Thursday, April 23, 2009

"Prophets of Doom"

interesting how so many different people have such different opinions of what should be done (and i'm excluding the idiots at the end, too)

Monday, April 20, 2009

Waste Management Innovation

"...Bibens' specialty is "biochar," a highly porous charcoal made from organic waste. The raw material can be any forest, agricultural or animal waste. Some examples are woodchips, corn husks, peanut shells, even chicken manure.

Bibens feeds the waste -- called "biomass" -- into an octagonally shaped metal barrel where it is cooked under intense heat, sometimes above 1,000 degrees Fahrenheit, the organic matter is cooked through a thermochemical process called "pyrolysis".

In a few hours, organic trash is transformed into charcoal-like pellets farmers can turn into fertilizer. Gasses given off during the process can be harnesed to fuel vehicles of power electric generators...

Biochar is considered by many scientists to be the "black gold" for agriculture.

Its high carbon content and porous nature can help soil retain water, nutrients, protect soil microbes and ultimately increase crop yields while acting as natural carbon sink - sequestering CO2 and locking it into the ground.

Biochar helps clean the air two ways: by preventing rotting biomass from releasing harmful CO2 into the atmosphere, and by allowing plants to safely store CO2 they pull out of the air during photosynthesis...

..."Soil acts as an enormous carbon pool, increasing this carbon pool could significantly contribute to the reduction of CO2 in the atmosphere," said Christoph Steiner, one of the leading research scientist studying biochar. "It gives us a chance to produce carbon negative energy."

Worldwide use of biochar could cut CO2 levels by 8 parts per million within 50 years, according to NASA scientist James Hansen.

Global carbon levels in the air have been steadily increasing at an alarming rate since the 1980s, according to NOAA. Since 2000, increases of 2 parts per million of CO2 have been common, according to NOAA. During the 1980s rates increased by 1.5 ppm per year.

The process of making biochar can also lead to other valuable products.

Some of the gases given off during the process can be converted to electricity, others can be condensed and converted to gasoline, and there are also some pharmaceutical applications for the by-products, said Danny Day President and CEO of Eprida, a private firm in Athens, Georgia currently exploring industry applications for the biochar process.

Although scientists look to biochar to improve the future, its origin lies in the past.

For centuries indigenous South Americans living in the Amazon Basin used a combination of charred animal waste and wood to make "terra preta," which means black earth, in Portuguese.

Thousands of years later, the terra preta soil remains fertile without need for any added fertilizer, experts say.

"These terra preta soils are older than 500 years and they are still black soil and very rich in carbon,"

Credit Card Crackdown

I've long argued on this site that increased regulation of banks will likely only hurt the long term situation in the US, because the reason for this crisis was far more about incompetence than greed or lack of regulation. The latter two played a part, certainly, especially lack of regulation in the derivatives arena (a major reason why Lehman's collapse hurt everyone else so badly). But ultimately, incompetence was the problem.

Not so in the credit card arena. Credit cards charge ludicrously high interest rates that only barely avoid usury laws on technicalities. They are absolutely deceptive in getting people to sign up, which is why so many student cards are available. I understand the importance of easy credit for a growing economy, but easy credit at real risk-adjusted interest rates far above the long term real growth rate of the country trades off future consumption for a lesser present value of current consumption.

So while I generally distrust banking regulation because it has the potential to do more harm than good, this one would be good.

The US growth curve

One thing I get a little confused about is the implicit notion in the media that because the United States is more developed, we are bound to continue our development much more slowly than developing countries.

I believe the root of this problematic belief can be traced to two particular concepts - the "S-curve" of industry development taught in every business school in the country and the structure of most of the basic models of macroeconomic development, which hold that the level of capital stock and labor in a country approaches an equilibrium growth rate (sometimes of 0) that slows down as you get closer to that growth rate. Both of these teachings completely ignore the sources, structure and benefits of innovation. S-curves can "restart" or "shift" or change or steepen midstream with technological developments that are not featured in the curve (implicitly, they're exogenous). Macroeconomic models almost always explicitly hold technological development or capital/labor efficiency gains as partially or completely exogenous. These exogenous technical changes aren't necessarily apparent year to year, but in long term projections, they're almost never measured right. When did people start seeing the internet coming?

Proponents of this theory point to the narrowing of the gap between the US and the rest of the world over the last thirty years. The US used to represent nearly half of world GDP, and now it's about a quarter.

