Monthly Archive: March 2019

Football (the American, not metric, variety -- for my international readers) is deeply ingrained in the United States.  Each weekend during the fall, millions of viewers tune in to watch the televised matches between college rivals on Saturdays.  And the National Football League (NFL), which organizes the most popular men’s professional sport in the US, rules most Sundays from late August to early February, and inspires conversation and controversy (and commands a lighter viewership) during the intervening week.

The NFL has been so dominant for so long, that it may be hard to believe (or recall if you are old enough) that once professional baseball was the preeminent spectator sport in this country, with football coming in a distant second.

Steeped in its own brand of mythology, Major League Baseball’s (MLB) storied past formed the stuff of legend.  Within its history, one could find heroic and inspiring tales of triumph by figures like Babe Ruth, Lou Gehrig, Jackie Robinson, and Roberto Clemente.  One could also find tragic tales of failure as in the 1919 Black Sox scandal and Pete Rose’s fall from grace.

Baseball was so pervasively woven into the fabric of American life that its players and their personal lives often spilled out of the field and into every other facet of American life.  Joe DiMaggio, one of the famous New York Yankees from the WWII era, became even more famous for his much-discussed but brief marriage to Marilyn Monroe and was immortalized in the song lyrics of Mrs. Robinson.  Numerous war movies showed soldiers who were behind enemy lines proving their bona fides by answering some obscure baseball question that only a genuine ‘yank’ would know.  An excellent example of just how deeply ingrained baseball is, is the following clip from the TV show M.A.S.H., which aired in 1980.

Despite its unrivaled dominance for over 100 years, by 1985 (the first year viewer preferences were polled) ESPN reports that the NFL had beaten MLB 24 to 23 percent.  The same article cites that 30 years later, the gap had widened to 21 points with 35 percent of all fans citing the NFL as their favorite compared to only 14 percent who had the MLB at the top of their list.

The economics behind how “America’s Pastime” became past its prime and what MLB is trying to do to improve its standings is fascinating.  It provides glimpses into how labor disputes can disrupt product delivery to the detriment of both management and labor, how complacent businesses can squander the good will of their customer base, and the role of marketing and advertising.

The place to start our analysis is with the emergence of the modern era of collective bargaining between the players (labor) and the owners (management).  According to Sean Lahman’s A Brief History of Baseball, this era of baseball labor relations began in 1965 when the Major League Baseball Players Association (MLBPA) hired Marvin Miller.  Miller, who had been a member of the United Steelworkers union for years prior, began his tenure by collecting statistics on player salaries.  By the time he stepped down the modern era of free agency in sports labor had emerged.

Along the way Miller secured the first collective bargaining agreement (CBA) between the players and management in 1968, helped in 1974 to undermine the reserve clause that limited the ability of players to negotiate contracts with other teams, and broke up the the network of “gentleman’s agreements” that owners employed to keep a lid on player’s costs.  Miller also organized a variety of labor walkouts including a 13-day one in 1972 and a 50-day strike in 1981.

While undoubtedly beneficial for players salaries and freedom, the general public was sometimes hostile to what was seen as attempts by players to ruin the game for the fans.  As the animosity grew between labor and management, so too did the level of action each took against the other.  The escalation culminated in the 1994-95 baseball strike that cancelled the 1994 World Series and did major damage to baseball’s popularity.

Baseball managed to recover some in the latter half of the 1990s and the early 2000s with the home run drama surrounding the players such as Mark McGwire, Sammy Sosa, and Barry Bonds.  But revelations that much of the hitting success during this time was allegedly fueled by steroid use further damaged baseball’s reputation.  The owners, hungry for a quick fix to the hangover caused by the labor-management squabbles of a generation prior, looked the other way, only to have it blow up in their faces.

And so, we arrive at the current day.  The modern game is filled with contract negotiations, mandatory drug tests, and long games, typically lasting over 4.5 hours.  Matthew Corwin, in his article for Odyssey, believes this last problem to be the most serious.  Baseball’s leisurely pace of 1930 does not mesh well with the hectic pace of the 21^st century.

Baseball execs seem to agree.  The new rule changes seem to center on speeding up the game by: 1) keeping pitchers in the game to face a minimum of three batters, 2) limiting who is allowed to pitch, and 3) shortening commercial breaks during innings.

This latter change is particularly interesting in that it may be showing tell-tale signs of lasting wisdom on the part of the owner and players alike.  In the short run, limiting advertising time will limit ad revenue and profits on both sides.  But, if shorter games led to an increase in the fan base, then both sides may actually come out ahead, and that would be a real triumph of economic cooperation.

It is an encouraging sign of trust between two sides that have been all but mortal foes for decades.  As to whether this new detente will last, we are still in the early innings.

Representative Kamala Harris recently tossed her hat into the ring as a contender for the Democratic Party’s nomination for president in the 2020 election.  The one plank in her platform that has stirred the most discussion is Harris’s bid to institute a single-payer health care system for every American, called Medicare For All.

Her reasons for this, in her own words are:

In her conception of health care access, Medicare for All would eliminate all existing private insurance companies.  As the end of the clip shows, when asked about their fate, Representative Harris simply said “Let’s eliminate all of that.”

