specialist is perhaps a meal for two at a low-end restaurant. But without insurance, you might prefer to spend some of that medical money on other things; maybe you would wait a little longer for that mysterious pain to go away, or for that chronic inflammation to settle down -- and you would certainly be more inclined to think twice about that "follow-up visit in two weeks". But since most people have insurance, they are inclined to see physicians more often than they otherwise would -- and do not pay much attention to what the doctor is charging.
3. Scarcity
Only a certified physician (and not nurses, psychologists, pharmacists, etc.) can prescribe medication and treat patients; this limits the number of practitioners who can offer medical services. And the total number of physicians is controlled by state medical boards (by limiting the number of medical schools and their enrollment), which also drives the supply of doctors down.
4. Demand
All people get sick, and they all want to get better. The demand for medicine is very inelastic.
5. Sellers Competition
Doctors rarely compete on price because the prices are set for them by insurance companies and government programs like Medicare and Medicaid. And besides, there is no incentive to compete, as the above factors (value adding, low opportunity costs, scarcity, and extra demand) give them a steady supply of customers.
Once the above five items are accounted for, their hard work, skills, and ambition might -- on the margin -- make a difference between being affluent and being very affluent.
In summary, it appears that physicians are affluent because of a combination of natural conditions (they are highly skilled and ambitious people who provide value-added services for a highly demanded product) and artificial restrictions created by the government (insurance schemes and medical school quotas). In order to determine how much of their wealth is generated by natural conditions, the artificial restrictions would need to be removed -- and that is not about to happen.
Showing posts with label Medical. Show all posts
Showing posts with label Medical. Show all posts
Saturday, April 14, 2007
Thursday, April 12, 2007
How Can We Fix The Ostrich-Meat Crisis?
The year: 2020.
The crisis: A growing taste for ostrich meat has produced a crisis.
The problem was discovered when an astute journalist realized that there wasn't enough ostrich meat being produced to feed everyone. Soon, the populace became distraught and their elected representatives promised to fix the problem.
One candidate for office proposed a universal insurance scheme. "It is unacceptable there are people who cannot afford ostrich meat. I therefore demand universal taxpayer-funded ostrich-meat insurance to make ostrich meat available to everyone! And everyone would get the finest cuts, too!"
Another candidate felt that there were "Two Americas: One that ate ostrich meat, and one that did not." He said that if those who ate ostrich meat simply ate less, then there would be enough left over for everyone else.
And yet another "policy-wonk" candidate noted that "As Americans are eating more and more ostrich meat, our nation is spending more than ever on ostrich meat! This is wrong!"
In the universities, professors debated the merits of different ostrich-meat plans: Should it be declared free for all? Should a voucher program be instituted? Should employers supplement employee benefits with free ostrich meat? Should we adopt the Swedish Ostrich Model?
It was the most perplexing problem: Many people wanted ostrich meat, but it was too expensive!
Soon Congress consulted the ultimate experts on ostrich-meat production, The American Ostrich Meat Association (AOMA), which said that the solutions were A) Ostrich-meat consumers should have more government money to spend on ostrich meat, and B) No changes should be made to the number of ostrich farmers, and C) More government money was needed to pay for university grants to study the problem. The professors really liked Item C.
Limited supply and heavy demand resulted in a perplexed nation. Surely, there must be some way to end this quagmire.
Indeed, the nation was in crisis. And yet simultaneously, no one and everyone had a solution.
The crisis: A growing taste for ostrich meat has produced a crisis.
The problem was discovered when an astute journalist realized that there wasn't enough ostrich meat being produced to feed everyone. Soon, the populace became distraught and their elected representatives promised to fix the problem.
One candidate for office proposed a universal insurance scheme. "It is unacceptable there are people who cannot afford ostrich meat. I therefore demand universal taxpayer-funded ostrich-meat insurance to make ostrich meat available to everyone! And everyone would get the finest cuts, too!"
Another candidate felt that there were "Two Americas: One that ate ostrich meat, and one that did not." He said that if those who ate ostrich meat simply ate less, then there would be enough left over for everyone else.
And yet another "policy-wonk" candidate noted that "As Americans are eating more and more ostrich meat, our nation is spending more than ever on ostrich meat! This is wrong!"
In the universities, professors debated the merits of different ostrich-meat plans: Should it be declared free for all? Should a voucher program be instituted? Should employers supplement employee benefits with free ostrich meat? Should we adopt the Swedish Ostrich Model?
It was the most perplexing problem: Many people wanted ostrich meat, but it was too expensive!
Soon Congress consulted the ultimate experts on ostrich-meat production, The American Ostrich Meat Association (AOMA), which said that the solutions were A) Ostrich-meat consumers should have more government money to spend on ostrich meat, and B) No changes should be made to the number of ostrich farmers, and C) More government money was needed to pay for university grants to study the problem. The professors really liked Item C.
Limited supply and heavy demand resulted in a perplexed nation. Surely, there must be some way to end this quagmire.
Indeed, the nation was in crisis. And yet simultaneously, no one and everyone had a solution.
Sunday, April 8, 2007
Can Average Test Scores Increase Without Students Scoring Any Higher?
