Few Decisions

How Much Should State Workers Be Paid?

2011-02-24T05:30:00.000-08:00

I tend to agree with this:

I don't think of state employment as a way to create, in miniature, my ideal labor utopia. I think of it as a way to procure services. I define people as being "overpaid" not if they are paid more than someone with a similar level of education, but if they are paid more than I need to entice to pay to attract adequate workers.

Bottom line is that government jobs should exist to fulfill a specific purpose, as money ultimately comes from taxpayers, who are often left out of the argument over government worker pay.

Elsewhere in the blogosphere, there were several very good articles about unionization, some of which I don't agree with, particularly the claim that the "middle class" needs unions to counteract the hijacking of politics by Big Business. On the other hand, I'm not as harsh as this post:

You want negotiating power? Get educated. Get a skill. What keeps wages up in a world of 7% unionization in the private sector is that I have alternatives. So stay in school and study something serious that has value alongside whatever else you’re interested in. Or study something interesting that has little market value. But if you do that, don’t complain about your low salary and lack of a union.

The bottom line–you don’t need a union to protect you from your employer. You need alternatives–you need to have a skill that more than one employer values. If you have no skills, you are in trouble and the union won’t help you either except at the expense of other workers...

Stop whining about inequality, per se. If it bothers you, get to work, get a skill, start a business and tell your representatives to stop bailing out losers in the financial sector.

The decline of unions is directly correlated to the rise in the number of skilled workers, so in that sense, this is correct, workers don't need unions as their skills and options increase. Which is why I feel like a lot of the rhetoric around unions is pining for a world where certain skills are valued more than they are currently in America. In many progressive's eyes, stronger unions would be a way to build a world where the skills they value would be worth more and the skills they don't value as much would be worth less. Are the unions the way to get there? I'm not so sure. I think progressives ought to be thinking about alternatives:

What is the answer if resurgent unionism is not? Is there one? I hear plenty of progressive rhetoric to the effect that only a rehabilitated union movement can save America from plutocracy and middle-class stagnation, but my sense is that this is a lot like conservative rhetoric to the effect that only a return to constitutional principles will save America from sclerotic socialist decline. Do progressives, like their conservative counterparts, really believe their own hype?

Battle in Wisconsin

2011-02-22T05:25:00.000-08:00

It's been a while since I wrote about an economic or political issue like I used to on this blog, but I was inspired by something I saw on Facebook, so here we go...As background, for those with their heads in the ground, the "Battle in Wisconsin" (and I might be simplifying a bit) is about the rights of teacher's unions in Wisconsin to have "collective bargaining rights" in determining their wages and benefits. As I understand it, it's primarily about teachers, the rights of the firefighter and police unions (and other public employee unions) are not on the table. The debate began when several democratic state senators fled the state to an "undisclosed location" to avoid being present on a vote to revoke the collective bargaining rights. Apparently the Republicans hold a majority but need at least one Democrat present to vote, so if no Democrats are present, the vote can't proceed. I thought it was a funny story at the time, but now it's blown up into a larger issue about labor unions, teacher pay and essentially turned into class warfare.

So, with that backstory, here's what a teacher friend of mine posted as his Facebook status:

Only 5 states do not have collective bargaining for teachers. Those states and their ranking on ACT/SAT scores are as follows:

South Carolina -50th; North Carolina -49th; Georgia -48th; Texas -47th; Virginia -44th

Wisconsin -- WITH its collective bargaining for teachers -- is ranked 2nd in the country.

He got several supportive comments, but really what does this tell us? I say, nothing. Comparing this one aspect of labor negotiations with ACT/SAT scores tells us nothing. As I commented on his post, you might as well rank states by humidity or coldness of winters - you'd probably get similar results. There are two things I learned in my statistics and econometrics courses in college: 1) correlation does not imply causation, and 2) you have to have a story to tell with your statistics, otherwise it's just random numbers. Putting aside the first point, since as I said you'd get the same ranking by comparing humidity among those states, what is the story this likes to tell? That somehow collective bargaining among teacher unions increases student ACT/SAT scores? How might it do that? A plausible line of reasoning might say that it raises teacher salaries relative to the other states which attracts better teachers leading to better scores. But I think that's a bit of a stretch. There is data on teacher salaries by state, although it doesn't include benefits which is probably the biggest difference that unions make anyway. In any event, I find it doubtful that collective bargaining on it's own makes much of a difference in student achievement.

So does that mean I am against collective bargaining for teachers? The purpose of collective bargaining is to raise salaries or benefits relative to what they'd be without the bargaining power. Should teachers have higher salaries and benefits? I don't know. The standard story is that teachers are underpaid and overworked. I've known many, many teachers and I must say that story does not hold up. Sure, I'd love for everyone to make more money and get ever generous benefits, but given state and local budgets, more money for teachers means less for someone else. Of course, the standard argument in the Wisconsin case is that the Republican Governor handed out millions in "tax breaks" and "handouts" to the wealthiest in the state and is now trying to cut back on teachers. I don't know the details of the tax breaks and handouts, but I do know that a lot of a state's budget goes toward helping the poor. Without raising taxes (which aren't part of this negotiation) it's not inconceivable that higher teacher salaries and benefits could be offset with less services for the poor. Here are two good articles that summarize the various trade-offs at stake in Wisconsin:

Especially in an environment like this, where taxpayers are under unusual financial pressure at the same time as the claims on the government are especially high, the choice is not between collecting a lot more taxes, or keeping public worker salaries under control. Oh, many states (and certainly the federal government) may need to raise taxes. But they aren't simply going to raise them high enough to cover any amount of spending. Spending cuts are going to have to be made too, which means that every decision not to cut spending in one place is, de facto, a decision to cut it somewhere else.

If you keep the unions happy, the service cuts are probably going to hit the programs and districts that serve the poor, because the poor, unlike the public sector unions, don't vote. So while both parties seem to think that they're fighting their usual war over the size of government, this is actually a distributional argument--and oddly, what we think of as the usual party positions are reversed. This time, it is Democrats who are fighting for middle class benefits that will probably come at the expense of the poor.

That's what I see playing out in Wisconsin. I'm curious to see how it ends, as I'm sure are many other states.

Update: Marginal Revolution alerted me to this article regarding the issue. Boils down to the fact that SAT/ACT scores in fact act as proxies for percent of white students, which is why Wisconsin, the Dakotas, Vermont, Maine, New Hampshire show up at the top. Wisconsin is 4% Black and 4% Hispanic. To really compare states education performance to one another you really need to compare races separately. And when you do that, Wisconsin doesn't do that great. Read the article for the details.

The New Monopoly (game)

2011-02-17T05:39:00.000-08:00

The new Monopoly game looks terrible. I grew up playing Monopoly and actually liked it quite a bit. It's a good, classic board game. The last several years have seen the introduction of "special edition" Monopoly games, where the board layout and the rules were the same, but the board squares were replaced with items along a different theme. At first it started out as city editions, such as the Seattle Monopoly edition ($79 on Amazon? Ouch.) where Boardwalk is replaced by Boeing and Starbucks is the new Park Place. It used to be kind of fun to look at these editions and see what the standard properties were replace with. But lately, the proliferation of special editions has gotten a little out of hand, with such editions as the Simpsons Monopoly, X-Men Monopoly, even a .com edition where Yahoo is Boardwalk and Excite @ Home is Park Place. There is no Google or Microsoft to be found. I also like how in the .com edition the prices are not in dollars but millions of dollars. Hmmm...Tech bubble anyone? Here's a list of some other ridiculous editions, such as the Boy Scouts of America Monopoly and the 1999 NFL Football "Grid Iron" Edition (yes, an edition for one specific NFL season). This blog has a list of over 2,000 editions which kind of boggles the mind.

But anyway, back to the new Monopoly, which thankfully they are at least giving a new name, "Monopoly Live". According to the New York Times article, Hasbro, which owns the rights to Monopoly now, decided that the original Monopoly wasn't appealing to the current generation enough so the game needed to change. So they asked the obvious question: "How do we give them the video game and the board game with the social experience? That’s where Monopoly Live came in." Really? We need to combine video games and board games with the "social experience"? All board games are, by definition, social since you play them with someone else. I have huge doubts that their vision of combining board games and video games will work:

Hasbro is aiming at luring 8- to 12-year-olds back to these board games. Its executives say this age group, accustomed to video games, wants a fast-paced game that requires using their hands. To move forward on the new Monopoly board, players cover their game piece with their hands, and the tower announces how many spaces the player can move. Players also hold their hands over decals to buy or sell properties, insert “bank cards” into slots to check their accounts, and send a plastic car moving around a track to win money or other advantages.

Apparently, Monopoly Live also doesn't come with any rules. Instead there's a huge tower in the middle of the board that directs the game. "Getting rid of the instruction book encourages a lot more face-to-face interaction,” a Hasbro representative said. “If you’re not having to read as much, you are all chatting more." Or more like arguing about how to play the game, or wondering why the tower is broken and not directing the game anymore.

This is just stupid. Those of us who grew up playing Monopoly and thinking it was a fine game (maybe not perfect, as it sometimes took a little long to play) are now being told that it's not good enough for the next generation. When in reality the next generation could learn a few things from the original Monopoly. The article quotes a "distinguished professor of digital humanities" (Seriously? Do they need to mention distinguished? And digital humanities is an actual college field? What is happening?):

Mary Flanagan, a game designer and distinguished professor of digital humanities at Dartmouth, said that games tended to reflect the societies that they were played in. For instance, the original Monopoly, issued in 1935 by Parker Brothers, now a subsidiary of Hasbro, reflected “American ingenuity, the sense of needing to have hope, and reinforcing capitalism in the face of real economic despair,” she said.

This version, she said, seemed to be “less and less about financial awareness” — children do not need math skills in it— and more about social interaction.

Not needing math skills? That's what it means to update a game for the next generation?

I should write a book on personal finance

2010-12-08T18:52:00.000-08:00

I stumbled across recommendations for a couple of books on personal finance books and picked them up from the local library. I found both books entertaining but I also felt they both contained a bunch of common sense, and didn't really tell me anything I didn't already know.

The first, entitled The Investor's Manifesto: Preparing for Prosperity, Armageddon, and Everything in Between could be summed up in a couple of sentences: Don't try and time the market. Set up a regular schedule and invest in low-cost index funds (preferably from Vanguard) across a broad spectrum of asset classes including stocks and bonds, both domestic and international. The book is kind of short on specifics, beyond listing some example Vanguard funds in each asset class. One thing I did appreciate was his acknowledgement that investing according to his plan take a firm resolve and there will be times when your portfolio will decline by large amounts. Investors should view those times as an opportunity to buy low, and not be deterred. He admits that if you can't stomach large losses you should invest in safer assets (with lower overall returns). He spends a lot of time talking about how we're our own worst enemy and the temptation to try and time the market (or to "cut our losses" by selling when the market is down) is the biggest impediment to better investment returns.

The second book was even more along the lines of something I could have written - The Ultimate Cheapskate's Road Map to True Riches: A Practical (and Fun) Guide to Enjoying Life More by Spending Less, by Jeff Yeager. Of course, I don't really consider myself a cheapskate, but I could relate to his anecdotes of trying to save money in simple ways. The problem with the book, though, is that he ideas aren't really all that novel. For example, he says ignore the urge to "trade up your house" throughout your life and instead live in a smaller house, preferably one with an attached rental unit. He also suggests shopping at Dollar Stores and that it's worth having a membership to discount stores like Costco. He likes the idea of regular money fasts where you don't spend any money whatsoever for a week at a time. This makes you more aware of the areas in your life where you spend money, allowing you to possibly cut back. As you might expect, he's not much for electronic gadgets and suggests that you always wait at least a month before buying any electronic device because by then you might decide either you don't need it or that there's a cheaper version. He also thinks you should never pay more than $1 a pound for your groceries. Seems like that would limit a lot of fruit and vegetables.

I did appreciate how both books were realistic in setting the reader's expectations. For example, The Investor's Manifesto acknowledges that by investing in index funds you'll never "hit a home run" and it takes a long time to amass substantial wealth (which is why it's so important to pick low-fee funds because over larger time horizons, the small fees really add up).

Yeager debunks the latte factor as a way to fix your finances. The latte factor is the idea that if we just gave up that latte each day and invested it instead we could change our long-term financial outlook. It's the idea that it's the little things that matter. He counters that argument by saying that if you don't even realize that you're spending $3 or $4 a day on a latte there are probably much bigger issues in your life. The latter factor is like the six-minute abs or whatever diet fad that promises big results with little effort. Real change is more difficult, although the point of his book is that it's not really that hard. Except that I'm not sure he's too convincing in that regard. He laughs off his cheap behavior (like not having a cell phone, for example) without really admitting that he's not exactly proto-typical. He also doesn't have any kids, and his wife also works, which makes a big difference. And he bought a house in the Washington D.C. suburbs in the early 80s that has an attached rental property. His paid off house represents a large part of his total assets

I enjoyed both books, and plan on reading Yeager's follow-up book The Cheapskate Next Door, which contains more example of people (other than himself) who are living a frugal lifestyle. As for my next investing book, I just got from the library tonight the 9th edition of A Random Walk Down Wall Street, by Burton Malkiel. This has been on my list of books to read for a long time, so I'm going to give it a try, although it looks a lot denser than the Investor's Manifesto so we'll see if I make it though it.

Update on the cost of living in Boston

2010-10-04T17:55:00.000-07:00

I got some feedback that I might have been a little "harsh" in my previous post, and it's been a few weeks so it's appropriate I reassess the figures. Plus, since the last post we've rented an apartment and I've started my job, so I have more of a handle on what our actual expenses and income will be. But first, a picture of my darling nephew, because in reality he's one of the main reasons I'm living in Boston:

How can you put a price on cuteness like that? Well, anyone who knows me, knows I'll certainly try. Let's recap:

Rent: We ended up finding an apartment for $1,050 a month, and by a quirk in the way the utilities are broken up between the three units of the building, we're only responsible for the gas heat, and don't have to pay for water or electricity. So, assuming that our Seattle rent was going to probably increase, I'll adjust this to be about only $2,500 more expensive than Seattle. ($1,500 cheaper than estimated.)

Income: This is still a little hard to compare, since as I said, at my previous job I had zero benefits and was responsible for more taxes. On an hourly basis, my current job pays roughly 20% less than my Seattle job, but it does include nice benefits and generous vacation time (three weeks to start, plus holidays). Additionally, the health insurance benefits are very generous. I think on a pure monetary basis I was making more in Seattle, and Jaimee's wage calculation remains accurate, but I think I'm only about $10,000 worse off instead of $20,000 as estimated before. ($10,000 cheaper than estimated.)

Insurance: This has turned out to be a very pleasant surprise. As it turns out, my job has very good benefits which allow me to add Jaimee to my health insurance for very cheap. And, my job has a high-deductible policy option that will allow me to keep my health savings account. When you factor in all the costs and benefits, we're no worse off than we were in Washington, and might actually be coming out ahead. ($2,000+ cheaper than estimated.)

Entertainment and Miscellaneous: We continue to be amazed at how much cheaper it is to go out to eat in Boston versus Seattle. This past weekend, four of us went out to breakfast for $41, including tax and tip! When we were in Seattle over Labor Day, four of us went out to breakfast for $56 - almost 50% higher. Of course, it's still cheaper to not eat out, which as I noted before we're probably on average doing a little less of overall compared to Seattle. So, I think my estimate of savings is accurate. We continue to save on gas, as gas costs roughly $0.50 less per gallon. Even though I ride my bike to work and Jaimee will be walking, I still think we'll be saving some money by paying less for gas, even though as noted we have tolls and excise taxes to deal with. ($300 cheaper than estimated.)

So, in summary, the $24,000 that I estimated it's costing us to live in Boston versus Seattle is now more like $10,000. That's still a considerable amount of money, but it's not quite as shocking as $24,000. And, we continue to take advantage of living close to family. Jaimee recently helped her grandmother move into her new assisted living apartment, and we continue to see my nephew on a regular basis. And in a couple weekends, my Aunt and Uncle are coming down for a visit. And, to top it all off, I'm actually really enjoying Boston. The weather is horrible, but I like our neighborhood and I like my job. Of course, I enjoyed both in Seattle too, so that's not a change, but at least my happiness hasn't gone down with the move.

Can you put a price on being close to family?

2010-08-31T15:29:00.000-07:00

As readers of this blog probably know, I've moved to the East coast (Boston area to be precise) after living in Seattle for 13 years. Jaimee and I moved here in order to be closer to our families. Nearly all our family members live in Southern Vermont and Eastern Massachusetts so we made the decision to move here in order to be closer to them. And so far we've taken advantage of the proximity and enjoyed (just in the last two months):

the birth of my sister's son (and my first nephew) Jonah
two of Jaimee's cousin's weddings
my uncle's 70th birthday party
Jaimee's cousin's baby's 1st birthday party
being able to visit with Jonah at least once a week, and often two or more times in a week
a week-long vacation to Nantucket with Jaimee's dad and step-mom
frequent visits with Jaimee's sister who lives in Somerville
a long-weekend to Martha's Vineyard with my aunt and uncle
numerous other family functions, including visits with Jaimee's octogenarian grand-parents

This has been great, and we've enjoyed it very much. If we still lived in Seattle we might have come back for maybe a few of those events, but certainly not all of them.

However, for reasons I won't get into in this post, Boston is much more expensive than Seattle. I won't speak for all people, but at least for us, we're finding Boston to be loads more expensive than Seattle. In other words, it's costing us a certain amount to live here instead of Seattle. I've been thinking about this a lot lately, as we've been apartment hunting and we realized that the rents here are quite a bit more expensive than Seattle. And rents are just one way it's costing us more to live here. So, I thought I'd try and quantify how much more expensive Boston is than Seattle (again, for us - other's situations might be very different):

Rent: In Seattle, we had ridiculously cheap rent. Granted, the apartment wasn't very good, but it was very, very cheap. It was $730 a month including utilities. The starting level for even the cheapest apartment we've seen in Boston is about $1,000 without utilities. And utility prices will be higher because of the cold winters. One apartment we looked at had heating oil costs of $2,000 per year! But to be conservative, let's just say we'll be spending an extra $350 per month on housing as it's likely our rent would have gone up (it went from $600 to $730 in the three years in that apartment). Cost: $4,000 per year.

Income: Jaimee and I were both lucky to have well-paying jobs in Seattle, and I'll be the first to admit I was overpaid. I had a very, very good job. There are jobs that pay the same around Boston, but they come with lots more responsibility, and there are many that I'm not qualified for. I'm looking at probably about a $10,000 to $15,000 per year decrease in pay. My old job had zero benefits (I was an independent contractor) so the benefit package (and my new employer picking up half my Social Security tax) should make up for some of that figure, but I still figure I'll be making about $10,000 less per year. Jaimee has decided to not go back to teaching this year and will be a full-time nanny, taking care of two babies (one of them my nephew) four days a week. Her salary for this will be about $10,000 a year less than her teaching job in Seattle. Granted, it's four days a week (although still 40 hours), and it will be a less stressful job, but she also will not have two to three months off in the Summer. Cost: $20,000 per year.

Insurance: I've already detailed how much more expensive health insurance is in Massachusetts. I'm pretty much ignoring the state mandate that I get health insurance and am waiting for the benefits of my job, so for me it's a wash (although the higher cost of insurance probably factors into the lower wage I'll be making) but for Jaimee the higher costs might be real, depending on how much of the insurance costs her new employers pick up. We don't have the figures for her yet, but I wouldn't be surprised if insurance for Jaimee costs upward of $200 more per month. (There's also the fact that I won't be able to keep my health savings account which saved me about $1,000 a year in taxes, but I also will have the money I contributed into the account for other stuff.) Car insurance is about the same, but that might be because we registered the car in central Mass as opposed to the city of Boston. We paid $600 every six months for two cars in Seattle as opposed to $300 for just one car here (although the insurance we had in Seattle was more comprehensive). Cost: $2,000+ per year.

Entertainment: We ate out a lot in Seattle, and although we don't eat out quite so much (so far anyway) when we have it's been cheaper in Boston, maybe 15% or so. For one, sales tax is less (6% versus nearly 10%) but prices are also less, at least in Boston itself. Interestingly, in the suburbs, restaurants are much more expensive than Seattle, but we hardly ever eat out in the suburbs. Alcohol costs more at the liquor stores (it's hard to find any microbrew six-pack for less than $10, for example), so that might eat into some of our savings, but conservatively, I'd say we're saving about $100 to $200 per month on eating out/entertainment costs, both by not eating out as much and by it being cheaper when we do eat out. Savings: $1,500 per year.

