Daily Archives: July 28, 2010

Those darn unintended consequences

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Dollar BillsYesterday’s post touches on the enormous direct costs attributable to the federal government’s questionable policy of regulating business through criminalization of bad or simply incorrect business judgments.

However, as enormous as those direct costs are, the indirect costs of criminalizing bad business judgments dwarfs the direct ones.

Whether management makes such judgments correctly is a fundamental risk of business ownership. Criminalizing that risk — through the prism of hindsight bias — will simply make executives in the future less likely to take the risks necessary to build wealth and create jobs while not deterring in the slightest the Bernie Madoffs of the world from embezzling money.

Business owners deserve protection from theft, but not from risk taking, and it’s not clear that government prosecutors know — or even care about — the difference.

Those indirect costs came to mind again as I read this Wall Street Journal article (H/T Russ Roberts) on the unintended consequences arising from the government?s new regulations concerning rating agencies:

Ford Motor Co.’s financing arm pulled plans to issue new debt, the first casualty of a bond market thrown into turmoil by the financial overhaul signed into law Wednesday.

Market participants said the auto maker pulled a recent deal, backed by packages of auto loans, because it was unable to use credit ratings in its offering documents, a legal requirement for such sales. The company declined to comment.

The nation’s dominant ratings firms have in recent days refused to allow their ratings to be used in bond registration statements. The firms, including Moody’s Investors Service, Standard & Poor’s and Fitch Ratings, fear they will be exposed to new liability created by the Dodd-Frank law.

The law says that the ratings firms can be held legally liable for the quality of their ratings. In response, the firms yanked their consent to use the ratings, hoping for a reprieve from the Securities and Exchange Commission or Congress. The trouble is that asset-backed bonds are required by law to include ratings in official documents.

The result has been a shutdown of the market for asset-backed securities, a $1.4 trillion market that only recently clawed its way back to health after being nearly shuttered by the financial crisis.

Professor Roberts sums it up in his post by quoting Hayek:

“The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.”

The changing face of internal medicine

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health_insuranceAs noted here and here, my internist converted his practice to a successful concierge practice three years ago. In this recent KevinMD.com post, Dr. Steve Knope speculates that soon patients who are not a part of a concierge practice will not know their doctor if they have to go into the hospital:

What are the consequences for patients? What happens to the average person in Tucson, Arizona when he or she gets chest pain, develops pneumonia or has a seizure? Can they reach their internist or family practitioner for a medical emergency? Most patients who call their primary care doctor for a medical emergency can’t even reach his staff during normal office hours. Instead, they will hear a recording on an answering machine, directing them to go to call “911” for any medical emergency.

Once in the ER, the doctorless patient will be admitted to a hospital physician, who is unknown to them. This so-called hospitalist, who is a salaried shift-worker, will put in his 12 hours, and then go home. He is a doctor who knows nothing about the patient’s medical history. He has never met the patient. There will be no call from the hospital doctor to the primary care doctor in the office to get a thorough medical history. There will be no medical records transferred to the hospitalist. The hospitalist will attempt to get the best medical history he can from the patient, make some quick medical decisions, and then pass the patient off to one of his colleagues when his shift ends. And so it goes. No continuity of care, no understanding of the patient; the sick person now becomes a “case of pneumonia” or “the stroke in bed 3” to a group of unknown, rotating professionals.

Knope goes on to predict that as doctors flee from primary care (see earlier post here and here), the vacuum will be filled by nurse practitioners and medical assistants, who are far less trained in diagnostic procedures.

I don’t know about you, but I’m making sure that my payments on my concierge practice account are current.