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Why Infrastructure Is So Expensive (strongtowns.org)
409 points by swivelmaster 188 days ago | hide | past | web | favorite | 195 comments



Lack of accountability is an important, perhaps even the most important, part of the problem:

With private projects if a project is overdue or if it is exceeding the originally projected costs either of the parties will be held accountable, either through civil liability enforced by a contract or in simple economic terms.

With public projects there generally is no such accountability. If a public project is delayed and it costs more than planned the public purchaser (the state, city, you name it) - and by extension taxpayers will simply cough up the money, put up with the inconvenience of yet another unfinished and out-of-repair piece of infrastructure and move on.

If we want to change that creating the right incentives is only one side of the coin. The other side is holding both civil servants and politicians accountable for the public projects they're responsible for.

Given the amount of money typically involved in these projects personal financial liability wouldn't be practical. Disciplinary consequences for gross negligence or the outright nepotism rampant with that sort of projects shouldn't be out of the question though. I find it unacceptable that civil servants and politicians who demonstrably and deliberately waste tax money continue to climb the ladder with apparently no care for the damage they cause.


I've seen quite a few articles and studies that say that government projects aren't actually more expensive than private projects.

The impression is created because (a) the media will report on a government-run project over budget because they actually get that data (unlike private cost overruns), and the public cares more about these projects. And, (b), government projects are more likely to start with an initial estimate that is too low, because that's beneficial to getting a project approved.

Speaking to your argument about accountability: Do you think the CEO of GE is really more afraid of the shareholders than the mayor of some city in Kansas? Politicians are plenty accountable. And for something like the federal government, projects are managed by employees, who are managed by agency heads. The latter get a budget and have to work within it.

Say you're the head of the National Park Service: If your new visitor centre at Yellowstone gets swallowed in a geyser, will you not face exactly the same consequences as someone at Disneyland tasked with building a new ride?


I don't think government projects being more expensive than private projects simply is an impression created by the media. Sure, private project failures aren't bandied about as much (though sometimes they still are, especially if a failure simply is too spectacular not to be talked about), simply because they often aren't interesting to the general public. However, save for downright cover-ups project failures are usually known to the stakeholders.

Government projects starting with too low an estimate is a well-known but deeply unethical practice. Everyone involved knows that the finished project will be above budget yet there's a silent agreement to not say anything because once the public realises there's a problem it's already too late to cancel the project and the project has to continue whatever the final costs may be. That's the common argument anyway. It's a bit like the 'too big to fail' fallacy. So, we keep throwing good money after bad because we're afraid of the consequences of admitting failure. It's exactly that kind of unethical behaviour that should be punishable by disciplinary action in order to disincentivise civil servants from going down that road in the first place.

Finally, I suppose the larger the organisation the more lack of accountability becomes a problem. You see that with larger companies where projects often regularly are over time and budget as well. However, I still think that those in leadership positions in larger private organisations are more accountable. While there are misaligned incentives in these organisations, too (like CEOs getting a bonus or a generous severance package even though they performed badly) there are two crucial differences here: A company goes out of business if it runs out of money. It's also much easier to hold you both civilly and criminally liable if you overstepped your boundaries.

When was the last time a state or city went out of business due to lack of funds? When was the last time a politician actually did time for embezzling and deliberately wasting tax money?


The problem is time an materials - when the contractor is ethical - is the cheapest option. Anything else means that someone needs to overbid and make "excessive profits", or risk they underbid and have to make up millions of dollars to finish the contract. However ethical is a key part of this, and we know from experience that not everyone is ethical and we have no way of knowing who will be until it is too late.

They get around this by carefully fixing the work to be done - which seems like a great idea, but in construction there are always something you don't know about until you get there. What happens is they bid for standard dirt work and when they start moving the dirt they go back and say "We bid to dig down 3 feet as standard, but there is a sink hole here: do you want us to complete the job as bid knowing the road will collapse there within a week of of finishing or pay extra to fix the sinkhole" (there are millions of variations of this). Of course the only sane thing to do is pay for the design change so it is done right.


I don't understand why we don't negotiate a fixed rate and spec for each project, with financial incentives for early completion. The contractor takes some risk, but the risk can be mitigated with better research and uncertainty factored into the bid.


As for low-balling estimates, what if there were a contract penalty for going over by some %? Moreover, what if you took some of that penalty and gave it to whichever contractor had bid closest to the true cost, incentivizing contractors to bid what they think it will cost, even if they have no intent of taking the job. This could act as a sort of information market, where you could get a sense of what people think the true cost would be.


Here's what I don't understand. Why on earth do they get paid more than their estimate? That's rediculous. They should get paid precisely the amount they estimated and not a penny more. This would get rid of ALLL the underbidding.


It would probably get rid of all bidding period, and it would create an unnecessarily adversarial relationship between parties who need to work together productively across multiple projects.

Also, if you follow this logic through to it's conclusion, you end up with a bankrupt contractor, a project that's still unfinished, and embarrassed politicians. It's usually still a better deal (within reason) for the person already doing the work to be the one to finish the work.


It seems like you could include penalties if project goals are not met, and then open up a re-bidding process. If it's true (as I think it generally is) that it's "usually still a better deal [..] for the person already doing the work to be the one to finish the work" then they can presumably bid lower than the rest at that next phase - but it's not just free money.


What good does a penalty do if the entity who owes it declares bankruptcy?


You'd presumably have to require a bond. Otherwise, yeah.

Still probably an improvement over handing them additional money with no competition, though...


> Do you think the CEO of GE is really more afraid of the shareholders than the mayor of some city in Kansas? Politicians are plenty accountable.

This actually suggests the opposite - that both politicians and CEOs are not accountable enough!


> Do you think the CEO of GE is really more afraid of the shareholders than the mayor of some city in Kansas?

But CEOs are motivated to perform because their options will be worth more, and they might have vested shares that will disappear if the board fires them. What motivation does a mayor have?

You'd think being president of the US came with a end of term bonus to incentivize good performance. How much would that really cost? Say the payout is $100million * national approval percentage. That'd be enough to motivate most everyone who isn't a billionaire.


> What motivation does a mayor have?

Re-election.


Can you cite some of those articles and studies?


> Do you think the CEO of GE is really more afraid of the shareholders than the mayor of some city in Kansas?

Maybe not, but then again I wouldn't consider the CEO of GE as somebody leading a private entity in the sense of the argument.


You're conflating public sector vs private sector (Government vs Non-Government) with publicly traded vs privately held.

GE is in the private sector, but publicly traded.


Yes, thank you, I understand that. My point is that a publicly traded company is not necessarily able to provide accountability in the sense of the parent comments, more so than a governmental organisation. It is not 'private' enough. (Which is logical, since the control by the state runs deep into it.)


When speaking of public vs. private in the government vs. not-government sense, the CEO of GE would definitely fall into the private category. That's what's under discussion here. In what sense do you mean private?


I mean 'private' in a very strict sense. I think this is important here, if we want to reach a meaningful distinction between 'public' and 'private.'

The free market and personal responsibility can very well drive prices down and maximise efficiency. But a CEO of a public traded company is operating with other people's money and he is strongly regulated by a government. Both factors that hinder the optimisation by the above mentioned forces.

'Private' would mean at least that every penny wasted is out of the personal pocket of the people doing the work; in a very direct sense.


> 'Private' would mean at least that every penny wasted is out of the personal pocket of the people doing the work; in a very direct sense.

That is an odd sense of the word. It's a state that basically doesn't exist anywhere except in your back yard when working on DIY projects. Even in startups, the people doing the work only lose a fraction of a penny for every penny wasted, according to their share of ownership and liquidation preferences.

It's not a useful concept for talking about issues like infrastructure projects, because there will never be a case where the people doing the work are the ones who suffer 100% of the consequences of loss, or even close to it. I would suggest you stick to the generally understood meaning of the word when having conversations with other people, but I'm an internet commenter, not a cop, so do what pleases you.


You are making assertions that may or may not be true. That aside, the point that I am trying to argue during the whole thread is two-fold.

First I do agree with matt4077 that the difference in accountability between the CEO and the mayor is not big enough to warrant a distinction in the context of the discussion. I also agree with BjoernKW that accountability is one of the root-problems here.

Second, I do want to say that a public traded company is not a form where the CEO is personally accountable enough to call it 'prvate' in the sense of BjoernKW's comment and therefore dismissing matt4077 example as a valid example for what BjoernKW was hinting at.

I do think that others have very well understood what I was trying to convey, see for example the comments from paulddraper or cmurf.


In that sense, the kid mowing your yard with your mower for you is a public entity.

This is an extremely different use of the word than I'm familiar with, and doesn't really do us much good when trying to discuss government projects vs. non-government projects.


I have to disagree. My point was that the difference in accountability that a publicly traded company provides vs a governmental organisation is to big enough to support the parent's point. I suggest the reason is because the state is too heavily involved in the governance of these entities for the to be truly private.

Yes, I understand that public traded companies are not state-owned.


That's sole proprietorship or partnership vs a publicly traded company.

There are a number of examples on Wall Street, e.g. Goldman Sachs, where when they were partnerships, the partners were personally liable for company losses and the firm provably was taking fewer risks than once it became a publicly traded company. The organizational make up of a company can affect the distribution of liability, and that can lead to the company making different choices than it otherwise would.


I think the word you are actually searching for is employee-owned


What did you use to develop this opinion?

I've worked in both private sector and government. As long as a competitive bidding process is used, government actually gets better outcomes from a cost POV, especially for infrastructure style projects.

One big difference that leads to distorted perceptions is accounting standards. Government is mostly funded on an appropriation basis and uses cash accounting. Private sector uses GAAP and does all sorts for wacky bullshit to reduce tax burden. When I sold stuff to a big fortune 50 company, they would roll everything they could into leases -- we would literally buy cases of toilet paper when selling them technology equipment because it would push the booking of cost out.

When I worked for a company like that we would do similar hijinks to book revenue now and push out liability until after the exec bonus periods.


I agree, having only ever worked in non-government jobs, I have seen almost no accountability for my entire career. In fact more often than not, if the company elects to fire someone over a mistake, missed deadline, etc, it has been the wrong person, because management refuse to take any blame.

Additionally, at every privately held company i've worked at, the owner would have 2-10 friends who he kept onboard despite overwhelming incompetence or them refusing to do work entirely.

I don't get where the idea that government is inefficient and private sector is.


Heard a story recently from the private sector where an employee had been secretly sleeping on the job. One day, his scheme was disrupted, not because he was found out, but because someone else was already sleeping in the secret room he'd been using and he had to find somewhere else.

Another time, they discovered someone sleeping on the job in a large bin of soft rags, covered in towels. I find this sort of thing absolutely incredible. Good luck sleeping on the job in small business - you would not last a day.

I think in any large organisation though (public sector included), waste is somewhat inevitable.


That still doesn't explain why other countries do it better/cheaper. There's no more accountability there (often even less in some countries).


I think part of this lack of accountability is how some of these larger projects are funded. In Connecticut, they had a busway that was created on an interstate highway. The total was 570 million of which the federal government provided 400 million. That 400 million was added to the nation debt. The reasoning why this project continued despite its costs was because the federal government had already approved the funds.