Now there are obvious political ramifications for such a single-payer proposal.  Doctors and the health systems they work with and for have powerful lobbyists.  Insurance companies also have a great deal of influence in politics given their financial holdings and their presence in every state.  And whether such a plan would be popular with a majority of voters has yet to be tested.  But let’s leave that all behind and simply ask what economic factors exist that support Harris’s assertions and what factors refute it.

One of the cornerstone ideas in economics is the law of supply and demand that dictates that the price goes down when the supply is higher than demand.  The primary way to encourage an ample supply is to allow the suppliers to reap a profit when they persuade a consumer to buy their offering.  Ideally, we would want more health care professionals to enter into the market than is strictly necessary by statistics alone.  These individuals would compete fiercely with each other, driving the price down and forcing less-competent professionals out of the marketplace, in the process making way for more-competent ones to enter.  Less expensive health care would go a long way to addressing her complaint that “[H]aving a system that makes a difference in terms of who receives what based on your income is unconscionable.”

Currently, competition in the health care arena is blunted primarily by two factors.

First, by government regulation, insurance companies only compete amongst themselves within specific states.  No buying of insurance across state lines is permitted.  For example, the ugly battle between UPMC and Highmark only takes place within western Pennsylvania with neighboring states being completely ignorant.  UPMC mostly furnishes health care through its networks of hospitals.  Highmark is the largest insurer in Pennsylvania.  While their battle is fierce, it is between payor and payee with neither having strong competition in their own sphere.  As a result, the western PA consumer gets to watch two behemoths smack each other around, wasting resources that could be better put to use.  How much better behaved would these institutions be if there were credible health care providers and insurers who could swoop in while UPMC and Highmark were distracted with their little war?

Second, since the primary mechanism by which most of us get our health care coverage is through our employment, competition is further limited to the number of choices provided by people (i.e. employers) who aren’t directly consuming the product.

Under Harris’s plan for a single-payer system, competition would be erased rather than enhanced.  With the elimination of private insurance would also go any incentive for the provider, in this case the Federal Government, to lower costs.  Without competition, the average bureaucrat would have little reason to push for a higher efficiency and almost no motivation to put patient/customer first.  For the health care practitioner, the situation could go one of two ways.  Either the government would attempt to fix prices in order to address costs, or it would subsidize the activity, thus the pervasive government regulations would likely discourage the really good people from becoming doctors and nurses while encouraging substandard ones to become part of what, for them, would be a lucrative payday.

Having the majority of Americans secure their health coverage through their workplace, a vestigial practice left over from the wage-controlled years during World War II, also blunts our ability to engage in the marketplace, and this lack of market knowledge leads to higher prices and lower quality.  By having our employer provide health care coverage as a ‘benefit, we lose sight of the cost we incur (lowered wages) and, therefore, we have less motivation to push back on the market.  As a previous blog discussed, each of us is a far savvier consumer of car repair than human repair.  Our knowledge of the mechanic market not only allows us to usually figure out when we are being scammed but also places a strong pressure on repair shops to be reputable.  Most of us develop and groom this knowledge because we directly bear the cost.  But, because we often don’t perceive the cost of employer-supplied coverage, we know far less about the business side of medicine.  As a result, we have no sense of quality or proper cost and so doctors and insurers have no pressure to provide higher quality.

Under Harris’s plan, we would become even further removed from the marketplace.  At least when we receive health care coverage through our employers we can always quit and go somewhere else with better benefits.  Once the government is the only game in town, how do we go somewhere else for benefits?

There are plenty of stories of how single payer systems drop the ball on quality.  Well-documented problems in the Veterans Administration, Britain’s National Health System, and a particularly gut-wrenching piece on Canadian care (video excerpt follows – click here for Steven Crowder’s full video) abound.

Closely associated with the quality facet is the timeliness of receiving health services.  With a profit motive driving delivery, markets are incentivized to deliver high quality in as speedy a fashion as possible.  After all, the higher the throughput, the greater the profit (and for those worried about the lowering of quality in order to increase speed refer to the discussion of market knowledge you just read).  Under a single-payer government system, no one is incentivized to do anything rapidly.  No additional profit flows for timely action.

Having just criticized a single-payer Medicare-for-all solution, the reader may be asking if I am defending our current system.  The answer, in a word, is no.  Our current system delivers excellent care but for too high a price.  To get costs in line with benefits, I would recommend four things:

1. Eliminate tax incentives for businesses to offer health care coverage as a ‘benefit’. Each person should purchase their own insurance as they do for home, car, or property.  By having ‘skin in the game, each of us would become more market-aware.
2. Eliminate barriers that prevent insurers from competing with each other nationwide as is done for home, car, and property.
3. Significantly curtail the AMA’s ability to shield a health care professional’s reputation. I don’t care if a doctor spent years in school, he needs to deliver in the here and now.  Education of the public on the shortcomings of licensing would also help here.
4. Significantly curtail tortious suits against health care professionals. Society doesn’t need to punish a doctor with punitive damages yet allow him to continue to practice.  Damage to his reputation will rid him from the market with far less human cost than the system we engage in now.

To close, I appreciate the human cost that Harris spoke passionately about and her desire to see that everybody, regardless of station, receives timely, quality health care.  I share those ideals with her – and that is why I am against Medicare For All.