Thursday, December 13, 2012

Police, Crime and Government

  writing about "Police, Crime and the Usefulness of Economics" writes:

Using a range of reasonable elasticity estimates from the new literature and a back of the envelope calculation, Klick and I argue that it would not be unreasonable to double the number of police officers in the United States. At current levels, it’s also my belief that police are much more effective than prisons at reducing crime and with far fewer of the blowback effects. Chalfin and McCrary do a more detailed cost-benefit calculation for individual cities and they also find that many cities are severely underpoliced (and some are overpoliced–the police force of Richland County, South Carolina probably does not need a tank).

It seems to me that more police are not only more efficient than prisons at reducing crime but might be more efficient than more welfare, more school spending, food stamps etc. at improving social welfare.

Dorm rooms are often small simple block rooms but are nicer places to live than slums because you don't need to fear aggression nearly as much.

So police are one of the few things that 99%+ of people agree Governments should do, and yet they spend little on it and seem to do a poor job of it!

Tuesday, December 11, 2012

Simeon and Anna

Simeon and Anna
Luke 2:21On the eighth day, when it was time to circumcise him, he was named Jesus, the name the angel had given him before he had been conceived.
22When the time of their purification according to the Law of Moses had been completed, Joseph and Mary took him to Jerusalem to present him to the Lord 23(as it is written in the Law of the Lord, “Every firstborn male is to be consecrated to the Lord”b), 24and to offer a sacrifice in keeping with what is said in the Law of the Lord: “a pair of doves or two young pigeons.”c
25Now there was a man in Jerusalem called Simeon, who was righteous and devout. He was waiting for the consolation of Israel, and the Holy Spirit was upon him. 26It had been revealed to him by the Holy Spirit that he would not die before he had seen the Lord’s Christ. 27Moved by the Spirit, he went into the temple courts. When the parents brought in the child Jesus to do for him what the custom of the Law required, 28Simeon took him in his arms and praised God, saying:
29“Sovereign Lord, as you have promised,
you now dismissd your servant in peace.
30For my eyes have seen your salvation,
31which you have prepared in the sight of all people,
32a light for revelation to the Gentiles
and for glory to your people Israel.”
33The child’s father and mother marveled at what was said about him. 34Then Simeon blessed them and said to Mary, his mother: “This child is destined to cause the falling and rising of many in Israel, and to be a sign that will be spoken against, 35so that the thoughts of many hearts will be revealed. And a sword will pierce your own soul too.”
36There was also a prophetess, Anna, the daughter of Phanuel, of the tribe of Asher. She was very old; she had lived with her husband seven years after her marriage, 37and then was a widow until she was eighty-four.e She never left the temple but worshiped night and day, fasting and praying. 38Coming up to them at that very moment, she gave thanks to God and spoke about the child to all who were looking forward to the redemption of Jerusalem.
39When Joseph and Mary had done everything required by the Law of the Lord, they returned to Galilee to their own town of Nazareth. 40And the child grew and became strong; he was filled with wisdom, and the grace of God was upon him.
James Dobson  once spoke about a pastor that he knew who would who when a young family joined his church would be extra pleased saying these are the type of people that will be the backbone of the church but he (James Dobson) said that we should resist thinking that way. 
Simeon was an old man waiting to die and Anna was an old widow but they are mentioned in the bible for greeting Jesus as his (I am assuming) circumcision.  God is no respecter of persons.  God wants the old, the  widow, the poor, the handicapped, the blind, the mentally ill and even those with dons syndrome.  He takes them all and sees none more deserving of his respect than any other.  And we should try to do the same in all parts of our lives. 

Sunday, November 25, 2012

A Profit Opportunity?

There is a lot discussion lately of whether or not Federal subsidies to student cause tuition to rise and by how much. (here is one) The discussion extends to who captures the additional money that goes into the system and why the state universities are not lowering costs.

Harvard is awash in money, they charge tuition $30,000/year.  Harvard is quite a profitable not-for profit and yet Harvard has not increased its enrollment to even keep up with population growth let alone an additional amount for the fact that more people attend school longer.   If they did they could probably increase the bottom line but they are run by people that has other things in mind.  They are among the top hand of Universities in the world and are determined to keep that prestigious position.  They also know that the way to maintain that position is to reject a lot of well qualified students only taking the some best of the best.

