Equality or Flexibility?

Transactions costs are involved in most small-scale activities we engage in. Living in a country, and coping with its institutions, also involves transaction costs.

U.S. bureaucracies seem more flexible than the ones I’ve dealt with in wealthy foreign countries. On the other hand, much less seems to be taken care of for the average citizen in the U.S. than elsewhere-it requires tremendous knowledge and investment of time to get the best deal out of health insurance, Social Security and so many other publicly- or commonly-provided benefits. In wealthy foreign countries, the average citizen is not at much of a disadvantage compared to a knowledgeable, wealthier citizen. In the U.S., I wonder how the average guy can cope with institutions (or if he can). As in so many areas, we Americans have created a system that allows great flexibility, but that also advantages the better-off. Have we made the right choice in this apparent trade-off?


In America, the prevailing attitude is more choice = more freedom. This is true on it's face, but usually doesn't take into account that it includes freedom to be extremely frustrated and confused. More choice does not give you the freedom to NOT be frustrated and confused by your all your possible choices.


I'll give you health insurance.

I don't understand the point about Social Security. There's only one decision: do you apply for benefits early, or at full retirement age? I gather that this decision can have an impact on final outcome, but beyond this choice, I don't see how knowlege or time gets a better deal in social security. Can you elaborate on this?

What else is there... the IRS code would be an obvious choice, but it's unmentioned here. I've done my own taxes with off-the-shelf software for over a decade, and while I do put in some effort, it's not too onerous, and every single time I've stepped out of the software to look up an IRS publication or instructions for a form, it hasn't been difficult to understand. Really. If a person can't be bothered with the chore and cares to hire an accountant or tax preparer, that's their lookout. I agree that this is a penalty-tax on the lazy; I don't think this is necessarily a penalty-tax on the poor.

I do think that it's a travesty that some universities hire for NSF and NIH grant-writing skills. There is something disreputable in there.



I always complain about how hard it is for a smart person to do their taxes. There's no good reason for our tax code to be as complicated (and with such big penalties for mistakes) as it is.


"U.S. bureaucracies seem more flexible than the ones I've dealt with in wealthy foreign countries."

That's not true of health care. Dealing with insurance companies in the US can be an incredible, bureaucratic pain in the neck. In contrast, there is minimal medical paperwork in e.g. Canada. Sure FWIW in this instance the bureaucracies in question here in the US are private rather than government, but the bottom line is medical transaction costs are way, way higher in the US.


Ooohh, what a loaded question! To answer, I'll call into play the studies that show that less choice results in more purchases. The American faith is that more choice is more better. Helping my mother, a woman who has never used a computer, navigate the many Medicare drug plans is a data point in the negative: More choice is not better. But like most faiths, the American faith in the power of choice is not easily shaken by facts. My job is, primarily, to simplify business systems complicated by "choice." That we're willing to pay people to come in and simplify the many "choices" made by a business is another negative data point: More choice is not better.


"In America, the prevailing attitude is more choice = more freedom. "

In practice that usually means that an illusion of choice is provided to create an illusion of freedom.

Rich Demanowski

You're forgetting about who imposed the complexity on so many aspects of everyday life, including health insurance, that makes the transaction cost so high. It's the government's intrusive rules and regulations.

Health insurance companies can't offer a simple plan, because federal and state laws require them to cover this and that and the other thing, in such and such a way - and those laws are written by lawyers, for lawyers, rather than to be understandable by the common people.

You're also forgetting another very important transactional cost involved in all of this: personal responsibility.

When you ask the government to take care of something for you, you are abdicating your responsibility to take care of yourself, along with your right to choose for yourself.

When you ask the government to provide schools for your children, you are abdicating your responsibility to provide for your childrens' education, while at the same time giving up your right to choose what school your children go to, and what will be taught in that school.

When you ask the government to provide for your health care, you are abdicating your responsibility to provide for your own health, and you are giving up the right to choose what doctor you go to, and when.

If you want the right to choose for yourself what doctor you go to, what health insurance coverage you want to have, what school your children will attend and what will be taught there, you must also shoulder the responsibility of educating yourself about what doctors are available and what they have to offer, what health insurance coverage is available and what it covers, what schools there are to send your kids to, and how and what they teach there.

Government mandates about what insurance must cover, what must be taught in schools, what drugs are available to treat your illnesses, and a plethora of other personal choices, while they may be intended to make things easier for the uninformed or the poor, invariably end up making everybody less informed, and life more difficult for the poor.

If you want to be free to live your life as you see fit, you must also be willing to shoulder the burden of obtaining the knowledge you need to do so.

If you do not want to shoulder that burden, then you have no right to complain when some bureaucrat in Washington makes your personal choices for you.



Going outside of politics, I've heard the complaint of too much choice brought up with respect to some cars. BMW (I think) has a system in one of their cars that has a half dozen choices each for engine power output, transmission speed, suspension, LSD, etc, giving thousands of possible ways of setting up the system. Other car makers are content with "Comfort", "Sport", and "Race" settings, which takes the daunting task of properly setting up the car and streamlining it to three options.

Less choice, but also easier and harder to screw something up.


Oh David, how KIND of you to look out for the average guy who simply can't compare to your intellect. How EVER does he manage to get his pants on in the morning?

... are you serious ...?

Yes, the American system is hard to navigate, but that is rarely indicative of the intelligence or effort of the individual. We have allowed our system to be gamed by corporations and the like to deliberately making the system as convoluted as possible so as to take advantage of people. Wasn't this SPECIFIC TOPIC talked about in Freakonomics, where they looked at how information asymmetry was traditionally exploited in various fields and that those within the fields are railing against legitimate attempts to close the gap?

