With the current debate about if and how to change the health insurance system in America becoming more heated over the summer, I had the opportunity to attend a Town Hall meeting hosted by Oregon's Sen. Jeff Merkeley. At times it was quite "spirited" with a not insignificant contingent representing what I'll graciously call the Libertarian wing of the electorate. At one point, one audience member quite clearly stated to Sen. Merkeley that it is the Senator's job to preserve his right to not buy health insurance.
Sen. Merkeley is Oregon's junior senator, recently elected, unseating Sen. Gordon Smith. In this part of the state, its not an exaggeration to say that former Sen. Smith was revered. This was Sen. Merkely's first Town Hall meeting in this part of the sate. Also, he followed Sen. Wyden by several weeks. As a result, people dis-satasfied with Sen. Wyden's meeting laid in wait for Sen. Merkeley.
Economics has something to say about the issue of whether or not people should be required to carry health insurance. One aspect of what economics has to say on the issue pertains to how individuals without insurance impact services available to others, even when those not carrying health insurance pay for their health care out of their own pockets. You can read my perspective on the matter - Wallowa County Chieftain.
While the argument I make in this piece is grounded in mainstream economics practiced today, the perspective I take in this letter is troubling to people who have an inordinate belief in the 'free' market.
My arguments rest on a sub-area of economics often referred to as environmental economics. This sub-area is very extensive with a massive body of conceptual and empirical literature. Part of this literature focuses on externalities. Within that literature, the externality I speak of in my essay is called a network externality. More specifically, network effects in health care and health insurance. (A note to the more specialized reader - in my short essay, I don't distinguish between network effects and network externalities).
There are many in and out of the economics profession who hold the belief that externalitie do not exist. They have very influential advocates, perhaps most notably Uncle Milty - Milton Frriedman and the Chicago School.
With The Chicago School there is even a brand of Institutional Economics that extends free market principles to the study of institutions! I subscribe to a different bread of Institutionalism that is related to the Land Economics of John R. Commons. A somewhat humorous view of part of that school may be viewed at - American Institutionalist School.
I will likely pick some of these themes up in future posts.
Thursday, November 12, 2009
Sunday, November 8, 2009
Commodities and Specialty Products
In this post, I'll just refer to product rather than product and service. This is simply for brevity. Consider that I am referring to product or service. Your business be selling Real Estate, for example, which is a service than a product.
As we know, the bottom line is determined by your revenues and your costs. I have seen businesses that do a good job at managing one but not the other, with the result being a drop in the bottom line. This post focuses on the revenue side of your business.
A commodity is a product that is just like every other business's product - in the eyes of the consumer of your product. When your product is viewed this way, how much you can charge for your product is determined by the 'market' in which you sell your product. Your revenues are then largely determined by forces outside of your control.
One important alternative is to market your product or service as a specialty product. This helps to separate your product from the mass of alternative suppliers of your product. This is a crucial step towards having greater control over your revenues. You have greater control over your revenues when you are able to charge a premium for your product. In the parlance, this premium is often referred to as a higher value added.
If there are legal limitations on your ability to set a higher price (fee) for your product, then the question is how can you charge that maximum.
If the market in your business already has a standard fee that 'everyone charges' then the question might be how do you use other tools to distinguish your product from others with the same or similar price? Here again, the goal is the same - getting greater control over your revenue stream.
As we know, the bottom line is determined by your revenues and your costs. I have seen businesses that do a good job at managing one but not the other, with the result being a drop in the bottom line. This post focuses on the revenue side of your business.
A commodity is a product that is just like every other business's product - in the eyes of the consumer of your product. When your product is viewed this way, how much you can charge for your product is determined by the 'market' in which you sell your product. Your revenues are then largely determined by forces outside of your control.
One important alternative is to market your product or service as a specialty product. This helps to separate your product from the mass of alternative suppliers of your product. This is a crucial step towards having greater control over your revenues. You have greater control over your revenues when you are able to charge a premium for your product. In the parlance, this premium is often referred to as a higher value added.
If there are legal limitations on your ability to set a higher price (fee) for your product, then the question is how can you charge that maximum.
If the market in your business already has a standard fee that 'everyone charges' then the question might be how do you use other tools to distinguish your product from others with the same or similar price? Here again, the goal is the same - getting greater control over your revenue stream.
What is economics?
Economics is the study of human choice.
Yes, that's right. It's much broader than about money or finances. It can include that area, and often does, but to view economics that narrowly is to limit it's usefulness.
Just consider for a moment what is involved in human choice. I see it including other people, maybe your family, maybe your business partners, maybe your suppliers. It can also include levels of government that play some role in how you make decisions and conduct your business. Your choices are often complex and involve competing objectives that at times clash with each other. How do you go about organizing all this information? Even when you have it organized, how do you go about approaching using it to help inform your choices?
My job is to help you frame all this in a way that facilitates your decision-making.
This is what economics is fundamentally about. There are fancier ways of saying this, and larger and broader ways of thinking about what economics is and is not. In the end though, its about one thing - using a set of tools to help you make more effective choices.
Yes, that's right. It's much broader than about money or finances. It can include that area, and often does, but to view economics that narrowly is to limit it's usefulness.
Just consider for a moment what is involved in human choice. I see it including other people, maybe your family, maybe your business partners, maybe your suppliers. It can also include levels of government that play some role in how you make decisions and conduct your business. Your choices are often complex and involve competing objectives that at times clash with each other. How do you go about organizing all this information? Even when you have it organized, how do you go about approaching using it to help inform your choices?
My job is to help you frame all this in a way that facilitates your decision-making.
This is what economics is fundamentally about. There are fancier ways of saying this, and larger and broader ways of thinking about what economics is and is not. In the end though, its about one thing - using a set of tools to help you make more effective choices.
Introduction
Welcome to my blog. This blog will focus on economic issues and decision-making. Some posts will focus on a specific issue. Other posts will focus on some broader issue or concept. I'll also be including posts on economic issues broader than I am working on as a business consultant. Also, it's worthwhile to note that I've got a wide definition of what is an economic issue.
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