I think that you that you could provide education some majors for as low as $2,000/year.  For example there are many well qualified, would be history professors with phd's available at fairly low cost, lets say full compensation of 70,000/year.

The obstacle is that to get respected a university needs to get enough applications from good students so that they can reject most of them and still fill the school.  That takes reputation and that is difficult to get.

A long term might be to hire some famous professors and start a school that charges no tuition.  This would allow you to attract some of those students that you need.

Are Some Getting Healthcare Much Cheaper than Average

SaveyourSelf writes:

I am a Family doctor in the Midwest. Some of my patients are Mennonite. They pay only cash. As you might expect from a group of people who pay for everything out of pocket, they ask a lot of questions about prices, risks, benefits, "why do I need that?" etc. They get the same healthcare as insured patients. On the whole, though, they pay less for their healthcare because they make themselves more informed about their choices and they consider cost.
I asked a couple of them, just out of curiosity, if they have been hurt by the "ever rising cost of healthcare." They had not noticed.
I thought that was telling.

Saturday, November 17, 2012

We Are Told that SS Exists Because Some Would be Destitute in Old Age Without It

The Incidental economist has a couple of good post about Social Security here and here.

They just shows how perverse our welfare for the elderly programs are. We are told that the SS system exists because some would be destitute in old age without it.  So shouldn't that be reflected in the structure of the program? We have all been scammed by the SS system for long enough.  One sensible thing to do is to end FICA (FICA is not a tax but a "contribution"), fund Social Security though taxes and pay all retirees the same amount.  This would improve life for most Americans because they would get to spend more money when they are young and poorer and if they saved and invested they could still have more to spend when old due to greater returns on private investments.  Also since saving and investing promote growth, the economy would produce more, meaning we will almost all be able to consume more.

Thursday, November 1, 2012

Hospice and Insurance

File this under why insurance is a bad way to pay for anything.  If one goes into hospice, health insurance will pay for it, but if a family member quits work to give care, they will not be compensated.  The latter is often doable until very close to the end and is much cheaper and better for the patient. 

Wednesday, October 17, 2012

Poverty Paradoxes

Some have said the diseases of poverty in the USA are diseases of wealth. 

Why Tax Consumption

Why tax consumption rather than income. 

  1. We are trying to shift some consumption from the rich to the poor or from personal consumption to a public good.
  2. We are not trying to shift investment or reduce investment  because we all benefit from investment.

SS and Medicare not a Quid Pro Quo

In this election season I am seeing a lot on political ads saying that this or that group payed into Social Security and/or Medicare and so they have a claim on the system, therefore the Social Security and/or Medicare system must not be changed to help with the deficit.  But the programs are not a case where people voluntarily bough a specified future benefit.  Rather people where compelled to pay and they will receive what the democratically elected officials decide the benefit should be.  The programs have been changed before and they can be changed again.  There are no Guaranteed Social Security and medicare benefits.

Here is Ross Douthat on the payroll tax.

One Doctor on the Doctor Shortage

From the comments here.
 There is a huge international pool of capable, English speaking, newly-minted foreign-trained medical school graduates every year. Many would be happy to immigrate, do their residency training and raise their families in the US. Many are leaving countries where the monies paid under US government healthcare price controls are a relative fortune. Some leave a country like Canada, because they want to escape a socialized system where private insurance is outlawed.
HHS has total federal agency discretion to control funding and expansion of physician residency training programs. They can quickly expand the nation’s physician pool.

Furthermore, the medical profession has dramatically extended the required post-graduate training years since I graduated from Columbia College of Physicians and Surgeons in 1976. It unconscionably forces young women doctors to delay starting their families at child birth ages we recommend as optimal for our patients. . . or prevents these young women physicians from entering the medical field best suited to their talents because they don’t want to outsource raising their children.

As physicians, we have always known and discuss with each other that one of the primary reasons that training time was extended so dramatically was to delay young physician entry into the marketplace.

Dorothy Calabrese MD
Allergy & Immunology, San Clemente, CA
Often the blog comments are better than the post. 

