Saturday, December 20, 2008

Harvard - No Easy Fix for Financial (or Health Care) Crisis

The December issue of the HBS (Harvard Business School) Alumni Bulletin contains comments by HBS Dean, Jay Light. Using the metaphor of an emergency room, Light explains,

“Just a hospital treats patients by focusing on three tasks, so too should we remedy the financial turmoil.

First, stabilize the patient, in this case the markets. That’s what the $700 billion rescue plan aims to accomplish.

Second, diagnose the problem and treat it. The rescue plan calls for the government to auction banks’ distressed mortgage assets to figure out what they are really worth.

Finally, prepare a long-term rehabilitation plan. For the country’s financial system, this means a new regulatory structure. It, for sure, will be reregulated because the government had to be so deeply involved in the rescue."

President-elect Obama says rescuing the financial system is an emergency and rescuing the health system is a big part of that same emergency.

It will be fascinating to see if his measures to stabilize the patient ($100 million the first year for programs for IT, preventive, and chronic disease management), diagnose and treat the disease (more government spending, though government already pays for 50% of health costs), and rehabilitation (more government regulation and mandates).

To these measures for health care, some will surely assert, government is part of the problem, stymieing all bottom-up innovations to lower costs and increase convenient access.

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