However, these assertions all implicitly require one of two conditions:
1) We are reaching a "peak" of development that is hard to go past. (implicit in any S-curve argument)

2) Growth for every country constantly is slowing down towards some long term equilibrium rate, or is already there. (implicit in any basic macroeconomic model argument)

In every age we've hit except for possibly the Middle Ages, the world has been at a "peak of development". Britain's been at the "peak of development" for three centuries and actually managed to accelerate growth for a century and a half. Greece and Rome had the same story. The Vatican was such for much longer than that. China's had some millennium-long stretches, and kept growing quickly. The world as a whole has accelerated its growth as it has developed, not slowed it down.

Technological development is only partially exogenous - yes, some of it is the genius of men and women who happen to stumble upon things. But much of it is also endogenous - what we invest in our capital stock, what we spend on R+D and science research, what we spend on education and how we structure it, how we prevent crime and recidivism, etc. The returns to these endogenous factors are also tremendously variable and complicated - for example, reducing recidivism can help a lot if our education system has the ability to absorb those young men and women, but won't help that much if it doesn't.

There is one compelling argument for why different countries should catch up to the US: they can see how we've done it, and copy us. However, this implies that other countries should grow faster than the US, not that the US shouldn't be growing fast (which is implicit in the commentary of half of the news, economic commentary and investment advice given out today).

That factor is a decent one, but here are a few more arguments for why the US may have fallen behind that don't involve some mythical growth curve. All of them may be controversial, but here are some observations:

1) A federal government increasingly reliant on income and sales tax revenues. Thus, the government's own expenditures are subject to the economy more than ever, incentivizing lots of "quick fixes" to business cycle problems to get government expenditures back on track.

2) Increasing the level of media coverage incentivizes politicians facing reelection to become more and more reactionary and populist, instead of having a solid opinion with firm grounding. The Kennedy-Nixon debate was scandalously hostile at the time, and is now basically considered a model of civil discourse as politicians need to cater to their electorate at all times, instead of serving as representatives to govern in the best interests of the electorate. There's a fine line between representative government and whim of the majority.

3) The Cold War and the subsequent collapse of the Soviet Union forced the US to take on a lot of "tragedy of the commons" type roles in the world, including policeman and provider of foreign aid.

4) Ignorance of foreign production potential in the creation of union contracts, and unions that grew into political powerhouses instead of useful negotiating tools. This killed a huge number of industries (See: UAW) and nearly killed many more (steel comes to mind).

5) The US education system became much less capable as it scaled.

6) Securities laws, accounting rules and fiduciary duty created corporations that were a) too highly scaled to be efficient and b) incentivized towards seeking out short-term gains over long-term ones.

7) The widespread introduction of trans-fats into our diet and the low-cost availability of high calorie foods increased a lot of health-related costs even as lifespans increased.

8) Related to the tragedy of the commons roles issue, we had a LOT of military involvements. Korea, Vietnam, every other small proxy war to fight the Soviet Union, Bosnia, Kosovo, Iraq parts 1 and 2, Afghanistan... Some military spending is tremendously good for us (Naval research has created an absurd number of new technologies now in very productive civilian use), but a lot of it has been terrible for our economic growth.

9) Overall, just a huge federal government, period. Bureaucracy rarely works well for long.

10) Most of Asia was starting from so low that it could grow quickly without having to worry about exhausting its massive labor supply. Efficiency of labor isn't important when there's so much of it that it's super cheap.

However, there are some decent reasons why the US can keep growing quickly, if it enacts good policy.

1) Our combination of capital stock per capita and overall capital stock is still incredibly high and can foster further technological development.

2) As long as redistribution doesn't get too high, our incentives for innovation (stable laws, our system of bankruptcy, our incredible network of supporting industries, etc) are still extremely high.

3) We still have a virtual monopoly in a number of areas, including elite higher education and healthcare. Maybe these will be narrowed, but catching us will not be easy, unless restrictive immigration laws or bad healthcare reform derails us.

4) Until this past year and a half, credit has been incredibly easy to come by relative to other countries. While this can create bubbles when the credit is not priced appropriately, availability of credit is a key reason why we had the industrial revolution and will continue to help us as long as its not regulated away.

5) Reasonably low tariffs. We have them, and 99% of them suck (I've seen the estimated benefit to Americans of getting rid of all existing tariffs at about $12,000 in purchasing power per person per year), but we have less than a lot of other countries.

6) A predictable relationship between the government and its citizens. I predict that within the next 5 or 10 years, China will have a major incident around this issue.

