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Source link: http://archive.mises.org/6519/cui-bono-appraisal-edition/

Cui Bono: Appraisal Edition

April 16, 2007 by

The always germane Techdirt has a good overview on the drama surrounding the web service Zillow.com.

Zillow, in a user-friendly Google-like manner, gives potential home-buyers the appraisal value of property they are looking for.

In retaliation, professional appraisers in Arizona have now placed a cease & desist order against Zillow, which does not have an appraiser license in that state.

This is just another example of an incumbent provider using the State to prevent and deter outside competition.

See also licensing laws restricting the market in medical care: 1 2


Mark Brabson April 16, 2007 at 7:25 pm

I once tried to enter the appraisal field. I soon found out that it is one of the most closed fields there is. The only way to get in is to apprentice with an existing appraiser. They rarely accept new apprentices and usually only to cover retiring or deceased appraisers. They can pick or choose whoever they want. I have long since moved on, but this is one of my personal experiences with a classically “mercantilist” profession. Their behavior in Arizona is just typical of this whole crooked profession.

RogerM April 16, 2007 at 9:30 pm

Mark, I once worked as an assistant to a group of appraisers. Their methods are medieval, at best. In spite of all of their hocus pocus, recent sales determine most of their valuation. One who had been in the business a couple of decades told me that an experienced real estate agent could get closer to the market price than most appraisers. In fact, the bank I worked for required several opinions on the home’s value from real estate agents in addition to that of an appraiser.

I developed a simple regression model to help speed up the work of the appraisers I was helping, but they refused to use it. I’m convinced that someone good at regression could use a database of home sales and produce estimates far more accurate than those appraisers make, but they have gotten state laws passed to protect their jobs.

RogerM April 16, 2007 at 9:51 pm

I read the article on medical costs and agree completely with it. But I’ve also seen healthcare costs for the whole country and more than half of all expenses go to hospitals. Doctors take in about a third, and the rest is divided among other costs and drugs. Does anyone have any insight into why hospital costs are so high? I can stay at the best hotel in New York City for about what a hospital room in Tulsa costs.

Sasha Radeta April 16, 2007 at 11:27 pm

RogerM said: “I developed a simple regression model to help speed up the work of the appraisers I was helping, but they refused to use it.”

Considering your ridiculous comments about the rate of inflation (inability to recognize the rate of change in rate of change, i.e. second derivative), I really wonder why they refused it…

However, since you nicely asked about it, I’ll try to give you an outline of reasons why healthcare costs are so high. We have many factors that simultaneously create this situation (you can’t isolate only one factor, because they are all connected). This was inspired by Jack Chambless (modified by my Austrian insights):

- The Medical Monopoly: American Medical Association was established to restrict entry into the profession and thereby secure more stable financial climate for physicians. AMA has been allowed to manipulate the market for health care in the name of “consumer protection.”

- monetary inflation: when government pumps in huge amounts of money, don’t expect all the prices to go up by the same time. The prices of necessities such as healthcare will not go up by the same amount as the prices of hotels in the NYC.

- Hidden price discrimination: paradoxically, for many people cost of healthcare is free or partially free. Cosa Nostra or Crips do not offer health insurance, yet, hospitals often have to treat wounded criminals for free. The same goes for poor people who ignore healthcare bills. Also, Medicaid and Medicare only reimburse hospitals for about the half the cost of delivering a service. Hence, the healthcare is not expensive for all of Americans.

- The aging population: I think it’s self-explanatory why this puts an upward pressure on demand for healthcare and not so clearly on the prices of hotel rooms in N.Y.C.

- The lawyer effect: enormous damages that can result from medical malpractice suits impose a great cost on doctors in the form of malpractice premiums. These higher input costs negatively affect supply of providing services.

- Technology: Mercedes Benz quality that American people demand come at Mercedes Benz prices. Life-saving PET scanners and CT scanners cost a fortune, but they became American standard, partly due to the lawsuit factors mentioned above.

- The Antitrust Laws: Several years ago, three hospitals in Rockford, Illinois attempted to merge and gain from economies of scale by sharing equipment. That would allow Rockford to more successfully compete with other providers and to offer smaller prices, but the government hasn’t seen it that way.

- Unhealthy lifestyles: obesity, teenage smoking, STDs… I should say no more. Check the figures from American Heart Association, National Institute on Drug Abuse, the American Social Health Association

- Asymmetric information: would you ever buy a new car without asking for the price first. The very nature of medical profession (often time, the price is the last thing in our mind), as well as our third party payment system (insurance will pay it), make us reluctant to ask. I recently had a MRI of my neck, followed by a MRI with contrast, which didn’t show anything different. If I was paying this out of my pocket directly, I would have probably refused the second scan, and asked the price of the first one.

- FDA approval process: although market does much better job in finding out which drugs don’t work (rejecting like 70% of what FDA approves)… however, FDA’s inefficient approval process takes years, pre-approval studies cost a fortune, and supply of medications is severely restricted as the result…

Adding it all up — we have a big mess.

quincunx April 17, 2007 at 12:12 am

Good points Sasha.

I’d like to elaborate on ‘unhealthy lifestyles’. Here we have obviously more state intervention.

- Artificially inflated sugar prices (protectionism), resulting in more usage of less healthy (but artificially cheaper [corn subsidies]) high-fructose corn syrup.

- Gov paid Anti-smoking ads that practically make every kid want to try smoking.

- Literally dozens of cases of gov yielding to special interests to dump toxins into our food. Thinking fluoride as the biggee.

- Stress from high-time preference resulting from monetary policy as well as too much mutual plunder.

- Stress from debt accumulation, and uncertainty of the future.


There is also a minor effect on med prices from foreigners that travel to the US to receive better service than their ‘free’ fully socialized healthcare.

Sasha Radeta April 17, 2007 at 1:52 pm

Great subpoints quincunx!

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