Thursday, December 16, 2010

Thoughts On An Hourly Wage Subsidy

While this article tries to show that marginal taxes on low income earners are so high that a person could do better making minimum wage than making $60,000/year.  It is quite a bit off  (for one thing you have to be pretty clever to get all those benefits), but if you take the total spending on just means tested welfare programs* and divide it by 20% of the USA population you come out with a subsidy of about $10,000 per person (per person not per adult person).  That is without including the huge items like our very expensive free Government Education system and medicare and SS all programs which supposedly exist to benefit the poor and unwise.  I would think that an hourly wage subsidy or as Charles Murray proposes a fixed payment to every citizen would be much more efficient.  (I might ad to that Gov. provided health insurance with a deductible equal to last years adjusted income minus the poverty rate (outlined here) would be sufficient for the sicker than average people.) 

While the current US welfare system is a bureaucratic mess and replacing it with an hourly wage subsidy would probably help, fraud would be a problem.  The federal Government is very bad at finding and prosecuting fraud (I have seen estimates that as high as 30% of medicare spending is fraud).  For one thing the Federal Government does not have enough people on the ground to find fraud.  Policing fraud requiters people going undercover and doing stings. So I wonder if an hourly wage subsidy could be done at the state or local level.  If done on a local level it might attract low skill workers into the area offering the wage subsidy and that would be bad but it would also attract low wage employers into the area and that would be good. It might net out positive and might be a more efficient way to attract business into that the tax holidays land deals that are used today. 

It would require some changes in federal law to allow the states and localities to produce an hourly wage subsidy.

Still the current system is so expensive and ineffective I think that it would be worth a try. 


*Means tested welfare that includes AFDC, food stamps, subsidized housing etc.

Excerpt below
Means-tested welfare spending or aid to the poor consists of government programs that provide assistance deliberately and exclusively to poor and lower-income people. By contrast,  nonwelfare programs provide benefits and services for the general population. For example,  food stamps, public housing, Medicaid, and Temporary Assistance to Needy Families are  meanstested aid programs that provide benefits only to poor and lower-income persons. On the  other hand, Social Security, Medicare, police protection, and public education are not means-tested; they provide services and benefits to persons at all income levels. In the typical year, around 71 percent of means-tested spending comes from federal funds and 29 percent from state funds. Nearly all state means-tested welfare expenditures are matching contributions to federal welfare programs. Ignoring these matching state payments into the federal welfare system results in a serious underestimation of spending on behalf of the poor.
In FY 2008, 52 percent of total means-tested spending went to medical care for poor and  lower income persons, and 37 percent was spent on cash, food, and housing aid. The remaining 11 percent was spent on social services, training, child development, targeted federal education  aid, and community development for lower-income persons and communities. Roughly half of means-tested spending goes to disabled or elderly persons. The other half goes to lower-income families with children, most of which are headed by single parents.

Here is another calculation below of marginal tax rates on the poor:

With more than 70 overlapping means-tested programs serving different low-income populations, it is difficult to determine the average level of benefits received by low-income persons. One way of estimating average welfare benefits per recipient would be to divide total means-tested spending by the total number of poor persons in the United States. According to the Census Bureau, there were 39.8 million poor persons in the U.S. in 2008, the most recent  year for which data are available. An additional 1.5 million persons lived in nursing homes.  (These individuals, though mostly poor, are not included in the annual Census poverty and population survey.) Total means-tested spending in 2008 was $708 billion. If this sum is divided by 41.3 million poor persons (including residents in nursing homes), the result is $17,100 in means tested spending for each poor American. However, this simple calculation can be misleading because many persons with incomes above the official poverty levels also receive means-tested aid. Although programs vary, most means tested aid is targeted to persons with incomes below 200 percent of poverty. Thus, a more a accurate sense of average total welfare spending per recipient can be obtained, if total welfare aid is divided among all persons within this larger group. Dividing total means-tested aid by all persons with incomes below 200 percent of poverty results in average welfare spending of $7,700 per person, or around $30,000 for a family of four.

Links, links, links mostly on marginal tax rates for low income people:

Wednesday, December 15, 2010

Random Clinical Trials and Ethics

This is great little story that I got from Marginal Revolution
One day when I was a junior medical student, a very important Boston surgeon visited the school and delivered a great treatise on a large number of patients who had undergone successful operations for vascular reconstruction.
At the end of the lecture, a young student at the back of the room timidly asked, “Do you have any controls?” Well, the great surgeon drew himself up to his full height, hit the desk, and said, “Do you mean did I not operate on half the patients?” The hall grew very quiet then. The voice at the back of the room very hesitantly replied, “Yes, that’s what I had in mind.” Then the visitor’s fist really came down as he thundered, “Of course not. That would have doomed half of them to their death.”
God, it was quiet then, and one could scarcely hear the small voice ask, “Which half?”
Dr. E. E. Peacock, Jr., University of Arizona College of Medicine; quoted in Medical World News (September 1, 1972), p. 45, as quoted in Tufte's 1974 book Data Analysis for Politics and Policy.

Wednesday, December 8, 2010

State Lotteries

Bight futures scholarship  + state lottery = The poor subsidizing the rich, 
Bight futures scholarship  + state lottery = The foolish subsidizing the wise 
or less charitably 
Bight futures scholarship  + state lottery = The stupid subsidizing the smart.  

Here is Julian Simon on state lotteries.

Wednesday, December 1, 2010

What I Would Have Done

"Yesterday's Case-Shiller data showed that house prices in its 20-City index fell 0.7 percent in September. This would be an 8.5 percent annual rate of decline, which would imply the loss of more than $1 trillion in housing wealth over the course of the year."  Dean Baker  on his blog November 30th 2010.

The above data strengthens the opinion, that I have held from the beginning of the financial crises of 2008, that a sharper faster home price decline would have been better.  Home prices seem to be getting back to tend anyway all that the Government action has done is delayed the inevitable and extended the crisis while making it less sharp, restricting the unemployment crises to weakest employees.  If there was no TARP more banks would have failed home prices would have dropped like a rock to the point were value buyers and investors (cheap cautious people) and upstarts (young people with no debt) would start buying them up.  Unemployment may have reached 20% but I think might have started to recover in 6 months to a year.  We have had 10% unemployment for 2 years that means that some workers with the least demanded skills have been out of work for 2 years.  I think that it would have been less damaging to have more people out of work for a shorter period of time.  With 20% unemployment higher status people will be out of work and there may be more comradery and simpath for the unemployed.  Also more create ideas to use these workers might come about. 

Of course the fed would have had to buy a lot of stuff to pump money into the economy.  If I was the Fed chairman, I would have gone as far as to have the Fed buy stocks to pump money into investors hands!  I would also have eliminated the FICA tax to short up the balance sheets of working class and debtors. 

One of the benefits of my approach is it would have killed more of the corrupt investment banks and I think that we would be better off without them.  

Monday, November 29, 2010

An Idea for the Lottery

The state lotteries have been called a tax on stupidity and predation on the poor but I have an Idea for a savings lottery, you have an account and you buy lottery tickets in the account. 50% of the money that you spend on tickets goes into an investment account, 10% goes to the retailer, 10% goes to the state  and 30% is paid out in winnings. 

Tuesday, November 23, 2010

Education or Schooling

Eliezer Yudkowsky at overcommingbias writes:
some young man or woman is sitting at a desk in a university, earnestly studying material they have no intention of ever using, and no interest in knowing for its own sake. They want a high-paying job, and the high-paying job requires a piece of paper, and the piece of paper requires a previous master's degree, and the master's degree requires a bachelor's degree, and the university that grants the bachelor's degree requires you to take a class in 12th-century knitting patterns to graduate. So they diligently study, intending to forget it all the moment the final exam is administered, but still seriously working away, because they want that piece of paper.

Some people will tell me that Cuba has better schools than the USA, so I ask do they live better. What is the purpose of schooling?