Thursday, September 20, 2012

How Republicans Get Higher Taxes and Democrats get Rising CO2 Emissions

Below is from from a NY times article titled "Taxes Show One Way to Save Fuel" by EDUARDO PORTER

According to economists crunching the numbers, this makes mileage standards somewhere between 2.4 and 13 times more expensive than a gasoline tax as a tool to reduce our use of fuel. Indeed, by some calculations, raising fuel-economy standards is more costly than climate change itself.

The same I am sure goes for Government investment in alternative energy. It is time for all of us to wake up and see that politicians from both party are scamming us. People need to realize that they are often paying a tax even when they do not write the check to the Government.

The same goes for a CO2 tax it will be cheaper and more equitable in the long run than bloowing money on AE pipe dreams sometimes run by crony capitalists.

Republican and democrat voters need to compromise on a tax rather than letting our politicians hide the tax to get Republican votes and display the alternative energy projects to get Democrat votes. With the current situation Republican voters end up with higher taxes (to spend to to tax) and Democrat voters get continually rising co2 emissions.

If you do not despise Obama and almost every Democratic congressman and you do not despise Romney and almost every Republicans congressman it is because you are not looking at the facts.

And by the way one of the worst things that you can do is encourage those not interested in the real outcomes policy to vote.

To preempt an inevitable argument: An argument can be made that Government funding of basic research is warranted but most of this alternate energy stuff is very far from basic research.

Tuesday, August 28, 2012

Are Children Really Expensive?

Here is an article on people not having children due to the bad economy.
In the article they have this “Children are really expensive,”

But are children really expensive?  I once worked with a single mother (she had a very low income BTW) who said “children are cheap. If you have $20 left over at the end of a week you have enough money to have a child.” I believe her. I think that most children are very cheap to have and raise, some are very expensive, those with health or behavioral problems but you can spend as much or as little as you want on an average child. The extra money we spend on them yields very little. 

As the article notes down a little lower it is risky to have a child but still people should be told that an average child is cheap.

Monday, August 27, 2012

More on High Deductible Health Insurance

Stuart Buck's post on not insuring for small health expenses got me thinking again about why people have low deductible insurance and why one of the arguments against high deductible insurance is weaker than it seems. 

The incentive alignment in health insurance is bad so why do people choose to use insurance for health expenses that they can afford. (I have a $10,000 deductible health insurance plan, partly because I want to minimize fighting with insurance companies.) one might argue that we have low deductible insurance because the deduction is better if health spending is done through an employer but that begs the question of why people would support such a tax situation.

My current explanation for why low deductible health insurance still dominates is that it gives people peace of mind, one less thing to worry about. Also when healthcare spending was just 5% of GDP it was a nice way for companies (or Governments) to that they cared.

It worked OK while health spending was below 10% of GDP but that peace of mind has become too expensive now that health spending is 18% of GDP. At 18% of GDP, we need individuals to make more of the spending decisions directly. The trade offs between spending on health care and other things can be very different for people. At 18% of GDP it is not even a sure think spending that much on healthcare increase health more that say buying a newer safer car or a gym membership or opting to work a lower paid but safer job. 

One of the arguments that people will make against very high deductible insuracen is that when one is  sick it is difficult to shop for price and that shopping for price is very difficult in health care but,  the health care industry is not that as bad as people think in this regard because patients can have GP's who do very little of the expensive care themselves who can seek the best options on behalf of their patients.  So even if the patient is too upset by the sickness to make the decisions himself they can have an advocate acting on their behalf.

I have had situations where Doctors have found much cheaper options for us after we have explained how much we will pay with our $10,000 deductible health insurance plan.

If Your Mind could be Transplanted

If Your Mind could be Transplanted into the either into Warren Buffet's body or into the body of a poor black teen which would choose?  you of course get Warren's money if you choose him but you get his age too.

That seems like an easy one to answer but how about this:  A well built but poor young back man or Warren Buffet's pudgy son? 

Friday, July 20, 2012

Question to Advocates of Government Expansion in Healthcare

Advocates for more government expansion into healthcare often point out that industrialized countries with socialized medicine pay much less for healthcare than we in the USA do.  They claim that it is becuase it is socialized that it is cheaper.  But we in the USA have socialized schooling and we still spend a lot more on schooling that the other industrialized countries.  So wouldn't it be good to insist that any Government expansion into healthcare be funded with cuts in spending on schooling, at least until that expansion in healthcare lowers spending.