With private projects if a project is overdue or if it is exceeding the originally projected costs either of the parties will be held accountable

The vast corpus of literature on things like managing large corporate projects suggests that private projects fail at least as much and have at least as much trouble ensuring accountability.


>With public projects there generally is no such accountability.

Public projects use construction contracts just like private ones, they are just as accountable to their clients in this sense.

The difference between property developers and politicians as clients is that developers can choose when, where and and what to build to optimise costs, whereas with public projects politicians are optimising for votes. Politicians very publicly decide to commit to a project based on an initial estimate and then order the civil service to procure it. Changes in specification that are big enough to significantly affect cost have to be approved by the political process which takes ages and is unpredictable. Different politicians get elected half way through the process and they will try to make last minute changes to designs and specifications. The later that changes are made to specifications the more they cost. If you make multiple late changes it causes massive confusion and it is extremely complicated and expensive to reconcile the redesign with all the existing information. Therefore this will cause cost overruns which can get out of control when the rushed integration of new features causes unanticipated consequences.

Unfolding events affect public projects more. The Scottish parliament and Welsh assembly buildings both had last minute design changes to incorporate airport style security after 9/11. The Welsh assembly introduced a TV studio and broadcast lighting into the specification very late on. The Scottish parliament added a whole office block with offices to accommodate 130 MSPs and their staff. Of course those projects cost a lot more than the initial estimates given when they were first announced to the public, and the opposition politicians made as much political capital out of this as they could by comparing the original estimates to the final cost without mentioning the fact that a different thing was built than was specified at the beginning. You can be sure that the politicians that opposed the cost overruns in Wales enjoy showboating on TV though, and you can be sure that the Scottish MSPs all enjoy their lovely closed plan offices.

Major privately financed projects can be just as bad though, believe me I have worked on a few. The key to a well run project is a quick and efficient decision making process. My theory is that because both the UK and the USA are effectively two party states they tend to suffer a lot more from a lack of a political consensus on whether it is a good idea to build something and how it is going to be done. This causes delays and inefficiencies because elections have much more potential to upset a project than in countries that govern by a coalition of consensus.

Lastly, politicians will spend whatever they can get hold of if will get them votes and it's not coming out of local taxation or they can hide the capital expenditure in a different budget by using PFI procurement.


The people at the Olkiluoto construction site in Finland where they are building the first (and probably the last) EPR nuclear reactor do not seem so upset about the delays and cost overruns... More money for them.


TL:DR - the way to combat rising costs is to constrain the supply of capital.

This isn't going to work. Infrastructure contractors will just turtle up and say that it can't be done at the lower price. Lowest-bid mechanisms are intended to harness Adam Smith's invisible hand, but aren't working as intended.

The essay touches upon two distinct points: a) the private developer cared deeply about how his money was spent, but the public developer did not b) general incompetence of public management, by misunderstanding how contractors manipulated costs to reach their estimates and establishing perverse incentives

The way you typically solve this kind of problem, at least in the private sector, is to set up a way for the manager to personally earn a fraction of what he saves the organization - the organization still saves a lot of money overall, even after paying the bonus. But if you bring up the concept of performance-based pay for public employees, you find massive opposition - both from a public worried about corruption and graft, and from public employees themselves, many of whom were drawn to public work in the first place specifically because of the stability and security of a public paycheck.

That's when you understand that what really needs to be talked about is a culture change in public work culture, and when you understand that, you understand just how high the mountain is that needs to be surmounted.


> TL:DR - the way to combat rising costs is to constrain the supply of capital.

I don't think that's a fair summary. He talks a lot about incentives being aligned, not just constraining the amount of cash spent.

To be fair, it's a very difficult thing to design incentives. It's cat-and-mouse game where people will try to find ways to beat the system. There's a good example in the article about the contractor who bids low on everything but the bituminous.

Your proposal, that the manager gets a share, can also be gamed. Once you've won a bid, there's a cost to firing you. Do the job cheaply and shoddily, and hope the adverse effects (eg bridge needs repair in 5 years instead of 10) don't manifest until you're out of town. The suggestion about keeping debt small is partly related to this: one generic way to pay for things is to get future generations to do it.

Generic ways to game the system:

- Time shifting costs. Pay tomorrow using today's credit rating.

- Quality bait-and-switch. We'll use less sturdy concrete, bridge will look the same.

- Selling optionality is another. Tunnel proposal A can be expanded to suit future traffic. During the project, we decide not to do the extra drilling required.

- The sunk-cost game. Bridge is almost done, but not usable until we spend a little bit more.


That's too simple a summary. The bulk of his arguments are about eliminating perverse incentives, such as the one you propose: if a public developer takes a percentage of the savings, the easiest way to inflate that bonus is to inflate the overall cost, especially if the public developer knows the real cost of execution. Rather than incentivizing him to squeeze the suppliers, you're incentivizing him to exaggerate expenses. In the article, the developer cares more about costs, but he's also controlling costs directly with hourly billing instead of fixed bids, giving him transparency.


Want a perverse incentive?

In the US, if a doctor dispenses a drug in-office to someone covered by Medicare, then Medicare pays the doctor the cost of the drug plus 6%.

The usual example trotted out in press coverage is Lucentis vs. Avastin for treating macular degeneration. Research has established little to no difference between them in effectiveness, but Avastin costs $50/dose while Lucentis is $2,000/dose. So if you're treating a Medicare patient with macular degeneration, and give them Avastin, as a doctor you get $50 + 6% back from Medicare, for $3 "profit" on it. But if you prescribe Lucentis, you get $2000 + 6%, for $120 "profit".

Want to guess which drug gets dispensed?

It gets better when you find out both drugs come from the same company, and that company has fought against having Avastin (the cheap one) endorsed for treating macular degeneration.


There's an added complication in the example you give, which is licensing, and that the manufacturer fought hard for years to prevent people prescribing avastin instead of lucentis.

They even restricted the sale of avastin for eye use.

It's not surprising doctors didn't prescribe the cheaper med in that situation.

http://www.allaboutvision.com/conditions/lucentis-vs-avastin...

http://www.bbc.co.uk/news/health-30138097


> That's when you understand that what really needs to be talked about is a culture change in public work culture, and when you understand that, you understand just how high the mountain is that needs to be surmounted.

You do know that the US is not the only country in the world, right? The costs are high not just compared to what the private sector pays for similar services, they are high compared to what the public sector in pretty much all other developed countries pays for similar services. Why on earth is it cheaper to build a tunnel in Switzerland than it is in the US?


>Lowest-bid mechanisms [...] aren't working as intended.

That's true for public projects as well.

Often the client will be happy to get a cheap offer, only to be surprised that the project is delayed, requirements are not met and there are huge follow-up costs.

And then sometimes all sides know that the project can't be done for what the lowest bidder offers and the whole bidding process has to be done again with restrictions that prevent the cheapest bidder from applying again.

Lowest-bid mechanisms sound great in theory, but absolutely don't work out practically and we all pay the price for it by getting a bad return on our tax money. On top of that, the system doesn't even prevent corrupt politicians from funneling government jobs to their friends.

Then again, good luck finding a better system.


Lowest-bid tenders are kind of like democracy - a terrible system, but the best we have invented so far.

If someone is spending their own money, then going with a vendor that feels the most competent is going to deliver a better overall result than lowest-bid. But if someone is spending other people's money, then too much subjective freedom in choosing the vendor greatly simplifies corruption, and it's not obvious whether the end results will be better.

What lowest-bid tenders critically need is competent, motivated people working for the government writing the Request for Proposals. People who know the field, know the risks and complexities, and know the "tricks" used to underbid and overrun. People who write tenders that push an appropriate amount of risk and liability to the vendors - not letting themselves to be taken advantage of, but also not adding too many penalties that make vendors pad their estimates just in case and reach for expensive lawsuits if something happens.

If you have that, then there is a good chance that the bids will work out for all parties. But if not, then shady vendors will steamroll over the customer.


I kid you not that there are such things as "proposal schools" and proposal-preparation companies that teach you how to win as low bidder by being "minimally compliant." Then, when the customer finally understands what they are (not) getting, you can hit them up for "change orders" that have to be negotiated. Bottom line strategy is be the low bidder at all costs, and recover your buy-in costs and and also make profits from change orders.

The real villain is letting CPFF (cost plus fixed fee) contracts rather the fixed-price contracts.


No, the way to fix it is to create incentives that align for everyone. As with healthcare, the way we do infrastructure work in the US creates incentives that are aligned against some party to the process. In healthcare, it's the patient.

Constraining the supply (or at least deliberately shaping the flows) of some capital, in some cases could — probably even would — help align them, but to suggest that "constrain all of the capital!" is the TL;DR of Marohn's thesis reads more to me like you might have had some biases confirmed than it does a summary.

EDIT: Particularly when your comment seems also to assign a hefty chunk of the blame for the state of infrastructure work to the infrastructure worker.

Also, phrasing.


But why do public organizations in developed europe & co have infrastructure projects for cheaper then? Don't they have similar or even stronger public work cultures?


European view: the US in general seems to have a really procedurally-oriented way of doing things. There are good sides to this but it does sometimes break down: in particular the legal system seems to focus a lot more on whether the process was followed rather than taking a step back and asking whether this is the just outcome.

I understand the rationale for low-bid rules. But actually the US has pretty low corruption and a good public work culture; IMO those rules do more harm than good. If you were willing to trust the people evaluating the bids a little more and empower them to use their judgement and pick the overall best bid (and maybe pay them a little more), you'd get better outcomes.


> in particular the legal system seems to focus a lot more on whether the process was followed rather than taking a step back and asking whether this is the just outcome.

The legal system in caselaw countries has a concept called "Equity". Its potency varies from place to place, but it original introduced notions of fairness and good conduct that the Common Law, in and of itself, did not always provide.

You don't hear about it because "Judge makes sensible decision" is not a headline that sells. What sells is "Judge makes decision that we will wildly distort beyond all recognition for the clicks".

Ever notice how badly the mass media represents technology issues? They do it for law too, except worse, because they have an incentive to distort the reporting.


Traditionally, due to Andrew Jackson and the spoils system, the US had a far more corrupt civil service than you'd find in Europe. At the start of the 20th century the old progressives tried to fight this by making a very rule-bound process which doesn't allow civil servants either the ability to engage in graft or use their best judgement. Eventually contractors learned to work the inflexible rule system and here we are.


I remember an interview with the head of building Spain's high speed rail. I can't find it now, but one of the interesting points was that he refused to use contractors. All labor was full time employees so he had complete control of schedule.

Which makes decent sense. We need to do a lot of road building and maintenance. Why not make it a public corps? There's no reason to involve contractors.


> But if you bring up the concept of performance-based pay for public employees, you find massive opposition ... from public employees themselves, many of whom were drawn to public work in the first place specifically because of the stability and security of a public paycheck.

Good luck getting the kind of performance you want from people whose pay depends on a good evaluation from the same people they should detain from inflating the costs.


