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Archive for March 2012

Health Care for Profit II: Private Insurance

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Yesterday’s post, Health Care for Profit in a Nutshell was written quickly and some of the items in it, I want to explore in greater detail later, like the few drugs discussed and the massive issue of cholesterol which I was not able to adequately explore in a short time frame.  There are many other drugs I would love to analyse and criticize and I will get to these in subsequent posts. One subject I wanted to get into, but had not the time for, was private health insurance, which I will begin discussing today.

The key fact I want to begin this essay with is that private health insurance is NOT health care, or at least it should not be, though it plays a major role in what treatments people obtain, what treatments doctors perceive to be on the menu of options for which the insurance company is willing to pay. Insurance exists to spread risk so that a group of people pool their money to pay for those adverse events that would impose financial hardship on any single person. The problem is that the combination of the indulgent instant-gratification lifestyle and post-facto disease care for profit is a capitalistic runaway train. This means that private health insurance which must earn a profit has had to ration, pick and choose what treatments it would pay for. Pre-existing conditions which can include such ridiculous things as acne amongst many others, have been devised to compensate, though in a highly dysfunctional way, for the fact that post-facto cost-exploding treatments of preventable illnesses like heart disease and cancer are too expensive for any given insurance to generate profit in a competitive market. Also there are other labyrinthine devices like deductibles which safeguard the profit-potential of an insurance company. The money spent on premiums and deductibles goes for the income of administrators who navigate through this labyrinthine system to literally put profit before the health of numerous people.

But it is impossible to separate the issue of insurance from the lifestyle/disease-care issue which creates treatments marketed to Americans for the maximization of profit. Now if a preventative-holistic system were put into place whereby lifestyle optimization received priority then the reduced costs would be much easier for the private insurance company to pay for and thus the rationing would be greatly reduced (preferably totally eliminated). So, in my opinion, insurance needs to be discussed in a context of a preventative-holistic health care system and the treatments of this system are incorporated within the new private insurance system paying for these treatments. Ultimately, I would like a single-payer system that bypasses private insurance altogether, a Medicare-for-all so to speak with greatly reduced administrative costs and the cost-reduction of the massive risk pool of all 300+ million Americans. At present we have a system with expensive insurance with low-risk pools and exorbitantly expensive high-risk pools of individuals who are unemployed or got removed with some pre-existing condition. The purpose of insurance is not to maximize profits but to pool the  money of low-risk people with high-risk people. Kicking high-risk people to the curb  defeats the essential purpose of insurance.

One thing I wanted to post here was a graph showing that by 2082 U.S. health care costs will totally engulf the U.S. economy, apparently in a cannibalistic manner since the entire economy would be nothing but astronomical health care costs. These costs are not health care of course, but the costs of indulgence, sedentary living, and the profit-maximizing pills, surgeries, and other treatments. The upward slope of this alarming graph shows what “for profit” entails. In the perspective of finding new profit avenues, the past glory days of a postwar manufacturing economy are long gone. The post-industrial economy is pretty much a succession of bubbles, as we can recall the tech bubble of the late 90’s and the real estate/subprime derivatives bubble whose recent bursting still affects us. The mega-bubble that keeps on making big bucks is the indulgence-pills-surgery bubble. “Health care” is the number one employer in many cities, like Pittsburgh, for example.

Another graph shows how the U.S. spends far more than any other nation on health care and gets poor results for all this “health care”. Yet, we have the cries of socialism responding to any mentions of this U.S. failure when we show how more civilized nations do to care for the health of their citizens as opposed to maximizing ineffective treatments with profit being put before health. As Robert Reich points out, millions of Americans don’t mind at all paying for their health care in the form of medicare as a payroll deduction. Nor do they mind paying for social security in the same way. The simple idea that apparently makes too much sense for people to accept it is that MEDICARE FOR ALL IS THE SOLUTION. It is stupid and immoral to separate low-risk from high-risk people in the current private insurance profit-proliferation scheme. There should one SINGLE PAYER that pays for everyone because everyone deserves health care in a moral society. It is time to highlight that social darwinism underlying the conservative “free market” balderdash that rationalizes the immoral dysfunctional status quo of “health care” for profit.