Do schooling and homework squeeze out learning, in net producing a less educated population? Alfie Kohn claims that homework does not help learning. Science and history are evidently fun to many people, as evidence see the success of the Discovery, History and Science channels.  So does homework squeeze out learning, useful science?

Is school just a long test?

Algebra for everyone

If you want to have algebra for the purpose of education rather than for testing who is smartest, algebra that all children pass.  You can do that by sticking to the simple principles of algebra. That is focus on the one rule and drill it into the students for years. The one rule is that you need to do the same thing to both sides of the equation. Algebra can be made both easy and useful. Leave the factoring of quadratic equations for the college bound such things are useless to 99% of people anyway.

ABS Link

My company

Medical Self Care Has Its Time Come

What do you do when you find some greatness in an article but cannot agree with most of its prescriptions?  I rewrote it into my own piece leaving out what I thought was pure nonsense. Below is my version of the article:

1. All health insurance plans promote irresponsibility to some extent. People begin to believe that their doctor is responsible for keeping them healthy, not themselves.  It might be good to not carry insurance at all but I recommend very high deductible insurance. Some might choose to go without insurance as they can pay after the treatment, most hospitals will set up payments. 

2. Health insurance is a scheme, with the healthy paying for the old and chronically ill and those with poor health habits, though I should add that smokers actually cost insurance plans less money over the long haul since they die sooner.  Clearly by logic more than half of people will pay less for health care if they do not carry insurance. 

3. With a large pool of money available, the insurance pot gets raided and doctors and hospitals overcharge since there is no market control. There is nothing the plan won't pay for, no matter how expensive, because the desperate public will demand it. You learn your mother has breast cancer. You will stop at nothing to see she gets the most advanced care, and the more her disease progresses, the more you will demand something be done, even unproven treatment.

4. High-tech care caused Americans to falsely believe their healthcare system is the best in the world, and they want more of it. Fancy imaging technology (cat scans, MRIs), unproven but less invasive particle beam radiation treatment, robotic surgery – all are in huge public demand. A Rand Corporation study showed high-technology is the main driver in the high cost of health care.

We are living a fantasy to believe American government can provide all the high-tech medical care that is available (example: latest New York Times article suggests $5000 disease gene testing for all).

5. About 85% of Americans have health insurance. To provide insurance to the remaining population, largely illegal immigrants, places financial and manpower strains on the delivery of health care that the industry is not prepared for. It was Winston Churchill who said: "The inherent vice of capitalism is the unequal sharing of the blessings. The inherent blessing of socialism is the equal sharing of misery."

6. Because other countries provide universal health insurance is only to say the bills are paid. This represents provision (welfare) for doctors and hospitals. The system rewards treatment, not cure. Modern medicine has substituted markers of poor health, such as cholesterol, PSA, blood pressure, rather than true end points, such as survival or being drug free.

While many Americans envy countries that offer universal health care, most universal health care plans will soon fail. The National Health Service in Britain is about to implode.

The day is fast coming when health insurance schemes collapse and self care becomes the order of the day. But many Americans aren’t ready for this.

Certainly many Americans are angry at the passage of Obamacare. But a man I met at a Postal Annex store said he needed the insurance coverage and welcomed it, as he has problems with his joints and diabetes. He wanted the medicines that only the insured can afford.

However, Obamacare, or even the pre-existing healthcare system, would not make him any healthier. But this man, along with many other Americans, has no perception of this.

Drugs will be prescribed for him that calm symptoms but never restore health and in fact may create new diseases. Some drugs cause the very disease they are intended to treat.

Obamacare pays more doctor and hospital bills, but it will also increase utilization and overall costs and it burdens the economy with higher health insurance premiums. AT&T reports Obamacare will cost them an extra $1 billion a year. For the 85% of Americans who were already covered by health insurance, Obamacare is a step down in availability of care. But recognize, the system is collapsing and unaffordable regardless of the insurance scheme in place.

Obamacare only adds to the nation’s growing healthcare bill. Medicare is not only insolvent, but it has $60 trillion of future obligations it cannot meet. The day is fast coming when health insurance cards will be worthless. American government will have to default on its promise to provide health care for all, especially its retirees, Obamacare or not.

Yes, other countries provide universal care, but they aren’t facing a population bulge of Baby Boomers now entering Medicare age, nor do other countries have so much unnecessary care (estimated $700 billion of needless care in the Medicare system, the Congressional Budget Office estimates). For example, PSA tests, mammograms and coronary angiograms have recently been reported to be of marginal value or over-prescribed.

Private practice American medicine can’t be compared to other countries that provide universal care. In those countries, their doctors on a fixed salary. More and more US doctors are now opting out of private practice and taking a salaried job.

However, the American public mistakenly believes their insurance companies are holding out on them and they are undertreated and deserve more care, not less. With Obamacare, Americans will experience more rationed care.

7. Waiting lines for care will predictably lengthen as there simply aren’t enough primary care doctors to handle the increased patient load. Americans are going to have difficulty getting used to delayed care instead of the accustomed care on demand.

Wait-a-while medicine is part of most universal health insurance programs worldwide. For example, in Canada, once target budgets are expended, patients wait months for a cataract removal/lens implant operation. During that wait time, if you fall and break your hip because you couldn’t see a step while walking in the dark, and then you succumb to pneumonia while laid up from the hip surgery, no one will blame it on delayed care.

8. Universal care just delivers more needless and ineffective care. Americans involved in the healthcare debate are arguing over the wrong issues. Americans want freedom to choose their health plan, their doctor, their hospital. This is not the problem. If you have no money, you can no more have the freedom to choose your doctor and health plan than to choose whether you would like to buy a Chevy or a Cadillac at the car lot. You can’t have these freedoms when treatment is no longer affordable. And why does the American public keep clamoring for care that doesn’t work and is even harmful?

The only three proven medical technologies are vaccinations, antibiotics, Trauma care like  mending broken bones; replacing cloudy cataracts;  repairing decayed teeth, drugs for the mentally ill. The rest are questionable.
Forty years of telling the cholesterol lie makes it difficult to undo the false cholesterol phobia. For example, eggs, loaded with cholesterol, have not been found to raise circulating cholesterol levels. For the majority of U.S. adults age 25+, consumption of one egg a day accounts for less than 1% of coronary heat disease risk. Health insurance pays for many false cures and unproven medical technologies. Universal health care seeks to pay for more of the same.

Americans have a knee-jerk reaction when they hear of panels who will decide whether your loved ones receive care in the last days of their lives. But Americans fail to realize hundreds of thousands of old and dying Americans are prescribed medicines that reduce pain but hasten death.

9. Self care is an underutilized option. However, Americans have been trained to run to the doctor when anything ails them. The typical senior American is taking a number of inappropriate medications and afraid to stop taking any of them.

Self care is not something doctors and hospitals want to promote. One would think managed care plans would promote self care because they would theoretically get to keep more per capita money that way, but they want to keep costs high so their cut of the financial pie remains lucrative.
Even in countries which provide universal payment for health care, there is increasing awareness that self care is a better route to take. One consultant in Britain says "the time has come to break the national dependency upon the National Health Service….. which denies the confidence to take control of their own and their families’ health."

Costa Ricans and Jamacans are almost as health and long lived as Americans with far less medical care.  In the medicine vaccination yeild, I would guess, over 90% of the benefits.  The rest of care helps here and there but if you have been vaccinated you got most of it.  That is why Costa Ricans and Jamacans are almost as health and long lived as Americans

My Bet on Toyota's Sudden Acceleration Problem

"The reason the NHTSA couldn't find the cause of sudden acceleration in Toyota isn't because they lack the technological expertise, it's because the problem doesn't exist (at least beyond the obvious mechanical issues like pedals getting caught on floor mats)."