Thursday, July 19, 2012

Employment is Signaling Signaling

Unemployment is low among college grads and yet over 50% of college grads take jobs that do not require a college degree.  It is is not surprising that unemployment is low among college grads.  They tend to be more capable than people who did not graduate from college but sine they are not using the knowledge that they gained in college it is unlikely that college made them better employees but they were more capable and that allowed them to graduate for college.

I say that is evidence that college is more signaling than education.

Friday, July 6, 2012

A Green Jobs Program Spent $38.6 Billion to Create About 3,600 Jobs

The Classical values  blog has a post on the cost of green jobs created:
A Green Jobs Program spent $38.6 billion to create about 3,600 jobs.

That is $10 million per job. I figure I could take that $10 million and create two jobs for $5 million and pocket the difference. That would have doubled the efficiency of the program. And I could become a 1%er. Of course a long time ago I was a different kind of 1%er.

Of course if produced energy at a competitive price that would be find but that is not the case. 

To my friends who are advocates of green jobs:  You should insist on more efficient methods! Politicians tend to not care much about efficient use of funds but all taxpayers Democrats and Republicans should! 

BTW very little little of this is basic research for which an argument for direct Government funding can be made.  This is all technology, which the private sector tends to do more efficiently.  You should drop your support for most of this stuff and insist on a carbon tax or nothing.

Even Democratic politicians are NOT on your side, they are only on their own side and will screw you if given half a chance. (The same goes for Republican supports, you think that they would have learned this from Bush.) it seems many intelligent democrats have come to the point where they support any nonsense as long as its intentions appear good, it increases Government intervention and the Republicans hate it. 

This is like the stimulus, even if you use the Obama Administrations numbers it cost over $233k per job created or saved.  These are not high paying jobs they spent $233k each to create $20k/year jobs!

Monday, June 25, 2012

Postrel and Cowen on Schooling

praises and excerpts a post by Steve Postrel about the signalling model of schooling and the rising cost of University level education.  

In it he attacks the signaling model on education but talks a lot about rigor and the lessening for rigor in a negative way.  

If schooling is about capital formation shouldn’t rigor be reduced over time as new discoveries about how to educate and new technologies come on line?

If the goal is to teach more people more of what they need to know to live a better more productive life we should never focus on rigor.  We should rather focus on what is learned. Instead of talking about rigor we should discussing that students need to learn more information, more important information and develop better skills. Once you mention rigor, though it can be a tool to get people to learn more, I think signaling because rigor is an indirect goal. Rigor in the non-signaling model in never the goal, learning is the goal and we are not sure that rigor always increases learning (see Robert Frank).

Tuesday, June 5, 2012

Sumner: "Lower inflation during recessions is a sign of procyclical monetary policy, i.e. policy failure"

Scott Sumner writes:
Lower inflation during recessions is a sign of procyclical monetary policy, i.e. policy failure.

Yes! I do not know why pop econ is so counter to this.  If we are producing less due to investment mistakes or supply shocks or whatever, prices in general should go up as supply goes down. The fact is that sometimes inflation is good and sometimes deflation is good.
One proof that inflation is sometimes good is that farm and petroleum economies are doing good (North Dakota has very low unemployment).  Employment is high in food and petroleum producing areas, and as for real wealth production is up and rising. 

Let me address another thing to my fellow conservatives.  You think that debt is bad and that people and corporations should pay down their debt but you fret about the rise in base money.  Well since money is created be debt wont we need much more base money if everyone gets wiser and uses less debt?

Now a big problem is that monetary policy is controlled by voters and though relatively lower home prices are good and needed but to home owners, who are mostly voters lower home prices are a negative and so they want lower food and gasoline prices and higher home prices.

Sunday, May 27, 2012

The Prepaid verses Postpaid Healthcare

There have been a number of stories in the media lately detailing how far hospitals will go to collect on unpaid medical bills.
Most of our insurance premiums is not insurance against above average cost but prepaid healthcare. So advocates of prepaid healthcare must explain why it s preferable to prepay than to pay after receiving care.
Problems with paying after care:
1: It can be difficult for the provider to collect.
2: Lack of ability to make decisions in certain emergency situations.
3. in some cases it causes people to wait longer than optimal to get treatment.
Problems with prepaying:
1. Encourages overuse.
2. Encourages quixotic attempts to extend the lives if the terminal.
3. Discourages self treatment.
4. Aligns providers and patient against payer.
5. Allows providers to more easily collect for care that failed to benefit the patient.
A benefit of paying in the rears is that should motivate the providers to get the patient back to a productive state.
Note the state could pay Providers after care in cases of bankruptcy putting certain limits on how the bankrupt can spend on other things .