Miscellaneous costs: We've had various miscellaneous costs, like registering the car ($125 for two years), getting the car inspected ($30 per year), getting a MA driver's license ($100 for five years), but I won't count those as we'd probably have comparable expenses in Seattle. What I will count is tolls. Massachusetts has lots of tolls. Granted we might be driving around more than we will once we have jobs, but I got an EZ-Pass contraption for the car to go through the automated booths and I've been spending an average of about $20 per month on tolls. There are also commuting costs associated with my new job. In Seattle I rode my bike to work all but maybe five days per year, and the days I didn't ride my bike I drove the five miles and parked for free. In Boston, I will try to bike when the weather is good, but otherwise I will probably have to take public transport at $1.70 each way. Jaimee will probably either drive to work (less distance than she did in Seattle) or walk (depending on how close we live to where she has to Nanny). Costs: $600 per year.

Miscellaneous savings: As noted, sales tax is less here, and there is no sales tax on shoes and clothing like there is in Washington, so that might save us some money. Neither Jaimee nor I buy very many clothes, but the lower sales tax does save us some, I just don't know how much. But, let's say it saves us $20 a month. We also don't have to spend money to travel back to Boston, which we'd been averaging about twice every three years or so. Tickets averaged about $350 round-trip per person, with a few hundred in spending money. Of course, we'll take other vacations instead, so it's not a true savings, but I'll add it in here anyway. Savings: $1,250 per year.

So if you add up the costs and subtract the savings, it costs us $24,000 per year to live in Boston. Hmmmm...that implies we could have stayed in Seattle and flown back to Boston every other weekend (assuming a cost of $1,000 per trip including airfare). Think of all the frequent flyer miles we could have racked up. Luckily, most of my family doesn't read this blog so they won't now think I only think of them in terms of dollars. On second thought, the fact that I did move back here proves I don't think of them only in terms of dollars, and it shows that I value being around them at upwards of $2,000 per month! That's quite a price for being close to family!

Job Search Fail

2010-05-28T11:25:00.000-07:00

Today I half-heartedly started a job search. We get back from our trip in two weeks, so I thought I'd start by e-mailing a contact that had offered a job on a Perl discussion board a few months ago just to see what the status was. His reply was that he's currently unemployed and looking for work. I had e-mailed him my resume, and he e-mailed his resume to me in reply ("in case you have a use for it" as he put it). Hmm...Not exactly what I was hoping for. Of course, I'm not quite ready to jump back into work anyway, so it's just as well that nothing came of it.

Heart vs Head

2010-03-29T06:23:00.000-07:00

I've been doing a lot of thinking about my last post on the health care bill recently passed by Congress. Something about my post didn't sit right with me. Am I really against this bill? If so, why am I opposed? Isn't it a good thing to allow more people to purchase health insurance? Isn't it wrong that insurance companies can drop your coverage if you get sick? Shouldn't anyone be able to get health insurance despite having a pre-existing condition? Shouldn't women pay the same for health insurance as men of comparable age? Shouldn't maternity care be available on all insurance policies? The reforms of the bill are items that no one, except the most sadistic right-winger could actually be against. Yet, I wrote that I was not happy that the bill passed, that I wished it had failed (in so many words). I even thought about taking the post down as I feel like I wrote it in the hectic moments right after I found out about the bill's passage before I'd had more time to think about it completely. However, it's my policy to not censor myself after posting; these posts form a record of how I felt at a particular moment in time and I deserve the right to change or alter my viewpoint later if I choose.

I wasn't quite sure how to express my ambivalence until I read this article, on CNN of all places, by author Fareed Zakaria (I never go to CNN.com but I found the article while cruising Google News). This short interview perfectly sums up my feelings on the issue.

Zakaria summarizes the health care debate as one between the heart and the head (I would have said brain but he was being politically correct). The heart side is played by Democrats who, by making this bill all about insurance and insurance access can be seen as the saviors of the uninsured, the sick, the disadvantaged. The key parts of the bill make insurance more readily available. The Republicans play the head role, asking the sensible questions of how we'll pay for this, is this really the right time to implement a huge new entitlement, how will you contain costs, how will the individual states react, is the mandate even Constitutional, etc.

By taking the moral high road and framing the debate in a moral way, the Democrats don't really care about those pesky questions. They built a sense of hysteria over the number of uninsured even saying that by not reforming the system we're allowing millions of people (the exact number varied depending on who you asked) to needlessly die every year. Sure, this bill has cost cutting measures and according to supporters it will actually reduce the deficit. But do supporters REALLY believe this? No entitlement program in the history of this country (or any country for that matter) has ever cost the same or less than expected. It's pretty much a guarantee that the subsidies for insurance will be higher than planned and the cost cutting measures will be difficult (or impossible) to implement. Try telling Medicare recipients that the treatment they want is not available to them. Think they won't vote to reflect their disappoint? Think politicians don't know this? And how will states react to having to enroll more Medicaid enrollees? States will not roll over without a fight.

But to many Democrats this is irrelevent. To them, expanding insurance access is the morally right thing to do. Health care is a right after all, so let's make it a right, damn the consequences. And to some extent, by exasperating an already treacherous fiscal situation they are setting the stage for broad tax increases and an even larger government, a result that doesn't worry many Democrats at all. I only wish that Democrats would be more forthcoming about their plans, and be honest, instead of selling a free lunch.

So, I guess that's where I stand on this bill. I applaud the goal of expanding health insurance to more people, but I worry that the bill is irresponsible and does not contain enough measures to really hold down costs. I also think that Democrats are missing the whole point of health care reform. This bill is insurance reform not health care reform. The real problem with our health care system is that it costs so much. All the issues we see with the insurance industry are really just a byproduct of the high costs of health care.

It's on this note that Republicans missed the boat. By being obstructionists to this bill they came off as sounding like they were for all the abuses by the insurance industry. Instead they should have pointed out that high costs are the real problem and presented a unified plan of what they were going to do about it.

An article on a Republican website summed it up nicely:

A well-developed Republican health reform effort could have addressed the high cost of health care -- actually the most glaring issue in our system -- in a way that would have served as a kind of tax cut for the already insured. And in lowering costs, we could have covered the people who wanted health care but couldn't afford it -- the nub of the uninsured problem.

The author wishes Bush had done something on this issue instead of the costly Medicare Part D expansion. And during this current debate he felt Republicans were left clinging to their old stand-bys: tax cuts and letting the market work:

We have tried ineffectively to stretch free market rhetoric to health care without appreciating that health care is already too far removed from a free market for the analogy to make sense. Real markets are sensitive to price. Health care isn't. The insurance companies hide the cost of actual care from the consumer.

This post is already too long so I will end by reemphasizing that I think reform is needed, and the core of the insurance reforms are a good idea. However, unless we address the high costs of health care this bill is a fiscal time bomb that will make a bad fiscal situation even worse. As Zakaria said, if this happens, Democrats will have failed at a "basic task of government, stewardship of the people's money."

The "historic" health care bill

2010-03-22T08:53:00.000-07:00

I was never convinced that the health care bill that will soon become law was a very good bill. This does not mean, however, that I approve (or ever approved) of the status quo. I don't understand why the fight was always presented as either keeping the current system or passing this bill, as if those were the only two choices. The opponents of the bill were portrayed as money-loving, insurance executive-loving, haters of sick people. Whereas those in favor of the bill were angelic saviors with the powers to heal. Or at least that's how I read the debate (admittedly, from afar).

The supporters of the bill presume that with the signature of a pen they can "guarantee world-class health care for every American." I think supporters are somewhat deluded by what this bill will accomplish. They are celebrating like all our health care problems are now solved, whereas I believe they are far from solved, and there will be many, many, more tough decisions in the years ahead. Plus, large parts of the bill don't even take effect until 2014 (i.e., the insurance exchanges and mandates).

Anyway, for some thoughts on the trade-offs (yes, this bill is not without its costs, something that few proponents seem to mention or act like they are aware of) I suggest reading the always thoughtful Russ Roberts. His views more or less echo how I feel. For a longer discussion of some of the claims bill proponents made and some predictions to the contrary, read this post.

I hope things turn out well with this bill, but I have my doubts. Time will tell. Hopefully though, we won't turn our health care system into this.

The limits of GDP (or money for that matter)

2010-03-18T03:19:00.000-07:00

One of the podcasts I've been listening to regularly while on our around-the-world trip is NPR's Planet Money. They recently did a podcast comparing Jamaica to Barbados, in particular comparing the school systems of the two countries. Despite having similar geographies, similar backgrounds and similar demographics, Barbados has a GDP per capita about double that of Jamaica. The idea of the podcast was to show the differences that a higher GDP can make, illustrating this by comparing the education systems in each country. It was an interesting podcast but when I listened to it I couldn't help but think that their argument was incomplete. Education outcomes and conditions are too complex to result from money alone. So I was happy to see on the Planet Money blog recently this critique of the podcast:

I live in New York City and my children attend public school. I was very sad to realize that your description of the "poor" Jamaican schools could be mistaken for the very schools my children attend here in New York--a city with the greatest wealth in the world. I think this disproves your GDP analysis.

The full letter is here (it's a pdf) but the gist is completely right. GDP does matter, but it is not the end of the story. Money matters but it is not the only factor, not by a long-shot.

I just read the book The Death and Life of the Great American School System: How Testing and Choice Are Undermining Education, by Diane Ravitch. (I know, why am I reading books like this while on my trip? And then blogging about it? I don't really know.) I understand that a book about education policy will only appeal to a handful of people, but I recommend it nonetheless. Her thesis is that School Choice (which includes Charter Schools) and Accountability (which includes the onerous testing that all students undergo and No Child Left Behind in particular), have actually done very little to improve education outcomes. And in fact, these ideas are undermining public education and possibly making things worse.

However, I'm a little puzzled about where she thinks we should go instead. It's pretty clear after reading her extensive histories of what has been tried in various school districts in the name of choice and accountability, that the reforms are not working. But, I don't find her answers of what to do instead compelling. From what I can tell, she advocates a "return to the roots of public education" and the development of a rigorous curriculum in "arts, history, literature, geography, civics, foreign languages, the sciences and other subjects" (from a New York Times article about Ravitch).

My view is that this is all well and good, but with a country the size of the United States a one-size-fits-all idea (no matter how good an idea) is destined to fail. I do think rigorous curricula in many subjects is a good idea but I'm not convinced that this in itself will solve the problem. It's a bit like the reductionist view that many take about obesity in the United States. If only we drank less soda, or limited our salt, or didn't eat so much corn syrup we wouldn't be so fat as a nation. All of those are good ideas, but changing those alone will not solve the problem. The root of the problem goes much deeper, for both obesity and education.

There is no simple solutions. It will take individual action by millions of teachers, principals, parents (I don't believe Ravitch mentions parents enough) and yes students to turn our educational system around. In my opinion, we will only do this by experimenting with different ideas and solutions, some of which fall outside the field of education (such as jobs and the economy). It's clear that the current implementation of school choice and charter schools is not working, but I think jumping from this to saying that we need centralized control (actually, more centralized control) is a stretch. Especially when there has been little evidence of any reform in the modern era that's truly worked. Plus, "choice" is not an all-or-nothing proposition.

Anyway, it's a good book, well worth reading for the history lessons alone. There's more commentary about the book, including many interesting comments on the Marginal Revolution blog. This is where I first heard about the book and why I read it in the first place.

Responses to Climate Change

2009-12-16T00:26:00.001-08:00

Being that I'm currently out of the country, I haven't been listening to NPR much (exception: we do download and listen to Wait, Wait...Don't Tell Me! every week) so I was interested to come across this article that details how NPR explains away American apathy toward climate change legislation.

Despite the alarms of scientists and others about climate change, Americans are pretty apathetic about the issue, ranking it last or almost last on any list of issues of concern. According to NPR the reason is Americans are shrugging their shoulders on the issue is because they're in denial and are actually so scared of what will happen that they are purposely ignoring the issue.

The article does not buy this argument and puts forward this counter-theory:

Let me suggest a counter-narrative: Americans are rightly skeptical not of climate change per se, but of obviously politicized areas of science. We thankfully do not live in a world of lab-coat-wearing experts who dictate the Truth to us anymore. Any number of bogus scientific discoveries has cured us of such faith and so has decades of politicians lying to us about everything from the Gulf of Tonkin incident to the meaning of the word is to Iraqi weapons of mass destruction to the pressing need for the feds to run GM. This sort of doubt has added support to what Ron Bailey has called "policy nihilism," a very rational belief that policies designed to mitigate climate change will be far, far worse than simply dealing with changed climates.

I'm not sure which is right, but I have found the climate change debate interesting to follow from New Zealand. From those I've talked to around here, many believe that it is an issue but are dubious of any international response. New Zealanders, despite being aware of their small size are interested in solving issues on their own terms. In fact, their Prime Minister, John Key almost didn't go to the climate summit in Copenhagen because he didn't think anything for New Zealand would come out of it. (I too am skeptical that anything will result from the summit.) Additionally, most of New Zealand's emissions come from pastoral farming, something that Key says the world is not taking into account when it puts forth its emission cut targets.

In any event, I'm trying to follow the US news from afar, but then again part of me enjoys the silence...sometimes no news is good news...

Sentences I Liked

2009-12-13T16:32:00.000-08:00

By Tyler Cowen of Marginal Revolution:

When water regularly overflows from your toilet, you want the toilet fixed, whether or not the water is doing harm.

The blog post is about long-term fiscal deficits. Some claim that the line of deficits the USA is projecting over the next decade or so don't matter. "We've done it in the past, with no harm so we can do it now and in the future with no harm" is the essence of the argument. However, Tyler's point is that this line of reasoning won't always work with voters. Eventually voters realize that large, persistent deficits indicate dysfunctional politics and will vote for different policies to close the deficits.

Deflation?

2009-10-15T09:59:00.000-07:00

This is interesting. For the first time in three decades, Social Security payments are not going up. The "cost of living allowance" is negative because we have had deflation in the past year. Also, according to the article, at least one state (Colorado) is lowering the minimum wage, citing deflation. (Social Security payments are not allowed to decrease, hence no increase.) The minimum wage in Colorado is decreasing from $7.28 an hour to $7.24 an hour, but the Federal minimum wage of $7.25 will super-cede the state rate. I've never heard of a minimum wage going down, even if it is only 3 cents an hour.

Update: Obama proposes a one-time payment of $250 to every Social Security recipient to help them "weather the recession" since their payments are staying the same this year. You have to get to the bottom of the article for the quote from the former deputy of Social Security: "There is essentially no substantive case for this on policy grounds. . . . This is a case of both Democrats and Republicans bending over backward to do the politically popular thing for seniors." That sounds about right...

Expect more stories like this in the future

2009-10-15T07:24:00.000-07:00

This story from the Wall Street Journal is why I oppose the ideas currently being floated by the Democrats for health insurance reform. If I were that couple I would probably move away out of state.

Under all the plans being considered the government is in charge of determining what is acceptable insurance. It doesn't matter if that is more insurance than you want to purchase. It doesn't matter if you currently have an insurance policy you like. If it's not on the approved list (which can change with the whims of the legislature) you must pay a penalty.

I wish supporters of the proposed reforms would look closely at what's happened in Massachusetts. Citizens of Massachusetts were told that costs would go down when in fact health insurance in Massachusetts is among the highest in the nation and prices continue to rise. My own experiences with trying to buy insurance in Massachusetts were not positive. Reform is definitely needed, but I'm not a fan of what's currently being proposed.

Obama vs Clinton on Health Care

2009-09-10T09:16:00.000-07:00

Via the New York Times Economix blog are wordle representations of both Clinton's 1993 health care speech and Obama's speech last night. Words mentioned more often are larger. Click through to see them.

What's interesting to me is that it shows the switch in the focus of the debate. Currently, health care reform is centered around insurance, which as I've mentioned before is not exactly the same thing as health care. I wish the focus was more on how to provide health care to more people at more reasonable prices.

Obama's Health Care Speech

2009-09-10T07:43:00.000-07:00

So, I listened to Obama's special address to Congress and the nation about Health Care last night. As much as I want to be a believer, he did not convince me. His proposals just don't add up. I certainly want everything he mentioned, but wishing for things and having them be true are very different.

His plan would force upon insurance companies the following: they couldn't deny coverage to anyone (guaranteed issue), the only determinate of price would be age (community rating), no cap on lifetime coverage, and policies must cover preventative care. His plan would force everyone to buy insurance. All of this will be paid for without adding a dime to the deficit (he said this twice, in case we didn't hear it the first time) and will be financed by finding waste and cost savings in the existing system. If you already have insurance, none of this will not impact you, in fact it will make your coverage more secure. And, if there ends up being a "public option" insurance plan (not a deal-breaker according to Obama) it will be financed entirely by its own premiums and will not receive tax-payer subsidies, just like public state colleges, which also don't receive any tax-payer money...?

That is a lot of promises, without any mention of potential trade-offs or drawbacks. What he's proposing sounds a lot like the Massachusetts plan, which if my experience with it is any indication actually raised the cost of getting insurance and increased the prices of health care. I wish Obama would be more truthful about health care reform. I wish he would actually talk about the trade-offs associated with the different reform proposals, instead of acting like imposing a litany of new restrictions on insurance companies won't actually increase costs and reduce choice, the opposite of his goals. The restrictions no doubt have their merit, but he's pretending like they will come without cost.

He said last night about his plan, "It will provide more security and stability to those who have health care. It will provide insurance to those who don't. And it will slow the growth of costs for our families, our businesses, and our government." Sounds great, but I don't see how he's going to get all three.

As an article in the Washington Post written before the speech put it:

What makes reform such a difficult puzzle is that the fundamental policy goals of universal coverage and cost containment are inconsistent with the political instincts to assure Americans who already have health insurance that they will be able to keep everything they already have, to assure that nobody will get a tax or cost increase and to assure those in the health-care industry that there will be no reduction in their income.

The WP article is a good one, and it urges Obama to stand up for truth in health care reform. To really say that there are trade-offs in changing the current system and to really convince people that the costs are worth the benefits. Telling people they can have everything they want might be good politics, but it's just empty rhetoric. I want reform. But so far, I'm not convinced that Obama's plan is everything he says it is.

I was at a baseball game the other night and two older guys sitting behind me were chatting with each other about politics during the game and they were essentially saying what the Washington Post article said. They wanted Obama to stand up for true reform. That's what I wish Obama would sell in a speech, not a bunch of promises that I don't think he'll be able to deliver on.

Good Health Care Article

2009-09-03T10:52:00.000-07:00

I won't be posting too often on this blog, given my circumstances right now, but this a recent article from the Atlantic was too good not post. Entitled, provocatively, "How American Health Care Killed My Father" it outlines many things that are wrong with the American health care system and some ideas for reform. Unfortunately, the ideas, like John Mackey's ideas (of Whole Foods fame) are the opposite of where current "reform" is headed.

Namely, that our current debate is centered around insurance when it really should be centered around access to health care. Also, health insurance as currently defined by most people today is not really insurance. Insurance covers large, unpredictable, rare and costly events. Think, car insurance: it covers accidents, theft, major damage. Certainly it doesn't subsidize gas, oil changes, brake work, etc. Same with house insurance. It covers major disasters to your house. It doesn't cover heating oil, improvements to your roof, new windows, etc. Only with "health insurance" do we expect it to cover routine check-ups and planned events. Because of this, and the distortion of tax-deductibility of employer-provided health insurance, premiums are expensive and rising fast.

More commentary about the article can be found here. And for more readings along these lines, read these blog posts.

So this is annoying

2009-08-20T10:38:00.001-07:00

Pardon the person blog post here, but as it relates to health insurance, I thought I'd post it here.

For the past two years while I've been self-employed I've had an individual health insurance policy through Group Health, a health cooperative in Seattle. I had a high deductible catastrophic plan combined with a health savings accounts, and I was very happy with my policy.

As I'm no longer living in Seattle and we've embarked on a big trip, I updated my address to my girlfriend's dad's house in Massachusetts for the duration of our trip. Apparently, by updating my address Group Health canceled my policy as Massachusetts is outside their service area. This came as a surprise and gives me about ten days to find another policy. Even if I re-update my address back to Seattle, Group Health requires documentation that I live there, which I am unable to provide (no pay stubs, no lease agreement, etc.)

This is very annoying - I liked having an individual policy precisely because I thought it was portable, but right as I've embarked on my trip I need to find new insurance. Plus, since I'm traveling, I don't even have a home address (other than where we're forwarding our mail - but we don't live there).