"The symptoms and demographics of "unintended acceleration" are amazingly exactly the same as they've always been since long before cars had any sophisticated electronics. Funny how this new supposed electronic problem should exactly mimic another problem that's been seen for years. Not only that, but the symptoms surprisingly defy logic and physics in exactly the same way - somehow suddenly brakes which when fully applied can stop any modern car even at full throttle, somehow yet again stop working just when they're needed the most. Coincidence? Wouldn't you expect if it were really a new problem with the modern advanced electronics that just maybe it would produce problems previously unseen as well as not disproportionately hitting old people?
Who knows, maybe if NASA can finally put all this obvious nonsense to rest with a thorough debunking it will be worth it. But as it's hard to prove a negative, it will likely just end up with some noncommittal "can't rule anything out" BS and just be a total waste of money and time."

Posted by: Brian Courts

Why the Government does what it Does

A commenter (with the handle Drewfus) on overcoming Bias wrote the following:

"I don’t think the purpose or motivation of these wars is access to resources, defense against terrorism, WMD’s or really anything particularly concrete. It’s more about confidence. Confidence that the political leadership remains in control of our destiny, and that they have secured the country from physical attack. Social life is just a succession of confidence tricks. Keynesian economics tricks us into believing the government has the economy under its control, and that even if we didn’t avoid recession this time, well, it would have been much worse if the government had done nothing. Same with terrorism. All that airport security really did help to keep the bad guys under control – our leaders have told us so. The medical profession has our health care needs under its control – why else would the government want to spend so much money on it? It must work!" Drewfus

Freedom is Counter Intuitive

You would think that a country could do better with a central plan than with no central plan! But it seems to not work out that way.  One would think that having more that one car company is redundant (or more than one currency (BTW we really have one real bank the federal reserve bank) you could eliminate all that redundancy, redundant design departments, Marketing departments (isn't marketing/advertising a complete waste to society? etc. All those economies of scale and all. 

Are we not just better off to demand that people do not take drugs that are not OKed and approved by the central planers?  Are we not better off to ban the sale of recreational drugs like heroin and why not alcohol too?

Isn't it counter productive that in a free society even BP has rights and can go to court and get a law banning deep water drilling struck down.  That we the people should have an energy plan and it should not include BP! 

Doesn't it seem crazy that the USA used to allow anyone without TB into the country? 

And yet freedom seems to do well wherever it is tried.  Freedom is not perfect because people are not perfect but it sure beats the alternatives.

Responce to crique of Gold and Ron Paul

1. Though Ron Paul talks about the gold standard and 100% reserve banking, what he says he would implement is free banking, he believes that the people should be allowed to choose the form of money that they would like to use.  
He believes that people’s choices would lead to 100 percent reserve gold standard banking, I do not. In the case of the Scottish free banking era (about 1750 to 1850)  the system moved progressively away from gold through fractional gold reserves and the option cause.  Just before the end of Scottish free banking system, the Banks kept gold reserves below 2% and the option clause allowed them to deny gold in case of a run. On the other had bank capital* was typically over 30%.  Thus the system was moving toward money backed by only bank assets.  

2.  According to Christine Romer (no right winger) the depression of 1890 was not nearly as bad the Great depression.  So the worst depression occurred after the creation of the Federal Reserve and as far as a financial system collapse the worst ever was the one that just occurred in 2008.  The system is obviously fragile with serious feedback problems.   

3.  In the current monopoly currency system the failure of one bank weakens all the others.  This sort of feedback is what led to the collapse in 2008.  We need a monetary system where the failure of one  bank strengthens all the other banks.  I believe that fee banking would evolve into such a system.  

4.  The current system is not robust to changes in the demand for currency.  Currency is not as different from checks as we tend to think.  If banks floated their own currency rises in demand for currency could be accommodated without contraction of the money supply.  If you think about it in a free banking system, if people drained their demand accounts and horded currency the banks would not need to contract as they do today.  Money in currency would be no different  to the banks than money in a demand account.  

 * Bank capital is equal to the value of bank assets - bank liabilities.   Your mortgage is a bank asset and the money in your checking and savings account are bank liabilities. 

The Testing Function of Schooling Often Squeezes out Education.

  • Schooling is not equal to Education
  • The principles of most subjects including the real though subjects; physics, chemistry, accounting, statistics etc. are quite simple but people do not learn them well due to the need to make the subjects rigorous.
  • It is amazing what simple, practical, useful information typical college graduates do not know. 
  • Why when people discuss schooling and how we need to better educate the population, do they seldom ask or say "what it is that people do not know or cannot do that would benefit them so greatly in life", but rather they make statements like "We need more college grads" or "Our students do less well in international comparisons".  It seems we never ask "What is the most efficient way to get valuable knowledge and skills to people.  I think it is because think that getting the knowledge and skills to people without credentials is a waste. 
  • If schools exist to educate why do they do so much testing.  Worse they seem very willing to blab the results of all their testing to other organizations. 
  • Education is free but credentials are rather expensive.   You can listen to  MIT and Harvard lectures free on-line and you could always go an listen to some classes for free. 
  • My grand parents went to 1 year of school each, yet they ran a successful barber shop and they seemed more educated than many college grads I know.   
  • I know college grads who refuse to believe that 100 mpg carburetors do not exist.   That despite my attempts to explaining the Carnot limit to them.  On the other hand my grand parents could easily understand such things. 

How Could the States Experiment with Health Care and Why Should They

If I had my way Government would get completely out of health care but I do not see that as politically viable so I propose that the states rather than the Federal Government experiment with a program to provide insurance.

If any Government body should be experimenting with providing health care it should be the states rather than the federal government.   The sates control medical licensing and that means that they control costs to a large extent.   States do things like refusing to accept medical licenses from other states and countries that drive up costs.  States refuse to accept medical insurance plans that are accepted in other sates this also drives up costs.  If the Federal Government provides the money for heath care the states are not encouraged rightly license to maximize the cost benefit trade offs . 

The big obstacle to the states providing health care is the danger that a state would attract the sick and poor from other states.  A plan to avoid attracting sick people from out of state to the state would be needed. 

The plan could include some period of time to establish residency.  For example a state could have a 2 year period to establish residency before one is eligible for existing conditions.  Insurance companies already police this sort of thing so it is possible. 

To make the plans cheaper and less desirable to out of state people the insurance could be kept simple and minimal.  Much medical care in the USA yeailds very low or even no benefit,  a state plan could opt out of paying for such procedures.  Since people trust Government more that insuarcne companies they could get away with refusing more care.  An example or care that might be eliminated  is heart bypass, there is no evidence that heart bypass surgery produces better benefits than less invasive and much cheaper care, except if the blockage is in the upper left ventricle (and even then the evidence is weak).  Heart bypass is rarely done outside of the USA  In the USA though heart bypass is commonly done for all kinds of blockages.  The state policy would allow those who wanted to pay for such procedures to do so out of pocket but it would not pay for such procedures. 

The states could also establish high means tested deductibles. Here is an article that proposes a $50,000 annual deducible.  Here is me advocating a deductible based on income.

States could initiate some other experiments to save money. Here is Dean Baker's proposal to reign in costs.

Sunday, November 7, 2010

Retirement Spending

Lately there has been a lot of discussion of what the appropriate rate of spending in retirement is.  My suggestion is that as far a stocks go you can safely spend your dividend plus half of the companies' retained earnings.  Companies retain earnings because they have good investment options for that money.  If the investments are in fact good that will increase the value of the company and future dividends and so you should not lose value.   So why them do I say its only safe to spend half of the retained earnings 2 reasons: 1. Inflation means new capital inputs cost more than the depreciation of existing inputs. 2. Companies have historically not been good reinvesting retained earnings.

Now all of that is assuming that your stock investing is focused on dividend and future dividends.  Thus that you favor companies that have a long record of increasing dividends.