Tyler Cowen has Another Post Saying that Euro is in Danger

Tyler Cowen has another post saying that Euro is in danger and that if it falls it could badly hurt the European and world economies.

It looks to me like central banking is at the root of the problem.  Central banking seems to me to be prone to crisis.
1. Central banking appears to have feedback problems.
2. It is not easy for the central banks to get the money into the economy where it is needed.
3. People trust the central banks so much that they prefer money assets to real assets in times of crisis. It seems to me that it would be better if they mistrusted money and so bought real assents instead.
4. Central banks are subject to the whims of the median voter, who knows nothing about banking.

Thursday, May 17, 2012

Incidence of Taxation

Scott Sumner has another great post that includes this gem:

(I kid you not, many students think a tax will be passed on to consumers, but a subsidy will be pocketed by corporations.  Why you ask why, they actually think it’s in the corporation’s interest to pass on tax increases, and pocket subsidies.  By which logic a $20 tax combined with a $20 subsidy, i.e. a “nothing,” would cause prices to rise by $20.  Go figure.)

People are easily confused about the incidence of taxation.  I have a hard time convincing my fellow landlords that in our competitive market the renter pays the property taxes. The landlords are outraged at the level of the property tax and they seem to want to stay outraged.  On the other hand the renters, who should be outraged, are completely unaware that they are paying the tax but at least when I tell them the light comes on.  Much of the art of modern democratic politics is to hide the costs from the majority of voters and show the benefits.

As an aside, the other day I was listening to a local radio show and one of our local politicians was going on and on about how the property tax more progressive than the sales tax as a self evident given and so we should suport the optional discretionary millage, but here in Florida there is something called the homestead exemption.  The homestead exemption, exempts the first, I think it is $60,000 of the value of a home owner's primary resident from taxation but most poor people live in rentals which are fully taxed, there rental market is very competitive here so the renter pays every dime.  This makes the property tax more regressive that it otherwise would be. On top of that food is exempt from the sales tax and poor spend more on food than others.  Bottom line it is not clear that the property tax in Florida is more progressive that the sales tax and I bet that that politician does not know either.

Monday, April 23, 2012

Government and the Sub-prime and Financial Crisis

The left likes to blame economic freedom for the great recession and so they say we need more government control to avoid it happening again but Government is subject to the same problems that caused the sub-prime and financial crisis. Even getting some money from the federal Government and with the power to tax some local Governments are going bankrupt!

IMO the problem is that the current monetary system is not robust they disruptions.  It has serious feedback problems.  I think that we need to move to a competitive monetary systems were the incentives are to counteract a contraction.  

Wednesday, April 11, 2012

Medicaid and Marginal Tax Rates

Suppose having medicaid is worth $300/month to a person making $17,000/year.  $300/month is $3,600/year,  if the person earns $1,000/year more he is $2,600 worse off.

So why not offer all Americans health insurance with a deductible based on their last years income as outlined here.  That would eliminate the this big problem and perhaps push people to better control medical expenses.

One argument against such a system is that it would leave people with too little money in years with high medical expenses but Here is a story about a guy lives a middle class life on $7,000/year.

Governments Banking and a Famous Hayek Quote

Below is from a Tyler Cowen post:

5. Mind-numbing debates over banking, and a response from Krugman, and Nick Rowe.
It reminds me that our monetary and banking system is a great example of the famous Hayek quote:
“The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.”
Back when Governments took over the monetary system even the experts did not understand much about it. Yet a government takeover in a democracy puts the monetary system under the control of the median voter. Yet the experts in the post do not completely agree.

In free banking even the bankers do not need to understand the system as a whole, with a Government controlled central bank the median voter needs to understand the Monetary system as a whole. How could that every work well?

