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Fantasy Despot Syndrome and

Wednesday, November 6, 2013

Entrepreneurs have to implement through consent and prove their ideas in the marketplace. In contrast, the administration lacks the patience and pluck the free market demands and wants instead to introduce reform via dictate.

"Wherever people discover that money is being spent, either privately or by public officials, they commonly develop opinions on how it ought to be spent ... each person thus becomes his own fantasy despot, disposing of others and their resources as he or she thinks desirable."  — Kenneth Minogue, The Servile Mind

Pundits are starting to realize that the problems with, the troubled Obamacare website, are not merely technical. High-level managerial issues have started to surface, particularly with this week’s publication by the Washington Post of a memorandum written in 2010 by David Cutler, a health care economist who advised the Obama administration on health care policy.

Yet the problems go even deeper, and the late Kenneth Minogue had the correct diagnosis when he said that the political process encourages people to become fantasy despots. Cutler, President Obama, and others who want to use government to reform the health care system suffer from “Fantasy Despot Syndrome.” They want to introduce reform through government dictate because they lack the patience and pluck to reform health care the market way, through entrepreneurial trial and error.

When made its ghastly debut on October 1, the initial response was to blame the website's poor performance on unexpectedly high traffic. This gave way to a realization that the technical quality of the software was poor. Soon, the press began to focus on problems with the site's complex suite of contractors and with the government software procurement process in general.

Then, on November 3, the Washington Post's devastating story elevated the issue to one of a general failure on the part of the administration to manage the implementation of its iconic legislation. The key document in the Post story was Cutler's memo, which pleaded with Lawrence Summers, then Obama's chief economic aide, to get the president to set up an organization focused on implementation of the new health care law. In the memo, Cutler, a Harvard professor and health adviser to Obama’s 2008 campaign, pointed out the need for outreach to health care providers in order to ensure effective implementation: “Remember that most people will get their information about reform from their doctor and their insurance agent. If you cannot find a way to work with hesitant states and insurers, reform will blow up.” Cutler went on to warn that “delivery system reform, provider outreach, and exchange administration are receiving little attention.”

Cutler’s ideas for creating a structure with clear accountability and business experience come across today as obvious common sense, and yet they were not followed.

Note that by “delivery system reform,” Cutler meant attempts to improve health care quality. One of his long-standing ideas is not to simply compensate doctors for performing procedures but to pay them more for following best practices and less for delivering treatments that are known to offer little benefit.

Cutler ended his 2010 memo with a proposed organizational chart for implementation of the Affordable Care Act. His ideas for creating a structure with clear accountability and business experience come across today as obvious common sense, and yet they were not followed.

The gist of the Post story is that the administration dropped the ball when it came to overseeing the construction of the health care exchanges. “They were running the biggest start-up in the world, and they didn’t have anyone who had run a start-up, or even run a business,” said Cutler.

Later in the story, the Post reports:

The Medicaid center’s chief operating officer, a longtime career staffer named Michelle Snyder, nominally oversaw the various pieces, but, as one former administration official put it: “Implementing the exchange was one of 39 things she did. There wasn’t a person who said, ‘My job is the seamless implementation of the Affordable Care Act.’”

Careful, thoughtful management teams get good systems, and sloppy management teams get lousy systems.

Cutler's diagnosis of management failures strikes me as correct. In fact, my own experience in organizations is that flaws in computer systems are almost never simply technical in nature. Every business unit gets the systems it deserves. Careful, thoughtful management teams get good systems, and sloppy management teams get lousy systems.

At the same time, however, Cutler's memo strikes me as shallow and self-serving. He is shocked, shocked to find that when his pet health care reforms are passed through the political process, their implementation is hampered by politics. In that sense, Cutler suffers from Fantasy Despot Syndrome.

The Entrepreneurial Alternative

For people who want to reform the status quo, there is an alternative to being a fantasy despot. Consider the story of Kemmons Wilson, which can be found in David Halberstam's historical retrospective, The Fifties:

Some motels, Wilson later recalled, were godawful; some were very pleasant. The only way you could tell which was which was to see for yourself ... Wilson was enraged to find that every motel charged extra for children. The fee was usually $2 per child, even though his children had brought their own bedrolls ... Even worse, there was rarely a place to eat nearby, and so he and his family would have to pile back into the car and hunt for a decent family restaurant.

Day by day on the trip, Wilson became more irritated until he finally turned to his wife, Dorothy, and announced that he was going to go into the motel business ... “How many of these motels are you going to build?” she asked nervously. He felt she was laughing at him. “Oh, about four hundred,” he answered. “That ought to cover the country.” “And,” he added, “if I never do anything else worth remembering in my life, children are going to stay free at my motels.”

Wilson did not call for a regulatory agency to ensure that all motels were pleasant for families. He did not seek legislation requiring that children sleep free in motels. Instead, he created Holiday Inn, the first national motel chain.

What our health care system needs is for people like Cutler to bring their ideas for change, such as the hypothesis that doctor performance can be improved though compensation based on quality, to entrepreneurs like Wilson, instead of turning to politicians. Entrepreneurs know that they have to implement through consent, not through brute force legislation. They know that they must prove their ideas in the marketplace.

I hope that when the dust settles on the fiasco, people learn the right lesson. What is really to blame is the tendency for would-be reformers to shun entrepreneurial effort and instead to succumb to Fantasy Despot Syndrome.

Arnold Kling is a member of the Mercatus Center's Financial Markets Working Group at George Mason University.

FURTHER READING: Kling also writes “The Reality of the ‘Real Wage’,” “Your Mortgage, Their Rent,” and “Information, the Entrepreneur, and George Gilder’s New Economic Thinking.” Phillip Swagel describes “The Hurdles to Success for the Affordable Care Act” while Jonah Goldberg contributes “Obama: The Myth of the Master Strategist.” Nathan Allen and Sander Daniels argue to “Grow the Economy through Small Businesses” while Scott Shane explains “When Reducing Barriers Leads to More Failed Businesses.” James Pethokoukis writes “This May Be 'the Single Worst Decision’ Obamacare Planners Made” and cites David Cutler in “Is the Weak U.S. Economy Fixing America’s Health Care Cost Problem?

 Image by Dianna Ingram / Bergman Group

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