I checked into getting a policy based out of Massachusetts, using the address where our mail is forwarded, but the policies were more than triple what I was currently paying and I couldn't keep my health savings account (I could keep my prior contributions of course, but I couldn't continue to contribute, which by loss of the tax deduction would make the total cost to me more than four times my current plan). Plus, Massachusetts does not allow high-deductible policies so I'd be paying for coverage I don't want and will never use. And, again, I don't live there.

So, after doing some searching (and cursing), I've applied for a high-deductible policy with Blue-Cross/Blue Shield of Idaho, where my girlfriend's mom lives. I have no idea if they will accept me, but the plan is what I want - high deductible, low premium and I'm able to continue to contribute to my HSA.

To me, this illustrates a major problem with the individual health insurance market. You can't buy policies across state lines. For all the talk from the left about a "public option" to foster competition amongst insurance companies, just allowing people to buy policies from other states would do much more for competition than a public option. Also, why does Massachusetts restrict high-deductible policies? That doesn't make any sense to me.

I suppose I should have kept an address in Seattle for health insurance purposes, but then again, why should I be required to do this? I don't know why there isn't a "traveling" option for health insurance. I only want coverage for a worst-case scenario. This type of coverage shouldn't be so hard (or expensive) to get.

What did he say?

2009-08-18T16:07:00.000-07:00

A few days ago I wrote about an Op-Ed piece in the Wall Street Journal by John Mackey, CEO of Whole Foods. Mackey spoke his mind regarding some ideas for health care reform, some of which were different from the ideas of Obama and many leading Democrats. When I read the article, I had no idea it would enrage so many on the left so much. In fact, some of my friends said they would stop shopping at Whole Foods and there were numerous outbursts of anger, and calls for a boycott of Whole Foods, saying things like, "when you shop at Whole Foods you are bankrolling the conservative Republican effort to kill health care reform." Really? Did he say he was against health care reform? He might not agree with Democrats on the issue, but his editorial certainly advocated reform. Feeling the heat of the article, Mackey defends his editorial on his Whole Foods blog.

Regarding the backlash, I'll quote Megan McArdle, quoting Radley Balko:

Whole Foods is everything leftists talk about when they talk about "corporate responsibility."

And yet lefties want to boycott the company because CEO John Mackey wrote an op-ed that suggests alternatives to single payer health care? It wasn't even a nasty or mean-spirited op-ed. Mackey didn't spread misinformation about death panels, call anyone names, or use ad hominem attacks. He put forth actual ideas and policy proposals, many of them tested and proven during his own experience running a large company. Is this really the state of debate on the left, now? "Agree with us, or we'll crush you?"

These people don't want a dicussion. They don't want to hear ideas. They want you to shut up and do what they say, or they're going to punish you.

Megan goes on to say that the boycott will probably have negligible impact, but the quote sums up my feelings about the matter. Apart from one slightly snarky quote about Socialism at the top, the editorial seemed pretty sensible to me. It's a shame the debate has boiled down to a "you're either with us or against us" rhetoric.

Update: I loved this post, entitled "Latte Liberals are Killing Health Care" including the quotes about "killing my grandma". Wow.

More ideas for health care reform

2009-08-12T07:37:00.000-07:00

A few more concrete ideas for health care reform, this time from the CEO of Whole Foods, John Mackey. I like his ideas, particularly the ideas of expanding the use of high-deductible policies in combination with health savings accounts (even if they are funded by the employers), the ability to buy and keep insurance policies from states you don't live in, and the equalization of tax rules to make insurance bought on the individual market tax-deductible like it is for employer-provided insurance (although I'd prefer to remove the tax-deduction for everyone).

Mackey also has some interesting things to say about the "right" to health care. Not everyone will agree with him, of course, but I liked the article because it shows, like I said the other day, just because I oppose Obama's current plan does not mean I think we should do nothing. I just think we should move in a different direction.

Update: Reason Magazine weighs in on the Mackey article with a personal story of the author trying to buy an individual insurance policy in California. The question that I think should be front and center is, will any reform make buying individual insurance easier or harder?

How much should medical procedures cost?

2009-08-11T16:42:00.001-07:00

At first I saw the headline, "High Fees Common in Medical Care, Survey Finds" and dismissed it as coming from the Department of the Obvious. But, after actually reading the article, it got me thinking.

As the article points out there are sometimes large differences in the prices charged for the exact same procedures:

A patient in Illinois was charged $12,712 for cataract surgery. Medicare pays $675 for the same procedure. In California, a patient was charged $20,120 for a knee operation that Medicare pays $584 for. And a New Jersey patient was charged $72,000 for a spinal fusion procedure that Medicare covers for $1,629.

While it's possible these sorts of examples may be wild anecdotes, I think there is a fundamental problem. For the most part, prices are not a factor in medical care from the patient's perspective. We get our care, pay our co-pay or deductible and either let our insurance company or the government take care of the payment. To some extent this makes sense. Usually, patients are not in a very good spot to be negotiating price. The end of the article discusses a case where a couple was charged $6,000 for a plastic surgeon to insert four stitches into their son's mouth after he fell and hurt his face on the floor. The articles says of the father, "Had he known that the doctor would charge $6,000, he said, “we may have looked for another doctor.”"

I'm not so sure. Your four-year-old son falls hard on the floor, hurting his mouth and there is a lot of blood. You go to the emergency room and they quote you $6,000 for stitches. What do you do? Go somewhere else? Negotiate a lower price? Doesn't seem likely.

On the other hand, $6,000 for four stitches seems overly expensive as do many of the other prices charged in the examples. To say nothing of the discrepancy between treatment costs. So what can be done? Should the US adopt a pricing system modified after the Japanese health care model where every procedure has a price associated with it?

I don't really know. I'm skeptical of any scheme where governments set prices by fiat, as historically this has led to either shortages or oversupply. But, as noted above I'm not sure how much bargaining power patients have. Well, under the current system, patients have zero bargaining power. I'd like to see that improve. I'd like to move toward a system where patients are more aware of how much medical care costs and can be drivers of lower costs and better service. Eventually as patients are responsible for more of the costs of their care (like under a system where everyone has high-deductible policies), rating agencies would begin to form. Think Consumer Reports for medical care.

Is this a realistic outcome? Maybe. Is it politically feasible? Not at all. The current trend is to offload all the thinking about costs to someone else. We don't want to have to think about how much medical care costs, especially not when we're most vulnerable. But, unless we confront this issue, we'll continue to overpay for medical care.

Update: One of my favorite blogs just had a post today with the results of a 10 year long study of Consumer Driven Health Care Plans (essentially high-deductible policies) and the results show no adverse health effects and lower costs. I'd like to see more research and experimentation in this area. I understand not everyone wants these types of plans, but I think more people could be "nudged" toward using these plans and the results would be overall lower costs and better health.

Sensible Health Care Reform

2009-08-09T14:37:00.000-07:00

Via Carpe Diem, I found this sensible (and short) editorial by Charles Krauthammer that both describes why Obama is having a hard time selling his health care plan, and what should be done instead. On why Obama's plan is a hard sell, Krauthammer says:

[T]oday's ruling Democrats propose to fix our extremely high quality (but inefficient and therefore expensive) health care system with 1,000 pages of additional curlicued complexity -- employer mandates, individual mandates, insurance company mandates, allocation formulas, political payoffs and myriad other conjured regulations and interventions -- with the promise that this massive concoction will lower costs.

This is all quite mad. It creates a Rube Goldberg system [link added by me] that simply multiplies the current inefficiencies and arbitrariness, thus producing staggering deficits with less choice and lower-quality care. That's why the administration can't sell Obamacare.

This strikes me as true. The current system is already pretty convoluted and overly regulated; adding 1,000 pages of additional rules and regulations seems likely to only add to the problem. Instead, Krauthammer suggests two "simple" reforms: "radical tort reform and radically severing the link between health insurance and employment." I encourage you to read his full editorial for the details.

Opposing Obama's health reform is not a vote for the status quo. I don't think the current system is very good, but the proposals I've see so far don't seem to be an improvement.

On the Post Office

2009-08-08T22:34:00.000-07:00

The US Postal Service is in trouble financially. It lost $2.4 billion last quarter and is on track to lose a record $7 billion this year. This follows losses of $5 billion in 2007 and $2.4 in 2008. Mail volume continues to drop with no return in sight. Many items that used to be sent via mail have switched to electronic means (think on-line bill-pay, e-mail and evite systems) with no hope of returning. In other words, their business model is in serious jeopardy.

Before we continue, I hear many objecting by asking, why is this a problem? Why are you applying the term business model to the Post Office? Shouldn't we expect the Post Office to take a loss? It's a government service that everyone benefits from so everyone should pay for it. For some liberals, the Post Office is a (rare?) government success story. The poster child of a service government should provide and one that the government actually provides rather well. Here's Paul Krugman, defending the service he gets at both the USPS and the DMV.

The argument for a government monopoly of mail service is that everyone has a right to get mail delivered to his house regardless of where he chooses to live. Under this system, urban residents subsidize rural residents. While it is true that companies like UPS or Fed-Ex also deliver anywhere, they do not charge the same price to go to any house like the Postal Service does. Having one "low" price to deliver everywhere strikes a chord with some people's sense of equality and justice.

First of all, 44 cents isn't really that cheap to mail something as small as a letter. This post comparing the cost of mailing a letter to the cost of kiwis delivered from half-way around the world is definitely worth reading, even if it's written somewhat tongue-in-cheek.

Second, a privatization of the Post Office need not imply worse service for rural residents. A system could be set up that would require private companies to deliver to rural areas in exchange for delivering to more profitable urban areas. And although the Postal Service is shutting down some Post Offices to save costs, there are still over 2,000 Post Offices that serve less than 100 people each. How many billions of dollars is this worth? How much money would the Postal Service have to lose before you'd say it's time for a change?

Third, we are now paying for the postal delivery person to come to our house every day. Although this is nice, it's a luxury that few of us would pay for on our own. Many of us would gladly pick up our mail at a depot or get mail delivery less frequently or some combination of the two. We are forced to pay for a service we would otherwise not choose to have. Additionally this system subsidizes the delivery of junk mail which is both a time waster and harmful to the environment.

I think there's no reason to continue to waste money paying for something that could be done cheaper by other companies. In an era of ballooning government expenditures, we need to start somewhere to try and save money.

Sentence I liked

2009-08-08T08:53:00.000-07:00

Or maybe we should question the idea that every citizen is a cost to be minimized for the greater good, without regard to his own wishes.

From an article on parts of the proposed health care bill aimed at reducing obesity in order to reduce costs.

Cash for Clunkers

2009-08-06T20:32:00.000-07:00

The Cash Allowance Rebate System (CARS), also know as Cash for Clunkers is such a bad program I don't even know where to start. It is an example of both government waste and economic ignorance. In typical government fashion a bad program gets even bigger because the Senate and House today passed a two billion dollar extension to the program.

A quick rundown of how it works. If you agree to "trade in" your no more than 25 year old car that gets less than 18mpg in exchange for buying or leasing a brand new car that gets at least 4 mpg more than your old one you can get a cash rebate of up to $4,500. Your old car will be destroyed by pouring liquid glass into the engine and running it until it seizes. The car then has to be crushed and shredded within six months so as to remove it from the used car market.

The theory is that this will both stimulate the economy by getting people to buy new cars and help the environment by removing old fuel inefficient cars off the road and replacing them with more fuel efficient ones.

However, there are many reasons why neither item is actually true. First, it probably will have at best a negligible impact on the environment. It takes energy to make a new car, canceling out the benefits of the greater fuel efficiency, at least for the first few years. People drive fuel efficient cars more than less fuel efficient cars. Therefore it's not even clear that there is a net reduction in greenhouse gases.

Second, that the used car has to be crushed is an example of the broken window fallacy (wikipedia entry), the idea that by breaking a window you create wealth by giving work to the window fixer. The idea seems reasonable at first until you realize that money spent on fixing broken windows (or buying new cars) is money that won't be spent on other items. No new wealth is created, and the destruction of valuable assets is just that, wasteful destruction.

Third, by destroying the trade in, it reduces the number of used cars on the market (by up to 5% if all the money is spent) which in turn drives up the price of used cars, making it harder for poorer people to afford a car, or to keep older vehicles running. (Too bad for you in you own a mid-90s Ford Explorer, as parts for it are suddenly in very short supply as six of the top 10 cars traded in for this program are different years Ford Explorers). Here's an article from the perspective of junk yard dealers that are lamenting the waste of cars destroyed by the program.

And lastly, it's not even clear how many of the people getting cash rebates would have bought new cars anyway. And even if they wouldn't have, this is a government transfer program taking money from future tax payers (the three billion for the program is borrowed money and will add to the deficit) and giving it to current car dealerships.

So, overall this is a horrible program and I continue to be disappointed by the stuff that comes out of Congress. At least Congress is on recess now and can't cause any more damage for the next month.

Update: a nice cartoon about the program (well, the name anyway).

Death & Taxes

2009-07-22T19:44:00.000-07:00

Below is a zoom-able image of the new Death & Taxes poster. If I had a wall to put it on (I don't because I'm moving), I'd definitely buy one. I love how it graphically represents government spending but also has tons of detail.

Very cool stuff.

For more personal finance images visit Mint.com's Financial Blog

No Free Lunch

2009-06-15T22:04:00.000-07:00

A headline that once again reminds us that there's no free lunch: "Minimum wage hike could mean fewer summer counselors".

Not saying it's a bad thing that the camp counselors who keep their jobs get paid more, just pointing out there are trade-offs with all decisions.

Thanks to Division of Labour for the link, which had the nice title: "Demand Curves Are Downward Sloping--Camp Counselor Edition".

Experiments in Education

2009-06-05T19:48:00.000-07:00

I'm curious to see what becomes of this experiment in New York City. Essentially, it's a charter school in the Washington Heights neighborhood of Manhattan where the school has assembled a "dream team" of teachers, paying them substantially more than normal teachers including a bonus structure for student achievement. The theory being that the number one cause of our poor schools is poor teachers and that by paying teachers more you can recruit the best teachers and therefore get the best performance. Although this also intrigued me about the school:

To make ends meet, teachers will hold responsibilities usually shouldered by other staff members, like assistant principals (there will be none). There will be no deans, substitute teachers (except for extended leaves) or teacher coaches. Teachers will work longer hours and more days, and have 30 pupils, about 6 more than the typical New York City fifth-grade class.

The principal, Mr. Vanderhoek, will earn just $90,000. Teachers will not have the same retirement benefits as members of the city’s teachers’ union. And they can be fired at will.

To me, this is just the beginning of some of the structural changes that need to be made before schools will see improvement. I'm glad to see that they are finding ways to cut costs and are not just unilaterally increasing the budget.

On a related note, apparently 14% of the most recent graduating class at Harvard applied to Teach for America. This would lend credence to the belief that there are plenty of people who want to go into teaching but don't stick with it because of pay or other barriers that make teaching less desirable than other professions.

The (Non)-Workings of Congress

2009-05-10T14:31:00.000-07:00

This article in the New York Times rings true to me. The premise of the article, entitled "There's Work to Be Done But Congress Opts Out" is that Congress has been a background player in decisions out of Washington DC, happy to let the Whitehouse and the Treasury Department take the forefront in policy and financial decisions. While it's true Congress did vote on the Stimulus bill, the Whitehouse, mainly though the Treasury Department but also with the Federal Reserve is making some very bold commitments to spending that traditionally have been more the realm of Congress. Really, you should read the short article - it explains the situation better than I can.

The point I take away from the article is that Congress doesn't really do a whole lot. I saw the interview with Nancy Pelosi on the Daily Show a month or so ago and she went on and on about how much the most recent Congress had accomplished. "We've done more for Healthcare during this Congress than the last eight years combined," she said. Really? Where was I during all these amazing things? What have they done? It seems to to me that Congress is more concerned about steroids in baseball or making sure there's a playoff system in college football. Or making sure that it's illegal to transport monkeys across state lines. Yes, watch this video about it.

Or am I missing something? Has Congress been doing a lot and I just haven't noticed? Is the media still in love with Obama so much that he just steals all the limelight and all that Pelosi and company have done for Healthcare or anything else just gone unreported? Seriously, what is Congress doing? Anyone care to refresh my memory?

More on the budget cuts

2009-05-01T07:54:00.000-07:00

I wanted to expand on the video I posted yesterday illustrating the utterly small scale of Obama's $100 million dollar cuts that he ordered his cabinet to find a few weeks ago. Obama is quoted as saying, "$100 million there, $100 million here — pretty soon, even here in Washington, it adds up to real money." It's a nice quote, but not really true. Even the AP story noted that $100 million is one day's worth of interest on Obama's $787 billion stimulus bill. (Stop and think about that for a minute - just one day's interest on Obama's borrowed stimulus bill money - just the stimulus - not the entire budget deficit which is more than twice that - is $100 million.)

Did you stop and contemplate that?

Okay, you can continue.

Bloggers went crazy talking about the "political theater" of Obama's cabinet request. Krugman tried to show the futility of it with this quote:

Let’s say the administration finds $100 million in efficiencies every working day for the rest of the Obama administration’s first term. That’s still around $80 billion, or around 2% of one year’s federal spending.

Mankiw tried an analogy comparing the $100 million cuts to the $3.5 trillion budget:

To put those numbers in perspective, imagine that the head of a household with annual spending of $100,000 called everyone in the family together to deal with a $34,000 budget shortfall. How much would he or she announce that spending had to be cut? By $3 over the course of the year--approximately the cost of one latte at Starbucks. The other $33,997? We can put that on the family credit card and worry about it next year.

But some thought Mankiw wasn't being fair, and this gets to the crux of what I wanted to talk about. Blogger Stan Collender says you shouldn't compare the $100 million to the entire budget, but only the portion that Obama can really cut (the right half of the table in yesterday's video). According to Stan, you should compare it to even less than that, because he excludes military spending which accounts for more than half the so-called "discretionary" spending (and which Obama increased 4.1%). So, he says the relevant numbers are $100 million out of $500 billion. He concludes: "$100 million is still a relatively small percentage of $500 billion. But it's not even close to being as unimpressive as Mankiw wants us to believe."

Really? Megan McCardle disagrees, noting that $100 is still 0.02% of the smallest figure Stan can come up with. Instead of cutting back one latte a year, it's maybe three, she notes. However, the point is this:

I take the broader point that the president doesn't have that much discretion over spending. On the other hand, since the president is proposing to increase spending, both mandatory and discretionary, by quite a lot, my sympathy to this argument is limited. And just looking at the numbers he does control, I'd say this is very, very close to being as unimpressive as Mankiw wants us to believe.

This is the problem that few people acknowledge - the government is digging a huge hole with no real plan (or even ability) to get out of it. Cuts in spending will not cover the defecits, and Obama continues to propose huge spending initiatives without really thinking about the future or where the money will come from to pay for all of them. That is what worries me about the stimulus and other large government projects. We're painting ourselves into a corner that will be very difficult to get out of.

For short examples of the difficulties with budget cuts see here and here.

Budget Cuts

2009-04-30T17:35:00.000-07:00

I have a lot more I want to say on this topic, but this video is just too good to not post right away. This is just awesome:

Tea Parties

2009-04-17T17:50:00.000-07:00

As I mentioned in my previous tax day post, I didn't attend any of the "Tea Party" celebrations even though I agree in their premise that limited government would be better. However, where were these people the last eight years? Why weren't they protesting the huge expansions of government under President Bush? To me, although many claim these Tea Party events were bi-partisan (or a-partisan) I see it as a hypocritical outcry because the party they don't agree with is making the decisions in the White House and Congress.

Additionally, although I am very concerned about the huge deficits and the potential pending increases in taxes that are surely to come at some point I realize my taxes are actually fairly low. My effective tax rate was around 14.5% meaning when all my deductions were said and done, I paid 14.5% of each dollar I earned last year in taxes. (This is just federal and social security taxes. This doesn't count any sales taxes, and of course Washington state doesn't have a state income tax). My main problem is that the tax code is set up in such a way that it favors certain expenses over others as I've mentioned in my previous post. All I can do is hope for tax reform, but so far what I've seen does not lift my spirits. Obama's proposals seem like more of the same: Going to college? Here's a tax credit. First time home buyer? Here's an $8000 tax credit. Installing new energy efficient windows? You can get up to $1,500 back on your taxes (materials only, not labor). It's this sort of micro managing of the tax code that bothers me. But I realize that the politics of these sorts of issues makes them likely to last for a long time.

For information on hypocrisy of the tea party celebrations see this Forbes article and further commentary by the New York Times Economix blog. The money quote is this:

People should remember that while they have the right to their opinion, they are not entitled to be taken seriously. That only comes from having credibility gained by the correct presentation of facts and analysis and a willingness to be even-handed--criticizing one's own side when it is wrong and not only speaking up when the other party does the same thing.