Monday, October 18, 2010

ScheduleBase Released

The company that I work for just went live with a great new scheduling product. It is called ScheduleBase and it is amazing what it can do. Check it out.
Please take a look it might help our Google positioning.
Let me know if you have any ideas to make it better.

Wednesday, October 6, 2010

How Much Tax Will Americans Pay

The problem that I see with our rapidly growing Government is that people have ways of avoiding taxes. For example wives of high earners might work at home providing goods and services for in family consumption  rather than in taxed worked, people might deal more in cash, or provide more of their own services, use barter etc.

For example a family with a low earner and high earner might keep the low earner working to help pay for the insurance, but if Gov. provides the insurance the low earner might quit a taxed job to provide services at home.

So the question  is how much tax will Americans pay before tax avoidance starts to reduces the Government income.

The President's Education Speech

The president's speech mentions affordable college below is an excerpt:
That’s why I’ve set some ambitious goals for this country. ... And producing 8 million more college graduates by 2020 so we can have a higher share of graduates than any other nation on earth.

In a single generation, we’ve fallen from first to twelfth in college graduation rates for young adults. That’s unacceptable, but not irreversible. We need to retake the lead. If we’re serious about making sure America’s workers – and America itself – succeed in the 21st century, the single most important step we can take is to offer all our kids – here in Austin, here in Texas, and across this country – the best education the world has to offer. ...

But we also know that in the coming decades, a person’s success in life will depend more and more not on a high school diploma, but on a college degree, on workforce training, on a higher education. And so, today, I’d like to talk about the higher education strategy we’re pursuing not only to lead the world once more in college graduation rates, but to make sure our graduates are ready for a career; ready to meet the challenges of a 21st century economy.

The first part of our strategy has been making college more affordable. I don’t have to tell you why this is so important – many of you are living each day with worries about how you’re going to pay off your student loans. We all know why. Even as family incomes have essentially flat-lined over the past thirty years, college costs have grown higher and higher. Over the past decade, they’ve shot up faster than housing, faster than transportation, even faster than health care costs. No wonder the amount student borrowers owe has risen almost 25 percent over the past five years.
Isn't producing 8 million more college graduates by 2020 the wrong goal. Shouldn't we first say what skills and knowledge do we want people to have?  Shouldn't we ask  and what is the most efficient way to deliver on that goal.  When people say at we need more education we should all ask them why and what.  If all we want is more college graduates that is easy, all we need to do is make school easier, cheaper, and more enjoyable for the students but I do not think that is what anybody wants (with the possible exception of Tyler Cowan).

We alway need to keep in mind that correlation is not causation.  Having a college degree correlates with all kinds of good things but that does not mean that what is taught and trained in college produces those good things.

Monday, October 4, 2010

Are Domocratic Presidents Better for the Economy

Many have stated that the economy performs so much better under Democratic Presidents.  Unemployment is mostly what people car about economically.  Lets say that by this they mean unemployment is lower under Democratic Presidents.  So to lower unemployment is all we need to do is vote for Democrats for President. 

Here are some problems that with that: 

1.If the statement is based on statistical analysis it is way too small a sample.
2. If it is a principle based point then one exception would prove it wrong. 
3. Nixon was more economically democrat than was Clinton. 
4. All presidents faced different problems.
5. Warren G Harding looks best of all if you look at just the hard facts.  Random?
6. If the people who make this claim are correct then they should blame the current 9.5 percent unemployment  on Barack Obama.

Miller Center Debate: Is the Business Model of Higher Education Broken?

I saw this PBS debate.  The big focus seemed to be how do we get more of our people to get college degrees than other countries. 

For what purpose?  If all you want is more degrees you can just make college easier cheaper and more enjoyable.  But that would destroy the value of the signal. Notice there is no discussion of what skills and knowledge would help people most and what is the best way to get it to the people who need it most. 

I think the myth busters TV show is educational.  Many games computer and others exercise thinking.  History channel teaches history.  PBS teaches cooking and gardening but none of these produces a signal and so the are not discussed when in debates like above.  I consider this proof that schooling is primarily signaling. 

Addition evidence that school in more about signaling/credentials verses education:

Most college professors lack much work experience

Midwives and PA's get the similar outcomes as doctors

If 16 years of education is better for college people can we be sure that it is not better for carpenters? 

Sometimes it is better to be the best  plumber than the worst lawyer.

Wednesday, September 29, 2010

Edmund Phelps and Unemployment

On this econtalk  Edmund Phelps talks about the tendency to have some level of persistent involuntary unemployment.  He says that most everyone who has a job is overpaid becuase of the cost to employers of turnovers and keep the employees motivated and reasoably happy to work for the employer.

This overpayment leaves insufficient money to reach the market clearing 100% rate of employment and instead  we have some persistent level of unemployment.  I think he estimates that about  4% unemployment it about as close as we can get to full employment without creating a future distortion.  

It seems that a increase in the rate of inflation can lower unemployment below 4% but since you cannot keep raising the rate of inflation for very lowing when you stop the unemployment rate will rebound to above 4%. 

It would then be logical that in a period like we are in right now of a sharp decline in the inflation rate, people with jobs would tend to be even more overpaid, leaving even less money available to increase hiring and producing a high level of un-employment like we have today. 

One response to this could be for the unemployed to accept very low wages much below their productivity level.   The minimum wage would stand in the way of this,  an hourly wage subsidy would work much better than this. 

When pushing government to act on a problem we should keep in mind that political realities make Governments do things roundabout and very inefficient ways.  I think therefore that if you are a supporter of raising the pay of the people at the bottom of the wage pyramid that you should think hard about possible offsetting behavior and never compromise and accept something like a minimum wage.  Such compromises are often worse than nothing. 

Friday, September 24, 2010

Super Bugs and Super Weeds

When greens talk about proper use of DDT and roundup, I support them, externalities do exist after all, but many if not most want to ban its use altogether.  

I hear people who want a total ban on the use of DDT and Roundup, who justify such by citing super bugs or super weeds.  Super bugs or super weeds are just bugs/weeds resistant to the pesticide or herbicide that they want banned anyway so what what is the big deal? 

Part this has to do with optimism verses pessimism if one is optimistic about a richer better future he says lets maximize the befits from roundup and DDT now when we need them more.  Future generations will have better ways to deal with bugs and weeds.  Even if they don;t they will surely have better means of dealing with other problems leaving them able to invest more of their energy on growing food. 

BTW resistance usually costs energy to an organism  and so if we stopped using DDT or Roundup the resistance would slowly be lost. 

Monday, September 20, 2010

A payment method that makes sense for 3% of the economy does not make sense when the sector balloons to 20% of the economy.

Here is an article that suggests life time health insurance

He suggests legislation that builds a a life time insuance scheme but we can build such a scheme ourselves. 
He like most people debating this issue ignores the fact that if an expensive medical intervention works one can amortize the bill over time. Since young people can amortize a bill, people do not ever need anything more than very high deductible insurance throughout life. People could take the difference between a very high deductible premium and a comprehensive plan premium and save it for future expenses. You could use this to keep your medical spending stable throughout life.

The only question is why do they not do this. My theory is that employers took on medical insurance when medical spending was small and so it made sense for them to do so. Now employers are increasing deductibles and dropping insurance which makes sense (who wants someone else to make 20% of their expenditures) but is perceived as bad and painful.
A payment method that makes sense for 3% of the economy does not make sense when the sector balloons to 20% of the economy.

Monday, August 30, 2010

Government Subsidized Universities Marketing

My son Daniel is senior in high school and he is getting a lot of marketing material from government subsidized universities.  How does this make sense?  This is from in state schools and out of state schools.  Should the tax payers support this?

I imagine that this low cost but still why market something that will costs you more expense.

You have a case where government subsidized universities are competing against each other.

One could argue that it could encourage more students to go to college (most people seem to that is good, I do not) but he did not start getting much marketing material until after he took the SAT signaling that he intended to go to college.