7) Ultra cheap labor can't last forever. South America and Asia (excluding Japan) will need to start allowing its own citizens to "consume" more (both important things, like food, shelter and healthcare, as well as less important things) and will need to start investing more heavily in widespread education. Their surge has been a filling out to capacity as much as it has been a growth in capacity. Their capacity will keep growing in spurts, as ours will, but the filling out won't last forever.

America still has a good system in place. China, India, Russia, Brazil and the rest of the developing world hopefully do have a bright future, because the alternative sucks. But growth never travels as smoothly as theory or the market likes to predict. It happened to Rome, it happened to China a number of times in its history, it happened to South Africa, it happened to the Soviet Union, it happened to Japan, it's happened to the US and it will keep happening to almost any country that has a spurt of growth. Growth comes in ebbs and flows. Our system is much better suited than that of almost every other country in the world to withstand those ebbs and flows, as long as we can keep investing in our future, both in terms of education and capital stock, and keep our populist urges in check.

Cool Quotes, part 2

Lot of these are on foreign policy, but hey, why not.

"If you can't do a thing better than others are doing it, don't do it at all" - Edward Dow

"Never promote someone who hasn't made some bad mistakes, because if you do, you are promoting someone who has never done anything." - Edward Dow

"[The Middle Ages] was a period when most of the Western world lived in an environment of unnecessary want and human suffering. This was largely because the considerable mental ability of the period was devoted to fruitless results. Consider what might have been accomplished if half as much thought had been given to fighting hunger, disease, and greed as was devoted to debating such points as the number of angels that could balance on the head of a pin." - Philip Arthur Fisher

"At times, he was like a laser beam and beautiful to behold. You only need a relative few of those times in a career to accomplish a great deal if you don't screw up too badly at other times." - Ken Fisher

"I never had a policy; I have just tried to do my very best each and every day." - Abraham Lincoln

"Naturally, the common people don't want war; neither in Russia, nor in England, nor in America, nor in Germany. That is understood. But after all, it is the leaders of the country who determine policy, and it is always a simple matter to drag the people along, whether it is a democracy, or a fascist dictatorship, or a parliament, or a communist dictatorship. Voice or no voice, the people can always be brought to the bidding of the leaders. That is easy. All you have to do is tell them they are being attacked, and denounce the pacifists for lack of patriotism and exposing the country to danger. It works the same in any country." - Hermann Goering

"The American temptation is to believe that foreign policy is a subdivision of psychiatry." - Henry Kissinger

"The purpose of foreign policy is not to provide an outlet for our own sentiments of hope or indignation; it is to shape real events in a real world." - John F. Kennedy

"Too often in recent history liberal governments have been wrecked on rocks of loose fiscal policy." - Franklin Delano Roosevelt

"International incidents should not govern foreign policy, but foreign policy, incidents." -Napoleon Bonaparte

"No modern nation has ever constructed a foreign policy that was acceptable to its intellectuals." - Irving Kristol

"No foreign policy - no matter how ingenious - has any chance of success if it is born in the minds of a few and carried in the hearts of none." - Henry Kissinger

Torture and Government Regulation of it

Two interesting notions come out of this.

Firstly, the idea of prosecuting lawyers who advised the Bush administration is a dangerous, dangerous possibility. Their job is to determine what is legal and what is not. There are plenty of morally wrong things that are either legal or not enforced in this country (adultery, for example). There are also morally ok things that are illegal in this country, either by intent or because blanket laws are not perfect at discerning right and wrong in case-by-case situations.

The job of these lawyers was to determine if something is legal or not, not to set torture policy. Torture policy is the responsibility of enforcement and intelligence agencies, and, through oversight, the President and Congress.

Someone's interpretation of law is not wrong just because you disagree with it. Supreme Court Justices are different, because they set laws and interpretations of laws, to an extent. But lawyers merely follow precedent and wording. Given that a multitude of opinions on interpretations of just about anything is usually good, prosecution risks forcing lawyers down a path that the law doesn't specify and that may have unintended consequences. So that's bad.

The second regards the nature of torture and what constitutes appropriate and inappropriate interrogation, but I'd like to hear some opposing viewpoints on it first so I can make a more educated observation. So that'll come later.

Cutting the Federal Budget

Obama instructed his cabinet to eliminate 100 million in spending. While this is just a drop in the bucket, given how large (and undeniably bloated) our government spending has become, this is a step in the right direction.

Here's hoping he exceeds that $100 million in cuts tenthousandfold. In fact, I'd bet he could do it and not substantively reduce any good programs provided by the government. Heck... you could probably weed out $300 billion from the military ALONE and not see any reduction in national defense.