Robert Reich explains that Americans don’t mind “mandates” in the form of payroll tax deductions and there lies the solution via Medicare For All:

Americans don’t mind mandates in the form of payroll taxes for Social Security or Medicare. In fact, both programs are so popular that even conservative Republicans were heard to shout “Don’t take away my Medicare!” at rallies opposed to the new health care law.There’s no question payroll taxes are constitutional, because there’s no doubt that the federal government can tax people in order to finance particular public benefits. But requiring citizens to buy something from a private company is different because private companies aren’t directly accountable to the public. They’re accountable to their owners, and their purpose is to maximize profits. What if they monopolize the market and charge humongous premiums? Some already seem to be doing this.Even if they’re organized as not-for-profits, there’s still a problem of public accountability. What’s to prevent top executives from being paid small fortunes? Apparently that’s already happening.Moreover, compared to private insurance, Medicare is a great deal. Its administrative costs are only around 3 percent, while the administrative costs of private insurers eat up 30 percent to 40 percent of premiums. Medicare’s costs are even below the 5 percent to 10 percent administrative costs borne by large companies that self-insure, and under the 11 percent costs of private plans under Medicare Advantage, the current private-insurance option under Medicare.So why not Medicare for all?

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Written by joethebohemian

March 29, 2012 at 1:41 pm

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Consumer Price Index vs Increase in U.S. Medical Care Costs

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Consumer Price Index vs Increase in U.S. Medical Care Costs

Written by joethebohemian

March 29, 2012 at 10:37 am

Posted in Uncategorized

Health Care for Profit in a Nutshell

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As the Supreme Court gets ready to nix “Obamacare” (or at least some components of it) as unconstitutional, I want to lay out in simple terms the basic system of American “health care” for profit. It starts with the indulgent instant-gratification lifestyle of Americans, who eat mass-produced comfort, junk, and fast foods loaded not only with awful things like trans fats and refined carbohydrates such as high fructose corn syrup, but thousands of artificial additives, chemicals that may be detrimental to humans despite classification as “generally recognized as safe”.

The next lifestyle contributor is the digital revolution, being connected to the digital stream, living online, being glued to one’s personal digital device. Sitting in one place for 6 or more hours has been shown to be bad for cardiovascular health. The saddest aspect of this, to me, is seeing a whole generation of fat kids who rarely play outside anymore and in many cases are not required to have physical education. Very sad indeed.

The health care system, truly a misnomer, is shown to be failing, when we have epidemics of obesity, type II diabetes, heart disease, asthma, autism, chronic fatigue syndrome, fibromyalgia, lupus, celiac disease, other auto-immune disorders, etc. The writing has been on the wall for years and people refuse to acknowledge it and the system we have in place to comfort ourselves with food and pills and a sedentary lifestyle. The United States lags behind other developed nations in lifespan, infant mortality, and other vital statistics assessing health. The United States also has a government that subordinates itself to the proft-motives of rapacious drug companies whose express goal is not merely to treat symptoms in a superficial manner but also to see that the underlying lifestyle causes remain unaddressed and untreated. For a person to engage in moderation at mealtime does not yield nearly as much profit as does excess followed by one or more pills. For example, Person A eats 2 chili dogs, fries covered with cheese, and a large Coke and takes a bunch of Rolaids afterwards or perhaps, better yet profitwise, a proton pump inhibitor drug to cut off stomach acid. Person B eats one chili dog, not so terrific, but with a green salad and some spring water. He does not get indigestion, but he does not generate nearly as much profits. Now if the drug companies truly were motivated to provide health care, they would not encourage people to gorge themselves and take drugs that reduce or eliminate stomach acid which is essential for digestion, including the absorption of such minerals as calcium and magnesium, and the stomach acid does kill bacteria. Gorging on crappy food and taking acid blockers is a prescription for disaster because the food rots instead of being digested. As for acid reflux, that is typically caused by a hiatal hernia when overeating is not the cause. A hiatal hernia is easily treated by a chiropractic adjustment, far less profitable than decades of taking acid blockers. Another thing to consider is treatment of overeating with digestive enzymes. These are readily available in pill form and addresss the problem instead of making it worse.

