Thursday, October 29, 2009

What about H1N1?

I am really starting to like the New York Times letters to the editor. They are so rife with misconceptions that it's like taking candy from a baby. Here are a few backward comments and one excellent one (who'd thunk it) from today.
I’ve been amazed at the photos of people — Democrats and Republicans — standing in long lines waiting for vaccines. Yet I have not read one complaint that the vaccines are free.

It appears that when a health issue directly and imminently affects individuals and their families, they quickly forget their objections to government-provided health care. No doubt, it is because they are suddenly able to imagine themselves, or worse, their child, lying in a hospital bed, clinging for life. The moral obligation of vaccinating the population as a national endeavor becomes obvious.

It is a shame that these same people are unable to imagine themselves, or someone they love, in a similar hospital bed, trying to overcome cancer, or heart disease or even just a broken ankle, and embrace the same moral obligation to provide all our citizens with national health care.

Duane Nelsen
Chicago, Oct. 25, 2009
I must applaud Mr. Nelsen for exposing what free health care for all means: long lines and waiting times. I wonder if he has considered the true cost of this "free" vaccine for a lawyer who makes $200 an hour and waits 2 hours in line to get a shot? Or how about for the average American making roughly $20 an hour? Oh and let's not forget the most important point mistakenly articulated in this article, there isn't enough vaccine to go around! Now that's a real bargain.

A moment of sanity. Thank god.
In August, a presidential panel estimated that up to 90,000 Americans could die from the H1N1 virus. Yet millions of Americans are still unable to obtain the vaccine because there has not been enough produced. Why is no one holding the Obama administration accountable for this looming public health disaster?

For months, the administration and Congress have been focused on the overhaul of the health care system. While reform of the health care system is certainly an important long-term problem, the lives of tens of thousands of Americans actually hang in the balance today.

How can we trust our government to handle a large, complex, long-term problem like the entire American health care system when it seems so inept at handling a single disease in a single year?

David F. Eisner
Westport, Conn., Oct. 25, 2009
Yeah, you would think this would give one pause to overhaul one sixth of the economy. Also, let's not forget that a Democrat is in office so we can't blame this on Republican incompetence (we were told that Katrina happened because Bush and his stooges were idiots). I am not so partisan. I think government incompetence is prevalent in both parties.

The letter below exemplifies what happens when government rations instead of the free market.
The one group nobody seems to consider is in the epicenter of the H1N1 virus. Ask yourself, who is exposed to it every day? Who touches the items of ill people all the time?

Where does the epidemic hit the hardest? In schools. Who is most at risk? The teachers.

And if teachers get sick, who will teach the children? Why aren’t teachers in the first group to get the vaccine?

Emily Farrell
Media, Pa., Oct. 26, 2009

The writer is a high school teacher.
I can't wait for a politician to come along and claim that they are the ones most important to society and should get the shot first. Or how about police and firemen, airline pilots, community organizers, etc. The voices from every direction will fight each other and plead with government to get the scarce resource. And if I didn't know any better, I might even call them special interests.

Tuesday, October 27, 2009

Does spending == stimulus

The New York Times is demanding yet another round (the third at last count) of stimulus spending. The question, other than what's the definition of insanity, is why did they think it would work before? The rationale for spending as a means of stimulating consumption is succinctly summed up by the Times:
The Senate could take a step in the right direction by extending unemployment benefits without further delay. That is the single most effective way to boost consumption — which, in turn, preserves jobs — because it creates spending that would otherwise not occur.
The key to the entire Keynesian argument is that the government can induce a shift in behavior through spending. While I admit to being no expert on Keynes and his economic philosophy, let's examine this implicit assertion.

Let's look at the simplest economy imaginable, canonically speaking, Robinson Crusoe on a desert island. Examining all economic activity there is easy. It consists of whatever Mr. Crusoe wishes to produce. There is no trading or anything else going on. In this simple example, production consists of, well...what he produces, but what is the equivalent of spending? Generally, we think of spending as buying something, but in this case there is nothing to buy. The reality is that there is no such thing as spending for Mr. Crusoe or for the rest of us. What Mr. Crusoe can do is make something and use it (known as consumption). What we think of as spending is really a synonym for trading (more on that later).

