Beauty of Gray

Tuesday, January 14, 2003

You get what you pay for

Since I've criticized him in the past for empty and pointless name calling, along with a borderline obsession with the NYT, it's worth mentioning that in the last couple of weeks, Andrew Sullivan has been putting a lot of good stuff on his site. Which is probably not unrelated to his getting a big check from readers. Anyone who wishes to improve the quality of this site is encouraged to e-mail me and we can figure out the details.

Anyway, today he links to this very interesting article. Using more polite words, it points out that the previous method of determining how segregated a city is was idiotic, and talks about a new and improved methodology developed by some University of Wisconsin researchers. Check it out.

Link posted by Doug Turnbull at 2:52 PM

The evolution of advertising

I ran across this interesting report of a proposed new TV show on the WB network which will have no commercial breaks at all, but will generate ad revenue solely from product placement and other methods of integrating advertising into the fabric of the show. The article in question identifies this as a pre-emptive strike against Tivo and similar services which offer commercial skipping ability. Which it might be, although VCR’s offer the same possibility, just with a little less convenience. But I think it’s simply one signal of a much larger shift in the nature of advertising.

I don’t have any problem with product placement. If it’s done right, it’s seamless and everyone’s happy. The advertisers get their value, and the rest of us aren’t forced to watch babies riding around in tires or whatever else they’ve dreamt up this week. Furthermore, while it’s often presented as pernicious and subliminal, it seems to me that it only works if it gives value, if it actually delivers on what it's selling.

The main goal of most product placements is to associate their product with a positive image. Like James Bond driving a Jaguar, for example. What the product placement is trying to sell is the image of Jaguar as a cool car, the kind of thing James Bond would drive. Now, if the advertising works, it’s precisely because this identification sticks—people really do associate the car with James Bond, or at least some of his mojo rubs off. So people who buy the car for that reason (the people influenced by the ad) are getting the benefit of that image. If the image doesn’t stick, then the ad doesn’t work, and few people buy the car in search of the image which isn’t there. To the extent that it works, the ad is delivering on the promise it makes.

However, in the past decade, advertising has become much more ubiquitous and intrusive, far beyond simple product placements. Whether because of VCR’s and Tivos, or simply because they’ve learned they can, advertisers now intrude much more upon realms that were previously considered private. It is, in a way, a market breakdown, wherein the advertisers are free to inflict minor annoyance on millions and are not penalized for it, but are free to reap the benefits from the minute percentage of people who respond.

The two obvious examples of this effect are spam-mail and telemarketers. With small marginal costs, they can fund themselves to call me 3 or 4 times a night, and send me 30-40 junk e-mails a day. They probably cost me 15 minutes of my time per day, I’d guess. But it’s not just there. Any movie release now will have not just trailers for a few upcoming films, but 3 or 4 long commercials as well. The Two Towers had over 20 minutes of filler before the film actually started. Not to mention the slide-show advertising that is now on before the projector starts. My dentist’s office has a TV screens in every room which broadcast ads for dental procedures I could get done.

Advertisers are more and more trying to find any captured audience they can and are inserting their ads there. It’s only a matter of time before schools get billboards—I remember there was a stink a few years ago when ads were being inserted into educational videos bought by companies for public schools. Perhaps in the future you’ll be able to save $20,000 on your next house by agreeing to put flat screens in every room, which will broadcast commercials at you 24 hours a day.

I don’t know how I feel about this. Telemarketing, in particular, strikes me as unreasonably intrusive, and I’m interested to see if the current push to develop a national no-call list takes hold. The other ads are, I’m sure, an example of some sort of economic effect, in which the advertisers are able to inflict millions of small pricks to consumers, (actually, I think I’ve got some spam that could help with that…) causing minor annoyance for the majority but in such a way that the advertisers aren’t penalized for. There's probably a name for this, involving the german word for decision tipping point, but I don't know it.

