Archive for August, 2009
Numbers Lie/You’re Effing Kidding Me, NYT Ed.
Posted by The Marginalist in Numbers Lie, You're effing kidding me on August 30th, 2009
I saw this editorial in the New York Times today.
Those who fear that a trillion-dollar reform will add to the nation’s deficit burden should remember that these changes are intended to be deficit-neutral over the next decade.
Before why I explain why “deficit-neutral over the next decade” doesn’t actually mean that much, I want to say that I am extremely disappointed in the Times for publishing this extremely shoddy editorial. It’s ridiculously pathetic. I want to focus on that one sentence for this post — click for more. Read the rest of this entry »
Back From Vacation: 10 Things I Read
Posted by The Marginalist in Links on August 25th, 2009
I’ve been on vacation these past few weeks (San Francisco, Yosemite, Napa Valley, New York, and Virginia Beach), but just because I’ve been away doesn’t mean I haven’t been following the news (and blogosphere!).
I have a couple things to take care of now that I’m (finally) in college, but I’d like to share a few interesting things I read.
The Top Ten Things I Read on Vacation
10. The math of a zombie attack
Freakonomics readers, however, point out that the model was flawed.
9. John Goodman notes a Joint Economic Committee report with this table
Or as I like to call it, we’re screwed!
8. How to publish a scientific comment in 123 easy steps
7. Jon Stewart shows why Fox News is stupid
6. Don Boudreaux explains why insurance should only cover catastrophic events
and why Medicare isn’t necessary
What’s funny (well not funny, really) is that we’ve totally forgotten the point of insurance and why it’s economically sensible. Insurance is designed for the unpredicatable. There’s nothing unpredictable about bad health when you get old.
Many of the current budget assumptions are laughably implausible. Both the White House and CBO predict that Congress will hold federal spending at the rate of inflation over the next decade. This is the same Democratic Congress that awarded a 47% increase in domestic discretionary spending in 2009 when counting stimulus funds. And the appropriations bills now speeding through Congress for 2010 serve up an 8% increase in domestic spending after inflation.
4. Political Math does an epic beatdown on Paul Krugman
My problem with Mr. Krugman’s “How big is $9 trillion?” is that he is aware of all the problems I pointed out. He didn’t explain how much $9 trillion is; he obfuscated it. By comparing the debt load in the heart of a world-shaking war to a debt load that was accumulated in (relative) peacetime, he has misled his readers to the real significance of the data.
3. “Radio Nowhere” by Bruce Springsteen
I flew Virgin America, which gives you loads of music to listen to. Luckily, they had 15 of The Boss’s best tracks. I hadn’t listened to Magic before, but that’s definitely the next album I’m buying. Unfortunately, I can’t embed the video.
2. TSA assaults pregnant woman, and arrests husband
There is now a division between the citizenry and the state. When that state is used as a tool against me, there is no longer any reason why I should owe any allegiance to that state.
What troubles me is when liberals decry the tyranny of the state when it comes to the police — but they’re perfectly willing to put the same folks in charge of health care, auto companies, and finance.
1. The best article I’ve ever read on health care reform
The most important single step we can take toward truly reforming our system is to move away from comprehensive health insurance as the single model for financing care. And a guiding principle of any reform should be to put the consumer, not the insurer or the government, at the center of the system.
The article is written by a Democratic businessman whose father died in a hospital. Although it’s 6 pages long, the author offers the best diagnosis of why health care is so bad in America. He ends with his idea of how government should support the sick and poor — if I were to design a health-welfare system, that’s how I would do it.
Open Letter to Whole Foods Boycotters
Posted by The Marginalist in Politics on August 16th, 2009
Dear Whole Foods boycotters,
Whole Foods CEO John Mackey recently voiced his opinions on health care in this op-ed in the Wall Street Journal. Personally, I found his article rather prescient and considered it to be a fairly apt summary of the type of health care reform that most free-market economists like me would support. I did not agree with every last detail of his plan, but as with every other piece on health care, I digested his thoughts and went on with my life.
Obviously some of you did not react the same way as I did. Judging by the comments on Mackey’s full post at his blog and what I’m hearing from the internet, a good number of people are advocating a boycott of Whole Foods in response to Mackey’s recent article.