Robin Hanson has a Post Suggesting Consulate Care

Robin Hanson has a post suggesting consulate medical care
Here’s another idea for medical reform: consulate care. Let countries like Sweden, France, etc. with approved national health care systems have bigger consulates, and open them up to paying customers for medical services. For example, you could sign up for Swedish Care, and when needed you’d go to their consulate to get medical care as if you were living in Sweden.
A more realistic step would be to get our states to respect medical Licenses from any developed country (and of course from any state) and allow free entry to practitioners (give all Dr and nurses green card automatically). Companies from France could then setup offices and even hospitals here. Providers might want to come and practice here as a sort of working vacation and see the USA.


Thursday, March 29, 2012

The Lumina Foundation Goal 60% College Grads by 2025

The Lumina foundation's goal is for 60% of Americans to be College Grads by 2025. 

"60 percent by 2025", I always think that if that is your only goal it is easy to attain.  You just make school easier and more enjoyable and of course cheaper.  I am sure with cooperation from the educational establishment that could be done, but I do not think that is what Lumina has in mind.  

Now if your goal is to have a smarter more knowledgeable population you might want to think about what you want people to know and what is the easiest cheapest way to get that knowledge to people.  It might not be though schooling.  As for smarter people that is a tough one.  For time better nutrition pushed IQs up but, we do not know how to do more of that then we are doing now and school seems to NOT be the answer to that.  

It is important to define your goals well.  

Wednesday, March 28, 2012

Lifetime Medical Spending

I often read statements like:
In the US the top 5% of medical spenders spend an average of $40,682 a year each, and account for 49.5% of all spending. (The bottom half spend an average of $236.)
I always think that is the variation in lifetime spending that matters most not the spending within a given year.  So I dug up this link.  It is for Canada but, though we spend much more in the USA, the  relative differences should be similar. There are a couple of nice charts in the document.  Here is some pertinent text:
In order to calculate the distribution of lifetime costs, we estimated the Markov models using Monte Carlo microsimulation trials (Figures ​(Figures44 and ​and5).5). As might be expected, lifetime costs are somewhat less skewed than are per capita costs in any single year. However, the distribution is far from normal; costs are not tightly grouped around the mean. For women, mean lifetime costs are $89,722, with a standard deviation of $38,776. Median costs for women were $86,125. Ten per cent of women incur lifetime costs of less than $43,843. For men, the mean is $64,052 with a standard deviation of $35,331. Median costs for men were $59,819, while 10% of men incurred lifetime costs of less than $22,450.
Interestingly many people’s lifetime spending is below $20,000.  The middle 50% starts at about $60,000 and goes to about $140,000.  The chart shows some at $260,000. I am sure that some people go way over the high number but their numbers are too small to show up.  

Tuesday, March 13, 2012

How to solve the Deficit

Lately I have been telling people that because SS, Medicare and Gov. education are rob Peter to Pay peter programs that it is technically easy to solve the deficit problem but it is politically impossible to address the problem until a real crisis hits.  Once a crisis hits you can welfarize SS, Medicare and Gov. education and the deficit goes away rapidly.

I pay about $4,000/year each to send my children to private schools but public schools spend about $13,000/year and since it is impossible to subsidize the middle class the middle class are paying every penny.

Government Spending is a Choice

It is choice.  As I outline here, it is easy to slash spending without hurting the poor.  We can raise taxes or lower spending  or some combination but right now it is difficult to do anything because the median voter is rationally ignorant and the problem is not felt enough by the median voter that a politician can win by addressing it sensibly.  Both side's politicians see either raising taxes significantly or lowering spending significantly as a loosing strategy.  

It Is not Capitalism (Economic Freedom) that is causing Unemployment

It Capitalism (I prefer economic freedom to the word capitalism) that is causing unemployment.   There is plenty of work to be done.  There are always wants.  The problem is that there is not enough spending or lack of demand which is a monetary system problem.  Our monetary system is a Government monopoly system and because of that it has problems supplying the correct amount of money.