One could also say that it serves the function of funneling students to the school that is best for them but I find that pretty weak, the child could find that out on his own and marketing materiel does not cover much that would reveal that.

Wednesday, August 25, 2010

On Abolishing the Fed and Replacing It with Nothing

Why not abolish the Fed and replace it with nothing . . .

Producing money has historically been a sovereign monopoly, but it’s not a public good. Barons, kings, and bishops outlawed private mints so they could gain monopoly profits on the seigniorage.  Is monopoly ever good? 

The U.S. and Britain went the opposite way, charging zero seigniorage so that private mints were unprofitable. But when gold and silver were discovered in the American west, the government was a bit slow to establish a branch mint. A private mint quickly sprang up in Denver, charging seigniorage a bit below the cost of shipping metal to Philadelphia and back.

The Fed doesn’t need to be ‘replaced’, not by the government anyway. The market will provide money, one way or another.

I know, we would have to do without all the brilliant policies that central bankers use to smooth out the trade cycle. But they aren’t working out so well, are they?

The U.S. had its first trade-cycle downturn in the 1820s, when the Second Bank of the United States was in operation.

Has our economy been generally less unstable with central banking than without?  I do not think so. 

The median voters ideas about what money is and how the monetary system works are so far from reality that they cannot be expected to oversee the system and in a democracy the  median voters rules.

Tuesday, August 17, 2010

I Found a Great Quote

Men do not make laws. They do but discover them.
-- Calvin Coolidge, 1914        

Calvin is often quoted which is interesting because he is known as being very taciturn. 

Monday, June 14, 2010

BP could offer $400/b for petro from the spill

I wonder, since it seems that BP chemically test to see if tar was from their leak, if they could offer say $400/barrel for petroleum from the spill to get people to be creative and do the cleanup, rather than having to contract with all those fishermen individually. 

Tuesday, May 11, 2010

More Bail Outs

More bail outs  as the EU announces a trillion euro bailout for the Piigs.

The excuse for all these bailout is that they cause feedback that will cause even more failure. 

So why do governments treat monopoly as bad in private business but make monopolys of their own and treat them as good.  I am referring to the government monopoly on currency/money which is in my mind at the root of the feedback problems in the financial system.  The feedback is what lead to the bailouts. 

We need to design a monetary system with a fail safe.  We need to design it because it cannot evolve because of the central bank's monopoly!  You cannot have natural selection without diversity!

Bryan Caplan blogs on the bailouts

Another blogger that thinks like I do on the subject. 

Tuesday, May 4, 2010

Comments on EconTalk Podcast on Finacial Fragility

EconTalk has a wonderful provocative podcast with Nasim Taleb author of "The Black Swan".

They discuss the the fragility of the financial system.  Here are my comments: 

I have this idea that the Federal Reserve and US treasury has a monopoly on money and so the system is fragile.  Also in a monopoly it is difficult to set price. 

I think that the monetary system is not robust because it did not evolve or at least its evolution was stopped when central banks were created.  From your (econtalk) Free Banking Pod Cats with George Selgin I got the idea that free banking was evolving toward a system where money was backed in nothing but assets of the bank.  The evidence is that they had gotten to the point where they held 30 capital but only 2 percent gold.  The money was backed in bank capital not gold to dump the gold backing all together would be only a crisis plus one innovation away.  IMO such a system would be robust. 

Having said all that I do not think that we could ever convince the median voter to allow free banking and allowing the monetary system to evolve so I am open to the post Keynesian idea that government should in a recession just spend money without selling bonds and tax the money back in response to inflation. 

Now on Nasim's ideas about nutrition and exercise I think that he should just say we do not know. 

We know we need some small amount of exercise (like walking), we know that we need a minimum of some vitamins, minerals and amino acids.  We know nothing beyond that! 

Wednesday, April 28, 2010

Interesting Study Shows that in the USA Latinos Outlive Whites.

Interesting this study shows that int the USA latinos, who of the groups studied have the least access to health care outlive whites.  Even more interestingly latinos in the USA out live most Europeans.

Add to that the fact that the eight Americas study shows that rural northern whites (with less access to health care) out live the general population and you begin to wonder if access to more health care shortens life!

Of course remember that homicide and accidental deaths move the life expectancy averages more than health care, beyond vaccinations, over the counter meds like aspirin/Tylenol and antibiotics.

Still a little shocking!

Hat tip to Bryan Caplan

Monday, April 19, 2010

Is Too Regulated to Fail a Good Policy Goal

Is too regulated to fail a good policy goal or is it impossible?  Isn't the failure of the weakest players in any industry a good thing? 

Knowing how Goldman Sachs, Lehman etc. operated I think that we would all be better off without their backward and corrupt ways of dealing but a bail out was passed with more Democrats than Republicans votes to bail them out! 

Economic freedom, though the greatest economic system by far does not shield us from economic ups and downs.  It certainly does not shield us from painful creative destruction, but the alternative is slow decline and under performance a la Cuba and North Korea. 

(BTW for those who insist that Sweden is the real relevant alternative rather than Cuba and North Korea, even the most active Governments in free economies have not been able to prevent all finical meltdowns, see Sweden's banking colapse in the early 1990s. it is only a complete governmnet take over like in Cuba and North Korea that can avoid booms and busts.)

IMHO free banking with money backed by bank assets (which was evolving in some places) would have given a fail safe to the financial system where one failing bank strengthens others.  The monopoly federal reserve system that we have now is plagued by feedback where the failure of one bank weakens the others. 

It seems the financial system is complex enough that no one knows enough to regulate it or to run the currency system on a monopoly basis.  The finical and banking systems should have been allowed to evolve longer before governments stepped in and created central banks.   Diversity gives strength and resilience.  A central bank is a monopoly entity.  It eliminates all diversity in currency issue.  This causes problems.  It is more difficult for monoplolies to set market clearing prices.  In a one currency system what do you value the currency against?  The CPI attempts to measure currency against a basket of goods but the CPI did not properly measure the rising cost of real-estate.  In a multi-currency system beanks must keep their currncy on par with other currencies and sop must make continual small adjustments. 

Diversity gives strength and resilience if one currency of many collapses the slack can be filled by others

Keep in mind that with all the regulations that have been added thus far the financial crises have gotten progressively worse.  That fact alone should give us pause. 

Worse than regulation are government guaranties.  Take the example of FDIC insurance, before the creation of the FDIC banks typically kept 30% capital (in banking capital = assets - liabilities) now banks keep 10% capital and they only keep that becuase it is mandated by law (regulation) but because it was law it is not a cushion because if capital drops below 10% the bank is declared regulatorily bankrupt!

Wednesday, March 31, 2010

Some Questions for Democrats

How much welfare is enough and how should it be structured? Not just AFDC but Social Security, Medicare, food stamps, HUD, Fannie and Freddie, Gov. education etc.

How much of their own wealth should people be required to spend on their own medical care before the state kicks in?

What marginal tax rates are acceptable for the what incomes (low and high)? Right now low income people face huge marginal tax rates. I am getting at incentives here.

Does FDIC create bad incentives that might require an eventual virtual gov take over of banking? If so how do we keep lending from becoming too politicized and corrupt?

Is there a level of regulation and complexity where more regulation is counter productive?  What is that level?
Is too regulated to fail an achievable goal? 

Single payer and monopsony the seems to be the long range goal of Obamacare, how do you think that will work?

Tuesday, March 30, 2010

A Friend Asks for Opinions on Range of Issues

He asks:

Could any of you tell me about four CONCRETE changes that are desired. If the changes are something like:








You will have to include a few words regarding how to compensate for any unwanted consequences of the change.

Respectfully - Gomor

It is difficult once these programs are started and people have become depend on them so:

I would lower the SS tax and payout the minimum payments to all SS recipients and raise the retirement age to 70.