It's a culture problem.


"general incompetence of public management, by misunderstanding how contractors manipulated costs to reach their estimates and establishing perverse incentives"

1. In the Bay Area, we have a Civil Contractor who's name rhymes with the Italian treat gelato.

2. For years, I wondered how they procure every job.

3. I have seen the jobs go on for years. It's beyond irritating.

4. As a inactive Contractor, I kinda know how the system works.

5. Basically, the county/state/public entity puts up a project to bid upon.

6. They collect at least three bids. I always thought, How is Gilato always winning the bid?

7. I started looking closely at three contenders in the contest. I noticed a Gilato is in all the "competing" companies. (It looked like they sent their kids/grandkids to Sacramento to get their contractor's license. A pretty easy feat. )

8. I have a weird feeling this family is bidding against themselfs, but can't prove it. Even if they are, it might not be illegial? I don't even think it's illegial to share those expensive toys. "Hay dad--I need that loader for Friday!"

9. All I know is it's taking forever to get a project completed.

Even if we have a big infrastructure bill pass through congress, I don't think it's going to put a lot of people back to work; so much of these projects are done by big machines. They will hire a lot of sign holders though.

It's a lot more nuanced than my simple rambling, but throwing a bunch of money at Giloto will scare me--if Trump gets this infrastructure bill passed. I gave no real proof for what I just said, other than noticing familiar names in the competing contracting companies.


They've been around for ever, so yeah their family has hooks into all sorts of things (and yes there are a large number of related companies). They're well known for being racists and felons (look up Patrick sometime). Word on the street when I was a kid was that they'd hire undocumented folks and then refuse to pay -- no idea how true that is/was.


The first part of the article talks about Healthcare with this: "Which is why, on the healthcare island, the conversation is about costs. Your preferences don't matter, except where they are aligned with the objectives of those on the island. Substitution doesn't matter; there are no competing services. Obscene profit margins don't invite competitors; they invite consolidation. Justifying costs to third party payers, instead of prices to patrons, is the name of the game. It's a bizarre world that doesn't make any sense to people like Goldhill when they take a critical look at it."

I haven't read the book, but it looks to me they're making the age-old argument that 'third parties' shouldn't pay for healthcare because thats why its screwed up now. But, this is far too simplistic to be true. Healthcare is not a product, its a service. That service changes depending upon the person. Its not mass-producable or competable down because of demand in many cases. And, even if it were a product, you still have the eternal problem that people cannot negotiate for their own healthcare. You can't. You physically need it, and may die without it, and there is no process by which to negotiate or even many times know what price you will be paying. That is what universal healthcare strives to solve in other countries, and does so decently.


Disagree. Services compete all the time, and most healthcare procedures are not life-and-death emergencies. The problem really is that the customer of healthcare in the US is not the entity paying for the service, and hospitals have a huge incentive to price their services differently to individuals than to insurance companies and not to price services transparently.

There was a time in the past when US healthcare was not considered costly. That era (before the 1970s) was different in three ways:

1. Most people paid for healthcare out of their own pocket.

2. Most healthcare providers were non-profit (hospitals) or small businesses (independent doctors' offices).

3. Prices for services rendered were the same for every customer of a given provider and available in advance.


I think this is missing the point.There was a time where health care costs for German, British or any other citizen of countries with single payer healthcare were reasonable, without any of your 3 points (ok,maybe number 3).

This time was just about a millisecond ago.


Germany (like every OECD country but the US) has universal healthcare but not (along with several other non-US OECD countries) single-payer healthcare. US reform advocates often confuse the two.


True, I was imprecise Though I feel like the laws and incentives our Germany closer to the single payer end of the spectrum, contrasting with Switzerland which also has universal healthcare but different incentive structures, which lead to them being #2 in health care costs


I'm not suggesting single-payer can't work. One existence proof that it can is right here in the US with Medicare and the VA. I'm suggesting that the invisible hand of the market can work too, because it has in the past. What we have now is neither single-payer nor market-based capitalism.


Medicare (because of the existence of Medicare Advantage) is not single-payer (or even single-payer of first resort with optional supplemental coverage), it's more like Obamacare with an added default public option.


Was the effect comparable using our current values though (assuming somewhat equal access to healthcare is a value we share). Is there data how the era you claim to be working well dealt with chronic diseases, Terminal diseases or how lower and middle class faired healthwise compared to upper class?


Back before the 1970s US healthcare was not considered costly because it couldn't do much. The number of expensive treatments and medications for people with chronic conditions, serious diseases, and trauma has exploded since then.


That's certainly true; I just don't think it's a major factor in high healthcare costs. Many other aspects of modern life (mobile phones for just one example) have also seen an explosion in capability, yet costs have decreased because the marketplace was competitive.


Comparison to consumer electronics is a total non sequitur. Why would you think that's even remotely comparable? Healthcare delivery mostly isn't scalable and suffers from Baumol's cost disease.


The vast majority of health care decisions are not life and death. Many times it is still hard to know how much something will cost and it is hard to price shop. But the same thing applies to auto repair. You need a car to get around and it is extremely expensive to toll your car to other body shops. You need to take the price the person offers you a lot of the time. But in medicine some times it is not time critical and you can shop around. We don't do it know because we don't pay.


Frankly that's just not true. Many people are uninsured, in the first place, and even if they weren't, insurers are shifting more and more costs to patients (think about something like co-insurance where you're subject to a lot of the risk the insurer would be subject to in a traditional co-pay situation). What mostly happens when you shift costs to consumers is they don't get necessary care.

Incidentally, one reason I find this singularly unpersuasive is that the United States is unique in the degree to which you are directly responsible for your medical bills and yet spending is wildly above what you see in other OECD countries. We don't have to rely purely on theory here.


We don't have prices. We have a few huge companies trying to justify higher and higher cost. Consumers have no way to predict what hospitals are cheaper than others.


But neither do any of the places where government insurance prevails and costs are way lower.


But this isn't a car. The attempts at trying to simplify healthcare discussion only contribute to muddying it, because there's significantly more factors than that.

A healthcare decision doesn't have to be life or death for it to still be something you need. Diseases can hurt, or they can kill you slowly, and its not a simply 'yes or no' when it comes to what /could/ happen to you without treatment. So, yes, you have to have treatment. Everybody will be convincing you that you need treatment, and you most likely do. Meaning, you have a guaranteed market. In a guaranteed market, even if you have bad quality, even if you do the wrong things, it doesn't matter, you're still going to get customers, because they need it, and thats exactly what happens in healthcare today. Get a knee operation and the problem comes back a year later? Get another operation. Because you don't have the option of not doing so. No, you don't. Quitting work and not making money, or not being able to contribute to society around you, is not a realistic or beneficial option, and certainly not one that can be advocated for with any consciousness of socioeconomics.

"But the same thing applies to auto repair. You need a car to get around and it is extremely expensive to toll your car to other body shops. You need to take the price the person offers you a lot of the time. But in medicine some times it is not time critical and you can shop around. We don't do it know because we don't pay."

What kind of 'shopping around' are you advocating for? A car is replaceable if something goes wrong, you have insurance on that car even. On your body, if something doesn't go right, thats not on the hospital. Thats you, you are irreplacable, and because of that, whatever service is perceived to be better will be used. Typically, in the form of cost, as it is now.

Thats assuming competition would just 'rise up' if we could pay directly, which as I said before, was already happening and we still had the same issue. With universal care, the root costs of care, such as equipment and devices, are more standardized and leveraged in bulk. You need 10,000 hip replacements for your hospitals in the coming years? 5 companies get to compete with who can make and sell them the cheapest. But they better be safe, tested, and work. Atleast, in the U.K. thats how it works. But what this does is creates an entity that negotiates on your behalf, to predict the majority of costs and reduce them. Without that, you are at the mercy of whoever is setting the prices, because you're not going to get to 'shop around' when your medication is sold from one entity.


This post is muddying arguments by mixing everything in healthcare together. Lasik has gotten much better AND much cheaper because people shop around. There are many more things that can be handled like this. Instead, doctors and patients tests to be on the safe side because it is "free".

Lets take a quick aside for MRIs. The machine has a high fixed cost but the margin cost is pretty low. Just the time of the operator and 2 minutes of a doctors time to read it. They actually cost between 1k-12+k. Why is there such a huge cost difference? This would not happen anywhere else. Yes, MRI might be required right now but they can also be required in a few days, or weeks. Some cases you can wait and see if it is needed at all. All of the people could shop around and go to the 1k place. Right now there is no incentive to shop around. If there was an incentive, the 1k places would get way more business. Some people would still be willing to pay 14k but it much smaller. Eventually they would need to lower prices to stay in business. In all markets, most people are willing to pay more than the list price. However, the list price is determined by the marginal customer. Eventually the person that would have paid 100k would still only need to pay 1k.

Your example of knee surgery works the same way. If you are paying the whole cost or even 25% of the cost, you will care about the cost. You will want a good doctor that will actually fix your knee. But you would not want to pay 2x the going rate from a slightly better doctor. With other big expenses like buying a home, car, getting married, or even buying a computer, people read reviews, consider several options, and look for a good value. With healthcare, they only care about quality since there is no price.

People need many goods beyond healthcare. They need food, water, and shelter. We still can have prices for all those things. I am baffle by your definition of a guaranteed market. Yes there is guaranteed market for food but that does mean that any given supplier will get that market. It seems like you are assuming a monopoly or something. Finally, none of this precludes supporting health care of poor people or have insurance to protect people from getting huge amounts of healthcare debit.


"Health care" is an umbrella term which subsumes both things where "wait and see, shop around" is viable, and things where doing that results in death or serious lifelong disability. Hence the common refrain about how you can't shop around for price quotes when you're having a heart attack: you're going to get taken to a hospital, with little choice of which one, and billed for whatever that hospital charges, because the alternative is you die right then and there.

It is a non sequitur to talk about how Lasik has gotten cheaper due to shopping around when others are discussing the heart-attack case.


The original article is arguing that there should be prices in health care. The vast majority times is a lot closer to lasik than it is to heart-attack.

Even you would agree there are times were prices could work in health care. It is a non sequitur to respond a call for prices with the most extreme example and say you can't use prices for all of health care because of the extreme case. For the extreme case, we can have catastrophic insurance or government payment. However, it doesn't make sense to make all cases work like the catastrophic case.

I am acknowledging that there are times that the healthcare is different than other goods. However, the counter arguments seems to be that the acknowledge catastrophic situation is all that happens or matters? Everything but the most extreme cases is closer to the market for food or rent. It is extremely important that you receive it but there can be competition for which one you pick. Also, similar to the market for your labor. It is extremely important that you stay employed but still not life and death for many people.

There are benefits for real prices for the normal cases even if the extreme cases don't pay. Prices are determined by the marginal buyer. Consider a procedure that is life and death for 50% consumers. If several hospitals are competing for the other 50% that can shop around, that will drive down the price for everyone.


For routine care, people with insurance have a copayment that's fixed and printed on their insurance card. They care about and can easily find that price, and it's the price they pay, so why should they care what's going on behind the scenes between the doctor and their insurance company?


