Charlie Munger on the Medical System

Long a fount of wisdom, Charlie Munger provided us fascinating insight on everything from energy policy and mental models to how good gamblers think and making effective decisions.

At the Daily Journal Meeting (held March 25th 2015), Munger answered a question on Obamacare:

Of course the system of medical care, as evolved under the United States, has much wrong with it.

On the other hand, it has much that’s good about it. All the new drugs and devices, and new operations, medicine has taken more territory in my lifetime than it took in the whole previous history of mankind. It’s just amazing what’s been done.

A lot of it is obvious and simple, like inoculating the children against infantile paralysis, scraping the tartar off your teeth so you don’t wear plates when you’re 55 years old, and so on. People now take those benefits for granted, but I lived in a world where a lot of children died. Every city had a tuberculosis sanitarium, and half the people who got tuberculosis died. It’s amazing how well medicine has worked.

On the other hand, compared to the best it can possibly be, the American system is pretty peculiar. It’s very hard to fix. One kind of insanity is to say, “We’ll pay you so much a month for taking care of the people, and everything you save is yours.”

That is the system the government uses in dealing with the convalescent homes. That’s a great name, a convalescent home. You convalesce in heaven. You don’t convalesce them at home. [laughs] It’s attempting to have a euphemistic name.

That creates huge incentives to delay care and keep the money. The government has strict rules, compliance systems, and so forth. If we didn’t have that system, the cost of taking care of the old people in convalescent homes would be 10 times what it is. It was the only feasible solution.

The rest of the world is going in that direction, because the costs just keep rising and rising and rising.

If the government is going to pay A anything he wants for selling services to B, who doesn’t have to pay anything, of course the system is going to create a lot of unnecessary tests, unnecessary costs, unnecessary procedures, unnecessary interventions.
Psychiatrists that keep talking to a patient forever and ever with no improvement, of course that system is going to cause problems. The alternative system also causes problems.

Add the fact you’ve got politicians and add the fact you’ve got existing players who are enormously rich and powerful, who lobby you like crazy. A state legislature, now, is just 19 percent or whatever it is of GDP going to the medical system, imagine what the lobbying is like.

We get these Rube Goldberg systems. We get a lot of abuse of various kinds. There’s hardly an ethical drug company that hasn’t created multiple gross abuses, which are in substance growing through the bribery of doctors, which, of course, is illegal.
You have all these ethical companies. Ethical meaning it’s the designation of a drug company that has patented drugs. They’ve all committed big follies. The device makers of anything have been worse. There’s been a lot of abuse and craziness, and the costs, of course, just keep rising and rising.

That’s in a system that every child has been the greatest achiever in the history of the world. It’s very complicated. I think it will get addressed more because…We probably will end up with systems that are more like we do with the convalescent homes.
If you look at medicine, what’s happening is that more and more they’re going to a system where they pay somebody X dollars and everything they save, they keep. That system has some chance of controlling the cost. If you go into a great medical school hospital today, and you’re within a day of dying of some obvious thing like advanced cancer, the admitting physician is very likely to ask for a test of your cholesterol or any other damn thing. All the bills go to the government. As long as the incentives allow that, people will do it and they’ll rationalize their behavior. Something has to be done along that and more than is now being done.

I think the drift will be more in the direction of the block care. I don’t see any other system that would have controlled cost in the convalescent homes.

By the way, your doctor can’t just walk by every bed in the convalescent home and send the bill to the government. That’s not allowed by the law. But if you transfer the patient into a hospital, he can walk by the bed five times every day and send a $45 bill to the government.

If the incentives are wrong, the behavior will be wrong. I guarantee it. Not by everybody, but by enough of a percentage that you won’t like the system.

I think that’s enough on a subject that’s so difficult. I think we can see where it’s going. We may end up with a whole system that’s…In the Netherlands, they have a system where the same people are giving a free system to everybody and a concierge system to the others. It’s working pretty well.

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Merchants Of Doubt: How The Tobacco Strategy Obscures the Realities of Global Warming

There will always be those who try to challenge growing scientific consensus — indeed the challenge is fundamental to science. Motives, however, matter and not everyone has good intentions.

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Naomi Oreskes and Erik Conway’s masterful work Merchants of Doubt: How a Handful of Scientists Obscured the Truth on Issues from Tobacco Smoke to Global Warming, was recommended by Elon Musk.