Why do doctors threaten to sue sites that want to offer user-generated ratings and reviews? Why do realtors make every effort possible to keep buyer and seller apart?

The "plight" of the "average man" is just David's way of feeling superior. The system is hard, and harder for some than others, for various reasons. But instead of pitying those poor people who just can't get it, maybe we should stop kicking the chair out from under them and develop a truly free-market system where consumers and producers are both empowered?


EIleen Wyatt

What happens with health insurance is that the average guy doesn't get the best deal. He checks the most likely looking box on his employer's forms at the last possible minute in the annual enrollment process, with HR breathing down his neck for the paperwork. And in the short run, this is an economically sensible decision because the choices are complicated (and inadequately explained) and many employers change insurance plans every year, so the odds of using the plan for anything other than routine needs are small.

If you really want a time-consuming lifestyle, try being poor in the U.S. Between taking the bus and waiting in line for services, being poor is a full-time job in itself.


Crust -
Health insurance companies aren't a "US bureaucracy" per se, because they aren't part of the government.

If you think they are complicated now, just wait until this bill passes!


I think it advantages those who are willing to learn to work the system. After all, that is why we have lawyers and why they invented legalese.


I graduated in the top 10% of my high school class. I have a master's degree. I scored an 800 on my math SATs.

It absolutely BAFFLES me how people manage to buy homes and do their taxes.

I have a 401k account, a Roth IRA account, stock options and grants from my employer, stock holdings worth a few grand via at least one trading website, school loans, a car payment each month, a bank account with my debit & credit cards, and an online savings account.

There is no way I can keep track of all of that at once. Smith Barney could steal $5,000 from me tomorrow - just pull it out of the balance of my 401k or Roth IRA or something - and I'd never know it was gone. I don't even know who I owe my student loan repayment to... all I know is I pay them $170 per month, and they pull it right out of my checking account. I *think* the balance is $10k or so, but if I somehow managed to log into their website (assuming someone told me what it is) and I saw I owed $13k, I wouldn't be surprised and I wouldn't complain.

Stop and Shop could randomly charge my credit card $52.64, or $111.09, on a day I never even went there, and there's probably an 80% chance I would never notice.

And this is before we even get into the fact that I have NO idea what a mutual fund is, what a bond is, or what the hell Smith Barney is doing with my money. The financial system is so utterly complicated and ridiculous, I think it only serves to keep the number of people who "understand" it very low, so they can continue to take advantage of those who don't.



This system seems to favor the young, which is troubling. With all the updates in technology being applied to the process of acquiring information, the older generation seems to be at an extreme disadvantage.


re 2. keith
in singapore, nobody i know uses any software to do personal taxes. tax accountants are for business owners and the very, very wealthy. the regular guy logs in a website, verifies his income and tax reliefs, and logs out. it's a 10-minute job every year. there are many things we complain about in this country, but i'm thankful for the simplicity in tax submission.

(oh yes, we don't hv many options to "optimise tax" too)


The psychology of more choice is bad, is when an uninformed decision maker has to make a choice, concerned whether they made the right choice, hence people have their 'usual' at restaurants, i prefer to try and see, test and now with the advent of the internet and the ability to easily find reviews and evaluations of any product; being uninformed is not an excuse. I agree, why do we need ten choices for ketchup, and in that we shouldn't limit our choices for healthcare. I think we need to be reasonable here, simplify choices, auto insurance has thirty different factors, NOBODY complains about auto insurance, why we understand the coverage were getting at each increment and what all of it covers normally, if we really want to adjust healthcare and make it, to where all option choices, are labeled the same, like with auto insurance, life insurance, etc. Make choices conform to a preset system and make it easy to compare, take the teeth out of comparisons. let us build our healthcare option, al la carte.



I think confusion is the wrong word. Perhaps lazyness or stupidity is a better choice.

Should not a meritocracy (like a free market) advantage those with the drive and/or ability to know more? People who know more and have more resources will always be at an advantage. That it the reward for having worked to obtain them, no?


I believe the 'complexity' of choices and the 'complexity' required to "get the best deal...from many other publicly- or commonly-provided benefits" is our government's way of actually getting funding to provide the benefits, but not actually having to deliver them. So if we did a side-by-side comparison of benefits offered with other wealthy countries, the lists would be comparable. However, lets also compare the % of population applying for and using the benefits, and finally, compare the number of steps it takes, end-to-end, to find, decide and then get the benefit. Here, we may see the differences. Should'nt we benchmark 'ease of doing business with the government' with other wealthy countries?


It seems to me that if one little thing took place, we could make enormous strides in choosing the best insurance.

Very simply, there ought to be a BASIC, DETAILED, PRECISE HEALTH PLAN that every health insurance company in America has to offer. Yes, people could opt for other plans the insurance company offers, but this one would be offered to.

It would permit true apples-to-apples comparison on pricing. The deductibles, co-pays, details--EVERYTHING--is identical...except the price.

Very simply, health care insurance become a commodity. You are no longer worried about the quality, since each insurance company is offering THE PRECISE SAME PLAN. It is now just a matter of price.

Yes, health insurance companies could also offer other plans, as well. But at least people could get a full-coverage plan and be able to compare it to all the other companies out there.

This would drive competition much harder I believe.

When I have had to choose health plans at work, it is hard to know if the fact that this company considers your doctor in-network is worth that larger co-pays and less help on prescriptions, etc. It is not apples-to-apples.

Let's make it apples-to-apples and force the sort of pricing that works for us.



I think the deal is that everyone thinks they are above average, but they are not.