They don't care and that is the root much of the rising costs of health care.


Except this disproves the "just show the price" argument. People know what the price is they'll pay for routine care, because it's printed on the card.

The one that's hard to figure out is what you'll pay for inpatient or otherwise complex/non-routine care, which is often where "shop around for a good price" isn't possible anyway. If you get hospitalized for a heart attack, you can't find out the price in advance, but you also don't have time to anyway.


All my previous comments explain that the heart attack example does meant much for how we should handle routine care.

A low flat rate for that is the same for an ear infection and 12k MRI leads to misuse. Price is a signal to suppliers and consumers. High prices causes consumers to look for alternatives. It also drivers more suppliers to the market. Flat copay does none of this


Lasik and discrete MRIs are really awful examples. The former is elective, the latter is an oddball.

In reality one needs to shop around for the things that happen after the positive MRI such as the radiologist who reads the MRI, physical therapy, medications, anesthetist, recovery room, OR, OR supplies, recovery room supplies, expendable surgical device costs, and a mass of other things I forgot about even though I just had one of these.

Everything is itemized and the actual end cost cannot practically be shopped.


I disagree that it's an awful example.

Lowering the cost of an MRI (regardless of whether you need any follow-up things that are not directly related to actually performing the MRI) is beneficial to consumers in every case.

Without the ability to shop, the MRI price stays high, and consumers end up paying more.


I am talking 100% about MRI costs. It is hard to find the real costs but that is all due to nonsense that happens between doctors and insurance. I am talking about the actual cost that my insurance pays for just the MRI. The price depending on where I went had a huge impact for my insurance. I choose to go to a cheaper location purely because I thought it was a waste. The place I went would have charged me directly 11k but charges my insurance 2k.


>Yes, MRI might be required right now but they can also be required in a few days, or weeks. Some cases you can wait and see if it is needed at all. All of the people could shop around and go to the 1k place.

In what manner do you expect this to be done? You're talking about buying a machine that is upwards of 800K, not including facilities and staff. Then, you're marketing it to a reduced price. Thats your competition strategy, to do it cheaper. Sure, it may create competition and the hospital will reduce their prices. Then you're out of an investment pretty quickly, and as such its not a sustainable business model.

Thats not to mention that healthcare again, is a service. Its created to be all-encompassing, and even if an MRI is more expensive in-hospital, your doctor can still highly suggest you do that, and you'll do it. Because you don't know any better, and you probably really don't.

>You will want a good doctor that will actually fix your knee. But you would not want to pay 2x the going rate from a slightly better doctor.

How do you know the quality of the doctor? You don't. You know what the hospital looks like, and how the doctor acts. You have no idea about what they're doing is correct or really what you need. So, yes, actually, people will pay 2x for a better doctor or hospital, because the easy reasoning is 'they'll have to do it once'. The other hospitals may have to do it multiple times, and do unnecessary things because they're just not as experienced, not as funded. It doesn't matter if its true or not, because you don't have access to that information, and neither are individuals who usually think they're knowledged know the complexities of what they're talking about.

>Yes there is guaranteed market for food but that does mean that any given supplier will get that market.

Again, simplifications that don't add up to healthcare. You, your person, is not food. Its not a car. Its not a house. Everything else is replacable. You are not. This is important, because that is the incentive and expectations of the service. Which, again, this is a service, not a product.

>It seems like you are assuming a monopoly or something.

Yes. Healthcare is very monopalistic. It doesn't have to be one monopoly to be a guaranteed market, because this spans the entire U.S. Its like saying Telecoms aren't a monopoly. Sure, not strictly speaking, but effectively you don't get an option. Healthcare is significantly more so, because as I said, its care, you physically need it to survive in many cases. Therefore, it does not matter if the market as a whole, due to the few that have control, increases prices for worse service. You will bend to it, because you have to. That is a guaranteed market.


All healthcare decisions are life and death. Just not necessarily directly. That fact complicates matters significantly.


That's not true. I have mild allergies. It's not a life and death decision to get care or not. If the costs outweigh the benefits, I will opt out.


By that logic, so it auto and food decisions. Postponing changing brakes has bigger life and death decisions than skipping the marginal medical test.


All decisions are life decisions


I disagree with your conclusion that universal healthcare for all is the logical end point.

What if we did mandatory catastrophic insurance for everyone (I'm not against the mandate). All other non-life threatening services are negotiable and free market. Its as simple as that. You can even have the government pay for this insurance for every American as sort-of a quasi universal service via taxes. The government will save your life and maybe even pay to "get you back on your feet". The rest is up to you. You can still buy private plans for better high end treatment, but take the lowest barrier out of the picture.

This solves the issue of not turning away people at emergency rooms with life threatening conditions, and allows competition to drive down prices for everything else. Deregulate the rest, remove onerous standard of care requirements that stifle new and innovative treatments, and let the bad apples get google/yelp/whatever reviewed out of existence.


I haven't read the book either (yet) - but I agree with you for the most part. I disagree, though, with the lumping together of all health care as something that cannot be negotiated.

Preventative care, elective care, and other voluntary work could, in theory, be negotiated. I could choose where to get a physical, flu shot, dental cleaning, or glasses/contacts/lasic, choose whether or not to have a child (currently dealing with the outrageous costs of that right now...). A wrinkle in this idea is that while it sounds nice for people to be able to choose between a nice doctors' office with an espresso machine in the lobby and a doctor available 24/7, or a more frugal office with a drinking fountain and third-party call center doctors after hours, a likely outcome is that some will be stuck with a choice between making rent and getting preventative care at all.

But you're right for some kinds of care, though: Even if care for an emergency was going to be relatively inexpensive, I don't have the time or mobility to negotiate when an ambulance arrives or when I get to the ER. And if that happens, my ability to pay should not matter in a modern, civilized society.

And more obviously, I do need health insurance in case I fall victim to a rare, unlikely, expensive disease or accident and need care worth more than my net worth. For this reason, I would gladly put a bit of money into a fund to mitigate this risk; that's the point of insurance. I'd be a little annoyed if others who are likely to take more from the fund (smokers, obese people) got to pay the same amount in but were statistically likely to draw more out of it - but not so annoyed or so petty that I would want to exclude them from the group. That fund can be private insurance, or government insurance, but insurance of some kind is needed.


With health care, I have a hunch that it's so expensive because the system is such a tangled web of business entities, that we have no idea where the money is actually going, or what anything costs. As a result, everybody can accuse everybody else of gouging us.

I wonder if infrastructure is the same way. However, one difference is that infrastructure, while expensive, costs all of us more or less progressively, even if it costs too much. In a sense, I like that better than the health care system, which is designed to place individuals at risk of ruinous costs.


> we have no idea where the money is actually going

This is what auditors do. If anyone in government really gave a shit some auditors could get to the bottom of it in a matter of months.


> If anyone in government really gave a shit

FWIW the government gets a better deal for healthcare than private insurers do (e.g. Medicaid is cheaper per person than if they were covered in a private plan). So I would say they do give a shit and have gotten to the bottom of it. It would be cheaper still if Medicaid covered everybody.


Cheaper, and more terrible. Medicaid is not something anybody wants and in many ways is worse than the ER as a measure of last resort for acquiring care.

Medicare on the other hand is much better, though still not all that great (it's better than private insurance in many if not most cases). It is universal coverage for folks over a certain age in this country. There aren't any good reasons I've seen to not lower that age to 0 (i.e. covered from birth).


> Cheaper, and more terrible. Medicaid is not something anybody wants and in many ways is worse than the ER as a measure of last resort for acquiring care.

So here is what I do not understand. Why does the US not do what many European nations do and split healthcare into two problems? You have a few large insurance pools (single payer for lack of a better term) that is government run, mandatory participation and that covers emergency care and basic health services. And then separately to that you run a free market private healthcare system that sits on top of that governmental system and covers the better care?

It's absurd that insurance companies in the US pay for everything. The cost do not add up for me as a customer. I do want choice in the non life threatening cases but I sure as hell do not want to ever have money concerns when it's really critical.


The problem in the U.S. isn't that costs are hidden--in Canada, with fully socialized insurance, health care consumers are actually much less wasteful of resources because they pursue health care in the degree they feel they need it, irrespective of money. Some are constant complainers craving attention, some are tough-as-nails cowboys who don't need a doctor to pull the bullet out; overall, Canadians are pretty reasonable about their as-needed consumption, as demonstrated by per-capita health care spending.

The problem in the U.S. is that health care costs are directly tied to your employer, mostly, because the employer is the cost-savings insurance pool you join. This creates a lot of terrible situations where people are stuck in jobs they can't afford to leave for medical reasons; or are stuck with medical problems that prevent them from getting hired. What was originally supposed to be a social contract where you work hard to have a good career, and your boss takes care of the ugly bits of life like cancer, has turned into a tight coupling of disjoint life issues that usually creates the worst possible outcome in both cases.

Medicaid is terrible largely because it's legislatively hobbled to prevent it exercising market power (like negotiating bulk pricing for pharmaceuticals, because doing so would embarrass capitalism somehow), and otherwise regulation driven for political purposes, like capping payments for procedures at below market rates, causing them to be excluded from a large number of health care providers who don't need to submit to price controls. The U.S. health care system is like a graduate thesis in perverse incentives.


I'd read that the way healthcare became tied to employment had less to do with some beneficent interpretation of the "social contract" than it did taxes.

That is, when the two were first tied, income tax rates (especially for higher, including "professional", brackets) were much higher. Employer-sponsored insurance was first offered as a tax-free perk companies could use to draw talent. It's easy to see how that could become an expectation, and then a requirement, despite its helping create incentives that are ultimately aligned against the employee/patient.


In 1943, the War Labor Board ruled that wage freezes due to WWII did not apply to fringe benefits, which included health insurance. So you couldn't pay your employees more money, but you could pay their health insurance.


> The problem in the U.S. isn't that costs are hidden--in Canada, with fully socialized insurance, health care consumers are actually much less wasteful of resources because they pursue health care in the degree they feel they need it, irrespective of money.

Which lead to a 6 month delay to get an MRI in BC (which proud itself to be no. 1 province). Not to mention that the public insurance does NOT include dental, or if it does, only the bare minimum. I had to personally pay for a root canal because only a complete extraction was being reimbursed. Moreover, all my cleaning have been out of MY pocket, on top of MSP/RAMQ.

I really don't get why Canadian think their healthcare is so star sprangling awesome... It's not.


> Which lead to a 6 month delay to get an MRI in BC (which proud itself to be no. 1 province). Not to mention that the public insurance does NOT include dental, or if it does, only the bare minimum. I had to personally pay for a root canal because only a complete extraction was being reimbursed. Moreover, all my cleaning have been out of MY pocket, on top of MSP/RAMQ.

But isn't that what makes it great? I have no experience with Canada but Austria is not very different in that regard. My state insurance costs me (purely medical) around 5000 Euro per year independent if I self insure or through my employer. It gives me about what Canada gives you. No copays for employees and there is a 10% or 20% copay for self employed or management.