Now, I never shop at Whole Foods and Mackey’s article is not going to change that. I would also never stop listening to Bruce Springsteen or U2 simply because they have publicly advocated political beliefs that I have strong disagreements with. But, I fully recognize your right to choose to engage or disengage in business with someone for whatever reason you please.
However, before you choose to boycott Whole Foods, I would appreciate that you ask yourself a few questions:
- If you boycott Whole Foods because of Mackey’s political views, are you prepared to seek out every single company you do business with and ensure that the CEOs of those companies supports your idea of health care reform? Will you divest from each and every company whose CEO does not agree with you on this issue?
- If you only oppose Whole Foods because Mackey took the time to make public his opinions, may I ask what is so terrible about people acting on their political beliefs, even if they disagree with you?
- If you want Mackey to be removed as the CEO of Whole Foods because of his political beliefs and activities, do you think that political beliefs are legitimate criteria for hiring and firing? Should we hire or fire based on a person’s political activities? Would it be acceptable for me to fire a liberal or progressive because of his or her political activities?
- If the CEO of your company came out against universal health care, would you support a boycott of your own company? Even if the company was forced to lay people off as a result?
- Is boycotting companies whose CEOs disagree with you part of Obama’s plan to, as he said, “resist the temptation to fall back on the same partisanship and pettiness and immaturity that has poisoned our politics for so long”? Or do the words “partisanship,” “pettiness,” and “immaturity” mean something else?
- Let’s say the organization of this boycott is successful to the point that some stores are forced to close. Now that all of the employees have lost their income and health benefits, is that an acceptable cost to punish Mackey for voicing political beliefs you don’t agree with? What would you say to those employees and their families?
I respectfully await your response.
Preston Mui
Hiatus
Posted by The Marginalist in Blog News on August 16th, 2009
On vacation for a while… Don’t let anything interesting happen without me 
My Email to the White House
Posted by The Marginalist in Personal on August 11th, 2009
Dear President Obama, et. al.,
Your team recently posted on the White House Blog asking American citizens to come forth with “fishy” statements about health care reform that we find on the Internet. I applaud your efforts to combat disinformation about health care reform that could defeat attempts at sound and moral health care reforms. Disinformation must not stand in the way of true health care reform.
I’m writing today to respond to your request to seek out and flag fishy statements. I came across a lengthy document a few days ago that makes some very fishy statements that I believe run contrary to what the President has been saying. I fear these fishy statements may sink health care reform. I’m actually quite surprised the administration has not pointed out these fishy statements yet.
These are the fishy statements I found in this document.
- You promised that you would never raise taxes on individuals earning less than $250,000. However, the document says that individuals who fail to meet acceptable coverage will be subject to a 2.5% tax on their Adjusted Gross Income, even if their income is below $250,000.
- The President promised that health reform will guarantee the individual’s choice to purchase plans they want. However, the document claims that a “Health Choice Commissioner” will decide what counts as a “qualified plan.” If an individual wants to purchase a plan not approved by the Commissioner, he or she would not be allowed to.
- You have said that businesses are suffering from having to meet the health care costs for their employees. However, this document claims that businesses who choose not to, or cannot afford to, provide health insurance to their employees will be hit with a tax up to 8% of their payroll.
- The fishiest statement in this document is that existing health care plans may not enroll new individuals after health care reform is passed. The document also says that individuals who are currently enrolled in a plan will not be allowed to change the terms of their contracts after reform is passed. However, the President has consistently trumpeted choice as a key principle of health reform.
I hope you public address the fishy statements found in this document. As a strong advocate of health care reform, I believe these statements have the ability to drastically diminish the chances of your health care plan moving forward. If the public becomes more exposed to these fishy statements, public opinion may very well overwhelm your efforts at reform.
This document also claims to be H.R. 3200, an actual bill sponsored by Rep. John Dingell that is being considered by the House of Representatives at this very moment. But that couldn’t be possible; the bill breaks so many of the promises you’ve made to the American people. You would never support a bill with that many fishy statements.
Would you?
