Capitalism: A Love Story

I want to see this movie. I really want to see this movie. But I won't. I won't because I believe in capitalism and it's many virtues. One of those being my choice on how to spend my hard earned money. In every transaction we always have the ability to walk away and that's what I am going to do. I only wish Mr. Moore would indulge me by living up to his virtues.

A little while ago I wrote a post, "Would you cure cancer?". That post talked about up front costs and marginal costs of production regarding drugs. It just so happens that movies are just like drugs. It takes millions to make a movie, but once it is made, seeing it is practically costless. I mean, how much more does it cost for one extra person to sit in an empty theatre? So I implore Mr. Moore: Help me, help you destroy capitalism and give me a free ticket. I need it!

Words used to mean what they meant

When words lose meaning it becomes impossible to communicate. We New Liberal Democrats, more than anything else, believe in transparency. Transparency as in Occam's razor, as in simpler is better. A simple tax is better than a convoluted tax. Giving people money is better than insanely complicated schemes to help people. Being the skeptics we are, we find complication fishy. Who benefits from this complication and why aren't they willing to just say what they mean?

Words are misused to deceive. If you're argument is superior it is imperative that other's don't change the meaning of your words. The Republicans have made a strategic error in the health care debate. There is no such thing as insurance for people with pre-existing conditions. Below we have two Republicans arguing for their version of health care:

In 2006, the Republican Congress and President Bush passed legislation encouraging states to create "high-risk" pools where those with pre-existing conditions could receive coverage at roughly the same rates as healthy Americans. State-based high-risk pools spread the cost of care for those with chronic diseases among all insurers in the market. The additional cost of their care is subsidized by the government.

Wrong, wrong, wrong. If you read between the lines, they are not providing insurance at all. They are promoting that private insurers provide a subsidy. They'll charge everyone else a bit more making up the rest with what...a subsidy from the government. Why propose a backdoor subsidy through the private insurance market instead of a direct subsidy to people with pre-existing conditions? You got me, but it accomplishes one thing: it makes it sound reasonable that you can insure something that is un-insurable. Brilliant!

Next we have our fearless leader talking about the healthcare penalty on George Stephanopoulos's show:

Mr. Obama: "No. That's not true, George. The—for us to say that you've got to take a responsibility to get health insurance is absolutely not a tax increase. What it's saying is, is that we're not going to have other people carrying your burdens for you anymore . . ." In other words, like parents talking to their children, this levy—don't call it a tax—is for your own good.

Mr. Stephanopoulos tried again: "But it may be fair, it may be good public policy—"

Mr. Obama: "No, but—but, George, you—you can't just make up that language and decide that that's called a tax increase."

"I don't think I'm making it up," Mr. Stephanopoulos said. He then had the temerity to challenge the Philologist in Chief, with an assist from Merriam-Webster. He cited that dictionary's definition of "tax"—"a charge, usually of money, imposed by authority on persons or property for public purposes."

Why wouldn't Mr. Obama want to call this a tax? The answer is obvious, taxes have a negative connotation. Liberals should be outraged by this but I doubt anyone is losing sleep.

If it walks like a duck, quacks like a duck, looks like a duck, the New Liberal Democrats will call it a duck

Mafia Wars is life

Video games are great in that they are entertaining and enlightening. In my quest for the biggest, baddest mafia of them all, I've run into some rivals who wanted to take me down. They attack me, rob me, and even punch me in the face! What really gets me though, is when I am robbed by a weaker mafia. The game designers decided that you can only defend yourself in proportion to your level - call it the escalation doctrine. Even though I am absolutely stronger than my opponent, I am unable to protect my property. What's a mobster to do? Kill! Kill! Kill! Because I can attack my rival with impunity, I go after them with everything I got. Alas, my vengeance is tempered by the genius game designers. For some reason, I cannot kill my opponent, only continuously nick them. This leaves me and my rival in a pickle. We are left with begging and bribing other players to do our dirty work for us. So often have we put "hits" on the other, that we are scant to expose ourselves in the open. Right now, I am typing this from an undisclosed location.

What lesson should be learned from all of this? To find out, we need to turn to that seventies cult phenomenon, Star Trek. In episode 23, "A Taste of Armageddon", Kirk and the gang land on a planet at war, only it's a very "civil" war. Instead of bombs and bullets, they fight their wars using computer simulations. People still die, by voluntarily committing suicide, but society and culture remains intact. Kirk sees the inhumanity in fighting a humane war. He destroys the computers and forces a decision: Fight for real or make peace. They make peace.