In addition I pay about 3000 EUR a year extra for private insurance. I did not feel like waiting 2 months for an MRI so I decided to use my private insurance at a private carrier. Paid 500 EUR for that out of my pocket and the private insurance reimbursed everything but the contrast agent. I could also decide not to pay for my private insurance at all but I did the math and the plan I have now seems a pretty good way to spend money for later in life.

It gives me the freedom to chose what I want. The cost for most non covered procedures is laughably cheap here. It seems like a better deal for my money.


>I did not feel like waiting 2 months for an MRI so I decided to use my private insurance at a private carrier.

I wonder what's up with all those MRI shortages in some places? I got my last MRI a couple of years ago in Germany, fully covered by public insurance, had to wait like 2 weeks for my appointment.

Sounds like some places are in dire need of more MRI capacity?


Because Canada's approach to universal coverage is socialized insurance, it controls costs overall with price controls and with funding big ticket medicine carefully. MRIs are very expensive to buy and operate, comparatively, so for elective use (which includes a doctor treating someone with headaches and wants one to rule out a brain tumour), you're on a waiting list that could be six months or longer. For emergency use (like my nephew who fell and hit his head) you get it right away.


>Because Canada's approach to universal coverage is socialized insurance

But so is Germany's? I didn't get that MRI because "I just felt like it", it was due to decade long migraine problems and I had to see a neurologist before getting the MRI.

I still don't understand these massive waiting times in some places, sounds more like a lack of capacity than anything else.


Yes, it's a deliberate lack of capacity for a common form of big ticket medicine, which reduces costs overall. If you have migraines in Canada, you'll likely end up getting an MRI at some point, and you might wait six months to get it (though there are private options, and there are also ways to get in before your appointment like being ready on the cancellation list).

For a lot of things, MRIs are a medical convenience, not a necessity. When they're medically necessary, you get in within hours--my nephew got driven to the hospital with a head injury, and an MRI was the first thing they did. But if it's elective, you go on a waiting list, which might be short, but might be long. This is probably the most complained about aspect of Canadian health care, with some justice, but it's not obvious that eliminating all wait times with sufficient capacity for immediate access would yield better medical outcomes for the extra cost.


> I wonder what's up with all those MRI shortages in some places?

In Austria it's largely because the insurer wants people not to do MRIs unless necessary. So they typically sens you to an doctor first to confirm you need one, the approve from the insurer and then you get to wait a bit.

There are plenty of MRI machines in Austria because the place I got mine also takea publicly insured patients.


I live in Vancouver. BC #1? LOL. We're 9th in education spending in a country with 10 provinces.


This is actually the British system: the NHS covers everything, but you have to deal with their opinion of your need and may have to wait quite a long time.

Quite a lot of higher-paid working people in the UK either buy insurance or get it as an employment benefit, because it can enable you to get back to work quicker if you have a serious accident or illness.


Public healthcare is sadly no silver bullet. In ideal private insurance scenario you pay some amount and get increasing credit for healthcare expenses, so the user is incentivised to chose best cost performing treatment (cheapest option providing adequate treatment) and providers are incentivised to obey free market rules and keep fees under control (sans cartels/antitrust, market segmentation). In publicly funded scenario without coupling between payments and usage, user is incentivised to seek the most "premium" treatment and providers are not incentivised to reduce operational costs.

If the public system covers anything more than emergency care (patch a patient up and let them go) it automatically creeps into all service levels (have a basic cough? maybe that's bacterial pneumonia, better issue referrals for microbiological analysis and a CT scan. /s) if an answer to the question "if family doctor/general practitioner cannot appoint diagnosis and/or treatment and refers patient to a specialist and/or analyses, scans, etc. are those covered too?" is yes.

The payer (government, taxpayers) probably has 3 mechanisms to keep [total] costs from skyrocketing all with their disadvantages:

  1. Reduce usage count (doctor visits) - free visit quotas (possibly dependant on service level), fixed or percentage mandatory user fee, etc;
  2. Fix service costs - e.g. 100$ for a GP visit from public pool;
  3. Auction paid service quotas.
While option 3 provides most incentives to optimise costs, it greatly punishes small players.


> If the public system covers anything more than emergency care (patch a patient up and let them go) it automatically creeps into all service levels (have a basic cough? maybe that's bacterial pneumonia, better issue referrals for microbiological analysis and a CT scan. /s)

No. In the UK, if you go into a GP's office with a cough, you'll be told to go home and rest. In fact, most likely, you'll be denied from making an in-person appointment. This is FUD in its plainest form.


The only place I've ever seen private healthcare provision work about as well as public (Singapore), it was with price controls and a public at-cost option that competed with private options.

The idea that price controls don't work in America is, of course, an article of faith in the free market religion. It wouldn't fly there.

Spiraling costs is a much bigger risk in private "free market" systems, which is largely how America gets to spend 2x more of its GDP on roughly equivalent healthcare outcomes (mortality rates, etc.) to European single payer systems.


> user is incentivised to seek the most "premium" treatment

They can "seek" it, but in the public system you don't really have a route for doing that. You might want a CT scan, but if your doctor doesn't think you need it you're not going to get it.

Your list left off (4) queueing. In the UK public system, if your condition is not urgent you'll have to wait, possibly for months. Unless you have private top-up insurance which will cover the specialist you're waiting for.

(It's difficult to estimate how much money the NHS saves by people on queues for non-urgent operations dying from something unrelated in the meantime - e.g. dying of a heart attack while waiting a year for a hip replacement)


Queues are a result of mentioned instruments. Say a hospital has a CT scanner capable of 10 scans per day, 3,5k scans per year. NHS pays for 500. A hospital can fully utilise the scanner and blow their yearly budget of publicly funded scans in two monts, do 10 free scans a week or do 8 scans and save 2 for emergencies. Placing more scanners does not reduce queues.


The CT scanner is usually owned by the NHS trust, which makes the marginal cost of using it rather small. It's almost the other way round: having bought a big capital asset, the incentive is to make sure it's kept busy being used effectively. The NHS "internal market" obfuscates this hugely, but there is still no incentive to over-provision because the system can't drive up external insurance costs.

See e.g. https://books.google.co.uk/books?id=RyJfEbwGwgkC&pg=PA4&lpg=...

(random googling found confirmation of this in someone's FOI request: www.heartofengland.nhs.uk/wp-content/uploads/FOI4797.docx )


That sounds like a really great option. And like everything it's the republicans that keep it from happening.


> Medicaid is not something anybody wants and in many ways is worse than the ER as a measure of last resort for acquiring care.

Medicaid is almost entirely state run and varies radically from state to state, but in all cases subsumes and goes beyond ER care, so in no way is it "worse than the ER".

> Medicare on the other hand is much better, though still not all that great (it's better than private insurance in many if not most cases).

Basic Medicare is worse than private insurance (and even, in some ways, most state Medicaid plans) in a number of ways (especially in the way that it is segmented, particularly the separate prescription drug portion), and deliberately kept worse to promote publicly-subsidized, privately-run (often for-profit) “Medicare Advantage” plans, which (unlike basic Medicare) are comprehensive and integrated, rather than segmented.


> Medicaid is not something anybody wants

Tell that to the people in states with Republican governors who won't expand Medicaid to cover them...

> in many ways is worse than the ER as a measure of last resort for acquiring care

What are you talking about? If you are in an emergency and on Medicaid you can go to the ER[1]. ERs give great care, they are just expensive. Medicaid is not expensive, so if their patients are getting ER quality care that is an amazing deal.

[1] https://www.medicaid.gov/medicaid/cost-sharing/out-of-pocket...

Not only can you go, you won't be charged unlike almost all private insurance plans.

> Out of pocket costs cannot be imposed for emergency services, family planning services, pregnancy-related services, or preventive services for children.


The partial medicaid expansion coverage of the ACA isn't actually putting people on medicaid, it is subsidizing private insurance at a percentage of cost. If you hit 100% of the ACA subsidy you are in medicaid territory, if you are up to 4x poverty you get a diminishing % of your insurance bill paid by the state.

My Dad has a $750/month plan but only pays $150 because of the medicaid subsidy in PA from the ACA for his income bracket.


How it works depends on the state because a lot of Republican governors wanted to stick it to Obama and poor people by not expanding Medicaid as intended under the ACA.

That said, the Medicaid expansion definitely puts people on Medicaid! That's a big part of the reason why it's politically suicidal to repeal the ACA.

http://www.kff.org/medicaid/issue-brief/what-coverage-and-fi...

> Between Summer 2013, just prior to the ACA, and September 2016, there was a net increase in Medicaid and CHIP enrollment of 15.7 million people.


>...There aren't any good reasons I've seen to not lower that age to 0 (i.e. covered from birth).

It isn’t that simple. Medicare saves lots of money because of their lower reimbursement rates and many of the smaller medical practices near me won’t accept any more medicare patients. Even with that, the Part A trust fund (covers hospital costs) is expected to be completely depleted in roughly 10 years.


The coverage is substantially worse than most private plans - Medicaid looks worse than my crappy ACA plan.


That is why in every country that has single payer there are additional coverage plans that allow you to have even better coverage... and it's still cheaper! See Canada, Australia, England, Germany, Japan... well, basically everywhere else.

What is really amazing is that it also returns Emergency Rooms back into a place where you go in an emergency so you can actually get treatment in 15min rather than wait for a few hours at 3am as you drip blood on the floor through the towel you've wrapped your arm in, and watch in horror as the lady next to you screams and shakes on the floor as she passes kidney stones (yes you would recognize the world renowned hospital where this happened).


> That is why in every country that has single payer there are additional coverage plans that allow you to have even better coverage...

No there isn't, unless you go private, speaking of which France has pretty much made private "mutuelle" mandatory.

> What is really amazing is that it also returns Emergency Rooms back into a place where you go in an emergency so you can actually get treatment in 15min rather than wait for a few hours at 3am as you drip blood on the floor

You have obviously never been in an emergency room in Canada, and I really hope you have not to, ever. My friend got a whiplash injury and got told to go back home, and I had to walk 3 days on a broken foot in Quebec because the ER turned me down (and incidentally asked me to pay CAN$1k to have my foot looked at).


That depends on where you live, but also your income. If you don't have the cash, Medicaid wins no matter what. A ACA plan with a co-payment that you don't have is worthless.


They didn't solve it for the rest of us. They have leverage and used it to set pricing for their patients.


I'll bet it would be difficult, because it's a maze of twisty passages, all different. Money flows from one private business entity to another, and I think the complexity would make it hard to get even a broad overview of who is actually pocketing the money.

OTOH it would be easier in a completely government managed system, because there would be fewer entities and they could all have full reporting imposed on them by design.


Healthcare has very high overhead costs due to a number of variables.

In many countries, it's one of the most regulated business sectors, handling regulated substances and the whole prescription billing process are massive bureaucratic tasks which usually need to be coordinated between several different parties like manufacturing companies, authorities, patients, health care provider, physician, pharmacy and/or nursing services.

Along with that come special demands for data protection and handling for all the involved companies, due to the sensitive data stored about patients. Creating weird legal circumstances where sending a fax is the preferred option over sending an email, as most doctor's offices would be hopelessly overwhelmed with using email encryption like PGP.