The book illuminates how the tobacco industry created doubt and kept the controversy alive well past scientific consensus. They call this the Tobacco Strategy. And the same playbook is happening all over again. This time with Global Warming.

Merchants of Doubt

The goal of the Tobacco Strategy is to create doubt about the causal link to protect the interests of incumbents.

Millions of pages of documents released during tobacco litigation demonstrate these links. They show the crucial role that scientists played in sowing doubt about the links between smoking and health risks. These documents— which have scarcely been studied except by lawyers and a handful of academics— also show that the same strategy was applied not only to global warming, but to a laundry list of environmental and health concerns, including asbestos, secondhand smoke, acid rain, and the ozone hole.

Interestingly, not only are the tactics the same when it comes to Global Warming, but so are the people.

They used their scientific credentials to present themselves as authorities, and they used their authority to try to discredit any science they didn’t like.

Over the course of more than twenty years, these men did almost no original scientific research on any of the issues on which they weighed in. Once they had been prominent researchers, but by the time they turned to the topics of our story, they were mostly attacking the work and the reputations of others. In fact, on every issue, they were on the wrong side of the scientific consensus. Smoking does kill— both directly and indirectly. Pollution does cause acid rain. Volcanoes are not the cause of the ozone hole. Our seas are rising and our glaciers are melting because of the mounting effects of greenhouse gases in the atmosphere, produced by burning fossil fuels. Yet, for years the press quoted these men as experts, and politicians listened to them, using their claims as justification for inaction.

December 15, 1953, was a fateful day. A few months earlier, researchers at the Sloan-Kettering Institute in New York City had demonstrated that cigarette tar painted on the skin of mice caused fatal cancers. This work had attracted an enormous amount of press attention: the New York Times and Life magazine had both covered it, and Reader’s Digest— the most widely read publication in the world— ran a piece entitled “Cancer by the Carton.” Perhaps the journalists and editors were impressed by the scientific paper’s dramatic concluding sentences: “Such studies, in view of the corollary clinical data relating smoking to various types of cancer, appear urgent. They may not only result in furthering our knowledge of carcinogens, but in promoting some practical aspects of cancer prevention.”

These findings, however, shouldn’t have been a surprise. We’re often blinded by a ‘bad people can do no right’ line of thought.

German scientists had shown in the 1930s that cigarette smoking caused lung cancer, and the Nazi government had run major antismoking campaigns; Adolf Hitler forbade smoking in his presence. However, the German scientific work was tainted by its Nazi associations, and to some extent ignored, if not actually suppressed, after the war; it had taken some time to be rediscovered and independently confirmed. Now, however, American researchers— not Nazis— were calling the matter “urgent,” and the news media were reporting it.  “Cancer by the carton” was not a slogan the tobacco industry would embrace.

 

With the mounting evidence, the tobacco industry was thrown into a panic.

 

So industry executives made a fateful decision, one that would later become the basis on which a federal judge would find the industry guilty of conspiracy to commit fraud— a massive and ongoing fraud to deceive the American public about the health effects of smoking. The decision was to hire a public relations firm to challenge the scientific evidence that smoking could kill you.

On that December morning (December 15th), the presidents of four of America’s largest tobacco companies— American Tobacco, Benson and Hedges, Philip Morris, and U.S. Tobacco— met at the venerable Plaza Hotel in New York City. The French Renaissance chateau-style building— in which unaccompanied ladies were not permitted in its famous Oak Room bar— was a fitting place for the task at hand: the protection of one of America’s oldest and most powerful industries. The man they had come to meet was equally powerful: John Hill, founder and CEO of one of America’s largest and most effective public relations firms, Hill and Knowlton.

The four company presidents— as well as the CEOs of R. J. Reynolds and Brown and Williamson— had agreed to cooperate on a public relations program to defend their product. They would work together to convince the public that there was “no sound scientific basis for the charges,” and that the recent reports were simply “sensational accusations” made by publicity-seeking scientists hoping to attract more funds for their research. They would not sit idly by while their product was vilified; instead, they would create a Tobacco Industry Committee for Public Information to supply a “positive” and “entirely ‘pro-cigarette’” message to counter the anti-cigarette scientific one. As the U.S. Department of Justice would later put it, they decided “to deceive the American public about the health effects of smoking.”