Examples of cuts (from CNN):

• The Department of Homeland Security's plan to save an estimated $52 million over five years by purchasing office supplies in bulk.

• The Department of Agriculture's effort to consolidate 1,500 employees from seven locations into a single facility in 2011. It's estimated to save $62 million over a 15-year lease.

• The Veterans Affairs Department's move to cancel or delay 26 conferences, saving nearly $17.8 million. Veterans Affairs also will use video-conferencing to cut costs.

So fricking simple, but those add up quickly. Try those subsidies to paper companies mistakenly granted for ADDING greenhouse gases to their processes totaling $8b annually.

Creative Agriculture

From the trip I took to Argentina and Uruguay, I remember being shocked at how unbelievably inefficient the agricultural systems were - modern farming techniques could increase the yield on the same land by an absurd amount, helping to mitigate poverty.

Countries farther north are much, much worse - they are poorer, suffer from diseases, have even greater political instability and destroy the land they have - usually stripmined rainforests.

I remember thinking at the time that the introduction of wheat- and corn-based diets was a stark negative, because these crops are difficult to grow and strip the soil. I remember thinking potatoes would be better because they can be grow in tougher soil, have double the caloric yield, and require less processing.

Even better, it seems, is the Maya nut.

"With one tree able to produce as much as 400 pounds of food a year, using the Maya nut prevents rain forest clear-cutting to harvest other foods and increases populations' food supplies. Dried, the Maya nut can be stored for up to five years -- a lifeline for regions with frequent drought.

The Maya nut has high levels of nutrients including protein, calcium, fiber, iron and vitamins A, E, C and B.

"For some reason, people have stopped eating this food, which is one of the most nutritious foods you can get," Vohman said.

It is also less susceptible to climate changes than the crops that had been brought in to replace it."

...a staple food that can be grown without cutting the rainforest would bring about tremendous environmental and economic benefits to the countries that use it. Of course, potato farming and Maya nut growing happens on totally different terrain, so they're not mutually exclusive.

Sunday, April 19, 2009

How Supreme Court Justices Vote

In addition to pointing out that 4 of the top 5 most conservative judges since 1930 are currently on the bench (Thomas, Scalia, Roberts and Alito, with Kennedy coming in at 10th) based on Supreme Court Rulings (a negative in my view, as justices tend to deal with social issues much more than fiscal or foreign policy issues)... this article has a very, very interesting tidbit:

"Some of the results of the authors' analysis are familiar, if not reassuring. The study demonstrates, for example, that Supreme Court justices, in spite of their reputation for impartiality, really do seem to vote along ideological lines. With only a few exceptions, for 70 years, Republican-appointed justices have tended to vote conservatively, and justices appointed by Democrats have tended to vote liberally. "A lot of this just confirms what everybody already knows," says Landes.

But the paper reveals more than that. For one thing, it demonstrates just how much every vote on the Supreme Court counts—particularly, it seems, when the court is leaning conservative. The authors were surprised to find a dramatic pooling effect over the years every time a conservative justice joined the court. "The larger the fraction of justices appointed by Republican presidents," they write, "the more conservatively each Justice [votes]." With McCain promising to nominate conservatives, this finding appears to have real significance today: The more conservatives join a conservative court, the more conservative each justice gets.

The same thing doesn't appear to be true, curiously, for left-leaning judges. The authors find that the court's liberal justices are driven to vote more ideologically not when their numbers grow but when they begin to drop. The fewer justices there are on the court appointed by Democratic presidents, in other words—meaning the more outnumbered the liberal justices are—the more liberal those justices get. Even when the majority shifts only a small amount, from 5-4 liberal to 5-4 conservative, liberal justices tend to vote more liberally about 3 percent of the time. "There's a real polarization effect," says Landes. "

This highlights an interesting note about radicalism. Does this mean that extreme conservatives use each others' radical viewpoints as evidence that their own aren't ridiculous, while extreme liberals are more willing to compromise under normal circumstances and only pull out extremely liberal arguments when they're challenged by equally extreme conservative arguments and need to counterbalance them? The implication of this statement being that while extreme liberals are bad, they're far more reasonable than extreme conservatives, who are terrifying?

Part of this makes some sense. A massive proportion of the conservative social ideology (which is completely detached from the conservative fiscal and foreign policy ideologies, as the Republican party is currently struggling with) is based in a) religion and b) strict constitutionalism - both notions that what has already been written transcends any possibility of flaws or datedness. To hold onto old viewpoints whose applicability is no longer as universal as it once was requires conviction - so surrounding extreme conservatives with other extreme conservatives can provide social support for questionable convictions.