Seniors would not like this but I would start using evidence based medicine in Medicare.  I would also put a high deductible on Medicare.  $5,000/year to start.

Means tested programs make some sense (robbing Peter to pay Paul)  but programs like SS and Medicare make no sense.  They amount to robbing Peter to pay Peter. 

I would replace the income tax with a national sales tax and excise taxes (maybe even a carbon tax).  At some point I would eliminate the SS and Medicare taxes. 

Similar to SS lower the payout to some minimum level.  Interestingly you could replace unemployment payments and SS payments with a fixed amount of money given to every citizen but that is too radical and creates some bad incentives. 

We have gobs of regulations and we still have periodic financial collapses (and BTW they have been worse since the civil war (civil war laws pretty much ended an level of free banking) and worse yet since the creation on the federal reserve and FDIC) and lest you think that this is because conservatives had power for a few years (congress and the white house) Sweden had a finical collapse in the early 1990s.  So the regulations seem not to work.  We might as well allow free banking but the  transition could be brutal so we must go slow. 

I am against foreign wars unless we are attacked. Defense only. We won everything that there is to win in Iraq and Afghanistan time to end the police work in those countries and bring the soldiers home.  We got Sadaam and we toppled the Taliban. 

We spend almost as much on military as the rest of the world combined, and the other strongest countries are our allies (France and UK).  I think that we can afford to cut military in half at least.

Monday, March 29, 2010

Population Density

What my time living in Honduras (low national pop density compared to my native Rhode Island) showed me is that crowding is generally a result a lack of a tranportation rather than population density.
Rhode Island has a population density of 900/sq mi and  Honduras has a population density 77/sq mi.  Rhode Island does not seem crowed at all.  Honduras on the other hand can seemed quite crowed.  Poverty and poor transportation cause people to crowd in together. 

People talk about crowding in Japan, and Japan does has good transportation, but you will notice that people seldom talk about crowding in the Netherlands.  I think that part of crowding in  Japan is the result of their Government's attempt to keep Japan growing most of their staple foods. Agriculture does take up land but even if that was a national goal you could achieve it without preserving so much farm land, by using more intensive agriculture. 

Some population densities:

1 Macau 20,824.38
2 Monaco 16,486.67
3 Hong Kong 6,571.14
4 Singapore 5,539.77
5 Gibraltar 4,486.92
6 Gaza Strip 3,090.71
7 Holy See 1,977.27
8 Bermuda 1,249.44
9 Malta 1,192.51
10 Bahrain 1,014.66
11 Maldives 1,000.73
12 Bangladesh 949.28
13 Jersey 773.46
14 Taiwan 685.47
15 Mauritius 639.03
16 Barbados 602.77
17 Nauru 505.00
18 Korea, South 477.49
19 Netherlands 466.45
20 Puerto Rico 433.94
21 San Marino 417.68
22 Tuvalu 407.23
23 Mayotte 398.23
24 Martinique 388.24
25 Marshall Islands 361.32
26 Aruba 355.83
27 Saint Vincent and the Grenadines 354.47
28 Lebanon 348.26
29 Virgin Islands 343.34
30 Guernsey 337.04
31 Belgium 336.82
32 Japan 336.72
33 India 336.62
34 Rwanda 326.85
35 American Samoa 320.53
36 Sri Lanka 295.72
37 Reunion 287.09
38 West Bank 285.66
39 Grenada 285.32
40 Israel 282.82
41 El Salvador 281.81
42 Guam 280.28
43 Philippines 266.11
44 Comoros 259.32
45 Saint Lucia 252.49
46 Haiti 249.79
47 Guadeloupe 246.74
48 Jamaica 244.92
49 United Kingdom 244.69
50 Vietnam 237.62
51 Germany 234.86
52 Cyprus - Turkish Sector 224.76
53 Burundi 223.62
54 Netherlands Antilles 216.49
55 Trinidad and Tobago 214.83
56 Liechtenstein 200.36
57 Italy 192.96
58 Micronesia, Federated States of 187.32
59 Switzerland 182.94
60 Nepal 177.65
61 Korea, North 177.61
62 Pakistan 177.37
63 Seychelles 173.99
64 Dominican Republic 168.04
65 Luxembourg 165.92
66 Saint Kitts and Nevis 159.25
67 Sao Tome and Principe 154.88
68 Tonga 151.92
69 Cayman Islands 151.29
70 Tokelau 147.10
71 Andorra 146.53
72 Antigua and Barbuda 146.01
73 Northern Mariana Islands 145.49
74 China 133.69
75 Moldova 133.67
76 Gambia, The 133.63
77 Czech Republic 130.72
78 Man, Isle of 128.72
79 Montserrat 128.53
80 British Virgin Islands 127.71
81 Poland 126.79
82 Anguilla 126.48
83 Denmark 126.36
84 Nigeria 124.98
85 Albania 122.79
86 Armenia 120.04
87 Kiribati 119.25
88 Thailand 118.43
89 Indonesia 118.32
90 Uganda 114.19
91 Guatemala 113.77
92 Kuwait 111.73
93 Slovakia 110.58
94 Hungary 110.31
95 France 108.09
96 Portugal 107.86
97 Malawi 106.30
98 Serbia 103.06
99 Cape Verde 100.68
100 Cuba 100.09
101 Austria 98.37
102 Slovenia 97.28
103 Romania 96.96
104 Syria 93.53
105 Togo 93.43
106 Azerbaijan 91.85
107 Dominica 86.51
108 Turkey 85.11
109 Cook Islands 84.17
110 Croatia 82.91
111 Ukraine 82.51
112 Ghana 82.11
113 Greece 81.86
114 Cyprus 81.61
115 Macedonia, The Former Yugoslav Republic of 81.37
116 Samoa 80.69
117 Spain 78.43
118 Bulgaria 74.13
119 Sierra Leone 73.95
120 Burma 73.10
121 Georgia 72.69
122 Costa Rica 72.53
123 Lesotho 70.15
124 Bosnia and Herzegovina 67.97
125 Egypt 67.58
126 Morocco 66.46
127 French Polynesia 66.14
128 Cambodia 65.87
129 Malaysia 65.06
130 Qatar 63.26
131 Brunei 61.29
132 Tunisia 61.24
133 Swaziland 57.29
134 Benin 57.00
135 Uzbekistan 56.66
136 Wallis and Futuna 55.22
137 Norfolk Island 55.06
138 Lithuania 54.98
139 Honduras 53.60
140 Ethiopia 53.30
141 Ireland 52.74
142 Senegal 52.35
143 Mexico 52.15
144 Iraq 51.90
145 Jordan 51.32
146 Kenya 50.61
147 Belarus 50.10
148 Cote d'Ivoire 49.74
149 Cocos 45.43
150 Ecuador 45.38
151 Fiji 44.49
152 Guinea-Bissau 44.09
153 Tajikistan 42.77
154 Burkina Faso 42.28
155 Bhutan 41.53
156 Palau 40.32
157 Afghanistan 39.88
158 Iran 39.84
159 Nicaragua 39.23
160 Turks and Caicos Islands 39.22
161 Colombia 37.84
162 Panama 36.56
163 Latvia 36.44
164 South Africa 35.60
165 Tanzania 35.29
166 Cameroon 32.92
167 Eritrea 32.84
168 Estonia 32.60
169 Yemen 32.09
170 Guinea 30.66
171 Liberia 30.35
172 United States 29.77
173 Faroe Islands 29.35
174 Zimbabwe 28.87
175 Saint Pierre and Miquelon 28.79
176 United Arab Emirates 28.29
177 Bahamas, The 28.17
178 Venezuela 26.31
179 Madagascar 25.58
180 Mozambique 24.39
181 Kyrgyzstan 23.76
182 Laos 23.43
183 Congo, Democratic Republic of the 22.26
184 Sweden 21.69
185 Peru 20.80
186 Djibouti 20.36
187 Brazil 20.32
188 Chile 20.00
189 Uruguay 19.06
190 Christmas Island 17.58
191 Saint Helena 17.43
192 Finland 16.89
193 Equatorial Guinea 16.60
194 Solomon Islands 16.54
195 Sudan 14.51
196 World 14.42
197 Norway 14.42
198 Paraguay 13.68
199 New Zealand 13.63
200 Argentina 13.42
201 Algeria 13.07
202 Zambia 13.05
203 Vanuatu 12.81
204 Oman 11.52
205 Somalia 11.38
206 Saudi Arabia 10.97
207 New Caledonia 10.63
208 Papua New Guinea 10.39
209 Belize 10.34
210 Angola 8.97
211 Turkmenistan 8.95
212 Russia 8.61
213 Mali 8.55
214 Niue 8.09
215 Congo, Republic of the 7.96
216 Niger 7.86
217 Bolivia 7.36
218 Montenegro 6.66
219 Kazakhstan 6.30
220 Chad 6.00
221 Central African Republic 5.53
222 Gabon 4.76
223 Guyana 3.58
224 Canada 3.36
225 Libya 2.84
226 Iceland 2.72
227 Suriname 2.67
228 Mauritania 2.51
229 Botswana 2.50
230 Australia 2.47
231 Namibia 2.00
232 French Guiana 1.88
233 Mongolia 1.67
234 Pitcairn Islands 1.04
235 Western Sahara .90
236 Falkland Islands .23
237 Svalbard .04
238 Greenland .03
239 Antarctica .00
239 Ashmore and Cartier Islands .00
239 Baker Island .00
239 Bassas da India .00
239 Bouvet Island .00
239 British Indian Ocean Territory .00
239 Clipperton Island .00
239 Coral Sea Islands .00
239 Europa Island .00
239 French Southern and Antarctic Lands .00
239 Glorioso Islands .00
239 Heard Island and McDonald Islands .00
239 Howland Island .00
239 Jan Mayen .00
239 Jarvis Island .00
239 Johnston Atoll .00
239 Juan de Nova Island .00
239 Kingman Reef .00
239 Midway Islands .00
239 Navassa Island .00
239 Palmyra Atoll .00
239 South Georgia and the South Sandwich Islands .00
239 Spratly Islands .00
239 Tromelin Island .00
239 Wake Atoll .00