You bet.
If you're in charge of the school district, you can increase average scores (and probably your salary) by simply shuffling students from one school to another. With absolutely no change in individual test scores, the averages will increase.
Illustration:
Let's say that there are two schools, one with low-scoring students, and another with high-scoring students. In fact, here are their grades:
School "A"
95
95
90
90
85
85
Average = 90.0
School "B"
90
85
85
80
75
65
Average = 80.0
What you need to do is make some morally superior platitude about how the School "B" students are suffering from segregation, underfunding, discrimination, etc., and then transfer the worst School "A" students to School "B".
In this example, let's transfer two School "A" students. The new distributions are:
School "A"
95
95
90
90
Average = 92.5, an increase of 2.5 points!
School "B"
90
85
85
85
85
80
75
65
Average = 81.25, an increase of 1.25 points!
Now you can report that the average scores in both schools have increased, and can look like the highly-respected public servant that you are.
This process has a name, the Will Rogers Phenomenon, and it has already been shown to reveal deceptive medical statistics -- specifically in cancer survival.
Must be careful with those numbers...
If you're in charge of the school district, you can increase average scores (and probably your salary) by simply shuffling students from one school to another. With absolutely no change in individual test scores, the averages will increase.
Illustration:
Let's say that there are two schools, one with low-scoring students, and another with high-scoring students. In fact, here are their grades:
School "A"
95
95
90
90
85
85
Average = 90.0
School "B"
90
85
85
80
75
65
Average = 80.0
What you need to do is make some morally superior platitude about how the School "B" students are suffering from segregation, underfunding, discrimination, etc., and then transfer the worst School "A" students to School "B".
In this example, let's transfer two School "A" students. The new distributions are:
School "A"
95
95
90
90
Average = 92.5, an increase of 2.5 points!
School "B"
90
85
85
85
85
80
75
65
Average = 81.25, an increase of 1.25 points!
Now you can report that the average scores in both schools have increased, and can look like the highly-respected public servant that you are.
This process has a name, the Will Rogers Phenomenon, and it has already been shown to reveal deceptive medical statistics -- specifically in cancer survival.
Must be careful with those numbers...
Saturday, April 7, 2007
Is Abortion Murder?
For argument's sake, let's say, "Yes, abortion is murder. A fetus, from the moment of conception, is a human being, and to destroy it is therefore murder."
Then it follows that...
- The aborting mother should face the death penalty, or at a minimum, life imprisonment. We're talking pre-meditated, first-degree murder here.
- Any parental restrictions on the child's behavior after birth is slavery. There should be no cribs, no gates, no rules. If your new-born wants Jack Daniels in his bottle, you had better respect those wishes.
- Come to think of it, if your new baby threatens to cry if you don't feed him Jack Daniels, then you can sue him for intimidation and psychic damage.
- And if the fetus has been difficult, then a lawyer will be waiting to pounce on him as he emerges into the rest of the world.
- Since the fetus is being singled out because it is a fetus, then it probably deserves some hate-crime protections as well.
- If discarding a four-cell embryo is murder, then what can be said of killing cows, pigs, and sheep? (A four-cell embryo is much less developed than an earthworm, let alone more advanced mammals.) A new vegetarianism awaits.
Then it follows that...
- The aborting mother should face the death penalty, or at a minimum, life imprisonment. We're talking pre-meditated, first-degree murder here.
- Any parental restrictions on the child's behavior after birth is slavery. There should be no cribs, no gates, no rules. If your new-born wants Jack Daniels in his bottle, you had better respect those wishes.
- Come to think of it, if your new baby threatens to cry if you don't feed him Jack Daniels, then you can sue him for intimidation and psychic damage.
- And if the fetus has been difficult, then a lawyer will be waiting to pounce on him as he emerges into the rest of the world.
- Since the fetus is being singled out because it is a fetus, then it probably deserves some hate-crime protections as well.
- If discarding a four-cell embryo is murder, then what can be said of killing cows, pigs, and sheep? (A four-cell embryo is much less developed than an earthworm, let alone more advanced mammals.) A new vegetarianism awaits.
Friday, March 30, 2007
Can Doctors Calculate Statistics?
Here's a simple problem. Let's say that there's a disease that strikes one person in a thousand. And let's also say that there's a test for the disease that, on average, mistakenly indicates that fifty healthy people in a thousand have this disease. Now you take this medical test, and the result is "positive".
Now for the question: What is the probability that you have this disease?
Well, we know that in our population of one thousand, this test will result in a "positive" for 51 people, of which only one will have the disease. So, the answer is that the probability is one out of 51, or just under 2%.
These are conditional probabilities (or, if you prefer, Bayesian reasoning), and if understand this concept, then you probably know more than your doctor:
One obvious (to me, at least) question is this: With these sort of medical tests, it seems like the outcome is "healthy" regardless of the test result. So, what's the point of the test?
Now for the question: What is the probability that you have this disease?
Well, we know that in our population of one thousand, this test will result in a "positive" for 51 people, of which only one will have the disease. So, the answer is that the probability is one out of 51, or just under 2%.