Tax Day

2009-04-15T07:33:00.001-07:00

Considering taxes are one of my favorite topics to write about, how could I not write something today? Although in browsing the above link of past topics I feel like I'm a broken record when it comes to taxes and tax policy. But, alas I continue...

I am not an anarchist who believes taxes are illegal and should be abolished. I am not participating in any of those "tea party" protests happening across the country. I understand that there are some services that the government provides and we need tax revenue to run those services.

However, I believe the tax code has major problems. Essentially, I think the problem is two-fold: the people who pay tax are too concentrated and the tax code is too complicated. An editorial in the Wall Street Journal from a few days ago has the rundown in detail, but in essence 40% of Americans pay no Federal income tax while the top 10% of income earners pay 70% of all income taxes. And yet, many Democrats think this isn't enough. Says the article:

Today, Mr. Obama and many congressional Democrats want the "wealthy" to pay even more...The president says he wants the wealthy to pay their "fair share." Who can argue with that? But he never defines what that means. Is it fair for 10% to pay 70% of the income tax? Does he believe they should pay 75%, or 95%, or does fairness mean they should pay it all?

I think everyone should pay taxes - I've never been a fan of Obama's campaign promise that 95% of Americans will not see a tax increase. He's proposed trillions of dollars in new spending - why should only 5% of Americans pay for this? It makes no sense. If the spending is beneficial to all Americans, should all Americans help pay for it?

As for the complexity issue, the article has a nice quote:

[T]oday nearly every other social cause is given a loophole -- or a preference -- in the tax code. Want to buy a hybrid vehicle? You get a tax break. Do you own a solar water heater? You get a credit. Want to give to charity? You get a deduction. Own a house? There's another tax deduction for you. How about college savings, certain medical costs, and retirement savings? Yes, yes, and of course yes. Did you move, pay alimony, or "provide housing to a Midwestern displaced individual"? More deductions, credits and exemptions there too, if you qualify.

I complain about these deductions not because I don't have many of them (the only deduction I have is my SEP-IRA which does save me several thousand in taxes) but because I feel that these deductions are pure middle and upper-middle class handouts. If two people make the same income, shouldn't they pay the same income tax? Why should one person's decision to have an expensive house as opposed to renting give him a tax break? Or someone's decision to go to a more expensive college or get a graduate degree, should that person pay less in taxes? To me it just doesn't make sense. Help those who need help, not those that don't.

The article ends with the author's vision of a new tax system:

I favor the abolition of all Social Security, Medicare and estate taxes. In their place, we should create a simple income tax system that has no deductions or credits at all. The result would be a progressive, multitiered income tax in which everyone pays. The bottom 50% won't be excused from paying the cost of government and top earners will no longer have the loopholes they're used to...Social Security and Medicare will be funded from income taxes, ending the myth that these programs are supported through government trust funds and payroll taxes.

I rate this plan as having about a zero percent chance of passing, but I think it would be the most "fair" plan. If Obama is spending to pave the way for the future, I think we should all help pay for it.

As a side note, I owe a lot of tax today. It's a lot of money. Because I'm self-employed I pay quarterly estimated tax but you only have to pay quarterly payments based on what you made last year. In 2008 I made more than twice what I made in 2007 because I was unemployed for about five months of the year in 2007. Therefore I owe a lot this year, which I anticipated and saved for. However, the check I'm writing this morning to United States Treasury is far and away the largest check I've ever written. It's about three times the cost of all the cars I've ever owned. It would pay the rent in my apartment for almost two years (four years if you count the fact that I split the rent with my girlfriend). Is this normal? I'd be curious if taxes are the largest single expense for most people or if I'm unusual in this respect. I suspect that some people may not even know how much they pay in taxes. I think that if most people had to pay this much in taxes there'd be a lot more support for reform. But when you can get more revenue by only having 5% pay for it, that kind of puts a squash on changing the system.

How many uninsured

2009-04-10T19:25:00.000-07:00

When discussing health care reform in the US you often hear the number "46 million uninsured" in America. The number is taken from a survey done by the Bureau of Labor and Statistics. This number is often presented as both fact and a travesty. However, an interesting article breaks this number down into various components with the result that the situation might not be as bad as it sounds.

From the article:

There were 45.7 million uninsured people in the U.S. in 2007.
Of that amount, 6.4 million are the Medicaid undercount. These are people who are on one of two government health insurance programs, Medicaid or S-CHIP, but mistakenly (intentionally or not) tell the Census taker that they are uninsured...
Another 4.3 million are eligible for free or heavily subsidized government health insurance (again, either Medcaid or SCHIP), but have not yet signed up. While these people are not pre-enrolled in a health insurance program and are therefore counted as uninsured, if they were to go to an emergency room (or a free clinic), they would be automatically enrolled in that program by the provider after receiving medical care...
Another 9.3 million are non-citizens...
Another 10.1 million do not fit into any of the above categories, and they have incomes more than 3X the poverty level...
Of the remaining 15.6 million uninsured, 5 million are adults between ages 18 and 34 and without kids.
The remaining 10.6 million do not fit into any of the above categories

Do all the above groups require additional taxpayer money? Well, obviously not those already covered by government programs. There is no reason to institute programs that would "double-cover" these people. As for the other groups, reasonable people could disagree as to the level of help these groups require. The article makes some good arguments regarding this, which I won't repeat here.

In essence, the articles says the question shouldn't be "How many people are uninsured?" but instead "How many uninsured people need additional help help from taxpayers?"

On Bonuses

2009-03-21T12:02:00.000-07:00

I'm as mad as anyone at the millions in bonuses paid to executives at AIG and Fannie Mae and other companies that took Federal Bailout money. I've been skeptical and against the bailout in general and am mad about the billions poured into these failed companies, including the amount going to bonuses.

However, I'm even more mad about the proposed legislation to tax the bonus money at 90%. This blog post puts it best:

Specifically the House did the following:
1. They licensed the abrogation of contracts. Their message is simply that it makes no difference what rules we put into effect now; we can and will change them so you cannot depend on them. Global businesses take heed: Your previous judgment about the sanctity of US law has been rendered faulty by our political leadership.

2. They passed retroactive taxation. Their message is that, whatever you plan with regard to the federal tax code, do not assume consistency and do not build any reliability about your government into your decision making. We, in Congress, can reverse our laws and confiscate your results.

3. They made the tax punitive. A 90% tax on something is like taking all of it. The chairman (Rangel) of the House taxation committee actually admitted that by taxing the 90% he was leaving the remainder for the states. In other words, states are now encouraged to engage in the same form of behavior.

I feel very strongly that this is bad policy. I want the bailouts to stop, I want the money to stop flowing to these companies. Guess what? When the money stops flowing, the bonuses will stop too. In the meantime the only thing I can do is not vote for my Congressman when he's up for re-election next year (check how your Congressman voted here - mine voted Yea for it). And if a related bill comes up in the Senate and my Senator votes Yea I will refuse to vote for her too. I'm feeling completely powerless with all that is happening with my tax money and with my future as a taxpayer; the only thing I can do is not vote for these jokers.

Update: Free Exchange has a short summary of the situation with some links to additional commentary.

ABC updates tax article

2009-03-03T21:38:00.000-08:00

This is interesting. Apparently after receiving some criticism (here and here are two good critiques) that the article I referenced in yesterday's post "did not provide a comprehensive enough analysis of Obama's tax code for those families making $250k or more" ABC.com posted an updated version of the article.

The gist of the criticisms is that the article confused marginal and total tax rates. If someone goes from making $249,999 to $250,000 the last dollar is taxed at the higher rate, while he owes the exact same amount of tax on the other $249,000 of income. Or, as the New York Times critique says, "you’d still be a bit richer (64 cents richer, to be precise) than you would be if you grossed only $249,999."

Actually, this is my exact point. Yes, you're 64 cents richer. But presumably, you had to work or do something for that extra 64 cents. What if the work required to earn that 64 cents wasn't worth it to you (but you would have done the work for say 80 cents)? This new passage from the updated article misses this point:

But Gary Schatsky, a financial advisor and the president of NY-based Objectiveadvice.com, said that reducing your income won't help a great deal because of the way the country's tax system is set up.
...
Schatsky adds that he is not aware of very many people who would rather take a pay cut than pay taxes on the income that falls into a bracket that is taxed more.

"The last time I offered someone $500,000 of additional income there was very little instance of people saying ' no thank you,'" he said.

This makes the strange assumption that peoples' incomes are void of effort. Of course no one would turn down $500,000 of additional income if it was free of extra work. But the less of that $500,000 you allow someone to keep, the less effort they will put into making that money in the first place. I'm not going to work as hard to make 64 cents as I am to make 80 cents. Many liberals ignore this incentive concept, or they assume that peoples' incomes will not adjust. To me, it's just common sense, or as I titled my other post, Incentives 101.

Incentives 101

2009-03-02T20:47:00.000-08:00

This is something I've talked about before, but with Obama's continuous harping that "95%" of Americans will not a dime increase in taxes, and his recycled stump speech line that if you make less than $250,000 a year your taxes will not go up, I think it's important to bring up again.

Via an article on ABC.com entitled "Upper-Income Tax Taxpayers Look for Ways to Sidestep Obama Tax-Hike Plan" comes stories of several professionals (lawyers, dentists, entrepreneurs) who claim that they are going to reduce their income to under $250,000 mark so as to avoid paying extra taxes.

Many liberals tend to dismiss such stories, claiming that nobody actually would do that. A dollar more is a dollar more, right, and wouldn't you want one more dollar (even if you have to also pay a dollar to the government)? While it's true that if you make $500,000 you're unlikely to reduce your income in half in order to fall into a lower tax bracket, but for those close to $250,000, higher taxes could indeed motivate that dentist to take an extra day off per week (my dentist already only works four days a week) or that lawyer to turn down that extra client. While this is good for those that want more leisure it's bad for the economy as a whole. And it could backfire on Obama's plans to raise as much revenue as he thinks he'll raise as he'll be taxing fewer and fewer people.

I don't know why this issue bothers me so much. I'm not even close to the $250,000 mark and in all honesty I don't think I'll ever make that much per year, but I just don't think having only 5% of people pay for stuff that everyone will benefit from seems fair. Obama trots out the line of 95% not paying a cent more as a matter of justice, but I just don't see that. Obviously the rich can pay more taxes, but they already DO pay more taxes (on both a total number and as a percentage of income). I'd like to see Obama justify these "necessary" programs by asking everyone to chip in. It sure makes it easier to go along with a huge stimulus bill when you know you won't have to pay for any of it.

And, on a side note, I love the poll in the middle of the first page of the article that asks, "Is it fair to reduce high salaries in order to sidestep Obama's tax proposal?" As if making lots of money (and by extension giving ever larger portions of that money to the government) is somehow a person's moral obligation. Unfortuneately that's exactly how many on the left view it.

HT: Cato Institute

Is all Government Spending a Stimulis?

2009-02-10T07:44:00.000-08:00

President Obama recently responded to critics of the stimulus bill who called it a "spending" bill by saying something along the lines of, "Of course it's a spending bill. That's what stimulus is - it's spending money." It's a clever comeback, and it seems true. Fiscal stimulus is spending money. However, does this mean that all fiscal spending is stimulus? In other words, if the government pays for, say, the construction of a new community swimming pool, does this "stimulate" the economy?

It's sort of a trick question, and one you can't answer without knowing more details. Via the always entertaining Russ Roberts comes an answer which is too good to not quote in full:

The idea isn't just to employ people. The idea is to employ more people than we're employing now. That's the claim of stimulus. It's not enough to spend money. It's not enough to hire people. The claim of President Obama and Brad DeLong and others is that by spending money, other things that wouldn't otherwise have happened, will happen.
Yes, constructing a pool requires workers. But if workers who know how to build a swimming pool are already fully employed or close to it, then building a community wave pool is just going to drive up the wages of construction workers. Those higher wages discourage people from building a pool in their back yard or paving their driveway. If that's the case, then NO JOBS GET CREATED. Jobs get moved around from the private sector to the public sector. But there's no net job creation. The word "net" in the previous phrase is really redundant. Job creation really is about net jobs not gross jobs.
Of course there isn't full employment in the construction business. I assume some people who know how to build houses can also build swimming pools. And a lot of people are holding off on that backyard pool or the new driveway. So maybe a lot of the people who are good at building pools are unemployed. In that case, jobs will be created by the public spending. But you would never want to count the number of workers working to build the pool as a measure of the number of jobs created. And it isn't ridiculous to wonder if jobs will be created by building more community swimming pools. It's a good question, not a stupid one. The answer depends on the unemployment rate among the people with the skills to do the job. The answer depends on the location of the public project and the local unemployment rate of the people with the necessary skills. The answer depends on the ability of people who aren't but who have the relevant skills to find out about the new opportunity.

That's a lot of conditions before we know if the spending is actually stimulus or not. Of course, to be fair to stimulus supporters the people employed to build the pool may end up spending their salary on stuff which wouldn't have gotten bought without the construction, but again, all of this supposes a lot. My question is, how much of the $800 billion is real stimulus? Seems like we'd want more answers before ramming the entire bill through Congress.

Paying Your Taxes

2009-02-08T16:26:00.000-08:00

Via Reason comes a spot-on article that links the recent string of Obama nominees who didn't pay their taxes with the Michael Phelps pot-smoking scandal. The gist: "the American people can be hypocritical jerks sometimes."

Of course, it's Tom Daschle's fault for having this campaign ad and then getting busted for not paying taxes for the use of a car and driver:

But the larger point here is not the hypocrisy of the politicians that want to increase taxes but then don't pay their own - but the hypocrisy of the public who expect celebrities and politicians to be even better than us. As the Reason article points out, millions of Americans cheat or don't pay all their taxes, millions more also smoke pot. But politicians and celebrities - they should know better! Shame on them! Anyway, the article articulates it better than I can so I recommend the article - I mainly wanted to link to it so I could post the Daschle ad.

The New Deal

2009-02-08T10:16:00.000-08:00

Loyal reader Lane comments on my previous post "On the Stimulus":

My research indicates that unemployment was about 25% when FDR took office. By 1937 it was about half that. That's still high, and it was only WWII that truly ended the Depression, but what do you think brought about the decrease in unemployment during FDR's first term?

There's no doubt that things improved somewhat during Roosevelt's first term (even though there's some controversy about unemployment figures during the Great Depression). However, things became really bad again in the late 1930's, and remained bad until after WWII. Even during WWII things were not very good outside of the war industries (I would say any economy that employs heavy rationing is not considered recovered.) As I point out in my original post, to say FDR's fiscal stimulus policies brought the US out of the Great Depression is a stretch - even those in government at the time realized that their policies were not working - which is why they changed their mind constantly searching for something that would work.

In any event we'll never know what would have happened if FDR had done something else or if he'd done less, or even if he'd done more. Some claim that the reason for the late 1930's setback was because he didn't spend enough, and pulled back from his earlier interventionist policies. But such a claim is "unfalsifiable" - we have no way of either proving or disproving this claim. We see that Obama is already setting up this line or reasoning - he's claiming that the Senate version of the stimulus cuts too much and is too small to actually work. Of course, if the economy recovers, apparently it was the right size. If it doesn't work, well, it's because it wasn't big enough! If you believe a stimulus is the right thing to do, then results don't really matter; stimulus is always the right prescription.

To get to Lane's question, this isn't to say that I don't think FDR did anything right. He did a lot of stuff right. I recommend this New York Times article for the cheat sheet of what did and didn't work from The New Deal. Let's just hope that we can learn from past lessons, successes as well as failures.

Stimulis

2009-02-06T06:57:00.000-08:00

FDR and Government Stimulus

2009-02-02T08:02:00.000-08:00

The Washington Post has a great article summarizing FDR and The New Deal. The similarities between what Obama is proposing and what FDR did are quite striking.

However, like my previous post, if government spending is the answer when the economy is in a recession, why did the Great Depression last so long? How can we avoid the problems of the 1930's? Is today's situation more or less similar to the Great Depression? Is the answer more government spending?

I think we need to answer those questions before marching on with trillions of dollars of borrowed spending. And not knowing the answer is not a reason to just go ahead and spend the money.

On the Stimulus

2009-02-02T07:27:00.000-08:00

I will probably write more on the proposed Stimulus Bill (full text of the bill passed by the House) but for now I came across this excellent article that said the following:

You do not become more prosperous by writing yourself a check. Economic growth is the result of creating new wealth, not redistributing existing wealth. The federal government cannot conjure prosperity out of thin air. Any money it spends - whether on highways or Pell grants, Medicaid or tax rebates - it must first tax or borrow from somewhere else. A trillion dollars pumped into the economy tomorrow is a trillion dollars siphoned out of the economy today - a trillion dollars no longer available to the private sector for investment or consumption. Enlarging Washington's spending power will not enlarge the economy.

This simple point is lost in the all the debates about The New Deal and FDR, Keynesian Economics, tax cuts and rebates versus direct government spending, etc. People want a simple fix, they want the government to just solve the problem. Alas, nothing is so simple. As the article mentions, if government spending is the solution why do we have this problem to begin with when Bush increased government spending dramatically during his tenure?

Of course, supporters of the stimulus will say it's not any spending that matters, it's spending on the important stuff that counts. While spending the money wisely is no doubt important, the question I have is how can you identify $800 billion dollars worth of truly useful spending in such a short time? And Obama is talking about trillion dollar deficits for years to come.

This is a scary thought if history is any guide. FDR's Treasury Secretary said several years into FDR's administration:

"We have tried spending money; we are spending more than we have ever spent before and it does not work," he told two senior congressional Democrats. "I want to see this country prosperous. I want to see people get a job. I want to see people get enough to eat. We have never made good on our promises. . . After eight years of this administration, we have just as much unemployment as when we started . . . and an enormous debt to boot!"

Maybe this recession is not like the Great Depression, but if it at all is, well I'm worried more about the cure than the disease...

Why Obama Won

2009-01-09T17:12:00.000-08:00

This video perfectly displays why Obama is such a good politician. He is a master of appearing to being pragmatic, earnest, smart, non-ideological, etc. I say appearing because although I believe he is sincere, I do not forget for a minute that he is a politician; I just think he's a darn good one.

The only problem I have with his call for "good ideas" is that how do you know if it's a good idea? We're in uncharted territory with this bailout. Yes, we have the New Deal as past precedent as far as government spending to stimulate the economy, but there is still disagreement as to whether the New Deal ultimately prolonged or shortened the Great Depression. Essentially, 10 years after Roosevelt took office, the economy was still in trouble - is that success? Under's Obama's criteria of saving or creating three million jobs, he's setting the bar a lot higher.

In any event, I like what I'm hearing from Obama, and I appreciate how he's standing up explicitly to Paul Krugman and other Democrats. It's an encouraging sign.

HT: Free Exchange.

Please...

2009-01-07T07:37:00.000-08:00

Via the New York Times book blog, comes a Wall Street Journal article by Karl Rove about how much of a book reader George Bush is. Rove claims that in 2006 he and Bush had a reading contest to see who could read the most books that year. Says Rove:

The competition soon spun out of control. We kept track not just of books read, but also the number of pages and later the combined size of each book's pages -- its "Total Lateral Area."

We recommended volumes to each other (for example, he encouraged me to read a Mao biography; I suggested a book on Reconstruction's unhappy end). We discussed the books and wrote thank-you notes to some authors.

Rove won, 110 to 95. They competed again in 2007 and 2008 with Rove winning each year. Take a look at the list of books Bush supposedly read. I say supposedly, because he also lists the Bible ("cover to cover") as one of the books he reads every year. On the NYT blog, several commentators express skepticism that Bush would actually have time to read this many books, let alone books of this length (many of the books he lists are deep histories that are hundreds, some over 1,000 pages long). The Huffington Post is also skeptical.

I highly doubt Bush actually read so many books, but even if he did is this how we want the President to be spending his time? Reading is good, but as one commentator said:

What amazed me was that Bush supposedly spent such an enormous amount of time reading books. For all the pieties about the importance of reading (some of which are actually true), I do wonder if even in times of peace and prosperity the president should be spending 4-5 hours a day reading novels and history for pleasure and general instruction. And that’s about how much time you’d have to spend to make it through 95 books as long as “Team of Rivals” in a given year.

Additionally, his list of histories and biographies seems to have had no discernible effect on his leadership or job performance, or even showed up in his speeches or when he talked. It's like he didn't learn anything from what he read. As the Huffington Post article said "grownups do not devour books as if they were hot dogs in a speed-eating contest." Agreed. I read 41 books in 2008 although most were in the 300 page range, and I wasn't in a contest with anyone, although I do hope to find even more time to read in 2009 (and I've already read one book this year...)