Later. Now let's complicate life a bit and introduce Mrs. Crusoe to this formerly idyllic island. Now the economy consists of both what Mr. Crusoe produces and what Mrs. Crusoe produces. Each can now trade with the other (or not). The catch is that in order for them to trade, they must value what the other produces more than what they produce. When they do trade, they are essentially spending one good for another good. Mr. Crusoe spends apples in order to get oranges from Mrs. Crusoe. Note that all the apples and oranges are still there. It isn't until Mr. Crusoe eats an apple that consumption takes place. Spending is trading, consumption is using up what has been produced.

Would you believe that even on a deserted island we have problems with the economy. In fact, we had problems even before Mr. Crusoe's better half showed up. The problem is that value is fickle, it can change at any point in time and for no reason. Value is in the eye of the beholder and only in the eye of the beholder. Value has no meaning outside of Mr. Crusoe. In other words, what Mr. Crusoe thinks is valuable defines what is valuable and he can destroy value simply by thinking something is not valuable. This may sound obvious, and it is on a desert island with only Mr. Crusoe. But today, in a not so deserted island, the same holds true for all of us.

Imagine that on Monday Mr. Crusoe really wants a coconut hat. He sets forth to make it and on Tuesday he realizes that he really doesn't want a coconut hat. On Monday the coconut hat was worth something, on Tuesday it is worth squat. Is this irrational, yes, but so are we. We are not concerned with rationality, only with value. The reality is that something that had value on Monday to Mr. Crusoe no longer has any value on Tuesday. You see, even in this exceptionally contrived example there is always a risk that our preferences change and value is destroyed.

Now when we introduce other actors into the economy such as Mrs. Crusoe this risk of our preferences changing and value disappearing grows. Imagine that Mr. Crusoe produces an orange in anticipation of spending it (trading it to Mrs. Crusoe) so that he can get an apple. Notice how he risks not only his preferences for apples changing but also he risks Mrs. Crusoe's preference for oranges changing. Either one of those destroys the value of what has been produced. As more and more people join our island, the risks increase. Of course, there are a myriad of benefits to compensate us for those risks, but they are there.

But back to the basics again. When our wants are based on habitual wants and desires, the risk of our preferences changing is small. Food, shelter, and sex are some of the most basic of all desires and it should be no wonder why one is the oldest profession. But when we get richer and our wants are for things not so habitual, say watching a football game, then the risk of our preferences changing is high. A starving man will not accept a football game as payment.

We are a very rich society and most of the things we value are arbitrary in nature. Video games, huge houses, fancy cars, ipods, etc. These things have value for sure, but that value is subject to a lot of risk because they aren't tied to survival, the most basic and consistent desire of all. In the hierarchy of things, secondary items have value only once our basic needs are met.

So this brings us back to the New York Times:
The Senate could take a step in the right direction by extending unemployment benefits without further delay. That is the single most effective way to boost consumption — which, in turn, preserves jobs — because it creates spending that would otherwise not occur.
First, the New York Times confuses consumption with spending. Consuming things that have been produced doesn't create anything. What they mean is that when I eat an apple (consumption) that I will want another one and I will produce an orange (production) and trade (spend) to get another apple. Implicitly there is the notion that people are not trading but nowhere is it explained why. Well, the answer is that in response to real conditions of the economy and uncertainty about the future, people's preferences have actually changed and the real value of certain products has been destroyed.

The assumption is that by printing funny money we can change back the preferences of people to what they were before. I do not believe this is true. The first goal of our economic policy ought to be to restore confidence in the economy and in people's lives. I believe that as a result of people's fear they have shifted what they value from secondary niceties to putting money in the bank for a rainy day. Only when people do not fear the future will the value for secondary items go back up in real value, which is completely arbitrary. The New York Times solution doesn't address the cause of the problem (uncertainty leading to a shift in value throughout the economy) and only looks to address the effect (lack of trade of certain items). Like the many stimulus packages we have had so far, another one via the extension of unemployment benefits will not work.

