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Tag Archives: social welfare

Industries afflicted with Baumol's Disease have slower productivity growth.

Could Cheesecake Factory help us fix our healthcare system?

Touring the kitchen of a Cheesecake Factory restaurant, you would see arrival, refrigeration and storage areas, and cutting, mixing, chopping and combining zones. Preparing the 308 dinner choices that their menu offers, chefs use recipes that specify ingredients and amounts but exclude seasoning and timing details. Essentially divided between prepping and cooking, the kitchen is reminiscent of a well-organized factory.

In a wonderful New Yorker articleAtul Gawande tells us that the people who run the different parts of our healthcare system might learn a lot in a Cheesecake kitchen. Cheesecake and the US healthcare system both offer a vast array of goods and services that are individually produced. Cheesecake has a standardized backend and efficient friendly service. Its prices are relatively low and its consumers appear happy. Meanwhile, the US healthcare system is coping with escalating costs, mediocre service and inconsistent quality.

In his article, Dr. Gawande takes his readers from his dining experience and subsequent research at Cheesecake to one family’s calamitous hospital visit and his own mother’s well-coordinated knee replacement. Successfully, he demonstrates that coordination of many individuals and services is tough, doable and crucial for a restaurant chain that serves 80 million people and also for a medical system.

Dr. Gawande’s suggestions took me to economist Randall Bartlett and his Teaching Company course, “Thinking Like an Economist.”  Discussing Pareto optimality, Dr. Bartlett said that a policy improves social welfare if it makes even just one person better off without making anyone worse off. I wondered whether the suggestions for improving our healthcare system can ever achieve sociologist Vilfredo Pareto’s criteria.

You can read more about Vilfredo Pareto here. I do recommend listening to Dr. Bartlett’s lectures and reading the New Yorker article.

 

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Split down the middle, opinion about the US economy puts private initiative or government first. Those who place individual enterprise first believe most private income belongs to those who generate it. By contrast, government’s advocates see a growing share of private income as tax revenue that is fairly collected and redistributed.

Nobel laureate Milton Friedman, who would have been 100 years old today, had an opinion about “fair” government.  According to Dr. Friedman, being “fair” to one group meant less fairness to others. If government is more equitable to consumers, then it is less fair to businesses. As he said in a 1977 Newsweek column, “To a producer or seller, a ‘fair’ price is a high price. To the buyer or consumer, a ‘fair’ price is a low price. How is the conflict to be adjudicated? By competition in a free market? Or by government bureaucrats in a ‘fair’ market?”

Dr. Friedman reminds us that neither the Declaration of Independence, the Constitution nor the Bill of Rights contains the word “fair.” He says that instead, government should be “policeman and umpire.” It should provide “a framework within which individuals could pursue their own objectives in their own way.”

So yes, we have always had a mixed economy with some government limiting freedom. The question for each of us is how much of each. The coming election will probably provide an opportunity to select a tradeoff.

You can read the entire Milton Friedman (1912-2006) column, “Free Versus Fair,” here. And, for further discussion of America’s 2 economic perspectives, you might enjoy this WSJ editorial column from Daniel Henninger. Finally, during presidential election years, I always ask my classes to read Arthur Okun’s Equality and Efficiency: The Big Tradeoff.

 

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