Worth Two Minutes

2008-12-06T20:02:00.000-08:00

In case you haven't been paying attention to what Obama's been up to since the election, watch this:

Also, although obviously dated, a slightly longer video done in the same way recaps the democratic primary race from last summer.

A Pareto Improvement

2008-12-02T18:15:00.000-08:00

In economics a Pareto improvement is a situation where at least one person is made better off while no one else is made worse off. (By worse or better off, this means as judged by each individual.)

Pareto improvements are a good thing, and you'd think that the government would not prevent someone from becoming better off, as judged by himself, while not hurting anyone else. Sadly, that is not always the case.

I ran across an interesting article that says that if you are over 65 and opt out of Medicare, you are then denied your Social Security benefits. While there is no law that says you must enroll in Medicare or that you must accept Social Security benefits, a 1993 law tied these two together.

In other words, this law is preventing a pareto improvement. Some people over 65 want to not enroll in Medicare (thus making themselves better off as judged by themselves) while not affecting anyone else. Well, except maybe not accepting Medicare does make some people worse off. Says the article:

The Clinton Administration tied Medicare and Social Security together for the same reason Congress in the 1990s barred Medicare enrollees from supplementing their government care: They don't want a "two-tier" health system. Equity trumps freedom, even if it means poorer care. The Bush Administration has stuck with this misguided policy, despite a need to relieve pressure on runaway entitlement programs. If even 1% of Medicare-eligible retirees voluntarily opted out, Medicare expenditures would decrease by about $1.5 billion a year, and by some $3.5 billion a year by 2017.

I don't buy this argument. Would so many people opt out of Medicare that it would create a "two-tier" system? Wouldn't the prudent thing to do, given that we're already facing major shortfalls in entitlements, be to allow those who want to not accept Medicare, not accept it? They've already paid in their Medicare taxes and are not asking for these back, they are merely asking to not accept the benefits.

This is why I dislike the current Social Security and Medicare system - they are by design subject to the whims of politicians and end up giving us less freedom. I don't have all the answers and I admit I don't know all the details, but I would much prefer a system of private accounts that each individual would control. The accounts would be their money that they could decide what to do with, and not have politicians decide what's best.

What a Depression Might Look Like

2008-11-25T16:41:00.000-08:00

The word Depression is thrown around in the media quite a bit, but usually no one bothers to define what they mean exactly. We might have ideas of what a depression means, but the images are most likely from the Great Depression of the 1930s in the U.S. An interesting article takes a look at what a modern depression would be like, and it's not at all like the Great Depression.

For starters, whereas the word recession has a fairly simple definition, namely two consecutive quarters of negative economic growth, depression has no such pithy definition. Says the article:

There is, in fact, no agreed-upon definition of what a depression is. Economists are unanimous that the Great Depression was the worst economic downturn the industrial world has ever seen, and that we haven't had a depression since, but beyond that there is not a consensus. Recessions have an official definition from the National Bureau of Economic Research, but the bureau pointedly declines to define a depression.
What sets a depression apart, most economists would agree, are duration and the scale of joblessness. To be worthy of the name, a depression needs to be more than a few years long - far longer than the eight-month average of our recent recessions - and it needs to put a lot of people out of work. The Great Depression lasted a decade by some measures, and at its worst, one in four American workers was out of a job. (By comparison, unemployment now is at a 14-year high of 6.5 percent.)

Putting aside any controversy about how the unemployment rate is calculated (some pessimists say that the current rate underestimates the true figure because it doesn't include those who have stopped looking for work) we have a long ways to go before you could say we've entered a depression.

Clearly though the current situation could get a lot worse, and the article highlights what worse might mean. Specifically, a contraction of the suburbs as people move toward urban centers and begin renting apartments instead of buying homes as the appeal of home ownership (not to mention lack of money) lessens. On the other hand, some cities like Detroit or other areas of the "Rust Belt" could see their population dwindle (this has already been happening for some time).

But overall, the point of the article is that a modern depression would be much more of a private affair:

In many ways, though, today's depression would not look like the last one because it would not look like much at all...The New Depression would be largely invisible because people would experience loss privately, not publicly...The [Great] Depression was, famously, a boom time for movies - people flocked to cheap double features to escape the dreariness of their everyday poverty. Today, however, movies are no longer cheap. Nor is a day at the ballpark.
Much of a modern depression would unfold in the domestic sphere: people driving less, shopping less, and eating in their houses more. They would watch television at home; unemployed parents would watch over their own kids instead of taking them to day care. With online banking, it would even be possible to have a bank run in which no one leaves the comfort of their home.

I for one don't think it will get as bad as some think, but it's interesting to think what a worst case scenario might look like.

Gas Tax

2008-11-24T17:05:00.000-08:00

Via the Freakonomics blog is a short discussion of why Economists generally consider gas taxes to be a good idea but politically a dead end.

In econspeak, gas taxes are good because they force economic actors (people) to "internalize externalities". In the case of gasoline usage, the author explains:

Autos produce a number of side effects whose costs are borne by others, not the driver. These include air and water pollution, damage to roadways, harm to people and property from crashes, and congestion costs (delay) that motorists inflict on each other.

I've written about the gas tax before (here and here) and it's still the case that higher gas taxes are both a good idea and not politically viable. The author seems to think that part of the reason voters are so opposed to gas taxes (as opposed to sales tax increases, which are handily voted hirer on a regular basis) is psychological:

Perhaps there are some peculiar psychological dynamics at work. A half-cent increase in the sales tax sounds inconsequentially small, while a five- to ten-cent increase in the gas tax (which, depending on the state, would produce around the same amount of revenue) sounds more onerous. Obviously, the sales tax falls on a much broader base, but the vast majority of voters are not inclined to perform this mental calculus.
Another issue may be that the gas price is perhaps the single most visible price in our economy. No other industry posts large and ubiquitous signs throughout cities that sear its prices into our brains.

Although low gas prices (I recently filled up for $2.05 a gallon) may seem nice, the article does a nice job of showing that they're actually not good, although they're probably not headed higher any time soon.

Dr. No (1962)

2008-11-23T14:25:00.000-08:00

I've decided to watch all the James Bond movies in release date order, and I finished the first one, Dr. No last night. There is a ton of information about the movie on the imdb and wikipedia pages so I won't bore you (too much) with plot details. In short, we're introduced (although with no backstory) to British Secret agent 007 James Bond who is called upon in collaboration with the CIA to stop crazy mad man Dr. No from taking over the world. This will be a common theme in James Bond movies: James foiling someone's usually eloborate plan to destroy the world. In this case, Dr. No's plan involves something to do with rockets fired from his nuclear-powered lair in Jamaica that are aimed to intercept other rockets fired from the U.S. (They explain it better in the movie; sort of.)

Things I liked: Sean Connery. He's suave, confident and in my mind, the man I'll always think of as James Bond (although on the imdb trivia page I saw that he wore a toupee and that he was so afraid of spiders they needed to hire a stunt double to film the part with the tarantula, which causes him to slip a little in my eyes...). The on location filming in Jamaica, added a sense of realism to the filming which was nice, even if the special effects were really dated (but for the time probably pretty good). I also liked the character of Sylvia Trench who appears in the beginning of the film playing Chemin de Fer, especially after reading that she was supposed to become a regular "Bond girl" although she only made it into Dr. No and From Russia with Love.

Things I didn't like: I was a little surprised by how parts of the movie really lagged. There was surprisingly little action (especially compared to modern Bond movies, although granted the action is little too much sometimes in the newer films), and at times they would use a lot of time to cover very little plot. For example, Bond and Honey Ryder (played by Ursula Andress) get contaminated with radiation and have to be scrubbed in this shower conveyor belt thingee, which seemed to exist as a plot device only to show both of them in as few clothes as possible. Also, the character of Honey Ryder does not even make sense - apparently she just wondered around on Dr. No's island lamenting the death of her father? Maybe I'm reading into it a bit much and hoping for more.

Overall though, Dr. No is a solid movie and I would recommend it to anyone who hasn't seen the first Bond movie that started it all.

One more political ad

2008-10-07T08:30:00.000-07:00

Another short video to go along with my previous post.

When I say Don't I actually mean Do

2008-10-05T18:54:00.000-07:00

If you're confused about the first video, watch the second one. I think it has something to do with sarcasm.

Something to think about

2008-05-22T13:31:00.000-07:00

I've thought a lot about the Local Food movement. The benefits to giving foods grown locally preference to foods grown elsewhere is appealingly simple: it takes energy to transport food, so the less distance food has to travel to get to your plate the better. For example, onions grown in Yakima, Washington and transported to Seattle must be better for the environment than onions grown in Modesto, California and then transported to Seattle. Or so you'd think. But how would you know? Energy used in transportation is not the only use of energy in production of onions. It may not even be the largest.

I read an interesting article analyzing these questions in the context of the Democratic National Convention this August in Denver. Apparently the guidelines required by the organizers require things like no fried foods, reusable or compostable serving ware and all organic and locally sourced food. From the article:

"We all want to source locally," says one exasperated caterer, "but we're in Colorado. The growing season is short. It's dry here. And I question the feasibility of that." Another potential bidder observed that green sourcing rules sometimes forced them into counterintuitive choices. Would it be "better" to order compostable cornstarch cutlery, even if it had to be delivered from an Asian factory?

As to the question of whether eating locally is always being the best environmental choice the article states:

Fact is, the faddish passion for counting "food miles" and obsessively searching out local produce began to look dodgy the second the books started flying off the shelves sometime last year. Locally grown food will save on transport emissions, but the true green aspirant would factor in the ecological cost of water, fertilizer and energy consumption -- remembering that not every kilowatt is created equal in the eyes of Gaia. The nearest producer doesn't always win. And a full accounting would incorporate the details of the fabrication of the farm machinery and the greenness of the diets of the farm workers (and other labourers ultimately involved in contributing farm inputs), thus yanking the analyst back to square one in an infinite chain. All of this applies to "organic" produce and meats, which, after all, are designed to limit the use of synthetic agrichemicals, not the emission of carbon.

And finally returning to the onion example:

The problem of determining which bag of onions might involve the release of the least carbon would require the solving of a vast array of equations, too great for the human mind even to teach a computer to solve. Since every purchase made in a free economy is chiefly a purchase of many kinds of stored energy, it may even be that buying the cheapest food is the closest possible approximation humans can make to measuring their "environmental footprint" at the supermarket.

That last sentence is worth pondering. Thanks to Russ Roberts for the article pointer.

McCain's Plans

2008-05-09T17:32:00.000-07:00

This is pretty funny.

From Ethanol to the Mortgage Crisis

2008-03-09T16:26:00.000-07:00

Blame the government. Or, as economists like to say, it's the "Law of Unintended Consequences" at work.

In Defense of Food

2008-02-10T17:50:00.000-08:00

I just finished a fascinating little book called In Defense of Food, by Michael Pollan. I've liked all of Pollan's work, including his book from a few years ago, The Omnivore's Dilemma. In Defense of Food grew out of his work from The Omnivore's Dilemma where he analyzed the question of where our food comes from from. He never really answered the question, so In Defense of Food attempts to answer What should I eat? in as simple a way as possible.

The first section of the book goes over the history of nutritional science and comes to the conclusion that in reality we still don't know very much about how food affects the body. Sure, we can analyze food and break it down chemically, but in the end the sum of the parts of food are very different from the food itself. He also shows how nutritional science is constantly changing and what science has thought is healthy has changed throughout time and there's no reason to believe that what we know now is correct. He also shows how US government dietary guidelines are nothing more than propaganda from the agricultural (mostly Meat and Dairy, but also corn, soy and wheat) industry.

Part two outlines how, what Pollan calls the Western Diet (i.e., the diet of most Americans, which obsesses about fat, includes meat as the center of most meals, and includes fewer and fewer fresh, whole foods) has been the main cause in the rise of obesity, heart disease, diabetes, cancer and numerous other health problems. It's a very depressing section if not for how he shows that most of these problems can be reversed quite quickly with changes in diet.

The third section is what I found most interesting. It's where Pollan outlines his eating principles. The subtitle of the book provides this pithy advice: "Eat food. Not too much. Mostly plants." But Part III elaborates on those words with several guidelines of how to get off the Western Diet and onto a more holistic approach to eating. Pollan does not buy into the reductionist approach offered by nutritional science, where every food is broken down into into its constituent components. Instead he looks at eating as a lifestyle; a way of thinking. I present the principles from Part III without explanation although he analyzes each idea and I highly recommend the entire book to get the full flavor of his argument.

Don't eat anything your great-grandmother wouldn't recognize as food.
Avoid food products containing ingredients that are A) unfamiliar, B) unpronounceable, C) more than five in number, or include D) hight-fructose corn syrup.
Shop the peripheries of the supermarket and stay out of the middle.
Get out of the supermarket whenever possible.
Eat mostly plants, especially leaves.
You are what what you eat eats too.
Eat like an omnivore.
Eat well-grown food from healthy soils.
Eat wild foods when you can.
Eat more like the French, or the Italians, or the Japanese, or the Indians, or the Greeks.
Regard nontraditional foods with skepticism.
Don't look for the magic bullet in the traditional diet.
Have a glass of wine with dinner.
Pay more, eat less.
Eat meals.
Do all your eating at a table.
Don't get your fuel at the same place your car does.
Try not to eat alone.
Consult your gut.
Eat slowly.
Cook, and if you can, plant a garden.

What?

2007-11-10T08:16:00.000-08:00

This link appeared as an ad in my gmail yesterday:

Why Mommy is a Democrat - littledemocrats.net - The book George Bush doesn't want your kids to read!

In fact, in looking at the book, if Bush wants Democrats to lose, I think he would want you read the book. Take a look at the sample pages and see if you don't agree.

Robertson for Giuliani

2007-11-07T20:16:00.000-08:00

Pat Robertson announced today that he is supporting Rudy Giuliani for President. Says Robertson, "To me, the overriding issue before the American people is the defense of our population from the blood lust of Islamic terrorists."

This endorsement can't be a good sign for the Romney campaign. Some of the Christian Right can't stand Romney; one spokesperson even went so far as to say, "A vote for Romney is a vote for Satan."

Both referenced articles contain more great quotes from Robertson and Giuliani, but they're too depressing to copy.

More about Health care rankings

2007-11-07T19:49:00.000-08:00

I found an interesting article criticizing health care rankings based on health outcomes only. The authors argues that you must take many factors into consideration when evaluating the quality of a country's health care system. According to the World Health Organization (WHO) the US ranks 37th. However, the World Health Organization rankings do not take into account other factors that influence health results:

In other words, the WHO approach holds health systems responsible not just for treating lung cancer, but for preventing smoking in the first place; not just for treating heart disease, but for getting people to exercise and lay off the fatty foods.

This approach is problematic for two primary reasons. First, it does not adequately account for factors that are simply beyond the control of a health system. If the culture has a predilection for unhealthy foods, there may be little healthcare providers can do about it; and if the culture has a pre-existing preference for healthy foods, the healthcare system hardly deserves the credit. (Notice the strong ranking of Japan, known for its healthy national diet.) And it hardly makes sense to hold the health system accountable for the homicide rate. Is it reasonable to consider the police force a branch of the health system?

Second, the WHO approach fails to consider people’s willingness to trade off health against other values. Some people are happy to give up a few potential months or even years of life in exchange for the pleasures of smoking, eating, having sex, playing sports, and so on. The WHO approach, rather than taking the public’s preferences as given, deems some preferences better than others (and then praises or blames the health system for them). By doing so, it abandons its claim to objectivity.

Clarification

2007-11-05T20:30:00.000-08:00

Yesterday's post about the US health care system was not an endorsement of the status quo. Arnold Kling says exactly how I feel:

I don't want to be in the position of defending America's health care system. The position I want to take is against demagoguery, whether it comes from politicians or pundits. The demagogues say that we can continue to insulate people from costs using employer-provided health insurance and Medicare, plus insulate more people through "universal coverage," and afford it all.

You remind the demagogues that Medicare and employer-provided health insurance are both unraveling on the financial end. They say, "Oh, right. We have to cut costs."

But cutting costs means changing health care as we know it, in order to reduce the extravagant use of medical procedures with high costs and low benefits. That means either drastically reducing individual choice (by having government dictate which procedures can be done) or drastically increasing individual responsibility (my approach). What the demagogues won't tell you is that they are forcing us down the path of government rationing, when some of us might not like that so much.

It boils down to my favorite subject of trade-offs. There is no free lunch with health care reform. An outstanding article, referenced in the longer post by Kling highlights the various trade-offs involved.
Commenting upon an overview of the health care proposals of the 2008 Presidential candidates, the author says:

The conclusion I drew from her reporting is that you cannot have something for nothing. Obvious as this might seem, it is a point that all of the candidates, in their different ways, are trying to deny. In simplest terms, the Democrats argue that you can achieve universal coverage without loss of quality (in fact, with better quality) at no great extra cost.

That's really all I want: acknowledgment that there will be trade-offs; the current system has its problems for sure, but any change will come with benefits and costs. I will quote one other section which nicely sums up the problems with the US current health care system:

Do Americans really believe that reform is needed? They do, I think -- and if they do not, they should. Republicans may be underestimating one factor in the shift of opinion on the issue. Lack of insurance is no longer partly a matter of choice (as in the case of the young and fit who prefer not to buy coverage even if they can afford it), or else a problem only for the poor. Economic insecurity is on the rise for most Americans, not just for a static minority of poor people. People change jobs more often than they used to, whether they like it or not. And in the United States, when you change jobs you worry about your health insurance.
What if your next employer offers no coverage? What if a pre-existing condition makes an individual policy too expensive or altogether unavailable? The guarantee of universal coverage is something that almost all Americans, including those covered at present, would value and be willing to pay something for. And they know that every other rich country in the world provides it. As long as reform does not put them at an immediate disadvantage -- either by forcing them off plans they are happy with, or by pushing up their own taxes -- it is something they will vote for. The Democrats are offering reassurance on both points (more plausibly on the first than the second). They are on to something.

Is the US Health Care System bad?

2007-11-04T07:20:00.001-08:00

How do you judge the quality of a county's health care system? In comparing the US health care system to other countries is it a good idea to use life expectancy as a yard stick? How about the number of uninsured? How about how expensive it is?

Repeatedly, the facts - and they are facts - that the US has lower life expectancy and higher infant mortality are trumpeted as proof that the US health care system is inferior to the rest of the world. Also, a lot of attention is drawn to the fact that there are 47 million uninsured people in the US. Additionally, the high costs, as measured as a percentage of GDP is usually cited as an example of waste and a poor system.

A recent New York Times article, breaks down these three facts into what they do and don't mean:

1. The US has lower life expectancy and higher infant mortality than the rest of the developed world where they have nationalized health care.

This is true. Canadian men live 2.3 years longer and Canadian women 2.6 years longer than American men and women. Infant mortality is 6.8 per 1,000 births in the US versus 5.3 per 1,000 in Canada.

Why is that? Is it because of the poorer health care system in the US? That's the idea put forth in Michael Moore's movie Sicko. But Moore should know better, especially considering he did a whole movie about guns in America. What does he think happens to average life expectancy when there is a gun fatality in this country? How about car accidents? These accidents bring down the life expectancy statistic, while having nothing to do with the quality of health care. Obesity rates are also a factor contributing to life expectancy, while not having a whole lot to do with health care quality.

As for infant mortality, the US has dramatically more teenage births than other countries, three times as many as Canada. Teenage births on average lead to lower birth weight babies which leads to more infant fatalities. As other countries aren't seeing as many low birth weight babies the statistic of infant mortality does not compare from country to country.

2. There are 47 million uninsured in America.

Again, this is true. But who are the uninsured? The article estimates that 10 million of that number are illegal immigrants, and another unknown number qualify for Medicaid but have not yet applied. Additionally, about 18 million of that 47 million make over $50,000 a year and are choosing not to buy insurance. Additionally, "a quarter of the uninsured have been offered employer-provided insurance but declined coverage." This is not to say many find it difficult to afford insurance, but the 47 million figure is misleading.

3. Health care costs are consuming an ever increasing amount of American incomes.

True. Health care spending constitutes 16 percent of national income, up from five percent in 1950. Is this bad? What percent should it be? The article points out that Americans are richer, a lot richer than in 1950. What would you expect Americans to spend it on? It makes sense that as America becomes richer a larger percentage would be spend on trying to improve their health, as opposed to buying more stuff.