Disclosure: If it wasn't clear, while I'm pretty moderate on fiscal and foreign policy issues, I'm pretty opposed to the conservative social agenda and think it's nuts (As I understand it, the beliefs pretty much consist of anti-abortion, anti-stem cell research, anti-gun control, anti-gay marriage, anti-teaching of evolution, pro-prayer in schools, anti-privacy and anti-government protest). One major exception, one of the only ones I can think of, is for the legalization of marijuana, which I side with conservatives in opposing.

Wednesday, April 15, 2009

Tax Havens

So, turns out corporations manage to get out of $100 billion in taxes annually by using offshore tax havens.

Now, the government is in tremendous debt, runs a large deficit and needs to increase revenue, cut costs or both. Given this, it is possible that the loopholes should be closed with no other changes, end of story.

However, as with everything tax-related, changes in tax law affect other things. It's a safe bet that the companies with offshore tax havens plan for offshore tax havens when setting wages and announcing profits, etc. Thus, closing the tax loopholes actually just represents raising taxes on the corporations who use those loopholes.

This may or may not be a good thing - increasing corporate taxes decreases production and increases unemployment, which can result in lower government revenues and lower long term standard of living for everyone. It's unclear exactly where the US stands in terms of corporate taxes.

The likelihood is that the average size of the companies who use offshore tax havens are larger than the average corporation in America. I don't know whether it's better to stimulate large businesses (with lots of workers) or small businesses (probably more innovative) - I lean towards stimulating small businesses - but an alternative may be to close the tax loopholes and cut the tax rate on all businesses/small businesses/large businesses by a certain amount. This way, you reduce the inefficiencies introduced by forcing companies to spend to hide things offshore, and you don't raise corporate taxes/you raise them less than by the amount you close in loopholes. You also stimulate different areas of the economy, if that's important.

Monday, April 13, 2009

RFID as a Food Safety Solution

Outbreaks of salmonella, e.coli and other food poisoning means that food safety is still somewhat of a concern.

This is reasonably straightforward, but pallet RFID indicating the field, factories and dates of food could be helpful in preventing these types of situations. It's not perfect, because food gets aggregated all the time, but if food contained RFID tags from picking to sale detailing where it has been and when, it will be easier to remove those foods from the food supply and isolate the places where the problems occurred. ROIC is pretty high on these projects; institutional inertia, a data network and initial capital investment are the hurdles, none of which should be insurmountable.

Glaeser on Precedent

Glaeser on the importance of a stable US policy:

IN THE 1990s, American economists roamed the world preaching the virtues of fiscal restraint, the rule of law, free trade, and privatization. Today, those four policy pillars, once known as the Washington Consensus, are abandoned in the city that gave that consensus its name. These policies were never commandments from Mount Sinai, but they are important ingredients of long-run economic success. In a recession, putting today's needs ahead of tomorrow's prosperity is understandable, but even in bleak times, doing too much can be worse than doing too little.

This year's deficit is projected to be $1.7 trillion, and this may be appropriate. But given the vast scale of this debt, the nation must husband the rest of its resources, to permit some chance of meeting our obligations. Protectionism, public ownership, and a breakdown in property rights will make it far harder for the future entrepreneurship of ordinary people to pay for today's deficits.

Clement Attlee wanted to nationalize British industry after World War II; Barack Obama certainly wants to avoid nationalization of either banks or car companies. Indeed, the sorry history of Attlee's experiment illustrates just how costly it is to put private enterprise in public hands. Run by Washington, General Motors could turn out just like the Rover Group, if we're lucky.

The government is trying desperately to find a middle ground between bankruptcy and nationalization, but I fear that middle does not exist. Little good comes from allowing private entrepreneurs to bet with public funds, so public funding leads inexorably to public control. The problem with large subsidized, nationalized companies isn't just that those entities will be run inefficiently. If GM is split up in a bankruptcy court, this will provide an opening for competitors, many of whom will buy up pieces of the company. If GM is kept whole and public, then taxpayers will pay heavily to crowd out entrepreneurship.

Worse, public enterprises will engender new policies, such as trade barriers, aimed at protecting those enterprises. The experience of the 1930s reminds us that protectionism leads to global conflict, not economic comeback. Today, the "Buy American" clause in the Recovery Act takes its cue from the Smoot-Hawley Tariff Act, and it has already been matched by protectionism elsewhere.