At first, the companies didn’t think they needed to fund new scientific research, thinking it would be sufficient to “disseminate information on hand.” John Hill disagreed, “emphatically warn[ing] … that they should … sponsor additional research,” and that this would be a long-term project. He also suggested including the word “research” in the title of their new committee, because a pro-cigarette message would need science to back it up. At the end of the day, Hill concluded, “scientific doubts must remain.” It would be his job to ensure it.

Over the next half century, the industry did what Hill and Knowlton advised. They created the “Tobacco Industry Research Committee” to challenge the mounting scientific evidence of the harms of tobacco. They funded alternative research to cast doubt on the tobacco-cancer link. They conducted polls to gauge public opinion and used the results to guide campaigns to sway it. They distributed pamphlets and booklets to doctors, the media, policy makers, and the general public insisting there was no cause for alarm.

The industry’s position was that there was “no proof” that tobacco was bad, and they fostered that position by manufacturing a “debate,” convincing the mass media that responsible journalists had an obligation to present “both sides” of it.

Of course there was more to it than that.

The industry did not leave it to journalists to seek out “all the facts.” They made sure they got them. The so-called balance campaign involved aggressive dissemination and promotion to editors and publishers of “information” that supported the industry’s position. But if the science was firm, how could they do that? Was the science firm?

The answer is yes, but. A scientific discovery is not an event; it’s a process, and often it takes time for the full picture to come into clear focus.  By the late 1950s, mounting experimental and epidemiological data linked tobacco with cancer— which is why the industry took action to oppose it. In private, executives acknowledged this evidence. In hindsight it is fair to say— and science historians have said— that the link was already established beyond a reasonable doubt. Certainly no one could honestly say that science showed that smoking was safe.

But science involves many details, many of which remained unclear, such as why some smokers get lung cancer and others do not (a question that remains incompletely answered today). So some scientists remained skeptical.

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The industry made its case in part by cherry-picking data and focusing on unexplained or anomalous details. No one in 1954 would have claimed that everything that needed to be known about smoking and cancer was known, and the industry exploited this normal scientific honesty to spin unreasonable doubt.

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The industry had realized that you could create the impression of controversy simply by asking questions, even if you actually knew the answers and they didn’t help your case. And so the industry began to transmogrify emerging scientific consensus into raging scientific “debate.”

Merchants of Doubt is a fascinating look at how the process for sowing doubt in the minds of people remains the same today as it was in the 1950s. After all, if it ain’t broke, don’t fix it.

Farnam Street Think Week

Every year Bill Gates takes a think week, where he reads and ponders the future. This is how he reframes his perspective, gains new insights, and recharges his mental batteries.

This sounds like a good idea to me.

Escape the winter blues and join us for a week of reading on the beach in the mornings, afternoons spent thinking, and evenings with long dinners with fellow participants discussing ideas.

Some details:

  • The event runs March 18-23. Jeff and I will be flying in the 17th and leaving the 24th.
  • Anyone can register. After meeting thousands of Farnam Street readers in person over the years I know you’re a pretty awesome crew. So, anyone can sign up  … but I only want people who are going to take this seriously.
  • Space is extremely limited. There are only 20 spots.
  • You have a say. Dinners are the only organized events and they will each have a theme. After registration closes, we’ll email participants to get ideas on what they want to discuss and what they’ll be reading. You’ll also get a list of what Jeff and I will be reading that week.
  • Registration closes on February 29, at 11:59pm EST.
  • Discounted rates at the hotel. Things in Hawaii can be expensive. Since we hold a lot of conferences, we managed to lower the room rates by hundreds of dollars.

If this sounds like your idea of fun — reading, thinking, and hanging around a bunch of like-minded people drinking wine and discussing ideas — then I’ll see you there.

This has the potential to recharge your batteries and change your life.

You can find more information and sign up here.

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Recognizing Our Flaws is The Beginning of Wisdom

A short post today that packs a punch.