Starve the Beast

2007-11-03T20:41:00.000-07:00

Let's say you're interested in having smaller government. Would it be a good idea to advocate for lower taxes, hoping that with less tax money the government would have no choice but to cut government programs and hence grow smaller? This theory, known as "Starve the beast" (I love Wikipedia!), turns out to be just that, a theory.

Says the Economist:

I've always found this idea something of a mystery. "Starve the beast" is really a conjecture about the psychology of voters and legislators. The idea seems to be that mounting deficits will spur voters to choose representatives who will impose fiscal discipline. But why would voters react that way? Do we imagine they are worried about deficits causing rising interest rates? About the prospect that their kids will be stuck with a whopping bill?
It has alway seemed to me intuitive that current voters would prefer to have their kids and grandkids pay for their extravagances. In the long run, we're all dead, and one of the consolations of the inevitability of death is escape from the inevitability of taxes. Screw the kids.
If we want to get spending down, and we do, then it may make sense to prefer slightly higher taxes over bigger deficits. If taxpayers see budget deficits as a credit card balance they'll never have to pay, then they'll run up the tab on current spending. But if current spending is financed by higher current taxes, then taxpayers, feeling the bite, may find themselves rather less approving of free-spending legislators.

Something to think about, even if you advocate larger government involvement. If you increase taxes too much you may lead to a voter backlash against larger government. One way around this, or course is to fund new programs by taxing fewer people. The fewer who feel the bite of tax increases, the less chance of voter backlash. Which was the point of my last post.

Rangel Tax Plan

2007-11-03T16:31:00.000-07:00

In response to my previous post on the AMT, a reader asked about the Rangel Tax plan, a tax reform proposed by Democrat Charles Rangel from New York. Being touted as "the mother of all tax reforms" and "the most radical left-wing tax revision in half a century," it is neither, and all the rhetoric about it is merely political posturing.

Plan highlights, via Greg Mankiw:

The bottom three-fourths of households, those making less than $75,000 a year, are not much affected. They each would receive a tax cut of about $100 per year.
The next 24 percent, those making between $75,000 and $500,000, would receive much more substantial tax cuts. Those in the $200,000 to $500,000 range, who are in the 96 to 99 percentile of the income distribution, would get a tax cut of about $3,600 per year.
The top 1 percent, those making over $500,000, would pay substantially more in taxes. Those making more than $1 million would see their tax bill rise by an average of more than $100,000.

As the Financial Times says, "This is not exactly raving socialism." Although the plan does get rid of the AMT, it's not very bold. Raise taxes on the super-rich. Never heard that before.

To me, real tax reform would address the complexity of the tax code. There are too many exemptions, deductions and loop-holes. I would like to see a simplified system that treats all people the same, and doesn't favor certain decisions or tax-payers. I'm not talking about different tax brackets; you can keep your progressive tax rates if you like. What I mean is that we look at things like mortgage interest deductions, charitable donations, company provided health insurance, and make the deductions available to all Americans, not just those that itemize deductions or are lucky enough to have employee provided insurance. If mortgage interest is worthy of a deduction (and an argument could actually be made that it's not, especially considering what we're seeing with the mortgage market nationally) then it should be available to all tax payers, not just the 10% or so with enough interest (and other deductions) to get above the standard deduction.

Also, why should savings be taxed twice, while consumption only once? For example, for every dollar I earn, I pay income tax on it. If I choose to invest what's left, I then have to pay income tax on the interest. However, if I choose to spend it instead, I don't have to pay any tax on my spending.

And last, say what you will that the rich should pay more, I am concerned about the trend of more and more tax revenue coming from a smaller and smaller group. 2005 tax data show that the top 50% of income earners payed 97% of all income tax. True, I would expect the top 50% to pay more than the bottom, because after all they have more of the income. What I was surprised by though, was the number of households that paid no income tax at all. According to the IRS data, 42.4% paid zero income tax in 2005. To me, that's an astounding figure, and it's up from 30% in 1990. Says, the Cato Institute about this number, "[I]t is a problem for a democracy–particularly one less constrained by constitutional rules than in the past–to have such a large and growing share of residents not paying any tax because these folks are unconstrained in campaigning for more benefits for themselves at the expense of others."

A recent editorial in the LA Times articulates this incremental approach to larger and larger government and determines liberals are winning:

Liberals have an inherent advantage. As long as they promise incremental, "pragmatic" expansions of the government, voters generally give them a pass. And every new expansion since FDR and the New Deal has created a constituency for continued government largesse.

If Hillary Clinton promised to socialize medicine -- which, let the record show, she has attempted to do in the past -- she would lose. But her current campaign promise to simply expand coverage sounds reasonable enough -- even though there's no reason to think she'll stop pushing for a national single-payer healthcare system (a.k.a. socialized medicine).

"Liberals sell the welfare state one brick at a time, deflecting inquiries about the size and cost of the palace they're building," writes William Voegeli in an illuminating essay, "The Trouble with Limited Government," in the current issue of the Claremont Review of Books.

Committed conservatives, meanwhile, find themselves at a disadvantage: They advocate smaller government for everybody -- when Americans generally (including most Republicans) want smaller government for everybody but themselves.

I don't know where this is all leading, but I do know that from what I've seen from both Democrats and Republicans, it's just more of the same.

AMT

2007-10-27T18:47:00.000-07:00

Many people have never heard of the AMT - Alternative Minimum Tax. It was enacted as part of the US tax code in 1969 to force certain "high income" individuals to pay a certain minimum tax. Essentially the government felt that people were becoming too efficient at finding deductions. If, after you've figured the tax that you owe, if it's not enough, and your income is sufficiently high, you have to recalculate your tax liability under a different schedule where a lot of deductions no longer apply. In 1969, only 159 families had to pay the AMT, while it is estimated that as many as 20% of families will have to pay the AMT by 2010. This is happening because 1) Americans are much more wealthy than they were in 1969 and the AMT threshold has not been adjusted for inflation, and 2) Property values have escalated recently leading to property taxes as well as state and local taxes becoming a larger part of a person's tax liability. State, local and property taxes are not deductible under the AMT, so in essence families living in high tax states are penalized by the AMT. Interestingly, Bush's tax cuts exasperated the effects of the AMT.

In any event, politicians want to amend the AMT, but are unsure how to do it. It currently pulls in about $65 billion in revenue a year. Republicans have introduced a bill in Congress that eliminates the AMT and replaces the money with, and I'm not making this up, a tax on downloads of music on iTunes. This has got to be the dumbest idea I've ever heard of, ranking right up there with the Early Learning and Care Campaign in Seattle a few years ago, which sought a 10 cent tax on every latte sold in Seattle. (Although that tax was even more of a parody because it really was "for the children.")

Even if you hate the AMT, replacing it with a tax on a single product is a really stupid idea. I'm still waiting for politicians to propose some sensible tax reform, and it seems that I'll have to keep waiting.

SCHIP

2007-09-27T01:19:00.000-07:00

Let's say you live in New Jersey, working for a small construction company, and your wife works as a hair dresser. You have one 16 year old daughter. Together the two of you make $56,000 a year. You don't have health insurance because you say you can't afford it. Should the government provide you help with your insurance?

This example family is at the heart of a debate going through Congress right now regarding SCHIP (State Children Health Insurance Program). The government program,which provides "Low Cost Health Insurance for Families & Children," expires on September 30th. The House just voted to renew SCHIP, but President Bush is threatening a veto, "due to its cost [$35 billion over 5 years], its reliance on a tobacco tax increase [an additional $0.61 per pack] and its potential for replacing private insurance with government grants." Estimates are that the new SCHIP would enroll 6.1 million new children, but 2.1 million of those would have already had private insurance, so the program would end up paying for 6 million but only really insuring 4 million new children.

But let's go back to our New Jersey family. Under SCHIP, that family qualifies for subsidized insurance for their 16 year old daughter. I don't deny that they would prefer to have the government pay for their health insurance but should the government be subsidizing their insurance? The family says it's too expensive otherwise. How do we know it's too expensive? What would be too expensive? The news article itemizes the family's monthly expenses:

The family's monthly bills consume most of their take-home income. Pulling out her checkbook, Lori said there's the mortgage ($1,500), utilities ($743), phones and Internet service ($200), car insurance and gasoline ($205), property taxes ($230), basic cable television ($48), food ($600) and credit- card payments ($325) on an outstanding $11,000 balance. That's $46,212 a year, not including clothes, school books and extra- curricular activities for Carlie.
...
There's also $352 a month on a home-equity loan the Siravos took out to send Carlie to a private Catholic high school. Tuition is $9,000 a year.

The article points out that unsubsidized health insurance for the daughter would be $230 a month through Blue Cross. Through SCHIP this family gets coverage for $76 a month. To be clear, what this means is the family pays $76 and the government pays the rest, although the coverage does not end up being through Blue Cross so the exact cost to the government is unclear.

I question whether this is the best use of tax money. Given the above list of expenses, can the family really not afford $230 a month for health insurance? I don't object to helping out people who are in need but it seems to me that SCHIP is not such a program.

Lou Dobbs on Immigration

2007-08-15T09:16:00.000-07:00

This video is just too funny...I don't have cable and hence never watch CNN, but wow, this was too good to not post.

Oh, and for those that are interested, pictures from my latest trip can be found here. I'll post more about it later.

Dente

2007-07-05T14:24:00.000-07:00

If you had to guess, would you think that the word dente (as in al dente pasta) is in the dictionary? I know it's an Italian word, but wouldn't it have made its way into English? Alas, it's not in the Scrabble dictionary, and yesterday, my winning streak at Scrabble came to an end when I lost 249 to 253 to my girlfriend. (Although I might have been able to pull off a win if I'd challenged divise. (Again, who knew it's really devise?)

Anyway, apart from playing Scrabble, I just finished a most interesting book: The Invisible Heart, by Russell Roberts. Yes, this is the same Professor Roberts at George Mason University who also does the always entertaining EconTalk podcast. The book is subtitled, "An Economic Romance" which almost put me off from reading it, but I'm glad I read it for it's actually a very entertaining book.

It tries to convey economic concepts in the form of dialogue between the main character, Sam Gordon, an Economics professor at a Washington D.C. High School, and various other people, notably Laura Silver, English professor at the same school. The romance part (between Sam and Laura) is a bit corny, but the substance of the conversations is interesting, mainly because they're the exact conversations that I have with people on a regular basis.

For example, is it better to give a homeless person begging on the street spare change, as Gordon does, or a V-8 juice, as Laura's brother does? Should dry cleaners charge the same price to clean men's and women's shirts, even if it costs the business the same to clean both? Should companies outsource production to other countries? What is the best level of safety regulation for both businesses and consumers (i.e., air bags and seat belts)? What does socially responsible mean for a business? What is the definition of the word fair?

Those are the types of questions that Economics attempts to answer every day. You can debate whether those types of questions even have definitive answers, which is why I find the subject so fascinating and why it can cause tempers to rise when one side thinks they're right while the other side is wrong.

And, slightly off-topic, but, for a Economist's view of voting, have a listen to this recent EconTalk podcast. It's very enlightening. I want to read the book too.

Sicko Reviewed

2007-07-03T14:48:00.000-07:00

So, I saw Sicko this past weekend. I'm a fan of Michael Moore ever since I saw his campy movie about Flint Michigan, Roger & Me; I loved Bowling for Columbine, thought Fahrenheit 9/11 was entertaining, if a little underwhelming. However, I am not a fan of Sicko.

It's appropriate that I'm writing this semi-review on the eve of July 4th, because I found Sicko to be extremely anti-American. In Moore's other movies he pokes fun at America, pointing out various foibles and faults, but always with a sense of perspective, and even pride in the country he's making fun of. He's pointing these things out, you sense, because he loves America, he wants it to be a better place. You can tell he thinks America is under performing, it's not as good a place as it could be. America isn't all bad, it just needs a little fixing around the edges. That sense of pride is gone in Sicko. In Sicko, America is a rotten, rotten place. He points out some genuine problems with the American health care system, but there is no balance, no indication that there is anything good about America at all. It's this lack of perspective that I found trying. There's one scene where he's out to dinner with a group of Americans living in Paris and they're blabbering on about how great the French welfare state is, and how wonderful it is to live in Paris, and how lucky they are, and wondering what is wrong with America. France even has government funded laundry workers to help new mothers with housework, while American throws its old and sick out onto the street. At one point, one of the women said something to the effect, "I feel guilty that I have it so much better than my parents ever did." It was revolting. As was his stunt of bringing some patients to Cuba to get health care, including a few comments by Che Guevara's grand-daughter.

The health care system in this country needs some serious fixes, and Moore seems to think that all we have to do is vote to have a system like what they have in Canada, England or France, where health care is free. (Moore continuously uses the term free, which is a lie because someone obviously has to pay for it, but wouldn't want little facts like that spoil a good story.) In Moore's opinion, Americans don't have the guts to vote for a system of universal health care, we lack the wherewithal to demand a better system. At one point he shows some footage of French workers taking to the streets to protest a proposed reduction in the number of paid holidays and Moore asks why aren't Americans doing the same thing? Americans are so weak we can't even demand six weeks of vacation. What is wrong with us?

A lot has been written about the movie, so instead of repeating what others have said I thought I'd compile all the reviews I've stumbled across. The movie has generated a fair amount of buzz, with the general consensus being that the movie brings up some valid points, but leaves the viewer very empty when it comes to solutions. We can't all move to Paris or London.

Here are some reviews of Sicko:

The Healthcare Economist
Mtv.com (If even Kurt Loder isn't buying Moore's dogma, you've got to wonder...)
Slate.com (written by U of Chicago Econ professor Austan Goolsbee)
A critique of the above review on Econlog
Reason magazine
Matthew Yglesias
A rebuttal to the above review
American Council on Science and Health
Cato

And here are some commentaries, not necessarily directly about Sicko, but articles on the health care debate:

Why universal coverage shouldn't be the main emphasis of health care reform
Some comments about common health care beliefs that people have
Are adverse selection and moral hazard the problem with health insurance markets?
What some insurance companies are doing to increase profits (and it's not denying benefits or raising rates). To get a taste of the debate, notice the last paragraph.

Should Taxes Be Higher?

2007-06-28T10:39:00.000-07:00

Warren buffet thinks so:

Warren E. Buffett was his usual folksy self Tuesday night at a fundraiser for Sen. Hillary Rodham Clinton (D-N.Y.) as he slammed a system that allows the very rich to pay taxes at a lower rate than the middle class.

Buffett cited himself, the third-richest person in the world, as an example. Last year, Buffett said, he was taxed at 17.7 percent on his taxable income of more than $46 million. His receptionist was taxed at about 30 percent.

What's interesting about Buffet's comment is that he had reported income of $46 million while he has a net worth of over $50 billion, which is a pretty lousy 0.1% return. His reported income (and therefore his tax bill) is low because he takes advantage of tax laws that allow him to pay lower taxes, i.e., he holds stocks instead of selling them to realize capital gains, he donates appreciated stocks to charity gaining the full deduction of their value while not having to pay capital gains, etc. Raising taxes would not actually increase his tax burden very much.

However, if Buffet really thinks his tax bill is too low, he can always not claim his deductions, or mail the IRS a voluntary check. In fact, for anyone who thinks taxes are too low, here's the address (I'm not making this up):

Gifts to the United States
U.S. Department of the Treasury
Credit Accounting Branch
3700 East-West Highway, Room 6D37
Hyattsville, MD 20782

Take a guess as to how much is sent to this address each year? (Surprisingly, it's not zero).

Google and the Parasite Economy

2007-06-24T06:57:00.000-07:00

Last week Microsoft announced that it will be making changes to its computer search function in Vista because Google complained to the Justice department that Vista currently puts competitors at a disadvantage. When the story broke the spin was that this is a good sign. Articles in Slashdot and the Washington Post highlighted the story that Google was learning from Microsoft's disdain of government that cost Microsoft dearly in the anti-trust suit of several years ago. So, in order to "play the Washington game" Google has hired 12 full-time lobbyists, started a Public Policy blog and is using its new influence to keep competitors in line.

This is called the parasite economy because it's money and effort spent not on making more productive, better products, but on fending off political attacks and on even on making some attacks of your own. Not surprisingly, Cato has a negative take on Google's newfound fondness of politics:

What should concern us here is how the government lured Google into the political sector of the economy. For most of a decade the company went about its business, developing software, creating a search engine better than any of us could have dreamed, and innocently making money. Then, as its size and wealth drew the attention of competitors, anti-business activists, and politicians, it was forced to start spending some of its money and brainpower fending off political attacks. It’s the same process Microsoft went through a few years earlier, when it faced the same sorts of attacks.

And while Google is spending so much effort in Washington, it might as well go after Microsoft and other competitors. The article continues:

So Google’s brilliant staff are now spending some of their intellect thinking up ways to sic the government on Microsoft, which is once again forced to give consumers a less useful product in order to stave off further regulation. The Post’s previous story on Google’s complaint called it ”allegations by Google that Microsoft’s new operating system unfairly disadvantages competitors.”

Bingo! That’s what antitrust law is really about–not protecting consumers, or protecting competition, but protecting competitors. Competitors should go produce a better product in the marketplace, but antitrust law sometimes gives them an easier option–asking the government to hobble their more successful competitor.

I don't really fault Google. They're just playing along. What I think is too bad is that it's not enough for a successful company to make a successful product. The company also has to play politics.

No Child Left Behind

2007-06-20T10:37:00.000-07:00

Good news for fans of government education: 56% of respondents to a new survey about the No Child Left Behind Act (NCLB) say they like the law. However, this was after seeing the following description of what the law does:

The No Child Left Behind Act provides federal funds for school districts with poor children in order to close achievement gaps. It also requires states to set standards for education and to test students each year to determine whether the standards are being met by all students. In addition, No Child Left Behind provides funding to help teachers become highly qualified. It also provides additional funding and prescribes consequences to schools that fail to achieve academic targets set by their state.

What's surprising is that only 56% said they're in favor of the law after reading that description. Who wouldn't be in favor of closing achievement gaps, qualified teachers and helping poor children? Before being given the description, 41% supported the law. Maybe this is because people know that NCLB "has caused many states to lower their standards, and has produced no discernable [sic] increase in academic achievement despite boosting federal education spending by billions of dollars."

More details here, here and here [pdf].

More about credit

2007-06-12T18:30:00.000-07:00

Continuing the topic of loans, the Economist blog had a recent entry entitled "Are Americans too stupid to handle credit on their own?" It concerns calls for more regulation of the so-called "subprime" mortgage market. The short story is that some people are defaulting on their loans, which is bad, and therefore government needs to intervene to protect people from the possibility of defaulting. I find the mortgage market debate interesting because traditionally it has been argued that poor people were unable to get enough credit; they were forced to rent because they couldn't afford a mortgage. Now people are complaining that they have too much credit; they're being taken advantage of by being given mortgages to buy their homes.

According to the Economist's follow-up blog post, there are seven things that are potentially wrong with the mortgage market:

People don't read their contracts with various purveyors of credit
People do read their contracts, but those contracts contain clauses allowing the lenders to change the terms at any time
People do read their contracts, but do not fully understand the implications of things like binding arbitration
Lenders lend money to people when there is a sizeable (>5%) chance that they will have difficulty repaying it
Lenders lend money to young people when there is a sizeable chance that if they do get into trouble, their parents will end up repaying it
People borrow money at higher interest rates than they need to, because they don't understand the terms
Mortgage brokers steer clients into higher interest rates than they need pay in order to reap higher fees from the credit providers

In which one of these cases should the government intervene? (Hint, only one truly calls for government action.)

Boomsday

2007-06-11T15:25:00.000-07:00

Christopher Buckley is a genius. Last year I read his novel Thank You for Smoking and absolutely love it. (The movie wasn't too bad either.) I just finished his new book, Boomsday which is just as good if not better. Very highly recommended.

Boomsday is about a future United States where Generation W (for Whatever), stuck paying for the retirement costs of the Baby Boomers, revolts, storming gated communities, retirement centers and golf courses. The revolt is led by Cassandra Devine who comes up with a plan to save Social Security where retirees are encouraged to "voluntarily transition" (i.e., commit suicide) in return for things like no estate tax and free college tuition for their grand-kids. It sounds really morbid, but it's actually a very smart commentary on the intergenerational conflict that I think is quite possible in the near future. We're already seeing the effects that past promises are having upon current generations (e.g., General Motors and Ford) and it's only matter of time before Social Security befalls a similar fate.

In any event, the book falls along the same lines as the movie Idiocracy, which imagines a future US where stupid people out-breed smart people and the intelligence level of the US plummets. Both are obvious satires, but as they say, "there's a little truth in every jest."