Back to my mafia. My hands are effectively tied, and I am only allowed to use proportional force. If the game designers had allowed me to use my full strength and punish my opponent, he would quit. The irony is that the cost to my opponent is far greater with this prolonged conflict than if I had obliterated him. A lesson applicable to real life as well.

More health care truth telling

I would really like to hear a cogent argument defending the liberal position on health care. The only thing I could possibly agree with is universal coverage as a goal. Other than that, their approach is egregious and should be denounced by all sides. In today's Wall Street Journal, Scott Harrington has a good op-ed dispelling myths, and dare I say lies, from Mr. Obama.

Mr. Obama uses that infamous political ploy (unfortunately used by all politicians) of presenting the uncommon case as if it were the common case. In Mr. Obama's speech he cites two cases where coverage was denied due to inaccuracies in the original applications. Mr. Harrington writes:

These two cases are presumably among the most egregious identified by Congressional staffers' analysis of 116,000 pages of documents from three large health insurers, which identified a total of about 20,000 rescissions from millions of policies issued by the insurers over a five-year period. Company representatives testified that less than one half of one percent of policies were rescinded (less than 0.1% for one of the companies).

Life's not perfect, only 99.5% don't have problems...okay, let's overhaul the nation's medical system! I would bet that even within Medicare and Medicaid they also have issues with .5% of their populations. Nothing is perfect, not even Mr. Obama and his proposed plan. Mr. Harrington continues:

If existing laws and litigation governing rescission are inadequate, there clearly are a variety of ways that the states or federal government could target abuses without adopting the president's agenda for federal control of health insurance, or the creation of a government health insurer.

Exactly. We don't need a completely different health care system to fix this problem.

Then Mr. Obama talked about the lack of competition in Alabama and how this leads to insurance companies treating their customer's badly by jacking up rates. Mr. Harrington replies:

In fact, the Birmingham News reported immediately following the speech that the state's largest health insurer, the nonprofit Blue Cross and Blue Shield of Alabama, has about a 75% market share. A representative of the company indicated that its "profit" averaged only 0.6% of premiums the past decade, and that its administrative expense ratio is 7% of premiums, the fourth lowest among 39 Blue Cross and Blue Shield plans nationwide.

...

In addition to these consumer friendly numbers, a survey in Consumer Reports this month reported that Blue Cross and Blue Shield of Alabama ranked second nationally in customer satisfaction among 41 preferred provider organization health plans. The insurer's apparent efficiency may explain its dominance, as opposed to a lack of competition—especially since there are no obvious barriers to entry or expansion in Alabama faced by large national health insurers such as United Healthcare and Aetna.

1. If profits are evil and Blue Cross and Blue Shield are non-profits, then why does Mr. Obama has a problem with Alabama? Wouldn't the public option basically be federally administered Blue Cross and Blue Shield? Maybe, just maybe, the problem has nothing to do with profits.

2. Looking at an effect without examining the cause is plain foolish. Isn't it possible that Blue Cross and Blue Shield have a greater market share because they are a better run company than their competitors? That's the funny thing about competition, sometimes one guy wins. It doesn't always look like the idealized state sponsored pseudo competitive landscape government envisions.

I'm still waiting for that cogent argument....

All in the family

In a totally unrelated story, the Wall Street Journal inadvertently proves my point about families in politics (emphasis mine)

Consider what happened in 1994. Republican Gov. Pete Wilson, vying for re-election, was down 23 points in March. Then Melvin Carter, who had been convicted of a dozen rapes in 1982 and sentenced to 25 years in prison, was suddenly released thanks to time-off for good behavior. Democratic challenger Kathleen Brown said Carter's release was evidence Mr. Wilson was soft on crime.

The Republican counterpunch was devastating: The "good-time credits" law that let Carter out had been signed by Ms. Brown's brother, Jerry Brown, when he was governor. And it was her father, Pat Brown, who as governor appointed the judge who refused to correct a sentencing error that would have doubled Carter's punishment. Ms. Brown never recovered. She lost by 15 points.

My daddy was governor, my brother was governer, I guess it's my turn. If another Bush runs for President, I'm protesting.

Yet Another Reason You Should Support Vouchers

If you aren't reading George Will, you need to start. In his awesome column today, he talks about Republican candidate for California governor Steve Poizner:

...but Steve Poizner has surmounted other obstacles, as when he volunteered to teach without pay in an East San Jose high school. After he sold, for $1 billion, one of the technology companies he founded after moving to California from Texas, and after serving as a White House fellow, he walked into San Jose's school district office, explained that he graduated No. 1 in his class at the University of Texas, earned a Stanford business degree and now wanted to teach American government to high school seniors. A functionary declared: "Nothing you have said qualifies you to be in the classroom."