Among the most hazardous practices in the food indulgence industry is the indiscriminant widespread use of antibiotics fed to factory farm animals whose mass production entails the diminution of health for each animal. Add to this abomination the indiscriminant overprescription of antibiotics and maybe we gain some understanding as to why digestive and immune disorders are increasing exponentially in this country.

As for drugs in general, go beyond side effects when examining what they do and how they do it. An antacid impairs digestion. An antibiotic kills essential bacteria required for immune functioning and consider if your doctor ever takes this into account and prescribes a probiotic along with your antibiotic. Bone density drugs, bisphosphonates, work by disrupting the body’s bone recycling process whereby old bone cells are broken down and recycled into new ones. Bone density is not the same thing as strength. Birds possess very strong bones that are not dense. Also consider the incidence of atypical femur fractures and jaw bone death that occur with bisphosphonates. These alarming things occur by virtue of the drugs interfering with the body’s essential homeostatic mechanisms.

Consider cholesterol-reducing drugs, the statins, lipitor, crestor, pravachol, etc. As http://www.3dchem.com/molecules.asp?ID=92 notes:

“Cholesterol is not a life-threatening toxin, but a medium-sized molecule that is really a building block for important parts of the body. In particular it is an essential component of cell membranes. Cholesterol also stabilizes a cell against temperature changes. It is a major part of the membranes of the nervous system, the brain, the spinal cord and the peripheral nerves. In particular it is incorporated into the myelin sheath that insulates the nerves from the surrounding tissue. Cholesterol is also the forerunner of important hormones such as the female sex hormone, oestradiol, and the male sex hormone, testosterone, and of vitamin D, which we need in order to utilize calcium and form bone. Nearly all body tissues are capable of making cholesterol, but the liver and intestines make the most. We require cholesterol to produce the bile we need to digest the fats in our food, and the name itself comes from the Greek words for ‘bile solids’.”

So consider what a drug actually does. Ask your doctor how a certain drug “cures” a given ailment. Then do your own research and ask more questions.

Now let’s get to food contamination. Remember the outcry against trans/hydrogenated fats? Well, it seems people have forgotten about these or, at least, the food companies have. More and more snack and dessert items contain (partially) hydrogenated fats than a few years ago. The label can list 0 grams trans fats if a serving has 0.5 gm per serving or less.

Most canned foods contain Bisphenol A, despite all the negative publicity that this xenoestrogen has received.

Wikipedia http://en.wikipedia.org/wiki/Bisphenol_A notes:

“Bisphenol A is an endocrine disruptor, which can mimic the body’s own hormones and may lead to negative health effects. BPA is controversial because it exerts weak, but detectable, hormone-like properties, raising concerns about its presence in consumer products and foods contained in such products. Starting in 2008, several governments questioned its safety, prompting some retailers to withdraw polycarbonate products. A 2010 report from the United States Food and Drug Administration (FDA) raised further concerns regarding exposure of fetuses, infants, and young children.[1] In September 2010, Canada became the first country to declare BPA a toxic substance.[2][3] In the European Union and Canada, BPA use is banned in baby bottles.[4]

Okay, we have explored some unhealthful indulgences and a few drugs. Then there’s fee-for-service profit-maximization.  Treatments are obviously supposed to cure, right? Problem is that a truly effective cure does not make much profit. Eating healthy and exercising are profit reducers. Gluttony and sedentary-web-surfing maximize profits, because they clog arteries and make heart attacks, and thereby make surgeries possible. Arterial stents have been shown to be ineffective. And surgeries do save lives, to be sure, but that’s after lives have been already been ruined by our profit-maximization system comprised of instant-gratification and the resulting maladies requiring hospitalization, surgery, chemo, radiation, along with super expensive pills.

The field of epigenetics has shown that heart disease and cancer can be prevented, that disease-causing genes can be turned off by the proper lifestyle. The fact remains that a healthy lifestyle is not profitable for Big Pharma, hospitals, and surgeons. So the temptation to impose the doom of “bad genes” on people is too much. Billions of dollars are made by keeping you on lipitor or any drug for life. Also consider, how often people with a 10% chance of 5-year-survival get the chemo and radiation to “hope against hope” for a miracle. Consider why the “effectiveness” of cancer treatments is 5-year survival rate. Hmmm, maybe because relapse is a fairly common occurence. The “cure” is not really a cure.