The liberating power of humility is one we’ve covered before. In fact, it’s a concept that is core to understanding your Circle of Competence. Now Russ Roberts adds to our collection of wisdom with this excerpt from How Adam Smith Can Change Your Life: An Unexpected Guide to Human Nature and Happiness:

As I have gotten older, I have become less confident and maybe more honest. The economy is too complex; we can’t measure the interactions of all its various pieces with any precision. We don’t have enough data, and we don’t understand how things fit together. We are drunks looking for our lost keys under a lamppost not because that’s where we lost our keys but because that’s where the light is. We should be humbler and more honest. Our empirical studies are very imperfect. We often hold the views we do because of ideology and principle. Then we find some evidence that supports those views. We ignore the rest … An awareness of reason’s limits is a caution sign to remind us that we’re not as smart as we think; we’re not perfect truth seekers. We’re flawed. Recognizing our flaws is the beginning of wisdom. Many things look like nails that do not benefit from being pounded. That should induce caution and humility for those with hammers … Humility is an acquired taste. Once you come to like it, it’s a dish best served hot. It’s amazing how liberating it can be to say “I don’t know.”

Why Micromanaging Kills Corporate Culture

“The more he kept sweating the details,
the less his people took ownership of their work.”

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The most important part of a company’s culture is trust. People don’t feel trusted when you micromanage and this has disastrous implications.

In It’s Your Ship: Management Techniques from the Best Damn Ship in the Navy, Michael Abrashoff  writes:

The difference between thinking as a top performer and thinking like your boss is the difference between individual contribution and real leadership. Some people never make this jump; they keep doing what made them successful, which in a leadership role usually means micromanaging. My predecessor on Benfold (the ship Abrashoff commanded), for instance, was extremely smart—a nuclear engineer and one of the brightest guys in the Navy. He spent his entire career in engineering, and when he took command of Benfold, he became, in effect, the super chief engineer of the ship. According to those who worked for him, he never learned to delegate. The more he kept sweating the details, the less his people took ownership of their work and the ship.

This so often happens in organizations: Micromanagement (or picomanagement, if micro doesn’t quite describe it) kills ownership. And when employees don’t have ownership—skin in the game—everything starts to go to hell. This is one reason government organizations are considered to be dysfunctional — everything is someone else’s responsibility. The incentives are awful.

Consider this anecdote Abrashoff uses to illustrate his point.

A pharmaceutical company I was working with promoted its best salesman to be head of sales. Instead of leading the sales force, he became the super salesman of the company. He had to be in on every deal, large or small. The other salespeople lost interest and stopped feeling as if they were in charge of their own jobs because they knew they couldn’t make a deal without him there to close it. The super salesman would swoop in at the last minute, close the deal, claim all the glory, and the others were left feeling that they were just holding his bat.

This reminds me of something Marshall Goldsmith, author of the impressive What Got You Here Won’t Get You There, once relayed in a conference. He told the story of a typical person in a typical organization presenting an idea to the senior approval body. This person did all this work, it’s their idea, and they know it inside and out. Anyway, they present and the senior management team, keen to exercise their egos, start chiming in with things like “did you think of this …” or “but … ” or “however …”. The project gets better with these comments, after all most people don’t get to that level without being somewhat intelligent. However the commitment of the person who presented the idea goes down dramatically because it’s no longer their idea. They’ve lost some ownership (the degree to which is very dependent on the conversation). The end result is a better idea with less commitment. And you know what? The outcome is worse than if the management team just approved the project. Goldsmith was pointing out the obvious and the world has never looked the same to me since.

Abrashoff aptly concludes:

When people feel they own an organization, they perform with greater care and devotion. They want to do things right the first time, and they don’t have accidents by taking shortcuts for the sake of expedience.

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I am absolutely convinced that with good leadership, freedom does not weaken discipline— it strengthens it. Free people have a powerful incentive not to screw up.

Remember the wisdom of Joseph Trussman. Trust is one of the keys to getting the world to do most of the work for you. Call this an unrecognized simplicity — and one that Ken Iverson exploited to help show why culture eats strategy.

Joseph Tussman: Getting the World to do the Work for You

Nothing better sums up the ethos of Farnam Street than this quote by Joseph Tussman.

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Joseph Tussman

“What the pupil must learn, if he learns anything at all, is that the world will do most of the work for you, provided you cooperate with it by identifying how it really works and aligning with those realities. If we do not let the world teach us, it teaches us a lesson.” — Joseph Tussman

The best way to identify how the world really works is to find the general principles that line up with historically significant sample sizes — those that apply, in the words of Peter Kaufman, “across the geological time scale of human, organic, and inorganic history.”

Pair with Andy Benoit’s wisdom and make some time to think about them.

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