America's future prosperity depends on engagement with the world that is now lending us so much. American entrepreneurs have and will make fortunes by finding opportunities in the dynamic, developing economies. Indian software makes American companies more efficient. Chinese clothing makes American lifestyles more affordable. Tariffs are meant to protect workers in America's declining industries, but it would be far better for those workers to move from the industries of the past to the businesses of the future.

The most disturbing trend may be an increased taste for arbitrary expropriation. People don't invest if the government rewrites the rules to take their earnings. When the House of Representatives voted a 90 percent tax on bonuses, economic populism trumped responsibility. Allowing bankruptcy judges to cram down mortgages expropriates lenders and creates more uncertainty and lawyers' fees. Giving aid to people who lose their homes is a better way to help those in pain.

Few variables are as reliably correlated with economic growth as respect for private property. America's economic strength reflects, in part, the fact that investors have historically found this a legally reliable place. That reputation is a golden goose, and destroying it would be like adding trillions to the debt.

In a better world, the new administration would have started with healthy budget surpluses saved up from the fat years, but it started behind. The nation's debt-to-income ratio is projected to rise from 40 to 70 percent in four years. The government could reduce that debt by cutting spending more sharply after the recession and by scaling back other ambitious programs. Still, no matter what, the debt will be huge.

For our children to face this debt, they will need free trade, private ownership, and respect for private property. Eliminating fiscal restraint during a recession is understandable. Eliminating all four pillars of sound economic policy imposes too much of a cost on tomorrow for too little benefit today.

Problems with Legislation: Exhibit A

Obviously, legislation is important for many things. The problem, however, with government monitoring of lots of things is that there's always a loophole.

$8B in taxpayer money are going to paper companies to increase fossil fuel use... under the provisions of a "green" law designed to reduce it.

Counting the Uninsured

Excellent roundup of people without health insurance in the US. What it does undersell is the moral hazard of subsidizing the over 300% of poverty (especially) and the childless adults 18-34 section. If taxpayers subsidize them, then why shouldn't all the rest of us stop paying for health insurance and let the taxpayers do it?

When discussing health insurance we frequently hear that there are “46 million uninsured” in America. This figure is from a monthly survey of about 50,000 households done by the Bureau of Labor Statistics and the Census Bureau. This Current Population Survey (CPS) then uses statistical techniques to paint a picture of the entire U.S. population.

Advocates for expanding taxpayer-subsidized health insurance, and their allies in the press, repeat this 46 million number constantly. It paints the following technically accurate but misleading picture:

insured v uninsured

This looks really bad. At least there are more than 250 million people with health insurance – that is clearly a good thing that we never hear it in the press. Still, there’s a lot of red there. It means that in 2007 (15%) of Americans lacked health insurance, according to the CPS. Advocates, some elected officials, and the press round that number up to “1 in 6 Americans”. We hear that there are “46 million uninsured,” and then we jump to the conclusion that government needs to help 46 million people buy health insurance, subsidized by taxpayers.

Let’s look inside that 45.7 million number and see what we can learn. Here is our key graph:

uninsured subpopulations

First, I need to make a technical disclaimer. I had this same detailed breakdown for 2005 data, done by health experts when I was part of the Bush Administration. I now have a 2007 total (45.7 million), and so I have proportionately adjusted the components to match that new total. It is a back-of-the-envelope calculation, but I am confident that it is solid, and it does not move any component by more than two hundred thousand. In addition, the expert analysis I am using ensures that the subdivisions shown above do not overlap. I will slightly oversimplify that point in the following description of the breakdown to make the explanation readable.

Let us walk through the graph from top to bottom.

  • 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. There is disagreement about the size of the Medicaid undercount. This figure is based on a 2005 analysis from the Department of Health and Human Services.
  • 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. There’s an interesting philosophical question that I will skip about whether they are, in fact, uninsured, if technically they are protected from risk.
  • Another 9.3 million are non-citizens. I cannot break that down into documented vs. undocumented citizens.
  • Another 10.1 million do not fit into any of the above categories, and they have incomes more than 3X the poverty level. For a single person that means their income exceeded $30,600 in 2007, when the median income for a single male was $33,200 and for a female, $21,000. For a family of four, if your income was more than 3X the poverty level in 2007, you had $62,000 of income or more, and you were above the national median.
  • 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, so they are:
    • U.S. citizens;
    • with income below 300% of poverty;
    • not on or eligible for a taxpayer-subsidized health insurance program;
    • and not a childless adult between age 18 and 34.