Tuesday, October 20, 2009

More Health Care Folly

One thing I have noticed in the NY Times letters to the editor, is their excessive use of appeal to authority. It often goes like this: blah, blah, blah, I'm a professor at Stanford, b*tch!

Today the New York Times has just the right mix of professional and amateur dolts.

In the Senate Finance Committee’s bill, that is the bronze plan, which requires that insurers cover only 65 percent of medical bills, leaving a whopping 35 percent to the patient. Many will forgo beneficial services because they will not be able to afford the out-of-pocket costs...


Stephen M. Davidson
Boston, Oct. 18, 2009

The writer, a professor at the Boston University School of Management, has written a forthcoming book about health care reform.
Perhaps in his book he can go over the concept of spending what you can pay for. His argument is that if people are forced to directly pay the 35% of expenses for health care, they might <gasp> consume less care. No, no, no. We can't have people rationing their own care given their own values and preferences. Let's pretend that unlimited care is possible and then have the government backdoor rationing because the tooth fairy doesn't exist.

And then there's the obligatory, it's not Obama's fault comment:

Rather than camping out in this so-called Frustrated Left crowd, perhaps Mr. Blumenauer should find his backbone and stand up for a public option. We have a Democratic majority, yet the Democrats in Congress seem to have forgotten that.

If a public option dies in Congress, Mr. Blumenauer will be more at fault than President Obama.

Jane Endacott
Portland, Ore., Oct. 18, 2009
Here is my favorite, it's the jews! OK, they didn't say that, but jews have historically played the role of greedy middlemen, the moneychangers.
Why do health insurers hold a privileged place in health care at all? They make no diagnoses, empty no bedpans, build no hospitals, sweep no corridor floors. Health insurers are little more than overpaid, profiteering middlemen who produce very little.


Dennis Sentilles
Rocheport, Mo., Oct. 15, 2009
Mr. Sentilles, insurers actually produce something of value to society. It's called insurance and it's apparent you don't understand how it functions. Hopefully you can catch my next class on LiveAmerica.

And finally there is the, "oops, I mistakenly argued my opponents position" comment:
...Hawaii has achieved this top-functioning status without fancy payment-by-diagnosis schemes or forcing physicians into large groups. (It also helps that Hawaii has avoided overbuilding of expensive technology.)

I only wish the folks in Washington would learn from Hawaii!

Sarah K. Weinberg
Mercer Island, Wash., Oct. 17, 2009
The writer is a retired pediatrician.
Let's hope that Washington doesn't learn that we can keep costs down by preventing expensive life saving technology onto the market!

Compassion misplaced

Gotta love NY Times and its readers. Here is a letter that begs for criticism:
To the Editor:

Re “Fellow Inmates Ease Pain of Dying in Jail, and Glimpse New Life” (“Months to Live” series, front page, Oct. 18):

As a former prisoners’ rights lawyer now working in the end-of-life field, I find it commendable that some prisons are providing hospice services to dying inmates, using inmate volunteers. Clearly, both benefit, and such programs should be expanded, as hospice generally ensures that the dying receive the best end-of-life care.

But too many inmates are now dying in prisons when they could be safely released to die at home with hospice care and the support and comfort of loved ones. Procedures should be established or expanded for compassionate release to make this happen.

David C. Leven
Executive Director
Compassion and Choices
of New York
New York, Oct. 19, 2009
I wonder how much compassion some of the prisoners showed to their victims in their end-of-life "care". People are generally put in prison because they did something very bad. They are being punished for their crimes and removed from society in order to keep us safe. I get the feeling that Mr. Leven feels that punishment in and of itself, i.e. dying in prison, is cruel.