Sincerely,
Preston Mui
(Inspired by Keith Hennessey, cross-posted at Young Americans for Liberty)
Numbers Lie: Bill O’Reilly is an Idiot
Posted by The Marginalist in Numbers Lie on August 11th, 2009
Hat tip to… Paul Krugman, actually.
Squeal.
Posted by The Marginalist in Uncategorized on August 7th, 2009
Ambulances, Rent Seeking, and Public Services
Posted by The Marginalist in Uncategorized on August 7th, 2009
Apologies, somehow the font got smaller for this post. You can control+scroll and the font will change.
Hat Tip to John Goodman: Man Takes 603 rides in an ambulance — in five months! Costing Medicaid $118,158.
Take Mr. Graham’s case. His trips cost Medicaid $118,000, but the government reimbursements are low. In fact, most ambulance companies lose money, up to 30% or more, when they transport Medicaid patients, because the government simply does not pay the full cost. Therefore, Mr. Graham’s actual cost to the ambulance company and to the health care system in general, is much more, as high as $360,000.
To which Republican Chris Collins says:
Erie County Executive Chris Collins, a Republican, says government is not the answer to limiting that type of alleged abuse and waste.
“Fundamentally, inherently I think the private sector is better able to do anything and everything compared to government,” Collins said.
A few things spring to mind:
I don’t think ambulatory services have time to check for whether or not someone has health insurance that pays for it or not, or which ambulatory service to call.
The idealist in me says you could conceivably offer bids to companies to run or provide parts of the ambulatory service. For example, I don’t the government itself produces ambulances, and I don’t think they ought to.
The realist in me looks at politics and notices that subjecting a public good to private competition often means private entities will engage in rent seeking. This basically means that private companies will employ resources to lobby (read: bribe) public officials to give them the contracts. This happens, and it’s a waste of resources as well as a poor way to obtain efficient public outcomes.
Rent Seeking: When private entities use resources to get the government to give them what they want. For example, if a corporation gave a political figure a campaign contribution and they received a no-bid contract, that would possibly be rent seeking.
The other realist in me says, “well, so what? Even if government produced ambulances, they’d need to buy materials for the ambulances from private entities anyways, such as steel and rubber companies. Then it would be steel and rubber companies engaging in rent seeking, not ambulance producers. That doesn’t solve the rent seeking problem, it just shifts it backwards in the production process.”
And from there, it’s tempting to say, “well, why don’t we just have the government take over all aspects of ambulance manufacturing, from mining raw materials to assembly?” But ambulance making is terribly complex if you wanted to do all of it. No private nor public entity would be able to do it efficiently because they would suffer from diseconomies of scale.
Milton Friedman used to say, “Nirvana is not for this world.” I don’t think there’s a perfect solution for rent seeking. You never solve the problem, you only shift it around — and even if you somehow managed to do it, it would involve a massively inefficient entity that manages every aspect of whatever service you’re trying to provide. That’s not a libertarian vs. socialist or government vs. private sector argument; it’s straight economic logic.
Obviously having the government manage every single aspect of ambulance making is not ideal. Having the private sector handle every single aspect of ambulatory service in a normal market is not ideal either. Somewhere in between, the vague and elusive “best solution” exists.
But when Collins says “Fundamentally, inherently I think the private sector is better able to do anything and everything compared to government,” I appreciate the criticism of government-managed services — but, please, don’t be stupid about it.
iPhones, Pharmaceutical Companies, and Expenses
Posted by The Marginalist in Microeconomic Muses on August 5th, 2009
I got myself an iPhone the other day — quite possibly the niftiest piece of technology I’ve ever held in my hands. It’s slick, easy to use, and the picture quality is pretty damn good. I used to carry around a Hipster PDA, my phone, and an iPod before, but now that can all be consolidated into just one item. Which leaves me, of course, with more room to carry around the one dollar bills I earn from street performing.
Needless to say, the innovation of Apple has greatly improved my life. By the way, why do you think Apple made the iPhone? Profits, or altruism?
Anyways, Megan McArdle points out that Apple only spends 3% of its revenues on research and development. Google spends about 10% on research on development. So when people complain that pharmaceutical companies “only” spend, say, 15% on research on development — is that really such a big complaint?