As a policy matter, we care not about the total number of uninsured, but about the subset of that group that we think “deserves” taxpayer-subsidized health insurance. That is a judgment call that involves some value choices.

I will make one value choice for you and boldly assert that, if you are already enrolled in or eligible for one free or heavily subsidized health insurance program, we can rule you out as needing a second. That simple statement reduces the 45.7 million number down to 35 million, by excluding the Medicaid undercount and Medicaid/SCHIP eligible from our potential target population.

I think most people would also say that the 10.6 million I have labeled as “remaining uninsured” and shaded in yellow above are the most sympathetic target population.

It then gets tricky.

  • Should people with incomes near or above the national median get health insurance subsidized by taxpayers?
  • How about non-citizens? Should we distinguish between documented and undocumented non-citizens? Between those who pay taxes and those who do not? Remember that we are not talking about who should get emergency medical care, but instead who should get taxpayer subsidies to finance the purchase of pre-paid health insurance. Does that change your answer?
  • Many young adults and childless couples are in good to excellent health. Do they deserve subsidies, when they may be making what they believe to be a rational economic decision and using their financial resources for things other than buying health insurance? Should a 25-year old Yale graduate triathlete making $30K per year get his health insurance subsidized by taxpayers if he chooses not to buy it because his budget is tight?

There is no clear right or wrong answer to the above questions. You need to make your own value choices for them.

Now let us look at the effects on the totals for several hypothetical answers to these questions. Remember that the advocates, some elected officials, and press tell us that the numbers are: 46 million uninsured, 15% of the population, and 1 in 6 Americans “are uninsured.” I suggest you try to figure out which of the following is closest to your view.

  1. Ann wants to subsidize everybody, but agrees that we don’t need to double-subsidize. She excludes the Medicaid undercount and Medicaid/SHIP eligible from her target population and ends up with 35 million people. That is still an enormous amount, but it is 10.7 million less than the headline number she heard in the news. Her target population is now 11.7% of the total U.S. population, down from 15%. Put another way, she would like taxpayers to help between 1 in 8 and 1 in 9 Americans who she feels are deserving of subsidies to buy health insurance, rather than the 1 in 6 she heard in the press.
  2. Bob agrees with Ann, but thinks that subsidies should go to the poor, or at least not to those who have above the median (or near median) incomes. His target population is therefore about 25 million people, way down from 46 million. That is 8.4% of the total U.S. population, or 1 in 12 Americans. That is still a huge problem, but it is very different from 1 in 6.
  3. Carla agrees with Bob that subsidies should not go to those with incomes near or above the national median. She also thinks that undocumented citizens should get emergency medical care, but not taxpayer-subsidized pre-paid health insurance. I will guess a 50/50 split between documented and undocumented of the 9.3 million uninsured non-citizen, and I would appreciate it if someone could help me refine this. With this assumption, Carla’s target population is about 21 million, or 7% of the total U.S. population. That is roughly 1 in 14 Americans.
  4. Doug thinks only American citizens with incomes below the national median (and who are not already eligible for another program) should be eligible for additional aid. His target population is therefore the bottom two bars on the graph, or 15.6 million people. That is 5.2% of the U.S. population, or 1 in 19 Americans. If Doug were to further limit subsidies to those below 200% of poverty or 150%, his target population would be a few million people smaller.
  5. Edie agrees with Doug, but thinks that if you are a young adult without kids, you should fend for yourself. Her target population is 10.6 million people, or 3.5% of the total U.S. population. That is 1 in 28 Americans.

These are, of course, not the only possible answers, but I think they are a representative bunch. Even for the most “liberal” set of answers (Ann’s), the headline numbers we hear in the press overstate the extent of the problem by more than 10 million people.

Now even Edie’s narrowest 10.6 million target population is still a lot of people who lack health insurance. So why does it matter that the press gets the numbers wrong?

  1. If we misdiagnose the problem, we could easily design the wrong policy solution. A solid quantitative understanding of who we would like to help and why is important.
  2. Health insurance subsidies cost taxpayers tens of billions of dollars each year. If we target these funds well and prioritize, we can help more of the people whom we think are deserving of additional assistance, and fewer of those who need less help. If we target those funds poorly, we will waste a lot of money. This point is independent of the total amount we spend on subsidizing health insurance.
  3. Health insurance competes with other policy goals for an enormous but still ultimately limited pool of taxpayer funds. We should neither overstate nor understate the problem to be solved, so that the tradeoffs with other policy goals can be considered fairly.