Saturday, October 17, 2009

The fight's not over

It seems that time heals all wounds, or maybe we just forget. Health care reform is back and being ramrodded through Congress. The good thing is that some Democrats are nice enough to keep this argument front and center. I thank them for yet another opportunity to point out the insanity of their plan. Paul Krugman sets out to dispel a report critical of the health care bill. You have to think even he doesn't believe the nonsense he writes. He starts with an acknowledgement of common sense:
The motivation for the AHIP report seems to have been the decision by the Finance Committee to weaken the penalties for individuals who don’t sign up for insurance, even as it retains regulations requiring that insurers offer the same policies to everyone, regardless of medical history. The industry worries that some people will game the system, remaining uninsured as long as they’re healthy, then signing up when they get sick.

This is, believe it or not, a valid concern. Many health-care economists believe that a strong individual mandate, requiring that almost everyone sign up, will be needed to make health reform work. And the Finance Committee probably did weaken the mandate too much.
Believe it or not! Oh my god, the critics have a point! Yes Mr. Krugman, if you guarantee that no one can be refused insurance, then why wouldn't you buy insurance at the point at which you get sick? DUH! Interestingly, the market solution would be not to guarantee coverage, thereby making people responsible. Of course, the average American is irresponsible, so let's force them to buy coverage. What's the reason for the low penalty, pure political calculation.
As I said, the individual mandate probably should be stronger than it is in the Finance Committee’s bill. But there’s a reason the mandate was weakened: fear that too many people would balk at the cost of insurance, even with the subsidies provided to lower-income individuals and families...
When your leaders deliberately put forward a bill that even the most liberal nut points out is problematic, it's time to wake up to their true intentions. Here is some more nonsense from Mr. Krugman.
One argument was particularly striking: the claim that attempts to limit Medicare spending would lead to higher insurance premiums. In fact, the report assumes that 100 percent of any reduction in Medicare payments to hospitals will translate into higher costs for patients with private insurance.

The only way to justify this claim is to assume that all hospitals are purely charitable institutions, charging as little as they possibly can. Now, some hospitals may fit this description. But all of them?

What’s more, this argument stands the usual logic of markets on its head: if you believe AHIP’s story, competition raises prices instead of reducing them. And it doesn’t matter where the competition comes from: anyone who gets a better deal, whether it’s Medicare or a private insurer, makes life worse for everyone else. I don’t believe that, and neither should you.
Now that President Obama has won a Nobel Prize, I can safely reduce it's prestige in the case of Mr. Krugman. In essence, his argument is that insurance companies are ripping people off. The private "greedy insurance industry" is evil and government good. Let's conduct a more rigorous analysis.

Ask yourself what is the minimum price a hospital can charge for a service. If you said, the cost of the service, go to the head of the class. What's the maximum it can charge? That's a tougher question. It wants to charge the profit maximizing price. Sometimes it doesn't charge that price; sometimes, it charges just a little above it's costs. Why you ask? Competition. The reason the report assumes that reductions in Medicare translate into higher costs for private insurers, is because health care companies are not making excessive profits.

Today, private companies are subsidizing medicare similar to the way Americans subsidize the costs of drugs for non-Americans. If a service costs $100 to produce and Medicare pays $90, then how is the $10 shortfall accounted for. Obviously this cannot continue for long unless we want doctors to go out of business. What happens is that the private insurance market pays $110 for the same service. That way the doctor's and hospitals can stay in business. For every dollar Medicare pays below what it actually costs to produce the service (profits are a necessary cost by the way) the private market must pay more. Otherwise, revenue will not cover the costs. The only way for Mr. Krugman's argument to hold water, is if the insurance company was making excessive profits for a service. In that scenario, they would eat the reduction in payments by Medicare (this also assumes that Medicare is charging the "right" price). This is not true. If it were, then non-profit companies, which already exist in the market, would dominate. They don't.

Don't stop the fight. Contact your congressman and urge them to resist this bill. There are better ways to improve things than a deliberate, stealth attempt for government control of health care.