The student debt crisis

2007-06-11T09:46:00.000-07:00

Articles like this one in the New York Times really frustrate me. It's entitled "Private Loans Deepen a Crisis is Student Debt" and it details the rise of private loans that students receive to pay for college. Here are the first two paragraphs:

As the first in her immigrant family to attend college, Lucia DiPoi said she had few clues about financing her college education. So when financial aid and low-interest government loans did not stretch far enough, Ms. DiPoi applied for $49,000 in private loans, too. “How bad could it be?” she recalls thinking.
When Ms. DiPoi graduated from Tufts University in Boston, she found out. With interest, her private loans had reached $65,000 and she owed an additional $19,000 in federal loans. Her monthly tab is $900, with interest rates topping 13 percent on the private loans.

There's also a picture of Ms. Dipoi with her Apple Macbook and a stack of books, among which are War and Peace and Islam: The Straight Path.

The article also profiles a student of the California College of San Diego who is carrying $46,000 in debt, "which she fears may rise beyond her ability to pay."

Now, I do feel for people who get involved in too much debt, and if lenders lie or misrepresent the terms of the loans that is a problem. But, what frustrates me about articles of this type is the overall sense that it's somehow someone else's fault that these students got into so much debt. As the article says:

“It’s a huge problem,” said Barmak Nassirian, associate executive director of the American Association of Collegiate Registrars and Admissions Officers. “When a student signs the paper for these loans, they are basically signing an indenture,” Mr. Nassirian said. “We’re indebting these kids for life.”

I like the use of the royal we there. Who's fault does Mr. Nassirian think it is when someone doesn't know what "prime plus 6% means" or if a borrower thinks that it makes economic sense to borrow $84,000 (the $65,000 in private loans plus $19,000 in federal loans) for an undergraduate education? The article fails to note the degrees that these students received, but I can almost guarantee you the degrees were not in the sciences, engineering, computer science, health care, math, statistics, business or economics. You can recoup an investment (which is what college is) in an undergraduate education with a degree in one of those fields. However, not all jobs will allow a person to pay off $84,000 in debt.

It's not just the degree choice that's important. Where you attend school is important too, which is another thing the article fails to mention. I would have liked to attend Yale instead of the University of Washington. Putting aside that I probably wouldn't have gotten into Yale, the UW also costs about 1/10th of what Yale costs. I performed a rudimentary cost benefit analysis of attending Yale versus attending the UW and decided that the UW was a better choice and didn't even bother applying to Yale. Is it too much to ask prospective students to consider the future implications (financial and otherwise) of their choices? The UW is a fine institution, a real bargain if you ask me. So are many other state schools. Which is better, a Tufts degree and $84,000 in debt or a University of Massachusetts degree and a lot less debt? I can imagine how Ms. DiPoi would answer that question.

Like I said, loan terms should be truthful, clear and involve no hidden costs, extra fees, etc. If they're not, then that's a problem. But if the problem is students are taking out loans to attend private colleges for degrees that have dubious financial rewards, well, I just don't see how that is a problem that we need to fix.

Tax Competition and the Flat Tax

2007-05-25T11:21:00.000-07:00

When I visited Maine this past April, there were bumper stickers everywhere complaining that Maine was the most heavily taxed state in the nation. I found that hard to believe given what I've heard about taxes in New York City and California, but regardless, it seems that politicians in Maine are thinking about lowering taxes. Currently, their State Income tax rates do put them among the highest in the country, a graduated system that maxes out at 8.5 percent, but kicks in at a pretty low level of $18,250 in income for an individual. That does seem pretty high. In looking at the list of States, it's interesting that nine states have no income tax and another six states use a flat tax.

The flat tax seems to be gaining popularity in Europe, particularly in Eastern Europe. Some say the simplicity of taxing all income at the same rate creates an incentive for workers to work more and has led to rapid growth in those economies. It's also led to a sort of tax competition amongst countries, sort of like what can happen between U.S. States. As people and companies are free to move between locations, they look for the best tax advantages. This has led to a decrease in tax rates generally. As a policy analysis puts it:

Most industrial countries have pursued tax reforms to ensure that their economies remain attractive for investment. The average top personal income tax rate in the major industrial countries of the Organization for Economic Cooperation and Development has fallen 20 percentage points since 1980. The average top corporate income tax rate has fallen 6 percentage points in just the past six years.

I hope that as more countries (and states) adopt a flat tax that this trend continues.

Update: Another report out this morning, comes to the conclusion that Tax Competition Leads to Better Tax Policy.

My Recent Africa Kick

2007-05-24T11:58:00.000-07:00

I've always been intrigued by Africa, ever since when in 7th grade we were given a Geography test where we had to identify as many African countries as we could on the map. I correctly identified 50 countries, and I remember being fascinated by how many countries there were. I still have yet to visit the continent, but recently I read a book and watched a couple of movies that deal with Africa and the conflicts that are taking place there.

Untapped: The Scramble for Africa's Oil, by John Ghazvinian is equal parts travel memoir, economics, politics, history and current events. The book concerns itself primarily with West Africa: Nigeria, Equatorial Guinea, Cameroon, Gabon, Congo, Angola, Sao Tome and Principe, Chad and Sudan. The author travels to each of these countries and interviews locals, government officials and when they were willing, oil company employees. The US imports more oil from Africa than it from does Saudi Arabia, and China imports more oil from Africa than from any other source. It's an interesting book on a subject that, moving forward, is only going to become more important. It paints a pretty bleak picture of what happens to a country when it discovers oil, and I kept waiting for a positive outlook to be presented, but sadly there isn't much of an upside to oil in Africa. If I were to ever write a novel, I think a great topic would be one of the numerous coup attempts that he outlines in the book, specifically a failed coup attempt against President Obiang of Equatorial Guinea. The failed coup included involvement with Armenian mercenaries from South Africa, the Spanish Navy, political refugees in the Canary Islands and the Zambian Army.

Speaking of novels about Africa, I watched for the second time The Constant Gardener starring Ralph Fiennes and Rachel Weisz. It's based on the John Le Carre novel of the same name about pharmaceutical companies running secret human trials in Africa. Interestingly, on one of the extras on the DVD, they interview John Le Carre and he says that he thought about writing a book about African oil but decided in the end to go with pharmaceuticals. The movie is excellent and again paints a pretty depressing picture about Africa. The incredible sprawl of shanty towns around the cities, something Ghazvinian also details, is an impressive (in a depressing way) sight.

Finally, I watched The Last King of Scotland, starring Forest Whitaker, in his Oscar-winning role as Ugandan dictator Idi Amin in the 1970's. It also stars a surprisingly hot Gillian Anderson. I liked this movie quite a bit, although the last half hour is kind of hard to watch. I mean, you know that Amin is evil, but the first three quarters you don't see any of it and then it all comes at once in the end. Amin was a mad-man and Whitaker channels the madness quite well.

I would have liked to complete my Africa kick with a viewing of Black Gold, about African coffee, but alas it's not out on DVD yet. I plan on watching it as soon as it comes out.

A Successful Union

2007-05-14T15:35:00.000-07:00

By all accounts, the United Auto Workers (UAW) is the most successful union in history. So successful in fact, that they may put themselves right out of a job. The Big Three automakers (Ford, GM and Chrysler) are in serious trouble, and Daimler-Chrysler actually just sold off the Chrysler division to a private equity firm. According to the Wall Street Journal:

The proposed deal would allow the German auto giant to shed Chrysler's $18 billion in retirement and health-care liabilities and could open the door to further restructuring of the nation's unionized auto makers.
A private-equity takeover of Chrysler would mark a watershed for the industry, which is struggling under the weight of massive pension and health-care obligations to its union workers. Those debts and the cash required to fund them have hobbled General Motors Corp., Ford Motor Co. and Chrysler in the face of relentless competition from Asian and European rivals. Chrysler has estimated that Japanese auto makers like Toyota Motor Corp. enjoy a labor-cost advantage of as much as $30 an hour.

GM is in particular trouble:

In 2005, GM provided health and income benefits to more than 450,000 retirees and their surviving spouses, and retirees and their dependents outnumbered the company's active workforce by three-to-one. This imbalance will continue to grow as more and more retirees are supported by fewer and fewer workers, especially since a) nearly a third of GM's hourly workforce signed up for payout packages in 2006, resulting in even more retirees and fewer active workers, b) GM continues to lose market share...and rising legacy costs get spread over fewer and fewer vehicles.
Bottom Line: The UAW is the most successful union in U.S. history, at achieving both higher-than-market wages and below-market productivity for its members, in the short run. But that very union success has now created the seeds of a powerful destruction that we are witnessing today, and in the long run the success of the UAW is destroying thousands and thousands, and maybe millions of union jobs, and is destroying many of the very companies that employs its members (GM, Ford and Chrysler).

Six Economists Everyone Should Know

2007-05-13T12:29:00.000-07:00

Here's a list of six important economists with short bios:

Adam Smith
David Ricardo
John Maynard Keynes
Joseph Schumpeter
John Kenneth Galbraith
Milton Friedman

And speaking of Friedman, here's a great interview he gave on NPR in 1999. His two main points: 1) When comparing political/economic systems, it's important to compare actual real systems that exist and 2) Talk is cheap. To really know how people feel, see what they do, not what they say, which is something I've said for a while.

Unemployment

2007-05-10T17:54:00.000-07:00

I filed for unemployment compensation on-line Monday, and received all the accompanying paper work in the mail today. They sent me five separate envelopes, with various forms to fill out and mail back. I have to start filing weekly reports on-line detailing my attempts to find work. I'm also required to keep a log of job contacts (they gave me a log sheet) but I don't have to mail that in, although they can request to see it (and can call the people listed) if I'm audited. I have to make a minimum of three job contacts per week to remain eligible.

The good news: I'm eligible for $496 a week in compensation! Yes, that's per week. They use some formula based on previous salary, but the amount you can receive maxes out at $496 per week.

The bad news: I can only collect for six months.

The even more bad news: I already have job recruiters hounding me. I wanted to get ahead of the game on my three contacts (I'm on freaking employment and I'm being an overachiever!) and one woman has called me twice already. The other recruiter gave me a login to a job board of her company. I'll take a look at it tomorrow. Technically, if I decline a job offer, I'm no longer eligible. Well, I suppose that depends on the pay they offer me. I don't think I have to take the first job anyone offers me, and depending on how much any job I take makes, I may still be eligible for partial unemployment. Also, I wonder if location makes a difference? The woman who called me twice has jobs in Federal Way and Lynnwood, places I'd really rather not work.

Wow, I can't believe I may be getting government assistance. I guess I'll believe it when I cash that first check.

Public Health

2007-05-10T12:05:00.000-07:00

The May issue of Reason magazine has a cover story reviewing the history of "Public Health" in the United States. The author starts the story detailing recent politicians calling for more government intervention regarding tobacco use, playing violent video games, obesity and gambling, in each case calling them public health epidemics. However, the author notes:

What do these four “public health” problems—smoking, playing violent video games, overeating, and gambling—have in common? They’re all things that some people enjoy and other people condemn, attributing to them various bad effects. Sometimes these effects are medical, but they may also be psychological, behavioral, social, or financial. Calling the habits that supposedly lead to these consequences “public health” problems, “epidemics” that need to be controlled, equates choices with diseases, disguises moralizing as science, and casts meddling as medicine. It elevates a collectivist calculus of social welfare above the interests of individuals, who become subject to increasingly intrusive interventions aimed at making them as healthy as they can be, without regard to their own preferences.

In the past, Public Health policies were aimed at protecting people from external threats: "carriers of contagious diseases, fumes from the local glue factory, contaminated water, food poisoning, dangerous quack remedies." Increasingly, however, Public Health is used as an excuse to protect people "from themselves—from their own carelessness, shortsightedness, weak will, or bad values." This is an important distinction. Real epidemics, infectious diseases, spread from one person to the next against the person's will. On the other hand, people choose to engage in risky behavior.

Should the government be protecting citizens from themselves? Is it the government's role to make sure citizens do not engage in risky behavior? If so, in what areas of life should the government meddle.

Needless to say, people make mistakes—sometimes expensive, hard-to-correct mistakes—in many areas of life. If that fact is reason enough for the government to second-guess their decisions about dangerous activities such as smoking cigarettes and riding motorcycles, why on earth should the government let people make their own choices when it comes to such consequential matters as where to live, how much education to get, whom to marry, whether to have children, which job to take, or what religion to practice? These decisions are at least as important, and the government is at least as well equipped to make them as it is to decide which health risks are acceptable.

Who is the best of judge of an individual's decisions? Says the article, "While people are not perfect judges of their own interests, they are better judges, by and large, than government officials are apt to be." Or as the author says, "When the surgeon general declares that “every American needs to eat healthy food in healthy portions and be physically active every day,” where does that leave a guy who prefers to be fat if it means he can eat what he likes and relax in his spare time instead of looking for ways to burn calories?"

In a free country, shouldn't a person be able to make choices as he sees fit? A recent blog post I read that said that people seem to discount both the future and the past:

It is undoubtedly true that at any given time, one would prefer to be, say, thin. That is, one would prefer being thin to having consumed loads of sweets and fried things in the past. But it seems also to be true that at any given time, most people would prefer consuming loads of sweets and fried things to being thin in the future. All this tells us is that people tend to highly overweight the present—and that this overweighting occurs in both directions. It's hard to develop normative reasons that we should pay attention to peoples' tendency to discount the future, but not pay similar attention to their tendency to discount the past.

And then the article finishes by saying, "The man who reaches old age with no savings and emphysema is a tragedy . . . but equally so is the 31 year old who dies with an overstuffed bank account and a long history of foregone opportunities for hedonistic pleasure."

The first article details the arguments about health care expenses and protection of children, arguments which I won't recap here. I encourage all to read both articles and be more skeptical the next time a politician advocates some law for the benefit of the "public health."

The Good Life

2007-05-10T11:43:00.000-07:00

No, "The Good Life" does not refer to my current situation of not working, although I am having a good time in week two of being unemployed. It refers to what many people call the life of Frances Mayes, the author of A Year in the World: Journeys of A Passionate Traveller. I just finished this book, and at 450 pages I probably would not have finished it if not for having extra time on my hands. She describes her travels through Spain, Portugal, Morocco, Italy, France, Wales, Scotland, Greece, and Turkey, which is right up my alley, but she stays in five-star hotels where her room awaits her with a bottle of champagne on ice, and fresh flowers in her two room suite. In other words, "The Good Life" but not exactly a way that I'll ever travel. She loves to comment about gardens, local food, shopping, architecture, all things that I found interesting but, apart from the food, not things that I really hone in on while traveling. But Mayes does have a real knack for transporting the reader to the place she's talking about and I really want to go to Portugal and Turkey now; those places sounded the most interesting of all the places she visited. Well, maybe Naples, in southern Italy. That sounded cool too.

For a change of pace, since I've been reading so many Memoirs lately, I checked out Untapped: The Scramble for Africa's Oil from the library. It's very depressing how oil has destroyed so many communities in Africa. And actually the book kind of reads like a Memoir in that the author travels around and he writes about what he sees as he goes as well as history and current events. I'll post more when I finish, but so far I find it very interesting.

Black Book

2007-05-04T16:51:00.000-07:00

I went to see Paul Verhoeven's new film, "Black Book" today, and as to be expected from the director of "Starship Troopers" and "Showgirls", it didn't disappoint. Meaning lots of violence and lots of nudity. Also, a very attractive leading lady. The movie takes place in the Netherlands beginning in 1944 and is the story of a Dutch Jewish girl who gets involved with a German officer in an attempt to help the Dutch resistance and find out who betrayed her family. It has lots of twists and turns and it keeps you guessing to the very end. It's a very entertaining film, and although I think it wishes to speak of larger issues like moral relativism and highlight the plight of the Jews through history, those larger issues seem mere devices to keep the viewer guessing as to who's double-crossing who. "Black Book" isn't exactly a history lesson, but it is an interesting movie, worth checking out.

What I'm Reading

2007-05-02T10:25:00.000-07:00

Yesterday I mentioned that I in my new found free time I wanted to do some reading. Here are the books that I'm reading right now, with some comments about them:

	I got this book for Christmas and started it but ran out of steam reading it. I do want to finish it, I just had a hard time getting through 100 pages about corn.
	This is a really cool introduction to applying Statistics to baseball. He's got a bunch of regression analysis and some details about how to evaluate players. I'm almost done with it, but the last bit has been a little slow.
	Although the title of this book is a "Year in the World" her world apparently only covers Western Europe and Turkey. Also, although I'm probably not Mayes' target audience, I'm enjoying seeing the places through her eyes. I've only read the Spain and Portugal chapters, but I really want to go and visit, even if the food there doesn't sound too vegetarian friendly. They seem to hate pigs in Spain, as every tapa contains pork.
	This book was recommended from a friend since he knew I liked to read and wanted to write, and it's a great primer on the art of reading closely. She tends to concentrate on the "classics", i.e., books published before 1920 but she includes many useful ideas on how to learn from what you read.

Update: Here's a complete link to everything I'm reading. Bookmark it, as I'll update it as I finish books and start new ones.

Recent Timeline

2007-05-01T11:28:00.000-07:00

I'm going to turn a little personal in this blog post and describe the events that led to me being unemployed as of today. Well, technically, I was unemployed yesterday too, but I received my last pay check yesterday so as of today I no longer have a job or prospect of a paycheck in the near future.

As some of you know, I recently quit my cushy contracting position at Microsoft to take a job at a Web Consulting firm downtown. I interviewed with seven people before they hired me, including two phone interviews and two in-person sets of interviews, totaling over eight hours of talking. I also negotiated salary for three rounds, finally settling on a figure that was almost 20% less than what I was previously making. Part of my pay would be a bonus for the number of billed hours, and if my bonus came in on target plus if you include the generous company benefits (100% paid health, dental and vision, bus pass, gym membership, three weeks vacation, plus 2 personal days, etc.) I figured I'd at least come out even if not ahead. Plus working downtown with a shorter commute was immensely appealing.

I already had plans to go back East for a vacation when I took the job, and I offered to start after my vacation, but they said, no start right away - you can borrow against your vacation time. So here's the time line:

Monday, March 19 - Start the new job. Boss is away on business until Wednesday. Am given a few things to do, including a few orientation meetings.

Wednesday morning, March 21 - Meet with boss for the first time although she'd interviewed me so I already knew who she was.

Thursday, March 22 - Boss is away on business, but I receive an e-mail from her telling me to "watch my tone in e-mail." I don't know what she is referring to so when I ask for clarification, she says that people are very busy and I should not be so demanding when I ask for help and/or projects to work on.

Tuesday, March 27 - Receive e-mail from boss (since she's in Portland for the week) saying that it's very important that I meet my target of 35 billable hours per week. When I tell her that some of the projects she gave me are training and non-billable she says it's my responsibility to ask for more work and let her know if I won't be able to meet my billable target.

Week of April 2 - I bill 42 hours and feel like I'm getting into the swing of things with the job, even though I find the job extremely boring and I am not at all excited about the work I'm doing.

Week of April 9 - Take my scheduled vacation, borrowing against my vacation time.

Monday, April 16 - Take a sick day because I got sick on the last few days of my vacation.

Tuesday, April 17 - Get another e-mail from boss saying that if it's extremely important that I meet my billable target for the week.

Wednesday, April 18 - Get e-mail from boss saying that she's glad to see my attitude improving. She thought I was depressed and unmotivated before my vacation but she says I now seem more involved and that I should keep up the good work.

Tuesday, April 24 - Still sick with a lingering cough, I take another sick day to try and recover. Don't check my e-mail for the day and in the afternoon get a call from my boss's boss asking me how things are going. I tell him that I'm sick, but in the conversation it comes out that I'm not that excited about the job, that I've been feeling a lot of pressure to produce billable hours, that the job isn't what I thought it would be, etc. He tells me that my boss has set up a meeting at 8:30 in the morning to discuss these things. Apparently he'd been invited to the meeting too.

Wednesday, April 25 8:30AM - Have quite possibly the weirdest meeting of my life. My boss and her boss tell me that I have a bad attitude. They get the feeling that I don't want to work there, that I'm not excited about my job, that "I've checked out of the job" and have been "phoning it in." Everyone else wants to work here; they're excited about the company, I'm told. I say I don't appreciate being judged on such subjective measures and would prefer to have something concrete against which to judge my success of failure. When I tell them that I don't want to fail at my job, they say that's not good enough. You have to want to succeed, they say. They tell me that they're going to file an official two week progress plan with HR to try and get me to improve my attitude.

Thursday, April 26 - My boss is away on business, but I get a meeting notice for a follow-up meeting on Friday morning to "see how things are going."