Just consider the recurring theme I have exposed in American “health care”. How healthy is this nation compared to what it should be? Compare us to Europe, Japan, Canada, civilized nations where health care is considered in terms of morality and not profit. Don’t take what I say for granted. Ask questions. do your own research.

Written by joethebohemian

March 28, 2012 at 2:47 pm

Posted in Uncategorized

Be Happy or Else! The Depression Industry

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Let’s start with the promo paragraph for the 60 Minutes segment on depression that ran yesterday:

Treating Depression: Is there a placebo effect?

Do antidepressants work? Since the introduction of Prozac in the 1980s, prescriptions for antidepressants have soared 400 percent, with 17 million Americans currently taking some form of the drug. But how much good is the medication itself doing? “The difference between the effect of a placebo and the effect of an antidepressant is minimal for most people,” says Harvard scientist Irving Kirsch. Will Kirsch’s research, and the work of others, change the $11.3 billion antidepressant industry? 

http://www.cbsnews.com/8301-18560_162-57380893/treating-depression-is-there-a-placebo-effect/

The fact is that the use of antidepressants increased 400% from 1988 (as reported last fall). Antidepressants are overprescribed and the mood enhancement is primarily due to the placebo effect.

http://healthland.time.com/2011/10/20/what-does-a-400-increase-in-antidepressant-prescribing-really-mean/

Since most antidepressants are SSRI’s, selective serotonin reuptake inhibitors, it’s worth noting that depression is far more complicated than that. In fact, a serotonin deficiency does not stand up to current scientific scrutiny.

http://www.npr.org/blogs/health/2012/01/23/145525853/when-it-comes-to-depression-serotonin-isnt-the-whole-story

One essential component of the blockbuster success of prozac and other SSRI’s is that a biological explanation was sold to users of the drug who now had a more socially acceptable reason for taking a drug. Merely having “the blues” or experiencing a normal reaction to one of life’s many adverse events seemed to be reason to “stay in the closet” about one’s depression. The traditional pasting on a fake smile and saying “I’m fine” was rendered obsolete for the new prozac generation. Prozac had far fewer side effects, though was no more effective than the tricyclics that preceded it, but the biological-cause narrative seemed to make all the difference.

There are many factors to be considered when examining the major cultural, psychological, and biological entity known as depression. Women have it twice as often as men and take 2 and 1/2 times more antidepressants. Is this a biological phenomenon? Or does culture place more emotional burdens on women as the peacemakers in the home and in society in general? What about the pressures of having to work while also raising children and doing housework, while so many men do their day jobs and don’t help around the house? Does this make being a modern woman more stressful as one who bears the brunt of the trickle-down austerity-government assault on the non-wealthy? I think so.

What about the fact that Americans who comprise 4% of the world’s population taking 70% of the world’s drugs? Source: Dr James H. Winer. Americans are hooked on pills. They want to take pills, gladly incorporate pills into the daily routine. If there’s any malady impeding the pursuit of gratification, pleasure, or any bumps on the road of satisfaction, then there’s a pill for whatever is ailing one.

What about the culture of happiness? Happiness is not so much a state of mind, but some external product, some prized possession, like a car, an article of clothing, a new personal electronic device, or anything else, you absolutely must have to feel whole or valid as a human being. Happiness is more the sense of filling the inner void created in the consumeristic capitalism where new markets have to be perpetually created. The world is one giant marketplace full of a seemingly infinite array of products, now being bombarded upon the facebook user who “likes” many products and who as a “liker” has his/her materialistic attachments multiplied and adhered  to the consumeristic matrix. More than ever, as we gaze at plasma screens, large, medium-sized, or tiny, we see the bounty of life that our corporate benefactors wish to bestow upon us. There is more that we “must” have and with this increase of  “must haves” is the increase in “depression” or at least in definition of depression of it inflicted upon us by Big Pharma Brother or the universe of  “likes” that we have neglected to click onto yet.