Monday Mini Muse: Money (MMMM for short?)
Posted by The Invisible Hand in Microeconomic Muses, Travian on August 3rd, 2009
This post is intended as an add-on to the earlier post on money.
I wrote earlier that anything could be used as money so long as people generally accepted it as payment for goods and services. What I didn’t answer before is why some objects (such as gold and silver) have been used for centuries by many civilizations as money while others (such as leaves) have not. This is the question with which I will concern myself today.
There are three qualities which make a substance useful as money: value, fungibility, and liquidity.
[Value]
For something to be accepted as money, it must obviously be of some value to people, for money is a representation of wealth. This is why dog excrement has never been used as currency by any recorded civilization in human history. Value entails relative scarcity — this is why precious metals were used as money: in addition to being coveted by people for their physical beauty, they were sufficiently rare in supply that their value would remain stable over time. This ensures that they act as a good store of value over time and that they make for a good unit of account. Gold and silver are impossible to mass produce, unlike, say, Oreos, which would quickly lose value if used as money.
For fiat money — like paper money we use today — the government must be careful to maintain the currency’s value by cracking down on counterfeiters and by not engaging in government-sponsored counterfeiting (i.e, printing money). The mass production of any type of money, fiat or commodity, causes rampant inflation which destroys the value of money.
This is why inflation is sometimes called the worst type of taxation; it is essentially a tax on information, a tax which destroys peoples’ ability to tell how much real wealth they have and how much goods and services really cost.
[Fungibility]
Fungibility is the second main criterion for a substance to be useful as money.
Fungibility: The quality of having interchangeable units.
Examples of fungible goods are corn, gold, and crude oil. A bushel of number 2 corn is the same as any other bushel of the same grade of corn; this is why farmers are able to deposit their grain into grain elevators without worrying about whether the individual pieces of corn or wheat that they put in are the same as the ones that are withdrawn at a later time. Similarly, a barrel of crude oil is the same as any other barrel of crude oil and ingots of 24 karat gold are interchangeable.
Why is fungibility important for money? Suppose that horses or diamonds are used as money in a certain economy. Clearly, both are very valuable, but they are not fungible because one horse or diamond does not have the same value as any other horse or diamond.
Each horse has its own individual draft power and endurance and each diamond has its own luster and size, among other characteristics. In trading, the buyer and seller must spend precious time and energy in bartering over how much each horse or diamond is “really worth”. This time represents an unnecessary transaction cost that could be eliminated by using fungible money.
Fungibility goes hand in hand with divisibility. Units of fungible goods can easily be divided into smaller units or combined into larger units without losing or gaining a disproportionate amount of value. For instance, two bushels of grain are worth twice as much as one bushel, and an ingot of gold can be split in half by a goldsmith to produce two pieces of gold, each of which is half as valuable as the original. By contrast, splitting a finished diamond in two or smashing two diamonds together would utterly destroy the diamonds’ value. Horses aren’t that divisible, either.
[Liquidity]
Liquidity (or more specifically, market liquidity as distinguished from accounting liquidity) is the final trait that any substance which is useful as money should possess.
Market liquidity: How easily and quickly an asset can be sold without losing value.
Cash is the most liquid asset in existence because its exchange does not affect its value at all. By contrast, houses and cars are very illiquid assets. When a car or house is first sold, for instance, it cannot be immediately resold except at a much, much lower price.
This is because the act of putting a car or house up for sale sends a clear message about its value: it tells other people that the asset in question is worth so little that the original buyer did not want to keep it for very long. That’s why used cars are much, much cheaper than new cars, even if the used car has few miles on it.
Because of this, cars and houses cannot be turned over and used as payment in the short run. In the long run, though, they may offer a stable store of wealth provided that there are no major upheavals in the housing and car markets.
[Conclusion]
I lied. Well, I kind of only told half the truth. Yes, anything could, I suppose, be used as money, but in practice, only liquid, fungible, and valuable objects are ever accepted as money in any economy.
I will advise my enemies to savor this moment, for from here on out, I solemnly swear to tell the truth, the whole truth, and nothing but the truth, so help me Adam Smith.