Prescriptions also need to be in a physical paper form, adding additional (mailing) logistics to the whole processes. It's a lot of needless paper which could be removed for cost savings and making the overall processes more streamlined and digital, but it will be a long time until we arrive at a point where digital prescriptions become an actual thing (at least in Germany) and an even longer time before they become the norm.


Part of the problem with health care is it's so complex as a patient you have no way to know if you're getting good care unless it's very bad care. Public infrastructure isn't really like that.


Clicking through the health care links in the article you come across somebody called David Goldhill who has written about the topic: https://www.theatlantic.com/magazine/archive/2009/09/how-ame...

Or (AFAIU, without having read it myself) a longer version of the argument presented in book-form at https://www.amazon.com/Catastrophic-Care-Everything-Think-He...


>The more lane miles a state has, the more federal transportation dollars that state qualifies for. What is the incentive? It is, of course, to build more lane miles. Add to this the fact that federal transportation programs generally pay 90%+ for new construction, but only ~50% for maintenance, and we have a system that encourages states to build more than they can ever maintain.

This is a microcosm of a larger systemic problem with state budgets that started with the Sixteenth Amendment. Not because income taxes are bad (they're fine) but because that was the first step in a process where nearly all revenue in the United States is collected by the federal government. This was a shift from the original situation where the government was funded by excise taxes and most taxes were collected by the states. This didn't become a problem however until the federal government's fiscal advantage became so large that federal outlays began to dominate state budgets.

The result is a growing clusterfuck of incentives that would make Roman Polanski blush. State governments used to get more money by growing their states' economies. Now they pursue the twin goals of getting more money from Uncle Sam and generating more of the kinds of economic activity that they can most easily derive revenue from, because federal income taxes are too high for states to collect very much money from income tax, and because states compete against each other to lower taxes to attract businesses so are better off seeking federal funds than raising taxes. If a state raised its own taxes to build roads they'd never overbuild the network like this. It's completely insane.

It's possible that the election of Senators by state legislatures also served to prevent this slow transfer of fiscal power from happening during the first century of our country's existence.


States and local governments collect lots of revenue.

http://www.usgovernmentspending.com/

And for the point you are making, it would be sensible to pull out some spending as "other" (Social Security, maybe Medicare, some portion of defense spending).


I can't agree. I did not find state revenue numbers at your link, but I did find them:

Total state revenue is $930M (across all states): https://factfinder.census.gov/faces/tableservices/jsf/pages/...

Federal revenue is $3180M: https://www.nationalpriorities.org/budget-basics/federal-bud...

From your link, states spend approximately $1860M per year. According to the revenue numbers I've found that means that half of all money spent by states must be supplied by the federal government or by debt. That is certainly sufficient to account for the perverse incentives I've noted, since states unlike USG cannot print money to cover debts.

There is a slight discrepancy since my revenue numbers are from last year, but generally, I would not agree that your source contradicts my claim.


Your factfinder deep link breaks for me.

If you go to https://www.census.gov/govs/local/ and click "2014 State and Local Summary Table by Level of Government and by State", "General revenue from own sources" is $2.16 trillion.

It also has a number for federal transfers, $600 billion.


The fact that you have chosen to quote the combined state and local taxes rather than the states themselves in a conversation where I have focused exclusively on state budgets makes me doubt your sincerity. And to the original point, high levels of deficit spending by states are by themselves an indicator of reliance on spending by the federal government, which is the guarantor of state debts. I'm not going to re-find the state tax receipt number; you can do that yourself, and you should have already considering the amount of numbers you've bothered to find.


Look at the first words of my first comment, I'm not being inconsistent, I'm arguing against where nearly all revenue in the United States is collected by the federal government. It's obviously not the case, state and local taxes account for a great deal of government revenue.


I think you make a very interesting point that the direct election of senators removed an important protection by effectively shifting representation in the senate away from state governments directly to the people. Direct election was opposed when writing the US Constitution for this very reason.


We know it's cheaper outside of America. Instead of playing Not Invented Here why not just ask what other countries are doing better?


Modern bid books will state that being environmentally friendly or causing fewer interruptions (a $12 million bid that keeps all roads open likely is the better choice compared to a $10 million one that requires you to close a buy crossing for a year) weighed in choosing a supplier.

That means you will have to scrap any strict "lowest bid wins" laws. You also need public servants who know what they are talking about, and can filter out both bids that are too good to be true (you don't want the winner of the tender to go bankrupt half-way through the project or to use materials that are barely good enough) and bids that are insanely high.

One fairly recent innovation that apparently works well is to put out a tender for the combination of construction and x years maintenance.

That will get you bids from consortia consisting of a construction companies, companies specializing in cleaning, and companies specializing in maintenance.

So, what's the difference? Those companies will talk to each other before the design is finalized. You will get proper weighing of "is that paint truly cheaper in the long run?" and "if you add a few hooks to that bridge deck, we won't have to spend a week every five years building scaffolding so that we can inspect the bridge".


Same reason that does not happen with healthcare: the mindset is different. In many ways changing the system means giving up some things Americans value more than citizens of other countries.


I'd argue that some foreign examples would actually match well culturally. Take Switzerland. Highly decentralised (imagine county-sized administrations having about as much sovereignty as US states). Very high salaries. Similarly wealthy (about 20-30% higher than US median per capita PPP). Similarly libertarian (privatization is has been a favourite topic of polititians as well). Similarly conservative. Yet building a tunnel through arguably more difficult terrain (read: risk of death, costly insurance policies) cost 10-20x less per KM in Switzerland compared to the US. It did so again tunneling right through the city of Zurich, extending one of the busiest train stations in Europe with an underground station and a new large new above ground ramp. Both projects stayed on budget.

I really think that looking abroad has a point. As an example, for Swiss railway managers it has been a regular occurance to go abroad and learn from other countries what they do better and what to avoid.

The US is just a nation and Americans are just humans, like everyone else - trying to stop with the "we are special" thinking would give the US quite a boost in certain areas IMO.


Your last point rings especially true. There seems to be a whole class of people in the United States who, despite their professed love for the free market, refuse to consider any sort of marketplace of ideas when it involves public policy from other countries.

Like, its somehow completely incomprehensible to people that the Germans might have devised a better system for running trains (they build better trains, so not so far-fetched) or that the Japanese might have a better grasp on building quality public transportation than we do.

Rather, there's this idea that the American way of doing things must be the absolute best in every possible situation. Its a very damaging idea, and historically has led to stagnation and collapse (Qing dynasty China comes to mind as a great example of this).


Sometimes I feel the US would indeed be better off if the individual states were in competition with each other more. In particular I feel the mobile market in the US would work better for instance if it was carries that only run infrastructure for a handful of states rather than all.

This is what makes infrastructure cheap in Europe. The Swiss rail companies build infrastructure for Switzerland primarily (unless they are contracted out) and not for all of Europe.


Not sure whether there is any one reason, but yes, I think that more competition and more local administration is a good thing. Switzerland even has communes in competition with each other with their tax system, which IMO works well (albeit I'd like some more stringent rules).

My utopia would be an virtualized, decoupled administration system based on the blockchain and decentralized contracts. I can simply choose what org I want to be citizen of and subscribe to them. An org would itself subscribe to a set of infrastructure and get volume rebates. Each piece of infrastructure has a blockchain address - if I want to use it and I'm not subscribed, I just pay as I go. Essentially, free market meets governance. Some exceptions where IMO socialism works best: Schooling, National defense, emergency services and Healthcare. Same high standards and opportunities for everyone.


"we are special" can be a great tool for convincing people to act against their own best interests, and for yours. If you convince yourself that "our way is best" is a tautology, you also have no reason to learn much about other approaches. It's a difficult mindset to shift.


In the case of healthcare it's not because of American values directly, it's because the entire conversation has been framed in a way so the majority of Americans don't even understand what the possibilities are and the debate is entirely centered around a series of fantasy narratives put forth by lobbyists for the status quo.

I mean the whole conservative argument about the value of the free market for moderating health care costs is completely blown up by the most cursory look at the value you get for private health insurance in the UK due to the fact that they have to compete with free. But there's no attention span in the political debate to put forth an argument like that because it doesn't align with an established narrative and therefore can be triggered by a sound-bite-sized emotional appeal. You need a years-long strategy and talking points to chip away at it, but the people with the knowledge and facts to do so are not good political strategists, and the people with the time and inclination to do so all have vested interests in the current system.


> I mean the whole conservative argument about the value of the free market for moderating health care costs is completely blown up by the most cursory look at the value you get for private health insurance in the UK due to the fact that they have to compete with free.

I disagree that they have to compete with free because they effectively compete with free footing parts of the bill and that is ideal. If you take the UK and you have a private insurance (like Bupa) you don't have private insurance instead of the NHS (the public one) but in addition to the NHS.

One the one hand this means that I have the choice as a customer to go with an NSH or Bupa service, but I also know that the NHS will always take me and Bupa knows that I will think like that. Bupa knows that people are very unlikely to charge the private insurance for an ambulance (because why would I? The gov pays). However they know I will use their services when I had a mountaineering accident and need a helicopter. They fundamentally operate in largely different areas that just happen to overlap in some parts. Sometimes people use a private insurance because they don't want to wait. But that often also means they don't have to wait not because they will die because then the state system (unless it's temporarily broken) will prioritize you anyways.

I think splitting the problem into two (emergency care vs. 'lifestyle' care) would work in the US but that's not the conversation that is taking place and that is a cultural thing more than it is a problem of politics.


In Canada, health benefits take the form of a dental plan, massage, mental health services, and a lot of nice wellness treatments that are very welcome and useful, but not necessary. Calling it lifestyle care is quite apt.


Obviously, we're not living in the same "Canada". For exemple, there is a recurring problem with homeless (most generally men) with mental illness in the lower mainland since the Riverview Public Mental Hospital got CLOSED.


Canada's health care system certainly isn't perfect and it's not comprehensive. I live in Vancouver near the Downtown Eastside. I'm very aware of how much it doesn't cover in this regard (although it does pay for a safe injection site that's pretty much a miracle of public health spending).


Be aware that there are places in Canada other than Vancouver.


America has institutionalized the high cost of healthcare and the healthcare lobby which profits from that is among the top 3 political donors. That maintains the status quo.

The mindset is the same as in any other country - the polls say people prefer single payer in spite of all the propaganda thrown their way.

While the UK was debating forming the NHS back in the 1940s the Conservative party fought to put in place an insurance based system largely like America has today. If they had been a little more powerful after the war the UK would likely face similar problems.


Less NIMBYs with much less power than USian NIMBYs, their zoning / land-use laws are much less awful, and they buy trains straight from Japan.


I take it that you didn't read the original article ( https://www.bloomberg.com/view/articles/2017-05-31/the-u-s-h... )

The article specifically notes that the US pays more for infrastructure than other more heavily NIMBY nations, and pays more than other nations that have more strict land-use laws than the US has.


They have far fewer lawyers and lobbyists?