These are conditional probabilities (or, if you prefer, Bayesian reasoning), and if understand this concept, then you probably know more than your doctor:
Hoffrage and Gigerenzer (1998; Gigerenzer, 1996) tested 48 physicians on four standard diagnostic problems, including mammography. When information was presented in termsof probabilities, only 10% of the physicians reasoned consistently with Bayes’ rule
For instance, Eddy (1982) asked physicians to estimate the probability that a woman with a positive mammogram actually has breast cancer, given a base rate of 1% for breast cancer, a hit rate of about 80%, and a false-alarm rate of about 10%. He reported that 95 of 100 physicians estimated the probability that she actually has breast cancer to be between 70% and 80%, whereas Bayes’ rule gives a value of about 7.5%.
One obvious (to me, at least) question is this: With these sort of medical tests, it seems like the outcome is "healthy" regardless of the test result. So, what's the point of the test?
Friday, March 23, 2007
Why Do Some Drugs Require Doctor Prescriptions?
Ostensible Answer: To keep uninformed patients from harming themselves with complex, and potentially dangerous, medications.
Cynical Answer: Because the AMA pressures the FDA to force patients to pay a new doctor bill whenever they need a drug.
Although physicians have a financial interest in lobbying for legislation as described in the the "cynical answer", we'll set that issue aside and instead focus on the "ostensible answer".
There are three types of patients who need drugs:
1) Knowledgeable people who know which drugs they need, or have the ability to find out by way of free readily-available references on the Internet.
2) People who have no idea of what drug they need, and want to pay a doctor for his specialized knowledge.
3) People who don't know what they are doing, and take the wrong drug and/or dosage, and harm themselves.
Prescription drugs impose a big cost on Group #1 (forcing them to pay unnecessary medical bills, and delaying their drug therapy if they, say, develop a sudden and painful toothache on Saturday evening), a small cost on Group #2 (prescription drugs increase the demand for a fixed supply of physicians, resulting in higher costs and/or longer waits), and, assuming they follow the law, benefit Group #3.
So, here are some secondary questions:
- Why should people in Group #1 and Group #2 being harmed for the benefit of Group #3?
- Should, say, all home repairs be illegal except when done by licensed home contractors? Competent do-it-yourself types (Group #1) would have to pay a lot for contractors, but inept know-it-alls (Group #3) would be protected from their own renovation mistakes.
- Should all cooking be illegal except when being prepared by licensed cooks? Capable do-it-yourself cooks would no longer be able to enjoy their own efforts -- but then, those who don't understand the basics of food handling (Group #3) would suffer fewer incidents of food poisoning.
- Why are any drugs over-the counter? How can people be trusted to self-medicate with anti-inflammatories, decongestants, and antihistamines?
- For that matter, how is it that people can be trusted with over-the-counter nicotine and alcohol, but not with acne creams and codeine?
- Oh, wait. People can be trusted with codeine in the UK and Canada.
- How is it that the punishment for using drugs without a prescription (fine or jail, presumably) is preferable to simply releasing these "criminals" with perhaps a comment like, "Glad to hear that your tooth feels better."
Cynical Answer: Because the AMA pressures the FDA to force patients to pay a new doctor bill whenever they need a drug.
Although physicians have a financial interest in lobbying for legislation as described in the the "cynical answer", we'll set that issue aside and instead focus on the "ostensible answer".
There are three types of patients who need drugs:
1) Knowledgeable people who know which drugs they need, or have the ability to find out by way of free readily-available references on the Internet.
2) People who have no idea of what drug they need, and want to pay a doctor for his specialized knowledge.
3) People who don't know what they are doing, and take the wrong drug and/or dosage, and harm themselves.
Prescription drugs impose a big cost on Group #1 (forcing them to pay unnecessary medical bills, and delaying their drug therapy if they, say, develop a sudden and painful toothache on Saturday evening), a small cost on Group #2 (prescription drugs increase the demand for a fixed supply of physicians, resulting in higher costs and/or longer waits), and, assuming they follow the law, benefit Group #3.
So, here are some secondary questions:
- Why should people in Group #1 and Group #2 being harmed for the benefit of Group #3?
- Should, say, all home repairs be illegal except when done by licensed home contractors? Competent do-it-yourself types (Group #1) would have to pay a lot for contractors, but inept know-it-alls (Group #3) would be protected from their own renovation mistakes.
- Should all cooking be illegal except when being prepared by licensed cooks? Capable do-it-yourself cooks would no longer be able to enjoy their own efforts -- but then, those who don't understand the basics of food handling (Group #3) would suffer fewer incidents of food poisoning.
- Why are any drugs over-the counter? How can people be trusted to self-medicate with anti-inflammatories, decongestants, and antihistamines?
- For that matter, how is it that people can be trusted with over-the-counter nicotine and alcohol, but not with acne creams and codeine?
- Oh, wait. People can be trusted with codeine in the UK and Canada.
- How is it that the punishment for using drugs without a prescription (fine or jail, presumably) is preferable to simply releasing these "criminals" with perhaps a comment like, "Glad to hear that your tooth feels better."
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