Most people assume that money has always been issued by national governments but this is not so.  Before the civil war the  people used bank notes as money:.  Here is an interesting excerpt form Wikipedia on the subject:
During 1861, the opening year of the American Civil War, the expenses incurred by the Union Government far outstripped its limited revenues from taxation, and borrowing was the main vehicle for financing the war. The Act of July 17, 1861[1] authorized Secretary of the Treasury Salmon P. Chase to raise money via the issuance of $50,000,000 in Treasury Notes payable on demand.[2] These Demand Notes were paid out to creditors directly and used to meet the payroll of soldiers in the field. While issued within the legal framework of Treasury Note Debt, the Demand Notes were intended to circulate as currency and were of the same size as and, in appearance, closely resembled banknotes.[3] In December 1861, economic conditions deteriorated and a suspension of specie payment led the government to cease redeeming the Demand Notes in coin. Also, in 1861, at General Grant's Headquarters, Edmund Dick Taylor mentioned his idea for greenbacks.[4][edit]
          The Legal Tender Acts
The beginning of 1862 found the Union's expenses mounting, and the government was having trouble funding the escalating war. U.S. Demand Notes—which were used, among other things, to pay Union soldiers—were unredeemable, and the value of the notes began to deteriorate. On January 16, 1862, in a private meeting with President Lincoln, Edmund D. Taylor advised him to issue greenbacks.[5] Congressman and Buffalo banker Elbridge G. Spaulding prepared a bill, based on the Free Banking Law of New York, that eventually became the National Banking Act of 1863.[6] Recognizing, however, that his proposal would take many months to pass Congress, in early February Spaulding introduced another bill to permit the U.S. Treasury to issue $150 million in notes as legal tender.[7] This caused tremendous controversy in Congress, as hitherto the Constitution had been interpreted as not granting the government the power to issue a paper currency. "The bill before us is a war measure, a measure of necessity, and not of choice," Spaulding argued before the House, adding, "These are extraordinary times, and extraordinary measures must be resorted to in order to save our Government, and preserve our nationality." Spaulding justified the action as a "necessary means of carrying into execution the powers granted in the Constitution 'to raise and support armies,' and 'to provide and maintain a navy.'”[8] Despite strong opposition, on February 25, 1862, President Lincoln signed the First Legal Tender Act[9] into law, authorizing the issuance of United States Notes as a legal tender—the paper currency soon to be known as "greenbacks." In his correspondence, Lincoln credited Edmund Dick Taylor for his suggestion of the greenback currency, and named him "Father of the Greenback."[10]
Too much money will produce inflation too little money and you have a lack of demand or unemployment.  In a free economy with fee banks issuing their own currency, banks are motivated not to issue too much currency because they could fall off par with the negatives that come with that.  That are motivated to avoid deflation because that would represent lost opportunity to make profits.  

Depositors and investors would be motivated to watch their banks but it would be rare for a bank failure to cause a total loss to depositors.  Since people trust companies less than they trust Government, people would not be inclined to horde bank issued money in a downturn but if they did and the money started to get more valuable the issuer would be motivated to buy more assets and make more loans so as profit from its rising currency.   This would increase demand when it is needed.  

In such a system the failure of a bank would strengthen all the remaining banks and it would make it impossible for all banks to go down at once. 

Once Again an Advocate Of Stimulus Uses These Numbers

Dean Baker on the Financial Crisis mentions his support for fiscal stimulus.  

On the stimulus, I am willing to accept Dean's numbers that $300 billion/year saved/created 3 million jobs. That is $300 billion / 3 million jobs = $100,000 per job! Most of those jobs paying below $30,000/year! Why anyone would think that was a good policy based on those numbers I do not know!
I would think that it would be much better to try a combination of monetary expansion and replacing the minimum wage, some welfare and unemployment insurance with a wage subsidy.


ScheduleBase Teller Scheduling

Bank Teller Scheduling Software Delivers Major Time Savings to State Bank & Trust Branches

Schedulebase because of it its accessibly from anywhere, power and ease of use is a great tool for the scheduling of bank tellers.

On the Government Takeover of Money

The Government Takeover of Money of the creation and issuance of money in the civil war period is to me the greatest illustration of this famous Hayek quote:  

“The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.”
- F. A. Hayek: The Fatal Conceit: The Errors of Socialism (1988), p. 76. 

Arguable it lead to the Great Depression and to World War II.  

The Incentive Bubble

The Incentive Bubble

I agree that there seems to be and incentives bubble but it is my observation that it always takes a while for free people to try, adjust and maybe discard ideas.  People will adjust to the incentives.