Monday, March 22, 2010

The healthcare bill of 2010 passed

The healthcare bill of 2010(my name for it) passed.  I guess that it will, in net, be bad for us (especially for those with some knowledge of how to get good heath care at a good price), but that the politicians will hide the costs very well and make the benefits obvious so that most people will like it.  IMHO we were headed into a painful but positive period in health care were more and more employers would drop coverage and raise deductibles.  That would be painful for many, but that pain would have resulted in the people forcing some much needed sanity in health care provision.

Tuesday, March 16, 2010


Iraq's GDP is $12.5 Billion, Afghanistan's is $10 billion. Estimated cost of our "war on terror" so far is nearly $1 TRILLION! Take a second to take that in.

A retired ag. economist spent time in Afghanistan about four years ago. He was one of the few who ventured out of the cities, meeting with villagers on setting up ag. co-ops.

His report: "This is just a bunch of villages, run by the village elders and the local immam. Some guy who they never met comes in once and awhile from the central government and makes promises and leaves.

Life goes on in the village.

There is no central government. These are dirt poor farmers in dusty isolated villages who have run their lives following the village elders and the local immam."

A friend of was an officer over there he told me that the day the USA army pulls out of Afghanistan it will revert back to what it was before we went in. 

I see the action in Afghanistan as a huge waste of resources.  The strategy is misguided. Centralizing control doesn't work in the US. why would it work in Afghanistan? All its doing is creating opportunities for corruption.

On top of that we are also trying to fight our irrational drug war there. The drug war creates financial opportunities for terrorists, just as it does in places like Columbia and Oakland California.

It takes a $1 million/year to maintain one US soldier in Afghanistan for one year?  You could hire about a thousand Afghans for that. 

We won all that can be won in Afghanistan we need to pull out.  We won the war it is long over.  Our soldiers can move about Afghanistan with impunity.  It is over we won lets bring the troops home!

Thoughts on the FairTax

The main complaints about the FairTax are that it is not progressive enough and that it would lead to a large black market.

People often say that the FairTax in not viable politically because the people who currently do not pay income taxes would never support it. But many Americans believe that the rich do not pay taxes and so the FairTax might appeal to these folks. Ask blue collar people if the rich pay taxes, you may be surprised. Some of the problem comes from the media who love to report that people like Ross Perot, who get most of their income from municipal bonds, pay no taxes but the municipal bonds only allow the holder to pay, through lower interest rates, taxes to local governments at a slight lower rate than they would pay to the federal government.

Here Erikson and Althaus say
On economic issues the fully informed electorate is more supportive of free-market solutions and opposed to government services. Yet the informed electorate is also more supportive of taxation. Not only would "full information" push redistributive preferences generally rightward; the biggest push would be among the poor, perhaps unexpectedly... The net result of greater awareness would not simply be a more conservative electorate economically, but also one with smaller class divisions. This is far from the vision of liberal reformers.

This would be another reason that the people might like the FairTax.

Replacing the income and SS taxes with an NST could work given…

Road taxes are already collected that way.
Most funding for fire, schools, courts and police work is from local government taxes.
Agricultural subsidies are vote buying schemes we could do without.

Seeing that the rich live much longer than the poor it would be sensible to re-work SS so that everyone gets the same amount of money. This could be done in such a way as to reduce the cost of this program. SS is already less progressive than most Democrats would want.

Medicare funding is also regressive and makes no sense since in the current formulation Gov. does not have much pricing power and since the least effective medical care spending is that spent on old people and, again, since the rich tend to live much longer than the poor, we might be able to set up a system that any American can get medical care from Gov. less that Medicare costs today.

Documentation on the living much longer than the poor:

For here in this multi-deprived inner city area, the average life expectancy of a male is just 53.9 years. In Iraq, after 10 years of sanctions, a war and a continuing conflict, suicide bombs and insurgency, the average man has a good chance of making it into his 60s; the life expectancy of a male there is 67.49. In Iran it is 69.96, in North Korea, 71.37 and in the Gaza Strip it is 70.5.

Our military budget has not yet been brought in line with the fact that the USSR is no more, it could be greatly reduced.

The black market in alcohol cigarettes and gasoline seems small and the tax rates for these are high.

Economists estimate that small business owners only pay 70% of the taxes that they are required by law to pay and farmers only pay 50%.

But the change over is very risky and may be politically unfeasible, much of the above spending cuts may not be politically feasible

Robbing Peter to Pay Peter

I understand taxing the rich to help the poor. What I can't understand is taxing everyone to help everyone. Means-tested programs like TANF and Medicaid aren't crazy; they take from Peter to pay Paul. Universal programs Social Security and Medicare are crazy; they take from Peter to pay Peter. 
[Bryan Caplan]

I have been telling people for a while that "you cannot subsidize the middle class" and "if everyone is subsidized no one is subsidized".
I would extend Bryan's comments to Government education. The rich and middle class should pay on a sliding scale to send their children to Government schools.  T

Also consider my suggestion for healthcare that subsidizes the poor encourages the competent to shop for price and value and avoid huge marginal tax rates near the point where medicaid eligibility ends.

My blog post on a healthcare compromise

The state would provide insurance to all Americans but the annual deductible would be equal to the family’s trailing year adjusted income minus the poverty line income (say $25,000 for a family of 4) + $300. So a family of 4 with a trailing year adjusted income of $30,000 would have a deductible of $5,300. A family of 4 with a trailing year adjusted income of $80,000 would have a deductible of $55,300. Middle class and rich people could fill the gap with private supplemental insurance but this should be full taxed. This would encourage the middle class and rich, who are generally capable people, to demand prices from medical providers and might force down costs. They could opt to pay for most health-care out of pocket while the poor often less capable would be protected.