In ye olde days in Germany, the municipalities had their own construction teams, employed by the municipality. That meant that e.g. road constructions were done by the government - which also means that the "feedback loops" were way shorter, and there was no incentive for the construction teams to delay the construction or similar.

Now, with the privatization trend and "cheapest-bidder-wins", it's a catastrophe. Especially when construction companies from foreign countries are involved (thanks to EU-wide tender crap)... the language barrier is a huge issue.

One thing the article totally leaves out: in ye olde days, there were next to no changes to a project when it was approved. Now replannings in all stages of a project are common - be it due to politicians trying to gain something, NIMBY morons, environmental protection or, the worst case as can be seen at BER, changing technological requirements. Every replanning causes delays and cost overruns.


BER and "changing technological requirements"? BER (primarily) got doomed because they rearranged the layout to be able to sell more shopping space halfway through and didn't properly plan out the consequences of that change.


I didn't mean to allude to this, rather to an article I read half a year ago that when the construction permit expires before the thing is built that they'd have to rip it half apart AGAIN because regulatory frameworks changed :'D

Your point more fits into "politicians and personal gain", imho.


Interesting and disturbing article.

The author ends with some ideas about how to solve the problem. I would like to make a suggestion.

To start, I think it is a good principle that whenever there is a problem in this country, we should look at other countries to see if they handle it better, and if any do, look in detail at how they do it, and then think about adopting their methods to the US. My suggestion is simply we do this with the infrastructure construction problem.


I feel like the blame too often goes to insurance companies, but insurance companies are a natural player in a free market system. When you are sick, last thing you will do is shop around 10 different doctors and compare prices, instead insurance companies do this for you. They negotiate a price with the provider, and if the insurance company isn't happy the provider risks not being in-network and loosing a large pool of patients. In an ideal world, this system should work.

What I'm worried about is hospital consolidation. https://image.slidesharecdn.com/annenberg-frakt-150324142714...

We have created a regulatory environment with high fixed overheads, so: a) consolidation lowers the fixed costs, encouraging entities to centralize these fixed costs to minimize them b) makes it difficult for new independent players to enter the market

Rather than a metro area having 8 independent hospitals all competing against each other (giving insurance companies a lot of leverage in negotating prices with providers), that metro area might have 2 companies with 4 hospitals each, so you have 2 companies that know what the other's hospital charges for services, and in their own interest of profit aren't interested in getting into a price war with the other.


Because of the law of budgets: use it or you'll get less next year. We have a few streets here which have been undergoing "repairs" pretty much constantly for the past decade. They aren't getting wider or better, perfectly serviceable pavement gets torn up again and again, several times a year. Why? Hell if I know. The most plausible explanation is someone needs to "use up the budget".


You must live in a funny-mirror version of my world. I'm in the pothole belt and there is never enough in the budget to fix all our roads. Yes, for various reasons, sometimes a stretch gets replaced that's in much better condition than other deplorable streets (usually because it coincides with some other development), but the funding is never there to fix all the outstanding urgent problems much less ripping up and redoing good pavement.


Actually same here: there are plenty of potholes elsewhere, but only these few good roads get continually torn up and repaved.


> The most plausible explanation is someone needs to "use up the budget".

The only plausible explanation I know is that somebody in gov is friend of somebody on the contracted company.


>Tolls, maintenance districts and direct user fees are less popular but actually more empowering for people in that it allows them to speak their preferences more forcefully and clearly.

How about land tax? This way you can still provide free movement to poor people, but you can collect funds very locally. ( I can admit I'm die hard Gergist.)


> He goes through and dismisses all of the usual suspects. Union wages drive up infrastructure costs (yet not true in countries paying equivalent wages). It's expensive to acquire land in the property-rights-obsessed United States (yet countries with weaker eminent domain laws have cheaper land acquisition costs). America's too spread out or our cities are too dense (arguments that cancel each other out). Our environmental review processes are too extensive (yet other advanced countries do extensive environmental reviews with far less delay). I concur with all these points, by the way.

> Smith concludes with this:

> That suggests that U.S. costs are high due to general inefficiency -- inefficient project management, an inefficient government contracting process, and inefficient regulation. It suggests that construction, like health care or asset management or education, is an area where Americans have simply ponied up more and more cash over the years while ignoring the fact that they were getting less and less for their money. To fix the problems choking U.S. construction, reformers are going to have to go through the system and rip out the inefficiencies root and branch.

A thing that isn't mentioned (but might be mentioned in the book) is the obstructionist effect of NIMBYism. To them, the above-mentioned "inefficiencies" are a critical feature and not a bug. Why does shit (the kind that can't be built overseas and transported here in a shipping container) cost so much in US? Obstructionist NIMBYs (and the laws that enable them, like zoning / land use regulations) play a nontrivial role. There's nothing wrong with regulations that, say, preventing wanton dumping of toxic chemicals in the air/ground/water, but NIMBYs are scum that pervert well-intentioned environmental-protection laws to prevent harmless and critical infrastructure from being built.

NIMBYs will oppose everything -- regardless if it's an airport (https://www.washingtonpost.com/news/dr-gridlock/wp/2016/03/0...), rail rights of way, high-density housing (whether public or private), medical clinics, cell sites, and literal clothes lines (https://en.wikipedia.org/wiki/Clothes_line#Controversy_in_No...). You got that right, clothes lines.

Cell sites don't pollute, aren't used by equipment that pollutes, don't create noise (OK maybe if you're sitting next to it you can hear fans), don't litter, don't have any sort of odour, and really...don't hurt anyone. It's difficult to find more innocuous infrastructure! Of course, increasing the cost of building out infrastructure (the kind that needs to be local to the area served) decreases supply and decreases quality (and increases cost) -- but the NIMBYs are happy because their precious feelings are preserved because they don't have to see a cell tower or whatever. They don't care if your cell phone bill is higher than it'd otherwise be, or if you get shitty cell service. They don't care if a rail line doesn't get built, they don't care if land use regulation means that real-estate costs for your doctor are huge and thus so is your healthcare costs. They do, however, care if your rent is super high -- in fact, it's what they love to be the case, because it means that their damn single-family home has more worth. NIMBYism -- this desire to prevent one's fellow citizen from benefiting from slightly better and cheaper public goods and infrastructure -- on this scale is incompatible with any sort of high-trust society.

A society cannot have this many citizens with this much power and desire to obstruct the construction/maintenance of critical infrastructure that most citizens benefit from. It's antisocial backstabbery, pure and simple, and to indulge in it (as the US has done) is a horrific corrosive mistake and poisons society from the bottom up. Infrastructure -- health care, transportation (of people, material goods, of data), housing -- should be a nation's pride!

Until NIMBYs are forced to relinquish the obstructionist powers that they so preciously hold, infrastructure construction/maintenance will keep being expensive and inefficient. Any reform that doesn't explicitly address NIMBYs (either via the carrot or the stick) will fall prey to NIMBYs who will somehow reintroduce inefficiencies so their goals of preventing construction will be met.


NIMBYism exists because home ownership is basically the most accessible mechanism to grow personal wealth in the US. People are not willing to risk their financial stability and future by allowing basically anything they view as a threat to their primary wealth generation asset in life. More housing, bad views, whatever all challenge people's bottom line.


That is indeed what such people believe to be their motive, but they have forgotten something very important: when you start a war of all against all, retaliation can take any form, not just the same form you used. Previous poster remarked concisely that NIMBYism is incompatible with a high-trust society; once that unfolds, the dream of 'growing personal wealth' at everyone else's expense will become a hollow victory indeed.


It also need not be everyone who fights against {cell towers, high-density housing, clothes lines, airports, railways, wind farms} -- the relevant laws/regulations/procedures let a sufficiently motivated minority have a pathological amount of influence when it comes to obstructionism.

For example, there's a pathologically minuscule number of people who file the overwhelming majority of airport noise complaints; 6852 out of 8760 complaints for DCA in 2015 came from one single person, and this pattern holds for many airports: https://www.mercatus.org/sites/default/files/screen_shot_201...

How many excessive tonnes of fuel burned in circuitous flight paths, how many years of administrative work wasted, how many near misses are we risking -- just to please this sort of goddamn wingnut who makes 18 fucking airport noise complaints literally every single day?

This is what NIMBY nonsense looks like.


> NIMBYism exists because home ownership is basically the most accessible mechanism to grow personal wealth in the US.

That has to be due a lack of financial education and knowledge of what options exist to grow personal wealth. You need at least $50k to put 20% down on a median US home. You need only $2.5k to start an index fund account with Vanguard. Guess which one will give you a better return on average and is more liquid?


> Guess which one will give you a better return on average

Hard to say. Depends on inflation levels.

In particular, a home is one of the few leveraged investments most people can make. And if inflation is somewhat high (which it hasn't been recently), a leveraged investment that just grows at the rate of inflation can beat out an index fund that grows several percent above the rate of inflation but is not leveraged.

Just to put numbers to this, if you are levered 5 to 1 (20% down), inflation is 3%, home price grows at inflation, you are getting a 15% nominal return on your investment in the home, and a 12% real return.

For a more realistic estimate, say leverage is 4 to 1 (you've paid off part of the mortgage), inflation at 2% as it has been recently. Still 6% real return.

I will grant that the index fund is more liquid, obviously.


> Just to put numbers to this, if you are levered 5 to 1 (20% down), inflation is 3%, home price grows at inflation, you are getting a 15% nominal return on your investment in the home, and a 12% real return.

I'm sorry I didn't follow that calculation perfectly. I (sort of) understand the part where you get a 15% nominal ROI for 20% down. But if you're paying your mortgage every month you're leveraged less and less each successive month right (as you pay off principal and accumulate equity)? Would that change the calculation?

Valuation and ROI (beyond simple stuff) is not one of my strengths unfortunately.

> Hard to say. Depends on inflation levels. And if inflation is somewhat high (which it hasn't been recently),

That's what I was getting at with "on average". Inflation hasn't been high for quite a while. I will grant you that it's not cut-and-dry in favor of index funds under all circumstances.


> if you're paying your mortgage every month you're leveraged less and less each successive month right (as you pay off principal and accumulate equity)? Would that change the calculation?

Yes. But you can keep your leverage ratio the same by upsizing every few years and remortgaging when you do. As you get towards retirement you generally delever but that's what you would want to be doing anyway (sacrificing some return for lower risk).


> Would that change the calculation?

Yes, it would. As Imm says, this is actually conceptually similar to shifting out of stocks into bonds as you get older: lower returns, less risk. And of course some people do interest-only mortgages and whatnot, just like some people invest all their money in risky stocks...

I agree that if one were actually approaching this as a personal financial decision one would need to do some careful calculation, as well as modeling of different inflation expectations and so forth. And that no one does this in practice.


Sure, but you can't live in your Index Fund. Housing is already a sunk cost for everybody. You're either paying rent and getting nothing out of it or getting a mortgage and at the end of it you have an actual owned asset.


You can't live in your index fund like your house. But if you invest the value of your down payment in an index fund, and rent a property, the fund may grow to be large enough to purchase a house, in about the same amount of time. (It depends on your local housing market, of course. The index fund may not keep up with a boom-town like Silicon Valley of the past few decades, but it is unlikely to turn into Detroit, either. Choose your risks wisely.)

