22 Mar 2012

ECON MOMENT: Tradeoffs

ECON MOMENT, Economics, Shameless Self-Promotion 16 Comments

The hits just keep on coming…

16 Responses to “ECON MOMENT: Tradeoffs”

  1. Ken B says:

    Another?!? It’s like crack.

  2. Rick Hull says:

    AAGH! The videos! You’re killing me, Smalls. Actually, I’m sure they’re great and people love ’em. But I’m a slave to the bandwidth of the written word.

    • visose says:

      He could do like econtalk and transcribe everthing, then add references for further reading….

      Yep, I guess I missed the point of this video.

    • Tel says:

      Rick, I agree, ASCII text s a bloody brilliant encoding, and I’m sure it will easily outlast us all. Here’s in celebration of that great leap for mankind:


      Hey kids! Bob Murphy here with another episode of “Econ Moments (TM)”.

      Today we are going to be talking about tradeoffs.

      Tradeoffs occur when there are several different things that people are trying to achieve, so to get more in one dimension means you have to give up something in another dimension.

      So for example, after posting the first “Econ Moment (TM)”, I got some feedback from various fans saying, “You know Bob, this is great, we love it, but… can you get better audio quality? Why don’t you get yourself a microphone?”

      Well you see, there’s a tradeoff.

      Because you see, if I go get a microphone, this particular camera I’m using, it doesn’t have a USB port for a microphone, so I would have to plug into my laptop, record the audio track separately.

      Then after the video is done, I’d have to go in and sync it up, make sure I’m not looking like I’m in a Japanese film.

      So the problem is, that’s going to take a lot of my time… and I don’t quite know how to put this, but I’m kind of a big deal.

      People read me, right?

      There’s stuff I have to do when I come to the office during the day, and I can’t spend two hours in post production editing these little videos.

      So there’s a tradeoff involved; the audio quality is not as good as it could be, but you get more videos, more Bob Murphy for your dollar.

      So, that’s the tradeoff and that’s the way it’s gonna be, at least for now.

      Believe me, Tom Woods has been telling be for over a year, that I should be cranking out these YouTube videos, and I’m just not getting around to it.

      So you can see, if I kept trying to jiggle with things and get it just right, sure that would be a phenominal video, Martin Scorsese would fall in love with me, but there would be one video produced every three years.

      All right, so that’s the tradeoff.

      Lately in the news (as I’m sure all of you are aware) there’s been issues about what insurance companies sould cover.

      So, there have been things said, by various people that should not have been said, but let’s look at the economic involved.

      In particular, one of the arguments that advocates of congress mandating that insurance companies cover contraception; one of the arguments that these people put forward is to say effectively, “There’s no tradeoff indolved, the insurers will make more money, and of course the clients will benefit because they won’t have to pay out of pocket for these procedures (or for the pills, or whatever it is these people want to get).”

      So, here as an economist, I’m skeptical, because, just think about that what would mean if that were true.

      Again, the argument that these people are putting forward is: the insurance company, yes it’s going to pay a little bit more if Congress forces it to cover contraception for some of its customers (that right now is not covered by the insurance policy).

      So the insurance company is going to have to pay a little bit more, but, that’s going to reduce the number of unplanned pregnancies and so on, so the insurance company is going to be saving money in the long run, since now its customers are less likely to go into childberth in hospital, and that’s of course a lot more expensive than the contraception that the insurers are being forced (against their will) to cover if this legislation goes through.

      Right, so that’s the argument.

      Again, I want to say that is patently absurd to me, that that can be true.

      So maybe you have good reasons for thinking, “Congress should force insurers to cover that,” but I don’t think it’s a good argument to say, “Hey, there’s no tradeoff involved, it’s going to help both the
      insurers and the clients.”

      Here’s why, just think this through.

      What that would mean (if it were true) is that first of all, the various people in the medival field, and the bloggers and the people who are writing angry letters to the editor, making this argument; it
      means that they understand the cost of running an insurance company, more than the owners and executives of the insurance company understand it.

      Right, so that’s… kind of… odd.

      You wouldn’t think that, but apparently these people do know more about the insurance industry than the people who actually derrive their livlihood from it… so that’s interesting.

      But beyond that, suppose it were true… right, it could be true.

      Maybe the insurance executives, they’ve just been doing it a certain way so long that they just have groupthink going on.

      Ok, if it really is just as obvious and such an open and shut case as a lot of these people are making it sound, and clearly the insurers would save money in the long run by doing these policies, well it
      shouldn’t take Congress.