Thursday night, April 26 - Go out drinking with some friends and I tell them that I'm probably going to get fired tomorrow. They think that's ridiculous, as do I. There's a two week plan I'm going to follow, right?

Friday, April 27 - wake up with a wicked hangover, one of the worst I've had in a long time. Throw up in the morning, stumble to the bus, get into the office, throw up again in the bathroom at work. Start to feel better, although I really wished I'd taken another sick day.

10:30AM Meeting - Meet with my boss and she has a manila envelope which she doesn't open. We talk about how things are going. I say fine, except still sick, and I'm surprised that she wanted to meet so soon after Wednesday's meeting. She says that my attitude didn't improve after the Wednesday meeting and that she said I looked like I didn't want to be there the rest of the day. She tells me again that people want to work here, that it's a privilege. I tell her that I wasn't excited about our Wednesday meeting, rehashing all the things I'd said before about the job not being what I expected, the pressure to bill hours, etc. She excuses herself for a minute, and five minutes later, her boss comes in. He says that my boss pulled him from a director's meeting because she said she "couldn't deal with me." I say I don't really know what the problem is; I want to see the two-week plan, try and do whatever it is that she wants me to do. Conversation begins to deteriorate and he then excuses himself. Five minutes later a HR person comes in with a termination letter for me to sign. Today would be my last day of work, although I would be paid through next week, minus my borrowed vacation time. I tell her I don't really know what is going on. She doesn't know either. I sign the paper and she escorts me out the door. I get to the front desk and all my stuff is in a box - someone had gone to my desk to retrieve my personal stuff. I hand in my card reader and away I go.

So, in total I worked there 22 1/2 days. I think I'm better off not being there, but still - I'm left scratching my head. What happened? Very, very strange.

As for what I'll do now, I don't know. I certainly don't want to jump right into another job. I have enough money saved up where I probably don't have to work for the rest of the summer. My girlfriend gets done with school on June 27 and has July and August off so I'd really like to see if I could hold out in May and June and then take some fun trips with her this Summer.

Yesterday, I did a lot of reading and made banana bread. Today I'll do some more reading and writing. Tomorrow I plan on making lasagna for dinner. Thursday I'm volunteering out by Mt. Rainier doing some trail reconstruction and Friday I'm meeting a friend for breakfast. This weekend, my girlfriend and I are going camping in the San Juan's and next week - well I haven't planned that far ahead yet. I still have a lingering cough so I'd really like to kick that and feel 100% healthy. I guess that's my goal - get healthy and catch up on some reading and writing that'd I've been meaning to do. I also want to look into filing unemployment. If I can collect unemployment, I definitely won't have to work this summer.

Check back for more updates - I'll keep all two of you readers filled in on what's going on.

Home Ownership

2007-03-19T21:00:00.000-07:00

There's been some discussion on-line recently about a new economic study that finds one of the greatest predictors of unemployment for a community is the community's level of homeownership. Yep, the article says:

English economist Andrew Oswald has shown that across European countries, and across U.S. states, high levels of home ownership are correlated with high levels of unemployment. More conventional factors such as generous welfare benefits or high levels of unionization don't explain unemployment nearly as well as the tendency to own houses. Renting your home and staying flexible do wonders for your chances of always finding an interesting job to do.

Greg Mankiw quotes the same passage and then wonder why the US government, through deductible mortgage interest, encourages home ownership. Mankiw calls this discrimination against renters, which I thought was funny.

As a side note, around tax time, I usually curse the fact that I have no major deduction, such as interest, although when it was all said and done this year, my effective tax rate was 7.6%. (Effective tax rate is taxes paid divided by taxable income, expressed as a percentage.) Considering it's less than the sales tax, I'd say I'm doing alright...

Update on home prices: A new report indicates that 65% of housing markets are overpriced.

Can you be too rich?

2007-03-19T20:25:00.000-07:00

That's the question posed to a philosopher, an economist and a communist (I'm not kidding, he's "national chairman of the Communist Party USA").

I agree with the philosopher and the economist. I might agree with the communist too except that I don't really know what he's talking about. That and he mistakenly thinks that wealth is zero-sum, in that the more wealth you have the less I have. Wealth is created, not taken. No one gets poorer when another person becomes a billionaire.

The economist claims that the gap between the rich and poor has actually decreased, when you think of it in terms of tangible differences:

Today, almost every family owns a car. Most own their own home. Most of us have dishwashers and cellphones and computers and air conditioning, comforts only the richest of the rich had 40 years ago. Rich people work longer hours than poor people today. Neither is likely to encounter much danger on the job. A poor person having a heart attack gets the same treatment as a rich person, and both get better treatment than the richest fat cat received 25 or 50 years ago.

Yes, the rich get richer in America. But so does everyone else. So why should we care that inequality is climbing if we're only aware of it when we read the government data? Deep down, we assume that if the distribution of income is getting less equal, someone must be manipulating it to make it so — evil politicians, maybe, or greedy multinational corporations.

But no one is. The measured level of inequality is, in fact, the result of the choices that millions of us make individually, decisions to go to school or drop out, decisions to marry or divorce, decisions to emigrate to America or stay in one's home country.

What most of us really care about isn't inequality but opportunity. We're less concerned with getting ahead of the Joneses than with simply getting ahead. Stay in school, finish high school and go on to college and you get ahead in America. Spend less than you earn and you can end up wealthy.

I also like the philosopher's point that "we all spend money on luxurious, frivolous or unnecessary items when we could be giving it to organizations such as Oxfam America that will use it to fight global poverty." Billionaires have just that much more to waste and hence held in greater contempt by society, but really, waste is relative.

Thank the Teacher's Union

2007-03-08T15:18:00.000-08:00

There's an interesting discussion going on at Slashdot about a bill in Kentucky that would have "increased pay to teachers with qualifications in mathematics, physics, and chemistry." Apparently, the Teachers Union "objected to differential pay," whatever that means, so the bill is essentially dead. The comments on Slashdot are, well, it's Slashdot. Here's an example, and be warned, it's quite a rant:

But you don't understand. The schools aren't about the students, they are all about the teachers unions. In exactly the same way the big three automakers slowly morphed from being about making cars into social programs for union autoworkers. It is what unions do, and when it is a union in control of a government monopoly like education it gets insane. The schools now exist for the benefit of the teachers, students are at best a useful prop for lobbying for more money. Reality has long been divorced from what goes on inside government schools. Untested fads by fashionable marxists intellectuals get rolled out into classrooms nationwide without any sort of testing, political correctness runs rampant, etc. Accountability is almost non existant [sic]. Unless a teacher gets caught in a politically incorrect belief or having sex with a student their odds of being fired for malpractice isn't measurable.

And yet the beauracy [sic] is so wretched that no sane person wants to teach even with the fairly good pay (and it IS fairly good pay in most states for the hours worked and the level of education required) in most states and the all but certain job security mentioned above, A doctorate in math or science is not good enough to qualify one to teach unless you can first endure a couple of semesters of mind numbing 'teaching' courses designed to both indoctrinate politically correct views and raise an artifical [sic] barrier to entry into the profession.

Disclaimer: I don't necessarily agree with the above quote, I just thought it was an interesting opinion about some of the issues with our current school system.

School Choice Blog

2007-03-05T13:55:00.000-08:00

I stumbled across an interesting blog that advocates School Choice. I found two recent post worth commenting on.

The first post, entitled, Educational Choice: It’s Just Common Sense is nice because it outlines the logic behind why School Choice is important and why it makes sense. The post opens with:

One of the biggest ships in the armada of lies that is deployed against the right to choose schools is that it’s a “radical” or “extreme” position. It only takes a couple of moments of thought to realize that this is pure hogwash. In the areas of housing, transportation, food, clothing, and computers, we’re allowed to spend our own money on the goods or services of our choice. Only in education does the government preemptively [tax] our money away and then force us to attend school based on where we live. (Why do you think people move to the suburbs?)

Even in higher education, we have the choice principle. A student can get financial aid to go to almost any college or university, public or private. Wouldn’t it be strange if the government told us that students from the upstate had to go to Clemson while those in the low country had to go to college of Charleston?

All that school choice proponents are asking for is a similar choice in K-12 education. Let parents choose schools based on their quality, character, discipline, achievement, etc.

The second interesting post covers the education views of the Democratic front-runners for President in 2008. It details that Obama, Clinton, Edwards and Gore are all against school choice as public policy, but all four of them send their own kids to private schools. The point is not that many children don't have the right to go to a private school - they do - it's that most children don't have parents well-off enough to spend their own money for their kid's education.

Some of their comments are noteworthy:

Edwards: "America has two school systems — one for the affluent and one for everyone else."
Gore: "If I was a parent of a child who went to an inner-city school that was failing, I might be for vouchers, too."
Obama: "I think a good place to start would be for both Democrats and Republicans to say . . . we are willing to experiment and invest in anything that works."

I'll end on that last note, saying that all I want is for every kid to have the most choices and the best opportunity, something that clearly is not happening with our current school system.

School Choice in Action

2007-03-01T17:09:00.000-08:00

This is what I'm talking about. I don't want to abolish the Department of Education but I do want the most disadvantaged students to have the most choices. The current system is worst-suited to the worst off.

The article compares the school districts in Oakland and Compton, California. Here's what Compton is doing to try and fix their schools:

All Compton schools over the last few years have been ordered to reduce class size by 12 percent, improve teachers' credentials, adopt a tougher curriculum, and even clean up bathrooms.

Oakland on the other hand took a different approach:

Kids are not required to attend their neighborhood school, especially if it is failing. Rather, they can pick any regular public or charter school in their district and take their education dollars with them; more students therefore means more revenues for schools. Furthermore, as the name suggests, the revenues are "weighted" based on the difficulty of educating each student, with low-income and special-needs kids commanding more money than smart, well-to-do ones.

Any guesses as to which school district is performing better?

Libertarian is a dirty word

2007-02-24T07:21:00.000-08:00

Or so you'd think from this scathing article. Why are Libertarians hated so much? Why do people have so much faith in governments and so little faith in each other? It's taken as common knowledge by many liberals that government is necessary to create a just, fair, good world. Without government intervention the world would disintegrate into a world where "a very few people [get] very wealthy while the rest of us [die] of food poisoning or coal mine collapses or shirtwaist factory fires."

The author of the article says, of Libertarians: "You cannot argue these people into rationality, nor can you persuade them by logic to show compassion for their fellow humans." This is interesting, because I oppose many government programs because of my compassion for fellow humans. If I felt that the government was the best solution to a problem, I would advocate it, and I do. I have no problem with government funded police officers and firefighters and a US Military (as long as it's volunteer based). I would be all for the current public school system except for one small point: it doesn't work very well, especially for the poorest and least fortunate. The moment public schools work well, I will stop advocating for school choice. Of course, proponents of the current system (I'm just using schools as an example, the argument applies to any large government program, FEMA being another easy target) say that the reason it doesn't work is because it doesn't have enough funds. But I say, why should we continue to fund something that doesn't work? I realize it's a bit of a catch-22, but I don't oppose a large government because of philosophical reasons, I oppose it on pragmatic grounds.

Giuliani

2007-02-23T12:06:00.000-08:00

I don't usually comment on articles in The Onion but this article was too good to pass up.

"My fellow citizens of 9/11, today I will make you a promise," said Giuliani during his 18-minute announcement speech in front of a charred and torn American flag. "As president of 9/11, I will usher in a bold new 9/11 for all."

If elected, Giuliani would inherit the duties of current 9/11 President George W. Bush, including making grim facial expressions, seeing the world's conflicts in terms of good and evil, and carrying a bullhorn at all state functions.

How to Think Like An Economist

2007-02-13T11:38:00.000-08:00

Freakonomics author Steven Levitt has an interesting blog post on Portugal's vote on whether to ban abortion. For those that haven't read Freakonomics (I highly recommend it, by the way), Levitt's somewhat controversial research led him to conclude that a drop in the US crime rate in the mid-90's could be tied to the legalizing of abortion. His reasoning is that some of the unwanted babies being aborted would have ended up in a life of crime, but because they were never born, future crime rates were decreased. Now, before you nay-say his conclusion, because as I said, it is not without controversy, let's assume that Levitt really believes his claim, namely that legal abortion lowers future crime rates.

Given that premise, you might think that Levitt would be in favor of legalized abortion. Lower crime is good, right? However, he's not taking a stance on abortion. He says, "if you put any value on either a fetus or a woman’s right to choose, any benefits from lower crime get swamped by these other considerations."

A reminder that economics is always about trade-offs.

Rules to Live By - Part I

2007-02-08T11:42:00.000-08:00

This will be an ongoing series of entries, but to get started, I stumbled across one person's set of rules regarding eating meat:

At least one meal a week will be vegan.
No more than one meal a week will include meat, and that meat will come exclusively from sustainable sources, mostly local.
No more meat at restaurants. I'd bend on this if I knew the restaurant well and could trust its meat sourcing claims, but only then, and that's fairly rare. (This will be the biggest sacrifice for me, personally.)
The rules are looser for the kids. We want them to learn to eat healthy food through eating and enjoying it, not through following rules.
The rules are fairly loose for us too. We're busy; we'll compromise; we'll eat the food our parents cook us when we visit them. No stressing or guilt.

I enjoyed his explanation on rule four. Blindly following rules doesn't teach you anything, and after a while, the rules lose their impact. For example, I sometimes wonder, why is it again that I don't eat scallops?

Thoughts?

The New Athiests

2007-02-08T09:19:00.000-08:00

I'd been looking for a good time to finally give up trying to finish reading The God Delusion, by Richard Dawkins. I think this article just persuaded me that now is the time.

I blogged before about how I read The End of Faith and Letter to a Christian Nation, by Sam Harris, and loved both those books. I enjoyed Sam's style of writing - scholarly, yet accessible and with a sense of intelligence. Dawkins's book, on the other hand, I couldn't get into. I read about 200 pages of it, and haven't touched it in weeks. I couldn't put my finger on what it was that bothered me, but I think the WSJ link above hits the nail on the head. Dawkins, and to a lesser extent Harris simplify the concept of faith and religion, and make it seem like religious faith is the root of all evil and if we just got rid of religion, or at least converted more people to atheism, the world's problems would be over.

For the new atheists, believing in God is a form of stupidity, which sets off their own intelligence. They write as if they were the first to discover that biblical miracles are improbable, that Parson Weems was a fabulist, that religion is full of superstition. They write as if great minds had never before wrestled with the big questions of creation, moral law and the contending versions of revealed truth. They argue as if these questions are easily answered by their own blunt materialism. Most of all, they assume that no intelligent, reflective person could ever defend religion rather than dismiss it. The reviewer of Dr. Dawkins's volume in a recent New York Review of Books noted his unwillingness to take theology seriously, a starting point for any considered debate over religion.

The faith that the new atheists describe is a simple-minded parody. It is impossible to see within it what might have preoccupied great artists and thinkers like Homer, Milton, Michelangelo, Newton and Spinoza--let alone Aquinas, Dr. Johnson, Kierkegaard, Goya, Cardinal Newman, Reinhold Niebuhr or, for that matter, Albert Einstein. But to pass over this deeper faith--the kind that engaged the great minds of Western history--is to diminish the loss of faith too. The new atheists are separated from the old by their shallowness.

It's the arrogance of Dawkins that really got to me. In his mind, belief in God is a really simple issue, but I'm not so sure I can agree with that. It's like everything else - nothing is as simple as it seems.

Is True Liberty Possible?

2007-02-06T15:52:00.000-08:00

This is amazing. Watch the following three interviews with Ayn Rand. What she says is amazing. What an incredible time it must have been if such extreme views as hers were taken with any sort of seriousness. I wish she were still around. Not because I subscribe to her views completely, but because I think what's badly needed in this world is an opposing viewpoint. A voice that questions whether 1) it's even possible to solve all the problems in the world, and 2) if the ways we're going about trying to solve them is effective. I have a lot I can say on this subject, but take a look at these videos. If for no other reason than to see a young Mike Wallace.

Ayn Rand - Mike Wallace Interview 1959 Part 1

Ayn Rand - Mike Wallace Interview 1959 Part 2

Ayn Rand - Mike Wallace Interview 1959 Part 3

Of course this interview should be understood in a historical context. As a commenter on the original blog post where I saw this said:

Her philosophy, of complete separation of economics and state, has never been tried. And it probably would not work. However, as a correction to complete faith in collectivism it makes sense. She was saying what needed to be said at that time. It is not possible to love others more than yourself, or to love everyone equally and indiscriminately. Even Jesus didn't go that far -- he said to love your neighbor AS you love yourself.

Early 20th century collectivism, although well-intentioned, was an evil force. I think Ayn Rand was perceiving something that Mike Wallace and many others just did not see at that time.

I think going too far either way -- towards collectivism or libertarianism -- is a mistake. Of course Rand wanted complete libertarianism. There is no reason to think she was right, or that the answer could be that simple.

But I think I can see a reason for the popularity of her beliefs. She expressed some obvious truths that our society was denying and repressing. We were all strongly influenced by communism, the idea that life could be made fair for everyone. We all had faith in government as a provider.

Of course Rand thought she was "objective," but her ideas are as much a matter of faith as any other ideas. Because she dared to oppose the mainstream faith, however, her subjective experience was of objectivity. Paradoxically.

Very interesting. I really want to read Atlas Shrugged and The Fountainhead now.

Pigovian Cartoons

2007-02-04T10:25:00.000-08:00

Philosphy versus Practicality

2007-02-01T15:03:00.000-08:00

Anyone who reads this blog knows that I firmly believe in the type of government that Thomas Jefferson called "a wise and frugal government, which shall restrain men from injuring one another" and "shall leave them otherwise free to regulate their own pursuits of industry and improvement."

I believe that two consenting adults should have the right to make whatever agreements between the two of them, assuming no injury to a third party. This is a philosophical position. It is an idea of how I think the world should be, and the role that government should play in that world.

But does this worldview always lead to the best outcome? I've thought long and hard about this, and I've come to the conclusion that overall, it's an impossible question to answer. I can't answer it, because I don't know what the best outcome is. But no one else does either. What is best? Best for whom? Who's set of preferences do you use to measure what is best? What's best for me, might not be best for someone else, and in turn might not be best for a third person. In short, you can't make everybody happy, so each person is best left to decide for himself what makes him happy.

Returning to the subject of the mininum wage for a moment, is a higher minimum wage a good idea? If you believe that by a higher minimum wage you will make more people better off than you make worse off, is that a legitimate reason to restrict liberty? Does majority rule, in the sense that if a given policy benefits more people than it hurts, should you enact it? Now, obviously I wouldn't oppose a higher minimum wage if I thought that everyone was made better off. I must feel that there are some losers with a higher minimum wage. Supporters, if they acknowledge the losers at all, will say that the gains offset the losses. But my question is, how do you judge that? What are the gains and losses?

Maybe I'm overthinking this. In October 2006, 659 economists signed a public call sponsored by the Economic Policy Institute for a raise in the minimum wage. These economist were then polled to ask why they supported a higher minimum wage. Their answers are quite enlightening (I've picked out some of the more interesting responses from the full list):

Alan Blinder: ....Regardless of Pareto efficiency, we do not allow indentured servitude or child labor. Similarly, a $7.25 minimum wage would state that society deems it wrong to pay less.

Amitava Dutt: Reducing poverty, reducing inequality. Creating a culture where people realize that some basic needs of people should be satisfied.

Robert Haveman: ...giving low wage workers a feeling that they are less marginalized than they now feel.

John R. Morris: Economic justice for low income people.

Jeffrey Waddoups: Reducing wage inequality will increase the quality of democratic institutions.

Again, to clarify, if these admittably laudable goals came with no price tag, of course I'd accept a higher minimum wage. But, at what price do these goals become unacceptable? What if some low income people were made better off, but other low income people were made worse off? What if "Economic Justice" came for a few, but at the expense of others who are now priced out of the job market? How do you judge one person's gain versus another person's loss? And where does one's right to decide for himself what is best fit it?

Some lunchtime reading

2007-01-29T12:36:00.000-08:00

So, this is what I read in my spare time. A debate between two people I've never met about what are for the most part philosophical points. I'll leave it to the reader of this blog to decide who I agree with. Maybe I should have majored in philosophy.

Philosophy of Liberty

2007-01-28T22:01:00.000-08:00

During the past election in Washington State, Bruce Guthrie ran for U.S. Senate as a Libertarian. He got less than two percent of the vote, but I followed his campaign with some interest, as I feel that my views are not accurately represented by either the Democrats or the Republicans.

What are those views? They are summed up 100% in this short little video: The Philosophy of Liberty. Please watch it.