Monday, October 12, 2009

Welcome the Machines

My last post was supposed to be interesting. I think I failed, but if anyone was curious, here is the point I was attempting to make. The economy grows because of gains in efficiency. The machines allow fewer people to make more stuff. The fallacy with cursing machines (and foreigners) for stealing jobs is the assumption that displaced workers can't do anything else. People always assume that there are a limited number of jobs. The contrary is true. Jobs are something that are created and they can only be created when resources are freed because of efficiency gains. It is because of the machines that new products and services can be developed.

It is true that some people are displaced which can be very difficult. But that is the price we as a society pay for progress. There is no way to have progress without "creative destruction". The solution is not to impede progress but to mitigate the human suffering caused by it.

The same holds true for offshoring. Cheaper labor is no different than creating a cheaper machine. In both cases efficiency has been increased and society as a whole is better off.

To see why the system is better off we have to consider what wealth was in the system before and after the efficiency gains. In order to do this, we have to figure out what company X produced. That wasn't mentioned so let's assume it produced apples, I like apples. Company X consisted of 100 employees all employed in producing apples. Let's say they made 100 apples. It doesn't matter how much those apples are worth in terms of money, all we care about is the number of "things" in the system. In reality, this is the true measure of wealth, not money. Money is a tool, but I'll talk about that in another post. Right now all labor and capital is employed in producing 100 apples. This is therefore the current maximum production of the system.

All of a sudden someone makes a machine which replaces every single employee. The machine produces the same 100 apples as before. What happens to the displaced workers? Do they sit around and do nothing? No, we are not European. In America, available labor gets to work and creates new products and services. Let's imagine that those newly freed resources make cellphones. I like cellphones because I am old enough to remember that cellphones didn't exist 20 years ago. Pretty amazing when you think about it and a good example of a new product that is now ubiquitous. For the sake of argument let's say the 100 workers produce 100 cellphones.

Now let's examine the wealth in the system before the machine and after.
Before: 100 apples
After: 100 apples, 100 cellphones.

In both situations there are only 100 people. This means that on a per capita basis the second scenario is clearly better. This is indisputable. We may have issues with how to distribute the new bounty of cellphones, but that is a separate issue. In fact, it may have been the case that we had problems distributing apples, but I digress. The point is, if we want the system (and it's principal components, namely people) to become better off, we need to build more machines and utilize lots more cheap foreign labor. Or to say it another way, we need to promote efficiency gains in all their possible forms.

Thursday, October 8, 2009

Beware of the machines

Progress is a positive word. But progress implies change and change implies a different state of affairs than we have today. The biggest fallacy promoted in economic thinking is that how things are is the only way they can be. True progress means that tomorrow will be different, but it also means the destruction of today.

Is offshoring progressive? Offshoring involves transferring jobs from the United States to foreign countries in search of cheap labor. Let's look at the economics:

  • Company X has 100 workers that it pays $100/hr
  • Company X replaces those workers with foreign workers and pays them $5/hr
  • Total cost before offshoring: 100 * $100 = $10,000
  • Total cost after offshoring: 100 * $5 = $500
  • Benefit to Company X: $10,000 - $500 = $9,500
We can't forget about the workers. The U.S. workers are out of jobs. The foreign workers now have jobs. On net, it seems the U.S. workers have been screwed.

This is the progressive view of the world and it appears progress is bad for workers and good for business. I disagree. Let's ask another question, is efficiency progressive? Back to the economics:
  • Company X has 100 workers that it pays $100/hr
  • Company X builds a machine which replaces the workers. The machine costs $500
  • Total cost before efficiency gain: 100 * $100 = $10,000
  • Total cost after efficiency gain: $500
  • Benefit to Company X: $10,000 - $500 = $9,500
Once again we must consider the workers. The U.S. workers are out of work. No foreign workers have been employed. Replacing people with machines is even worse than offshoring. Only the company benefits, everyone else is screwed.

Something doesn't make sense here. Forget about offshoring for a minute and only consider efficiency gains, i.e. the machines. It would seem that productivity gains are a loss for laborers. Every machine puts people out of work and they only benefit companies. But we know that over the short course of the last century machines have proliferated and the standard of living has increased. How can this be?