      All these people need do is just write up the case, you know, refer to the various documentation that allegedly proves beyond a shadow of a doubt that they’re right on this, and just FAX it over to the insurance companies, and say, “Look at this! There’s millions of dollars lying on the ground here that you have been failing to pick up. Just change your policies and in a couple of years you know, you can just send us the thank you card for making you rich.”

      You see how that works?

      So, for the person’s world view to be correct, who is advocating this argument, not only are the insurance companies incredibly stupid, but they are so stupid, they have to literally be forced by law to enrich themselves by just changing the policies of what they cover.

      So, at this point I hope you can see, that’s probably not what’s going on here.

      There’s probably something involved that the advocates of this argument are overlooking.

      There’s a tradeoff.

      Yes, the government could force the government to cover contraception and so on… but probably that would make them lose money, and so they would have to raise premiums for everybody to cover themselves
      (to make it possible to stay in business while still doing that).

      They’ve just decided (if there’s no coercion involved) that’s not a profitable thing to do.

      So this observation by itself doesn’t mean it’s a good or a bad policy to implement this thing.

      But what I am saying is, that when you start thinking through the logif of tradeoffs, it’s probably not true that if Congress were to mandate contraception coverage for insurance companies that both the customers and the insurers would benefit from it.

      That’s probably not true, because if it were true, you woudn’t need to force them to do it.

      They would take advantage of the win/win possibility.

      OK, everbody, that’s my time for today!

      This has been another episode of “Econ Moments (TM)” with me, Bob Murphy.


      I’m not guaranteeing accuracy, and I did break a few sentences after too many and’s (hopefully without spoiling the conversational style), and it is hard to type in such a way to reproduce that powerful, resonant and commanding (yet gentle) voice. But there you go.

      Someone else’s turn next week.

    • Bob Murphy says:

      Next video: Why “need” is not in the economist’s vocabulary.

      • Dan says:

        I just want you to cover everything Murray Rothbard covered over his entire career in one video. Is that too much to ask?

      • Tel says:

        That will be an interesting one actually (for me at least). I think there’s a strong emphasis in economics on linear supply and demand curves that meet neatly at an equilibrium point. However a “need” like the basic requirement for input calories to sustain human life has a highly nonlinear demand curve.

        Think about it, if you eat a big meal, are you immediately in the market for another of the same? Of course not! But if you have haven’t eaten for a few days, your entire value structure changes (seriously, try the exercise at home). Of course your average socialist progressive will turn anything and everything into a “need” if they catch a sniff of political advantage out of doing that, but I’m talking about science here.


        Anyhow, there hasn’t been enough study on the effect of highly non-linear demand curves, vs relatively flat and boring demand curves (e.g. games of golf, etc).

  3. visose says:

    I just hope you don’t do videos on Sundays. Right now I can just think those posts are done by a ghostwriter.

  4. Mike Maull says:

    Don’t worry about the mic…just keep on keeping on brotha!! These are great and I’m grateful you are finally getting around to doing them. Thanks again.

  5. jjoxman says:

    … on the station where free market economics survives, KBOB, home of Murphy.

  6. kavram says:

    I don’t see the big deal with the audio quality. It’s an econoblog, not a nightclub. All you really need is some cheesy porno music to kick off the vids a la SchiffRadio.

    Anyways, keep it up Bob, these are a great substitute for your sorely-missed mises.org articles

  7. StraT says:

    Lets assume that regular contraception will reduce pregnancies enough to offset its costs.

    How would an insurer take advantage of it? Case in point:

    1.) If they gave out free contraception, people wont ration efficiently, and then the cost will go through the roof. (multiple condoms, expensive contraptions, contraceptive/skin care products etc.)

    2.) Generally speaking an insurer will just remove coverage (example: no payouts for suicides,) saying no abortions unless proof of rape. But then you have the sociologists screaming “women shouldn’t be forced to report rape, its personally damaging to relive etc, these evil insurance companies are going to want to inspect the sheets!.” (note these same people wont say a word about a victim of robbery, which in some cases is just as damaging etc.)

    3.) Or they mandate that proper risks were mitigated (analogous to an insurance company not paying unless an alarm has been installed and in effect, at the time of the robbery) to be able to qualify. Again because of the discrete nature of sex, saving broken condoms to be inspected in the case of a pregnancy by an forensic trained insurance agent is not feasible.

    So as I think we can see, all three suffer from extreme problems, that’s why insurance companies are sort of sitting on the fence here, there are benefits to condom use (which the democrats can demonstrate) but cost effective implementation is pretty much impossible. Thus doing nothing is probably the smartest solution.

  8. Corey says:

    Have Tom Woods put in a good word for you to Peter Schiff. I’ve heard Mr. Schiff is pretty generous when it comes to AV equipment.

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