Depression happens unfortunately to be a vague word that means different things to different people. A person may have life-threatening suicidal depression, serious and debilitating clinical depression, or a normal and relatively harmless “case of the blues”, that is, a normal emotional letdown due to an adverse experience. I have serious doubts about the pharmaceutical industry making careful distinctions along the depression continuum, making the sincere effort to distinguish a normal reaction to adversity from a true case of clinical depression. Doctors and physicians’ assistants who prescribe antidepressants have limited time to properly do a diagnostic history of the person. So pills are being handed out to many people who don’t really need them. And a good many people who might benefit may self-medicate. Whether the treatment is legitimate pills or illegal pills, pot, or booze, people struggle to be as happy as the consumer society demands them to be. Remember the main effect of these antidepressants is the BELIEF they will work, not the direct effects on serotonin. People need  to have faith in some external thing to make them happy which bears no real relationship to actual cause or their unhappiness, be it true sadness or the self-diminishment due to being saturated in consumeristic compulsions.

I happen to prefer Dr Steven Ilardy’s approach to depression which takes anthropology along with biology into account:

http://www.guardian.co.uk/lifeandstyle/2010/jul/19/beat-depression-without-drugs

Written by joethebohemian

March 19, 2012 at 1:10 pm

Posted in Uncategorized

The First “Libertarian” Economists: The Neoclassical School (Menger, Walras, Jevons)

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Lest there be any confusion, I write this as a “left-winger” who believes in “social democracy”,  that is, a strong role of the government in striving for an economy maximizing the growth and freedom potential of ALL citizens regardless of the hierachical  forces of wealth, status, position, ethnicity, gender, etc. that synergize to promote advancement of some select few people to the detriment of the majority of the people. The fundamental economic talking points of conservatives pertaining to economics were originated in what is commonly called the “Austrian” school of economics. These talking points include the condemnation of the government’s involvement in the economy and center upon the idealization of  “the market”, namely that system of allocating resources based on fundamental economic factors, such as supply, demand, and price,  without government influence or regulations or other external sources of interference. These factors, so it turns out, serve to create a falsified idealized self-regulating society of individuals where the facts of  the powerful unconscious, irrational, and exploitative forces dictate outcomes such as depressions, genocidal wars, massive oil spills, famines, pandemics, and other disasters dismissed within a social darwinistic framework and ethics of the “law of the jungle”.  In lay terms, we are accustomed to hearing in the speeches of republican politicians the evils of “big government”, “getting the government off our backs”, etc. This populism has been very successful in evading the crucial and essential questions as to the ultimate source of tyranny, the transnational corporate behemoths wielding irresistible influence, if not coercion, behind in the scenes where the de facto deciders write our laws and dictate the actions and policies of our elected officials. This anti-government populism emanates from and legitimizes itself via “Austrian economics” and, therefore, I find it essential to initiate an exploration as to what this type of economics entails.

The term, “Austrian economist” usually refers to either Ludwig von Mises or Friedrich Hayek, those revered by Ron Paul and many other followers of the libertarian school of thought. But my essay here is on the original “Austrians”, the men whose intellectual contributions were essential to the idealization of the “free market” and the denigration of the government in terms of maximizing human freedom and potential for wealth and material success.

Of course Adam Smith is the father of “free market” or classical economics, even though he had a place for government participation in the market while extolling the basic mechanisms of the market in his 1776 magnum opus, The Wealth of Nations. And David Ricardo followed in 1817 with his On the Principles of Political Economy and Taxation in which he explained free trade, diminishing marginal returns, and how printing excess money caused inflation, a crucial justification or rationale for the gold standard still bellowed forth today by Ron Paul and his supporters in condemnation of the fiat-currency-producing Federal Reserve.

THE FIRST THREE “LIBERTARIAN” ECONOMISTS: CARL MENGER, WILLIAM STANLEY JEVONS, AND LEON WALRAS

Now only one of the three men I’ll be discussing, Carl Menger (1840-1921), was an Austrian, because he studied and published in Vienna, though he was born in Poland. William Stanley Jevons (1835-1882) was English and (Marie-Esprit-) Leon Walras (1834-1910) was Swiss.  These three men are accredited with what is called The Marginal Revolution whereby the labor theory of value was rendered obsolete by the newly proclaimed law of diminishing marginal utility, also referred to as the marginal or neoclassical theory of value. In plain English this means both the utility and value of each additional unit of a commodity, that is, the marginal utility, possesses less value to the consumer. The Concise Encyclopedia of Economics http://www.econlib.org/library/Enc/bios/Jevons.html explains: ” When you are thirsty, for example, you get great utility from a glass of water. Once your thirst is quenched, the second and third glasses are less and less appealing. Feeling waterlogged, you will eventually refuse water altogether. “Value,” said Jevons, “depends entirely upon utility.” Further details of this are laid forth here:

http://en.wikipedia.org/wiki/Marginal_utility#The_Marginal_Revolution

Wikipedia gives us synopses of these 3 “Marginal Revolutionaries”:

William Stanley Jevons first proposed the theory in “A General Mathematical Theory of Political Economy” (PDF), a paper presented in 1862 and published in 1863, followed by a series of works culminating in his book The Theory of Political Economy in 1871 that established his reputation as a leading political economist and logician of the time. Jevons’ conception of utility was in the utilitarian tradition of Jeremy Bentham and of John Stuart Mill, but he differed from his classical predecessors in emphasizing that “value depends entirely upon utility”, in particular, on “final utility upon which the theory of Economics will be found to turn.”[37] He later qualified this in deriving the result that in a model of exchange equilibrium, price ratios would be proportional to not only to ratios of “final degrees of utility” but costs of production.[38][39]

Carl Menger presented the theory in Grundsätze der Volkswirtschaftslehre (translated as Principles of Economics) in 1871. Menger’s presentation is peculiarly notable on two points. First, he took special pains to explain why individuals should be expected to rank possible uses and then to use marginal utility to decide amongst trade-offs. (For this reason, Menger and his followers are sometimes called “the Psychological School”, though they are more frequently known as “the Austrian School” or as “the Vienna School”.) Second, while his illustrative examples present utility as quantified, his essential assumptions do not.[11] (Menger in fact crossed-out the numerical tables in his own copy of the published Grundsätze.[40]) Menger also developed the law of diminishing marginal utility.[14] Menger’s work found a significant and appreciative audience.

Marie-Esprit-Léon Walras introduced the theory in Éléments d’économie politique pure, the first part of which was published in 1874 in a relatively mathematical exposition. Walras’s work found relatively few readers at the time but was recognized and incorporated two decades later in the work of Pareto and Barone.

Of the 3 Marginal Revolutionaries, Menger comes off as the best as per the Concise Encyclopedia of Economics assessment of him:

“Unlike Jevons, Menger did not believe that goods provide “utils,” or units of utility. Rather, he wrote, goods are valuable because they serve various uses whose importance differs. For example, the first pails of water are used to satisfy the most important uses, and successive pails are used for less and less important purposes.

Menger used this insight to resolve the diamond-water paradox that had baffled Adam Smith (see marginalism). He also used it to refute the labor theory of value. Goods acquire their value, he showed, not because of the amount of labor used in producing them, but because of their ability to satisfy people’s wants. Indeed, Menger turned the labor theory of value on its head. If the value of goods is determined by the importance of the wants they satisfy, then the value of labor and other inputs of production (he called them “goods of a higher order”) derive from their ability to produce these goods. Mainstream economists still accept this theory, which they call the theory of “derived demand.””

On the other hand, Carl Menger, has some fascinating quirks, like pioneering an “empirical” theory that was not really empirical, though well-intended, I am sure. The source for this is a libertarian one, http://mises.org/daily/2799

” He (Menger)  tried to trace the causes of the properties and laws under scrutiny back to the simplest facts. His purpose was to demonstrate that the properties and laws of economic phenomena result from these empirically ascertainable “elements of the human economy” such as individual human needs, individual human knowledge, ownership and acquisition of individual quantities of goods, time, and individual error.[11] Menger’s great achievement in Principles of Economics consisted in identifying these elements for analysis and explaining how they cause more-complex market phenomena such as prices. He called this the “empirical method,” emphasizing that it was the same method that worked so well in the natural sciences.[12]”

“To the present reader, this label might be confusing, since it is not at all the experimental method of the modern empirical sciences. Menger did not use abstract models to posit falsifiable hypotheses that are then tested by experience. Instead, Menger’s was an analytical method that began with the smallest empirical phenomena and proceeded logically from there.”

