Wednesday, September 29, 2010

Time as a Price

This article analyzes the microeconomic underpinnings of the Canadian health care system. Unlike most hospital brochures that offer a description of the waiting process rather than an explanation, the article uses economic theory to explain the function of the wait times in a supply system devoid of money prices. Waiting time is a substitute for the money price – it performs the equalization of the supply and demand just like the money price does. However, this mechanism is both costly and inflexible, and, most importantly, it is self-reinforcing through the perverse incentives to maintain long wait times as a demand management tool. The implication is that, given the current structure of the Canadian health care system, the long wait times are here to stay. Those that believe the problem could be solved by increasing the supply of health services ignore the large demand effect of a reduction in the extremely long wait times. Others, who believe that waiting is an unavoidable fact of life, ignore the fact that the long wait times are an artifact of the “priceless,” politically administered supply system.
You can read the full text here.

Saturday, September 11, 2010

The Self-Defeat of the Keynesian Cross

This article demonstrates that continuous fluctuations in output and employment cannot be produced by the standard “Keynesian Cross” model as formulated by Paul Samuelson. The model implies zero consumption expenditure for the unemployed, effectively eliminating any possibility of a prolonged recession in a market free of external intervention. This addresses the recent remark made by Paul Krugman that Austrian economists are “Keynesians during booms without knowing it.” Given the logical implications of the strict architecture of the Keynesian model, it turns out that Keynesians are Austrians during recessions “without knowing it.” All the rhetoric aside, given the inadequacies of the Keynesian paradigm, anyone interested in explaining the origins of the business cycle should also be interested in a serious study of the other pertaining theories.
You can read the entire article here.