Undeterred, he placed calls to the district's 12 high school principals. Eleven did not return his calls. The 12th, whose students were mostly from working-class Hispanic families, gave Poizner the opportunity he describes as the hardest, and most rewarding, thing he has ever done.

Any system which doesn't allow someone as qualified as this to teach is already failed. I bet there are tons of parents who would be happy to have their kids taught by this guy and others who don't have the right "qualifications". If only they had money so they could make the choice for themselves.

Living is a Privilege

I remember when I got a driver's licence and some smart ass kid (probably me) asked why we needed one. The answer, "driving is a privilege, not a right". That makes a certain amount of sense. No one has to drive. It may be inconvenient but you can live without it. The president concerns me when he advocates an individual mandate for health care:

That's why under my plan, individuals will be required to carry basic health insurance - just as most states require you to carry auto insurance. Likewise, businesses will be required to either offer their workers health care, or chip in to help cover the cost of their workers...

People do not choose to be born, so it is certainly not appropriate to compare a health care mandate to an auto insurance mandate. This is government attempting to control you. Their justification? They choose to pay for some folks who don't have health insurance. Who thinks it is appropriate to punish responsible people for the sake of those that are not responsible? I don't.

You may say that not everyone without insurance is irresponsible. True, it may be because they don't have enough money. That's an easy problem, give them money. The only people who need a mandate are the irresponsible. Should mandates be demanded for everything where some of us are irresponsible?

How many people are irresponsible anyway? I don't think the vast majority of Americans are irresponsible. Should we design a system based on the premise that a significant number of Americans are irresponsible? Here's an idea, treat irresponsible people different than responsible people. We deserve it.

Severe Lack of Altruism

I listened to President Obama's speech and heard him emphasize the need for a public option in order to level the playing field. According to the president:

...Without competition, the price of insurance goes up and the quality goes down. And it makes it easier for insurance companies to treat their customers badly - by cherry-picking the healthiest individuals and trying to drop the sickest; by overcharging small businesses who have no leverage; and by jacking up rates.

Insurance executives don't do this because they are bad people. They do it because it's profitable. As one former insurance executive testified before Congress, insurance companies are not only encouraged to find reasons to drop the seriously ill; they are rewarded for it. All of this is in service of meeting what this former executive called "Wall Street's relentless profit expectations."

...by avoiding some of the overhead that gets eaten up at private companies by profits, excessive administrative costs and executive salaries, it could provide a good deal for consumers...

Let me get it straight. The reason a public option would operate more efficiently than normal insurance is because it doesn't have to concern itself with profits. Fine, but is there only one entity in the entire United States willing to forgo profit for the public good? Last I checked, over 100 million people voted in this country and over half of them for Obama. I would venture to say most Obama voters support a public option, i.e. a non-profit insurance company. One that can resist, "Wall Street's relentless profit expectations." Are you telling me, that out of over 50 million people, there isn't one person who would be willing to create this altruistic company?

I actually have more faith in my fellow man. I think private charities have tried to do exactly what the public option is supposed to do. They haven't solved the problem because what Mr. Obama is telling the American public is not correct. Your insurance costs are not high because of profit driven companies. President Obama would like it to be that simple: profits bad, governments good. Take away the profits and all will be peachy. Well, we can already take away profits. No one is stopping anyone from doing just that. In a free market, if someone wants to start a company and not take a profit, they can do so. If Mr. Obama is correct and profits are the problem, that company will dominate the market and "protect" consumers.

Either Mr. Obama is wrong, or there is not a single altruist in the entire United States. I'm betting on the former.

David Brooks gets something right

David Brooks writing in today's New York Times hits the nail on the head. He is talking about a new quarterly magazine called National Affairs devoted to tackling public policy questions in a rational way. He makes two great points in his piece:

...Can the state do anything to effectively promote virtuous behavior? Because when you get into the core problems, whether in Washington, California or on Wall Street, you keep seeing the same moral deficiencies: self-indulgence, irresponsibility and imprudence.

In essence, the problem is human nature and whether or not state action can modify it.

[Ron Haskins] points out that the surest way to achieve mobility is still the same: get married, get a degree, hold on to a job. “Poverty in America is a function of culture and behavior at least as much as of entrenched injustice,” he writes. But how does government alter culture?