No real conclusion here, but it seems we’re in the middle of a real revolution in advertising which has largely (at least in my reading) gone uncommented upon. So if I’m right, I can point to this article, proclaim my genius for prophecy, and make millions writing instantly out of date futurist books, like Megatrends. Sign up for your personal seminar now—dates are going fast.

Link posted by Doug Turnbull at 1:44 PM

Monday, January 13, 2003
Thoughts on Medical Malpractice, pt. III

Part I is here, part II is here.

In those, I came to the tentative conclusion, based on such incomplete statistics as I could find in a couple of hours of searching on the web, that the problems of high medical malpractice premiums were likely real, but that they were not due to a flawed operation of the legal system. Costs don’t seem to be driven by a huge number of frivolous lawsuits, or by excessive awards of punitive damages. So some quick tort reform proposal won’t really solve the problem, and will distort the system against plaintiffs in the process.

Instead, from my reading, it seems as though the recent spike in insurance rates is a consequence of the nature of the insurance business. Because it’s easy to move into and out of the market, insurance has a natural boom-bust tendency. When profits are high, then many companies will jump in, with newcomers pushing prices down to try and grab market share. Furthermore, since insurance companies invest some of their premium income in the markets, high returns on these investments help to keep premiums low. Then, when the market tanked and profits dried up, many companies fled the field, removing some of the competitive drive to keep prices down. The result is a price spike.

That, anyway, was the narrative given by a consumer advocacy group that wanted to pin all the blame on insurance companies. They could be right, but if the insurers are currently taking a bath, it’s hard to see how their raising of rates is somehow illegitimate. And saying it’s their fault doesn’t really get us closer to a solution.

So what are the possibilities? The first one is simple. Don’t do anything. The current spike in rates might be a crisis, but it, too, will pass. Insurance rates remained steady or even went down through much of the 90’s, so rates right now aren’t much higher, if at all, than they were 15 years ago. Basically, this approach tells doctors to suck it up. If you don’t like paying lots of money in insurance, get a new job. The downside of this, of course, is that the quality of doctors might go down, and you might get fewer (or no) doctors willing to work in high risk, but high reward areas. Surgeons can save lives, but they won’t if doing so doesn’t make financial sense.

It’s worth noting here that this could be the case. No human is perfect, so any doctor will make some mistakes. If the cost of those mistakes is high enough (measured in malpractice rates), the net pay for the doctor might still be reasonable (say, $40,000), but would not be enough to entice people into the field, or to pay for a reasonable life along with medical school expenses.

This then seems to be a recipe for government intervention of some sort—the operation of the free market might be creating a situation that harms everyone. There are several options. First, one which has some philosophical appeal but would be very difficult in practice, would be to shift much of the risk onto the consumer. If no-one is perfect, then some procedures are bound to go wrong. Why is it that doctor’s are forced to bear the entire cost of their failure to achieve and impossible perfection? The problem, of course, is how to do this and still retain some accountability for real misconduct or failures.

A second possibility would be for the government to come in and provide some direct relief for doctors. Either in the form of reduced premiums for some or all doctors(much like they do with flood insurance for homeowners), or through funding of medical school. If doctors didn’t start out $150,000 in the hole, a lower net salary could still be attractive to many. (Revamping the entire process of hazing involved in entering the field of medicine would be another option to attract better candidates, but would require a bigger adjustment.)

A final option would be to shift some or all of the cost onto hospitals, HMO’s, or other parts of the health care industry. In the statistics I’ve seen, malpractice costs only represent 1% of the total budget of the health care industry (although I don’t know how this was defined.) This sort of overhead doesn’t seem unreasonable, and this would also encourage accountability on the part of the hospital to make sure their doctors are practicing at the highest possible levels. These organizations are also much better equipped to pass the cost on to the consumers than individual doctors are.

I don’t know what the best solution is, and probably still wouldn’t know even if I had been able to find the detailed statistics really necessary to do an analysis. (Not that it stopped me, as you can see.) Like most complicated issues, there aren’t simple solutions, even if there are many folks with agendas trying to convince you that there are.

Link posted by Doug Turnbull at 2:18 PM

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