And if you put a down payment into a fancier house instead of in a simpler house, most of the gains you'll get from doing so are delivered in the form of immediate consumption of "nice house" over time, not in the form of something you can reinvest (indeed, maintenance costs will be higher as well.) And you've committed to this much house for a long time.

That said, the huge thing that houses have going for them in the US today is special tax treatment - if you're in a higher tax bracket, even more so. You get both mortgage interest deductions and some special capital gains treatment, I do believe. You're the darling of the US tax code.

Consequentially, this special treatment in our tax policy distorts the incentives to invest, encouraging people obsess about the housing market instead of other forms of more-diversified investments, and thus contributes to damaging asset bubbles. It also generally impairs social mobility by incentivizing homeowners to support land use policies that drive up housing prices (directly harming the poor, lower middle class, and any other non-homeowners like the youth), and while the policy overall is pitched to the middle class, many of the biggest winners are the rich, as their tax brackets are higher and their houses more expensive.

Huh. Who could have seen any of that coming? cougheveryeconomistevercough


I was referring to the relative accessibility. You need $50k (or $25k if we're going for 10% down) to even start living in the median house. Even a $100k house would require you to save up $10-20k. $2.5k is a far lower bar to start building wealth.


As true as all that is, you still have to have somewhere to live. You can put some of that money back in your own pocket, or you can put all of it in someone else's.


Alternatively, you can calculate how much you'd pay and save/invest in particular scenarios after taking into account ROI, rent, maintenance, mortgage interest, property taxes, closing costs incl. risk of wanting to move earlier than expected, and personal discipline to save when not compelled by a mortgage.

Phrases such as "put it into your own pocket or someone else's" are a vast oversimplification that has more to do with faith and indoctrination than actual fiscal outcomes. It's true some of the time, but you should never make a decision based on a blanket statement like this one. It's not that hard to make an individual analysis for your very own situation, so make yourself some data points rather than listen to biased generalizations.


> Guess which one will give you a better return on average and is more liquid?

Honestly? The house still wins.

An index fund account with Vanguard can lose value, but large banks and the federal government artificially inflate property so that it's effectively banned from dropping in value.

An index fund can easily be lost or stolen without your knowledge, but your house usually can't be (assuming you live in it everyday).

And rental costs in every mid-size to major city go up 10-50% year-over-year forever. Mortgages in the US are generally fixed.

Houses are also practically liquid. When 90% of homes sell in less than 3 days, and for more than asking prices (as is the case in the US today), liquidity is basically a non-issue. Index funds rarely sell for more than they are worth, but houses almost always sell for far more than they are worth, daily.

So whether your working off of irrational fears (lost value, stolen) or rational thoughts (total cash calculations), the house is usually a better investment in either case.

Which is terrible for the general economy at large. But is a totally rational move for any one person who has to deal with the current state of affairs


> large banks and the federal government artificially inflate property so that it's effectively banned from dropping in value.

Tell that to Detroit homeowners. An extreme case but no more than the the bit about rents you mentioned.

> And rental costs in every mid-size to major city go up 10-50% year-over-year forever.

Umm...did you mean 5-10%? If rents were really going up 50% year-over-year in every major city I would think we'd see way more investment in apartment housing; every investor would be licking their lips. SF !== every mid-size to major city in America after all.


What you're describing is a hot real estate market. It's not always hot.

Take a look at Toronto now. Everything you said was true, now it's taking a long time to sell and prices are dropping.


Access to leverage is much more available (and is highly subsidized) when it comes to US homes.

Personally, I think that is a major problem and the US would be much better off if the government stopped amping home ownership so much, but from a rationale actor point of view its fairly easy to turn government subsidized mortgages into outsized returns in housing.


I agree, but you're going too far saying NIMBYs are scum. They are defending their interests, just like the companies that want to locate equipment in the neighborhoods. Also the microcell sites are hideous and noisy. They normally consist of a large number of boxes mounted on a telephone pole with a spaghetti mass of cable interconnecting them. There is no way the Bell System would have offered that mess. It's symptomatic of a post-industrial society.

Telecom has been taken over by purely profit-seeking players and the result is a zero-trust, adversarial relationship. Part of the zero-trust is that the residents lose all bargaining power after the thing is installed, so they are incentivized to fight as hard as possible up front. Ironically the telecoms spend a large amount on legal fees to force these eyesores into communities (I forget my source for this), instead of spending it to engineer an attractive and quiet solution.


There's an extension to NIMBY where if people are interested in something they'll want to endlessly meddle with it and make changes to the thing constantly which drives up the costs.


The article is very high level, looking at root causes and (correctly) pointing out the flawed incentives in how America builds infrastructure. Here are some lower level observations:

I've been watching construction and similar projects at a government site lately. It seems that there are always more people watching than working. But that's not too bad, as often construction projects will languish with no one working on them for months (meanwhile, the site gets dirty due to rain water filling the site, etc) due to red tape requiring certain people to do certain parts of the job (such as cost exceeding a certain amount and thus the work needs to be put out to bid instead of using the on site contractor).

The exception is if it's something simple, like erecting a temporary meeting tent rented by some company. In that case, it seems like EVERYONE is busy and is doing something. Stuff gets done rather quickly. Maybe they have a lot more practice? I bet they also do multiple types of job, i.e. a guy doesn't just tie the tent down, but also helps unroll the fabric from the truck or moves chairs to the seating area, etc.

Regular road projects seem to be not so bad, more people working than during a building construction. But I noticed another thing: huge machines which must cost almost a million dollars sitting idle with no one using them.

I think the secret might be just to ensure that work starts and finishes on a project as soon as possible, that both people and expensive equipment have work ready for them so they can keep busy constantly until the job is finished. This probably would require a responsive, competitive, well-managed, and very well practiced company to do this. And maybe it'd help if people were cross-trained to do multiple trades, so that after one task is completed, they could immediately go work on another. But if people & machines were simply kept busy constantly on the project, I've gotta think the project could be done for far, FAR less money (and time).

And the author is correct that the way to establish those is via the proper incentives. Constructing a building by contract with a government agency is not a very dynamic environment. Renting a meeting tent, on the other hand, is something very amenable to competition even if the customer happens to be the government.

I'd really like to see some sort of study that simply observed construction projects and crews, on-site, in multiple locations in the world and multiple types of projects. We could get some decent answers.


> I think the secret might be just to ensure that work starts and finishes on a project as soon as possible, that both people and expensive equipment have work ready for them so they can keep busy constantly until the job is finished.

You gotta have buffers for bad weather, malfunctions, changing stuff when it turns out some worker did bad job, yadda yadda yadda. Otherwise your construction ends the same way as any software project with tight schedule - buggy, low quality and over budget due to subsequent three years of fixing.

Transporting large machines from place to place is expensive and time consuming, so if you need to lift something heavy once a day, you have to keep them where they are. The company that provides those machines also needs buffers between jobs - otherwise two days of heavy rain on one site would delay start of work on another site (which usually means contractual fines).

I don't mean to say that the construction you look at is the most effective possible, certainly not. But sometimes there are reasons.

> And maybe it'd help if people were cross-trained to do multiple trades, so that after one task is completed, they could immediately go work on another.

I would agree, but finding reliable high quality worker is hard enough. Finding one who is reliable high quality and knows two trades might be even harder.


> You gotta have buffers for bad weather, malfunctions, changing stuff when it turns out some worker did bad job, yadda yadda yadda

Private projects face the same issues, but do not necessarily stop for these reason. After all, time is money, and a dead construction site not running cost the owner money.


Heavy expensive machinery on private projects tends to be iddle too and planning of machinery is what I was responding to.

The construction site stops idle entirely for months issue is often that fund used to pay for construction dried out or got redirected. Or that there are legal issues to be sorted - that one happen with private companies too.

Additional work "needs to be put out to bid instead of using the on site contractor" because otherwise contractors would underestimate prices and then charge a lot more or predictable "excess". There does not even need to be bad intention originally, such system would simply favor contractor who makes bad estimates "naturally".


> I've been watching construction and similar projects at a government site lately. It seems that there are always more people watching than working.

My understanding is that there are various tasks that require more people and others that require only one or two, but it doesn't really make sense to send everyone home for forty minutes and then have them come back for tasks where all hands are needed.


> I've been watching construction and similar projects at a government site lately. It seems that there are always more people watching than working

This is the same everywhere. But construction everywhere else is still cheaper than the US, even in high-wage countries like in Scandinavia.


What you describe is lean management applied to the construction industry. I'm certain that it is possible but I've never heard of it being practiced. Possibly by Broad Sustainable in Chiba.


It's definitely a thing. Once saw a great keynote by Greg Howell, co-founder of the Lean Construction Institute. Wikipedia page also: https://en.wikipedia.org/wiki/Lean_construction


Elon Musk's goals with the boring company don't sound so unachievable anymore.


Not sure why you're being voted down. The Boring Company is what he actually wants to call it. I love that name.

http://www.teslarati.com/boring-company-secures-city-tunneli...


I think a major point was missed: The reason for infrastructure projects is the meta effect called "jobs." There are no projects that don't take into consideration how many blue collar jobs get created/maintained. You look at all the road and bridge projects and everything else and those projects are rarely centered around need but rather "how many jobs are preserved or created." That's what Obama's "shovel ready projects" were about. A lot of jobs are a form of welfare doled out by government. Unlike the true welfare recipients, there are people who prefer to work because it gives them a sense of satisfaction but similar to out and out welfare queens, they are recipients of a further form of welfare which they do trade labor for. But, unlike the true private sector, those who oversee these workers make sure that some new project springs up each year to keep them employed. It's a weird system...


because in good old days they got-by by exploiting cheap labor (in other words slavery). Things went down south since they couldn't do it anymore legally.


"If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it." --Reagan


People use this quote as some sort of insightful attack on the failures of government, but, in a certain light, it's exactly what government is supposed to do.


Any thinking person should question the insipid nature of government because it never seems to get perfected but is always and everywhere just a blunt object which bludgeons us into cooperating with it one way or another.


Because in badly managed projects, the managers have no idea what the project is about. They don't know how anything works. They can't distinguish good work from bad work.

Instead, they rely on rote rules and checklists to "prove" they've done their job. This happens in both public and private sectors.

For example, a friend's employer got bought by a large multinational. The multinational imposed all kinds of processes, checkpoints, checklists, etc. to "ensure product quality". They then got upset that the bids were triple the cost they were previously, and took twice as long.

And that's of course coupled with the fact that no one from the parent company paid any attention to the day to day activities of the (now) division. Instead, they relied on paperwork.

Well, paperwork is no substitute for feet on the ground.

One of my favorite books is "On the psychology of military incompetence". It uses military examples to show how organizations are run (bad vs good), and what quantitative differences there are between bad leaders and good leaders.

Paying attention to details, and ignoring superficial forms is a major differentiator between good leaders and bad leaders.

This is echoed in the story. The city didn't pay attention to the project, while the developer did.




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