A nice little bio on Menger: http://www.econlib.org/library/Enc/bios/Menger.html

Now the key selling point for Leon Walras seems to be his devising the General Equilibrium Theory essential for purporting the harmony of markets in being able to balance or regulate themselves. In contrast to other neoclassical (Austrian) economists, Walras was heavily into math to support his ideas. The Concise Encyclopedia of Economics notes:

http://www.econlib.org/library/Enc/bios/Walras.html

“Before Walras, economists had made little attempt to show how a whole economy with many goods fits together and reaches an equilibrium. Walras’s goal was to do this. He did not succeed, but he took some major first steps. First, he built a system of simultaneous equations to describe his hypothetical economy, a tremendous task, and then showed that because the number of equations equaled the number of unknowns, the system could be solved to give the equilibrium prices and quantities of commodities. The demonstration that price and quantity were uniquely determined for each commodity is considered one of Walras’s greatest contributions to economic science.

But Walras was aware that the mere fact that such a system of equations could be solved mathematically for an equilibrium did not mean that in the real world it would ever reach that equilibrium. So Walras’s second major step was to simulate an artificial market process that would get the system to equilibrium, a process he called “tâtonnement” (French for “groping”). Tâtonnement was a trial-and-error process in which a price was called out and people in the market said how much they were willing to demand or supply at that price. If there was an excess of supply over demand, then the price would be lowered so that less would be supplied and more would be demanded. Thus would the prices “grope” toward equilibrium. To keep constant the equilibrium toward which prices were groping, Walras assumed—highly unrealistically—that no actual exchanges were made until equilibrium was reached. If, for example, people who wanted to buy ketchup wanted more than sellers were willing to sell, then they would buy none at all. This assumption limits the usefulness of Walras’s simulated process as an aid to understanding how real markets work.”

The oddity for the second great marginalist thinker, Leon Walras, was that AT ONE TIME HE SEEMS TO BE A COMMUNIST!!! I kid you not! “Walras also inherited his father’s interest in social reform. Much like the Fabians, Walras called for the nationalization of land, believing that land’s value would always increase and that rents from that land would be sufficient to support the nation without taxes.” source: http://en.wikipedia.org/wiki/L%C3%A9on_Walras If by “nationalize” we mean that the state assumes ownership of the land then Walras did in fact espouse, at least one time in his life, communist propensities.

As for William Stanley Jevons, he is noteworthy for his Jevons Paradox. It started with his book The Coal Question which “covered a breadth of concepts on energy depletion that have recently been revisited by writers covering the subject of peak oil. For example, Jevons explained that improving energy efficiency typically reduced energy costs and thereby increased rather than decreased energy use, an effect now known as the Jevons paradoxThe Coal Question remains a paradigmatic study of resource depletion theory. Jevons’s son, H. Stanley Jevons, published an 800-page follow-up study in 1915 in which the difficulties of estimating recoverable reserves of a theoretically finite resource are discussed in detail.[8]

http://en.wikipedia.org/wiki/William_Stanley_Jevons

The Concise Encyclopedia of Economics notes ” he wrote that Britain’s industrial vitality depended on coal and, therefore, would decline as that resource was exhausted. As coal reserves ran out, he wrote, the price of coal would rise. This would make it feasible for producers to extract coal from poorer or deeper seams. He also argued that America would rise to become an industrial superpower. Although his forecast was right for both Britain and America, and he was right about the incentive to mine more costly seams, he was almost surely wrong that the main factor was the cost of coal. Jevons failed to appreciate the fact that as the price of an energy source rises, entrepreneurs have a strong incentive to invent, develop, and produce alternate sources. In particular, he did not anticipate oil or natural gas. Also, he did not take account of the incentive, as the price of coal rose, to use it more efficiently or to develop technology that brought down the cost of discovering and mining (see natural resources).”

As I wind this essay up, it is important to note that other important “Austrians” or neoclassical economists have not been mentioned yet. Not just Ludwig von Mises or Friedrich Hayek, but others like Friedrich von Wieser (1851-1926), who notably was born in Vienna, or the British Alfred Marshall (1842-1924), and Eugen  Böhm-Bawerk (1851-1914).

This essay is to be taken merely as a point of entry into deeper study or at least a means of clarifying some basic points about what “Austrian Economics” means both conceptually and historically.

Written by joethebohemian

March 13, 2012 at 2:03 pm

Posted in Uncategorized