I see 3 possible ways to cut medical spending:

A friend wrote: 

I have a very simple change in proceedure that could appreciably reduce health care costs: Mandate that the cost of each proceedure must be stated before the patient decides to choose whether to have it done;

I have three excellent examples - a year ago I was planting and scuffed my Achilles tendon. The doctor said why don't we get a MRI just to be sure - I said OK and it was done. Nowhere was it stated that the MRI would cost $1700 and waiting a few days would give the same answer. About the same time I had a skin specialist look over some scruffy looking places. He sprayed them with liquid nitrogen and they went away - but I had a little bump and he said why don't we get it biopsied? I said OK and later got the bill for about $700. If I had known the cost, I would have said why don't we wait a little while and see if it goes away? A few years earlier I had a mild distress in my chest and went to the emergency room. Whiz - Bang and I am in the "Heart Catheter Lab" with a thin probe doing its work in one of my cardiac arteries. A few hours later I find that I have incurred a bill for $35,000. Much later I learn that a medical approach has as high a success rate as angioplasty with a stent.

In all of these cases, if I had been told: "This is what the cost will be - do you want to do it?" I might have been inclined to save the money.

This is non-partisan - What do you think?

I see 3 possible ways to cut medical spending:

1. Put more of the costs of medical care on the patients. 

My friend's comments above beg the question of why costs of procedures are not stated or even asked for! 

I think the answer is because few people pay directly for medical care.  Putting more of the costs of medical care on the patients means most people should have deductibles and copays in the tens of thousands of dollars per year.

This would be facilitated by a separation of health insurance from employment.  I do not think employers would have taken on provision of health insurance for their employees if it was 17% of the economy when they started.  Spending 17% of the USA economy needs the attention of everyone each with his specific and individual knowledge of his own circumstances, delegating it to employers when it was 4% of the economy made more sense.

2. Monoposony

Single payer where the government like in Canada and Japan pays for all medical care and so can set the price pretty low.  This though, creates shortages but the shortages are somewhat mitigated because governments through excessive regulations and licensing have created a shortage of provision and so some of the shortage would be absorbed. 
Further even if quality and access is reduced it seems that medical care beyond vaccinations, antibiotics, trauma care and a few other cheap things yields very little improvement in health, so lowering quality and access is not so bad.

Still the government of Canada socialized medicine when it was only about 2% of GDP.  It is now 8% of GDP in Canada and this seems to be loosening monoposony's grip.  Again they need more people actively working to lower the spending.  Also the shortages can still be a drag even though somewhat mitigated. 

2. Making some procedures illegal

Researcher after researcher has shown that back and neck surgery do not work. Heart bypass other than for the upper left ventricle has be shown to be less effective than non surgical treatment. One could go on and on. These non effective procedures could be banned. The problem here that people would not like this and it could effect future innovation.

I choose option 1 and the good news is that the bad news in healthcare, that employers are dropping coverage and increasing deductibles, is moving in that direction.
The current bill is a complete joke. 

Monday, March 8, 2010

Is the USA Healthcare Market Moving in the Right Direction?

I have been paying close attention to the debate on health insurance for a few years. Lately I been hearing of more and more employers dropping health insurance or raising the deductibles for their employees.  Judging from people I know, when their employer is not providing health insurance and people buy their own insurance they opt for high deductibles.  This is IMO what needs to happen.  Insurance should be only for what you cannot afford not for what you can afford.  I think most Americans would be better off and have a better relationship with their insurers and health care providers if they had annual deductibles of $20,000 to $50,000.  This would also cause some healthy price and spending consciousness.  Today nobody is looking to save money on treatments and that has lead to absurd and spiraling health care spending. 

I do not think employers would have taken on provision of health insurance for their employees if health care spending was 17% of the economy when they started. Spending 17% of the USA economy needs the attention of most all users with their individual situations and demands. Delegating the spending of 4% of the economy it to employers is much more sensible than delegating the spending of 17% of the economy to employers.

So aren't these trends likely to slow the rise in medical spending which is the only real problem with health care in the USA and if so is this just a needed adjustment?

One unrecognized fact that I have learned about health care is that health care beyond vaccinations, antibiotics and trauma care has very little impact on health. This idea has popped up again in the debate over how many lives would be saved if everyone had health insurance. 

In theory universal health insurance save the person who due to a lack of insurance does not have a symptom checked until it is too late and so dies. Advocates of Government provided heath insurance like to cite a poorly done study that showed 40,000 premature deaths per year in the USA due to lack of health insurance but startlingly many more studies can find no additional deaths.

Everyone insured or uninsured gets the most effective basics; vaccinations, antibiotics and trauma care. Thankfully vaccinations, antibiotics are very cheap and affordable, they are cheap enough for public provision. Trauma care can be expensive but it is uncommon and has a big payoff, the patients are often young and most can completely recover and so can pay down a large bill over time.

Let me make a note everyone knows cancer survivors who are grateful that early treatment  saved their lives but autopsies often find that people had cancer for over 30 years and died of something other that cancer. Also cancer treatment takes some lives, operations and hospitals are dangerous. We really do not know how many lives Cancer treatment saves because some cancer is slow growing and probably would not have killed and fast growing cancer often kills despite treatment. It is only in cases of moderately growing cancers that lives are saved.  We do know which particular cases of cancer are slow growing which is why it is mostly treated

Some people may counter that if one life is saved then we should do it, but this is inconsistent and counter productive. It is inconsistent in that we know a lower speed limit could greatly reduce deaths due to auto accidents but we do not want that.  It is counter productive in that if it makes us poorer we could loose lives for other reasons (one simple example is that driving is much more dangerous than flying and the richer we are the more likely we are to fly than drive on long trips).

Financial crisis of 2008

The problem with the banking system is not corrupt people (people are always corrupt).  The problem is that the system is not robust to corruption.  The current system has feedbacks that magnify rather than reduce problems. One big bank failure should strength all other banks, instead it weakens them.

Part of the problem is that the green back is too strong.  It is too highly desired.  It is treated by most people as safer than real assets despite being just paper. In a contractionary banking crisis people want greenbacks and Federal Government bonds over real assets. If this was not so people would rush to spend their cash and Government bonds on real assets like Restate and loans would be strengthened. 

We need fundamental change.  the old saying,  "anything that can happen will happen holds".  If greed can break the system it will.  
We need a fail safe mechanism.

I have seen 3 proposed solutions: 

Possible solution 1. The post Keynesians say that Government should stop selling bonds at all and use seniorage  (the creation of money) in recessions and depressions to increase aggregate demand and taxes in inflationary periods to reduce aggregate demand.  As far as I can see this should work.  The down side is that it separates taxing from spending giving more power to the state.  Also would require the raising of lowering of taxes and spending in response to economic conditions.  Politicians have real problems reducing spending and raising taxes. 

Possible solution 2. Some free banking advocates advocate currency made by banks backed only by bank assets.  The banks would never have to pay out in Gold, so there would be no danger of bank runs.  If the demand for currency was to rise they would just print more.  If bank assets value falls so does their currency but only relative to other bank's currencies.  we generally are not aware of it by currency is not that different from checks and bonds.  

Possible solution 3. 100 percent reserve banking.  Noble economist James Buchanan has come out for this option.  This was once only proposed by fringe economists.  Presumably savings accounts would no longer exists but would be replaced by bond funds that fluctuate with the bond market and the strength of the bank's portfolio. The money market accounts would become short term government bond funds.  A better term for fractional reserve banking is "maturity-transformation" , it makes things clearer. like 02/maturity-transformation-cat-bag-out.html

We can never be sure if either system would work to prevent bouts of high unemployment but we do know that what we have now produces bouts of high unemployment.