When you hear “46 million uninsured,” or “1 in 6 Americans don’t have health insurance,” remember that this is technically correct but misleading. The more important question is, “How many uninsured people need additional help from taxpayers?”

What’s your answer?

Tuesday, April 7, 2009

Computerizing Health Care

Phenomenal article on computerizing health care. I recommend it highly, start to finish.

Raises a number of interesting issues. I'm planning a healthcare megapost, part 2, coming up, so I'll save some of it for then.

Saving Good Television Shows

This is a departure from my normal content, but I love the economics of television scheduling, so here goes. TV renewal season is coming up, and I've got to thinking.

There are some truly inspired shows out there right now with poor ratings. To name a few, Friday Night Lights is the best show I've ever seen, but it has terrible ratings and it keeps getting renewed only because a) DirecTV recognizes that its fans are so diehard that cutting a deal for first premiere in exchange for financing the show actually gets people to sign up for DirecTV and b) NBC realizes that the writers, directors and producers are so good that keeping them around to sub in on other shows actually improves the quality and viewership of the network's other shows.

Similarly, Kings is a ratings flop, but it's a tremendously clever and well-done show with a growing number of diehards. Chuck is hilarious and critically acclaimed, but lives on the cancellation bubble. The Office took multiple seasons to pick up viewership, but even in the early going, fans of the show were rabid supporters. Although I don't love 30 Rock the way I love the others on this list, it is also widely critically acclaimed but took at least a season to pick up steam. How I Met Your Mother is a similar case - brilliant show, die-hard fans, but lives on the cancellation bubble. I only watched a couple episodes of Firefly because I'm not a huge sci-fi person, but it definitely qualifies as high-quality programming with a relatively small number of dedicated fans. The list goes on.

The problem is that networks are incentivized to churn out mediocre shows with a large but largely uncommitted and uninspired viewership (Deal or No Deal, for example), because they are paid on number of viewers. From a utility economic point of view, getting 30 million viewers to watch the show who get 1 utility point (fictional unit) net of opportunity cost is significantly worse for society than getting 7 million viewers who receive 8 net utility points from the show. However, the way TV currently works, the first show will typically be renewed, while the second show will likely be cancelled unless it's so inexpensive that the network still makes money off of a small number of viewers.

The question, therefore, is how to restructure the market to make a maximization of public utility in the interest of networks, rather than a maximization of viewers.

There are two standard solutions, and they are both boring.

Cable television or other service-charge possibilities is one frequently-used solution for this. Committed fans will likely pay the extra dollar-per-month to get a channel with their favorite show, and that dollar per month can supplement ad dollars to make a cult show profitable. This is the DirecTV reason for why Friday Night Lights is still on the air. Similarly, it's why a show like Burn Notice, which is a cable hit, can be considered a "hit" with 6 million viewers, when that level of viewership makes Kings one of the most expensive flops in NBC history.

The other standard possibility is a pay-per-view distribution mechanism (even an iTunes type of distribution), which economically functions in a similar way- gets diehards to pay more to see the show. That's how boxing makes money.

However, I'm interested in other solutions. Networks often finance the creation of new shows themselves (as with Kings, Bionic Woman, Lost, etc), so these shows cannot be placed anywhere other than on the network. Cable and standard pay-per-view solutions don't work for broadcast networks.

Here's where I'd like some interesting ideas. What can a broadcast TV network do to make more money off of shows with a small but committed group of viewers, thus enabling said shows to stay on the air?

I've been thinking about this, and short of things like "merchandising and promotional tie-ins", I'm at somewhat of a loss. Can anyone think of anything clever?

Been thinking a little about the role of cable networks. Part of the reason cable networks are still profitable is they face low costs. Syndication is less than production, and even original shows are usually cheaper than broadcast network shows. Perhaps broadcast networks could create more cable networks, or use cable networks they already have that fit the show, and use high quality cult shows as tentpoles?

This works particularly well if cable companies (Comcast, Time Warner, etc) move towards a la carte channel picking instead of the traditional bundling

Monday, April 6, 2009

Ben Bernanke

Nothing new, but a decent summary of the monetary side of the government for anyone who isn't quite sure how the different parts of the government differ in their responsibilities during the crisis.

On Creditors

...been yelling about this for weeks. Not the only one, either - this is what Spitzer was hammering with AIG, as well.

Recessions reduce... Shark Attacks?

More on Deficits and the Obama budget