It is good to not interfere with people's rights to try new things even if they some times lead to failure or in this case skewed income and create some bad incentives.  For example even if the 2008 financial collapse was due to deregulation (an open question), that does not mean for sure that the deregulation was bad.  You can think of the collapse as school master.  I would hope that had the politicians not bailed out the firms, that the collapse would have taught people not to lend to the likes of Lehman and the other investment banks.   Very educational.  It is often the case that a change in deregulation leads to very negative short term results as people are slow to adjust but the do learn.

I think that part of the incentive/compensation problem is the cultural belief in supermen.  Perhaps this comes in part from watching sports where a LeBron James is a real superman who can carry a team, but business is not like that.  Jim Cramer and Jack Welch, are not so important.  Even Steve Jobs and Bill Gates though very good at what they do are not like LeBron James, there was quite a bit of serendipity that went into their success so paying huge compensation for CEOs is probably not a good policy.  In Fact Carl Icon takes over companies and replaces the high paid CEO with one of his lower paid people and the impact is generally not negative.

Besides the the incentives problems with CEOs the incentives of mutual fund and money mangers seem particularly bad even more so than CEOs.  The get paid even when the under perform the market as they usually do.

One of the big problems with trying to control executive compensation is that it is a small part of profits.

Now in defense of the overpaid in business they often do not consume much of the money that they get.  Much of their money it goes into investments that make us all better off and to call for government intervention is a mistake because the incentives in government are even worse and politics evolves slower.

BTW one thing that one can do is invest with Carl Icon (IEP).

How Is this for an Un-thought Idea, Privatize the Fed

John Goodman made a blog post describing how bad the Government insurance programs that are breaking the Federal Government budget are but he leaves out FDIC.   Here is my very short critique of the FDIC  and a possible solution.
The FDIC charges the same premium to an institution that is leveraged to an insane extent as to an institution that is modest.  This is bad policy.  Perhaps the Federal Reserve should be privatized, made into a for profit organization and should provide insurance to member banks.    The Federal Reserve could insure the banks because it cannot run out of many because it has the ability to create money.  Each american could be given shares in the resulting organization.  We would need to change the legal tender laws so that the threat of competition would keep it in line but it might work.  It has been shown that even the threat of competition can be enough to keep a monopoly in line.


Wednesday, February 8, 2012

Arnold Kling on Governments Failure to Efficiently Help the Poor

Arnold Kling posts about the fact that Governments programs are more targeted at the middle class than the poor and that these programs, that are let's face it are just a transfer from middle class people to themselves, are pushing the deficit ever higher.

My comments:

The irony is that in the end even the middle class do not benefit, they just think that they do. Take schooling, I sent my children to a private school that costs half what my county spends per student (the education may be slightly worse but you cannot tell that by me), so if we were all charged directly for each child that we send to the Government schools we would be better off, but try convincing people that charging them is better than them "getting it for free".

Even SS which is a simple transfer may not be so utility maximizing or even neutral.  SS has changed our culture such that more older Americans live on their own than otherwise.  So a simple transfer from children to their retired parents must reduce utility.  I think the same is true for medicare and low deductible insurance in general. When we have medicare or low deductible insurance we use more care than we otherwise would and if we are middle class or rich surely most of us (i.e. those of us without exceptionally high life time medical spending) of us pay the full costs either way.


Friday, January 6, 2012

Study Finds Evidence that more Income does not Improve Health.

The incidental economist highlights a study that finds evidence that more income does not improve health.

Conclusions: These findings suggest that the ability to improve short-term health outcomes through public transfer payments may be limited. However, the lifetime effects on the health of people with higher incomes would still be a valuable avenue for future research.

Some may not be surprised by this but studies have consistently shown that people with higher income live longer on average.  This study is evidence that though health correlates with income, income is not causal. It is evidence that that poor health causes lower income or something else is causing low income and poor health. We need a good test that will show  which is the cause because for example poor impulse control could cause both bad heath and low income. Highly talented athletes could be a place to look. Athletics does not require a lot on impulse control.
It is my observation that a large amount of money can be destructive to some people’s health e.g. it allows some people to drink all day and drug all night and drive very fast care very fast.

BTW the is a section Of Glasgow Scotland where male life expectancy is below 55 years. Those people might be drinking themselves to death. Giving them free stuff (including free health care) might just speed up the process.