I won't answer the question but I will preempt one line of argument. It is not the case that the reason we have progressed is because the machine needs someone to build it or to maintain it. Even if this were true, the sheer number of workers necessary to build the machine and maintain it are far less than before. This means that more people lose jobs rather than gain jobs as a result of the machine.

I am a big believer that I cannot force people to want to know. People who want to know must figure it out on their own. So if you want to understand, here are some questions to get you thinking on the right track:
  • What happened to all the farmers we used to have?
  • Did your parents have cell phones?
  • Why has our economy transitioned into a service economy and what does that mean?

Score one for the NY Times

A useful adage to keep up employee moral is, "catch 'em doing something good." Gail Collins writes in the New York Times today that Charlie Rangel should step down as chairman of the Ways and Means Committee because he has problems paying his taxes. She states:
Whenever a powerful committee chairman has so many problems that you need a timeline to keep all the allegations straight, he is a liability. When those problems revolve around things like failure to pay taxes, it is not a good plan to have him be in charge of tax policy.

Despite my great stake in keeping Rangel in his current post of power, I’m not prepared to argue that you can have a chairman of the tax-writing committee who failed to declare $75,000 in rental income on a Caribbean villa on his tax returns. Or one who seems to think you can turn yourself into a resident of two different cities if it gets you cheaper housing — and that the House only requires its members to list their financial assets beginning with the letters F through M.

But this is a test of whether the Democrats will follow through when it’s really, really hard.

There are tons of people in Congress who have huge egos and an impatience with the minor irritations of life. If the Democrats made Rangel step down, it would be a reminder that holding public office means you have to be more conservative about drawing the line between proper and improper behavior than your humblest constituent.
Kudos, Ms. Collins.

Tuesday, October 6, 2009

American Exceptionalism

Exceptional – adjective
1. forming an exception or rare instance; unusual; extraordinary:

American Exceptionalism is not about explaining America's greatness but the fact that America's greatness is so exceptional. Exceptional, because Americans aren't intrinsically better than anyone else. No where does an "American" gene exist which imbues us with superior qualities. The simple truth is that in all respects our genetic makeup is patently unexceptional.

So how then, in a speck of time, has a country populated by ordinary people developed into the greatest nation in the history of the world? Free market capitalism. It is free market capitalism which takes ordinary intelligence and transforms it into extraordinary wealth. It is free market capitalism which settles disputes between people without the necessity of force. And it is free market capitalism that is the singular difference between us and the rest of the world.

Americans need to take heed because we face a crossroads. Somewhere we have lost our way and have begun to think we are unique, evolved, special. That it's in our genes. It is not. The only thing unique is the structure of America. That structure is special and it's what fools us into believing we are special. Take away free market capitalism and America is just like all other nations. It's people already are.

Friday, October 2, 2009

Is Life a Disease?

The New York Times goes off the deep end again. From the source:
Critics of pending health care reforms claim they want to ensure that the government does not thrust itself between patients and doctors to dictate what medical procedures can be performed. Yet many are trying to do just that when it comes to one legal and medically valid service: abortion.
Why is the New York Times surprised by this? Abortion is an extremely divisive issue. No one should be shocked that citizens morally opposed to abortion would not want public funding (read: their money) used to support abortion. The conflict the New York Times is so perplexed about is a direct result of government interference in health care. Remove government from the debate and the conflict disappears.

The other problem here is the New York Times is treating pregnancy as a disease. It is not. Pregnancy is a consequence of controllable behavior. If one does not wish to have a child and needs an abortion then there is a simple solution. Don't have sex. That might offend some who see their right to engage in any behavior as unfettered, but the issue is not one of right but of responsibility. If you want to play then it is your responsibility to pay the cost.

The New York Times believes in the right to abortion and the lifestyles which necessitate them. It is inappropriate to force people to subsidize those lifestyles in the name of medical care.