All public policy needs to be based on what people are versus what they ought to be. Government probably cannot change human nature, but it can create environments and incentives for positive cultures to emerge. It's called capitalism.

Would you cure cancer?

Why do pharmaceutical companies make drugs? Profit, like all other companies. They make profit by selling drugs for more than it costs to produce them.

Some products require lots and lots of up front costs, but little additional cost. Microsoft's Windows operating system is an example. Microsoft spends millions of dollars on highly paid engineers to write the software before they sell even one operating system. Once the software is written, it doesn't cost much to transfer it onto a CD. At this point, the marginal cost of production (i.e. the cost to produce one more) is very low. Microsoft must charge a price high enough to recoup the marginal cost of production and the up front investment. This is why we have patent laws. Patent laws prevent other companies from stealing Microsoft's up front investment.

The pharmaceutical industry works in the same way as the software industry. Companies pay scientists millions to develop drugs before a single dose is made. Once the formula for the drug is developed, the marginal cost of producing it is very small.

Let's say some company developed a drug that cured cancer. If they want to make a profit or break even, they would have to charge a price that far exceeds the marginal cost of production. Economically speaking, this is indisputable.

Politically, we have a problem. We have a drug that cures cancer but there will be some people who cannot afford it. These people, they'll say, will die because of greedy capitalists. The drug should be free to all those who need it. What kind of society let's people die because they don't have the money? Not this one. Inevitably, politicians will impose price controls or outright force companies to give the drug away.

Reality is that the drug cannot be developed without paying for it. Paying for it requires recouping the costs. If those costs are not recouped, the drug will not be developed.

Cancer is an extreme example, but we have many new drugs which only exist because we pay for them. Government can be very successful at bending the cost curve down. All they have to do is not pay for things. It's a fallacy to think lives are only lost when greed prevents someone from receiving the latest drug. Far more lives are lost when the latest drug doesn't exist.

War is not the answer

In this weekends Wall Street Journal, Fred Kagan of the American Enterprise Institute has an op-ed regarding the war in Afghanistan. He argues that we must "win" in Afghanistan to help promote a more stable Pakistan. When will conservatives learn that acting like liberals on foreign policy is idiotic?

Mr. Kagan states:

Winning the war in Afghanistan—creating a stable and legitimate Afghan state that can control its territory...

Conservatives used to scoff at the absurdity of classifying all problems as "wars". The "war" on poverty comes to mind. Recently, we have joined the insane train and also waged wars which aren't really wars. Who is so scared of the bogeyman that they need to fight a "war" on terror?

First of all, this is an abuse of the language and it needs to stop. Why do people attempt to change the meaning of words? Simple, it's to evoke feelings and emotions related to the original definition and apply them to something wholly different. Kind of like calling it discrimation when people with pre-existing conditions are denied insurance. It's disingenous and dangerous.

Here is what war should/used to mean (taken from Merriam Webster):
- a state of usually open and declared armed hostile conflict between states or nations

In Mr. Kagan's statement, who is the nation or state we are fighting? There isn't one. His aim is to create a better afghanistan, a noble conviction for sure, but not a war. Wars have ends. Someone wins and someone loses. Mr. Kagan has ambition without end. Some say war is hell. I agree. Let's not listen to folks like Mr. Kagan who aim at prolonging it.

Too rich to care

It's apparent to me that as society becomes richer it becomes more socialist. The reason I think is that the cost of socialism becomes relatively less and therefore more tolerable. My favorite example (because I made it up) has to do with bread.

Let's say we are a poor country and everyone has one loaf of bread. There is no extra food, that loaf of bread is it and without it, people will starve. Imagine that government comes along and demands 10% of that bread. What do you think the reaction will be? Obliviously people will resist. Their choice is between living and paying the bread tax.

Alternatively, society becomes richer and everyone has 10 loaves of bread. It only takes one to live, the rest makes you a fat American. If the government comes along and demands 10%, what will your reaction be? You'll probably give it to them. The cost of resisting is more than the cost of being a bit skinnier. I imagine that you wouldn't protest even if the government demanded 50% of your bread. Certainly not as much as when you only had one loaf.

While affluence is something we all desire, it is also an anathema to liberty. Wealth raises the cost of opposing encroachments on liberty. One would go to war to protect his daily bread. No one would go to war to guarantee he had six loaves of bread instead of five. The only way to ensure liberty is to raise the cost of the encroachments upon it.