One Idea for Trade Balance

In 2005, the US imported 13.71 million barrels of oil per day

At 365 days per year and about $75 dollars a barrel, that's 375 billion dollars of imports. The 2008 current account balance was -569 billion, which means we could reduce our current account deficit by 66% if we didn't need to import oil anymore (note that if we stopped importing oil and oil demand fell, oil prices would drop, but so would our current account balance)

That doesn't count oil-containing goods. I don't know whether we import or export more oil-containing goods, but I'd bet that we export goods with greater pricing power than we import, because of the worldwide strength of US brands.

In other words, if you don't want an import-certificate policy (one of my first posts, here), another way to stem the massive trade deficit would be to transition the electricity and transportation supply to solar, wind, geothermal, nuclear and natural gas (and hypothetically coal, but that's worse visavis Co2).

Much more secure energy supply (our enemies don't need to supply us), cheaper over the long term, avoids global warming, and also prevents massive inflation and foreign ownership of US goods.

Interesting article on Cheney and Bush

Interesting article on Cheney and Bush.


I don't know if Cheney's insane or if the rest of us are all blind to the realities of foreign policy. On the one hand, he sounds paranoid, but on the other hand, people who don't spend time looking at black swans tend to seriously, seriously underestimate the probability and effects of them. Even if there is a low probability in any given year of a rogue group or state getting a nuke, over a medium term, it becomes much more likely.*

There's also a natural revulsion to Cheney's implicit Machiavellian notion that we should seek to be feared, not loved. Again, it's easy for the rest of us to dismiss it, because we think in the short term. It may be better in the short term to be loved, but in the long term to be feared. It's hard to know if Cheney's megalomaniacal, or merely has a longer time frame of interest than the rest of us.

Either way, it's a fascinating take on a really mysterious guy who I can't decide whether to hate or respect (or both).



*compounded probability is such that if something only has a 1% chance of happening in a given year, it has a 9.6% chance of happening in the next decade, an 18.2% chance of happening in 2 decades and, if one assumes current 22 year olds will live to 85, a 46.9% chance of happening in their lifetime.

Preventive health care

Krauthammer on preventive care

Thanks to Joseph for sending

Economic Principles: Buffett on the Deficit

Buffett on the effects of the government deficit.

An excellent read for anyone interested in policy or government.

A point he doesn't talk about is that Social Security and Medicare are implied debt, as well. If the CBO budget estimates are right (and under Elmendorf, the CBO has been about as independent and intelligent as I can remember a government agency in a long time), our actual debt in 10 years will be the equivalent of 300 percent of GDP, which is up there with the worst of the Latin American countries.

Economic Principles: Apple and Google

Interesting notes on The Apple Google Drama.

"Earlier this month, Apple rejected an application for the iPhone called Google Voice. The uproar set off a chain of events—Google's CEO Eric Schmidt resigning from Apple's board, and the Federal Communications Commission (FCC) investigating wireless open access and handset exclusivity—that may finally end the 135-year-old Alexander Graham Bell era. It's about time.

With Google Voice, you have one Google phone number that callers use to reach you, and you pick up whichever phone—office, home or cellular—rings. You can screen calls, listen in before answering, record calls, read transcripts of your voicemails, and do free conference calls. Domestic calls and texting are free, and international calls to Europe are two cents a minute. In other words, a unified voice system, something a real phone company should have offered years ago.

Apple has an exclusive deal with AT&T in the U.S., stirring up rumors that AT&T was the one behind Apple rejecting Google Voice. How could AT&T not object? AT&T clings to the old business of charging for voice calls in minutes. It takes not much more than 10 kilobits per second of data to handle voice. In a world of megabit per-second connections, that's nothing—hence Google's proposal to offer voice calls for no cost and heap on features galore.

What this episode really uncovers is that AT&T is dying. AT&T is dragging down the rest of us by overcharging us for voice calls and stifling innovation in a mobile data market critical to the U.S. economy.

For the latest quarter, AT&T reported local voice revenue down 12%, long distance down 15%. With customers unplugging home phones and using flat-rate Internet services for long-distance calls (again, voice is just data), AT&T's wireline operating income is down 36%. Even in the wireless segment, which grew 10% overall, per-customer voice revenue is down 7%.

Wireless data service is AT&T's only bright spot, up a whopping 26% per customer. How so? As any parent of teenagers knows, text messages are 20 cents each, or $5,000 per megabyte. After the first month and a $320 bill, we all pony up $10 a month for unlimited texting plans. Same for Internet access. With my iPhone, I pay $30 a month for unlimited data service (actually, one gigabyte per month). Is it worth that? The à la carte price for other not-so-smart phones is $5 per megabyte (one-thousandth of a gigabyte) per month. So we buy monthly plans. Margins in AT&T's Wireless segment are an embarrassingly high 25%.

The trick in any communications and media business is to own a pipe between you and your customers so you can charge what you like. Cellphone companies don't have wired pipes, but by owning spectrum they do have a pipe and pricing power.

Aren't there phone competitors to knock down the price? Hardly. Verizon Wireless, T-Mobile and others all joined AT&T in bidding huge amounts for wireless spectrum in FCC auctions, some $70-plus billion since the mid-1990s. That all gets passed along to you and me in the form of higher fees and friendly oligopolies that don't much compete on price. Google Voice is the new competition.

By the way, Apple also has a pipe—call it a virtual pipe—to customers. Its iTunes music service (now up to one-quarter of all music sales, according to NPD Market Research) works exclusively with iPods and iPhones. The new Palm Pre, another exclusive deal, this time by Verizon Wireless, tricked iTunes into thinking it was an iPod. Apple quickly changed its software to lock the Pre out, and one would expect Apple locking out any Google phone from using iTunes.

It wouldn't be so bad if we were just overpaying for our mobile plans. Americans are used to that—see mail, milk and medicine. But it's inexcusable that new, feature-rich and productive applications like Google Voice are being held back, just to prop up AT&T while we wait for it to transition away from its legacy of voice communications. How many productive apps beyond Google Voice are waiting in the wings?

So now the FCC and its new Chairman Julius Genachowski are getting involved. Usually this means a set of convoluted rules to make up for past errors in allocating scarce resources that—in the name of "fairness"—end up creating a new mess.

Some might say it is time to rethink our national communications policy. But even that's obsolete. I'd start with a simple idea. There is no such thing as voice or text or music or TV shows or video. They are all just data. We need a national data policy, and here are four suggestions:

• End phone exclusivity. Any device should work on any network. Data flows freely.

• Transition away from "owning" airwaves. As we've seen with license-free bandwidth via Wi-Fi networking, we can share the airwaves without interfering with each other. Let new carriers emerge based on quality of service rather than spectrum owned. Cellphone coverage from huge cell towers will naturally migrate seamlessly into offices and even homes via Wi-Fi networking. No more dropped calls in the bathroom.

• End municipal exclusivity deals for cable companies. TV channels are like voice pipes, part of an era that is about to pass. A little competition for cable will help the transition to paying for shows instead of overpaying for little-watched networks. Competition brings de facto network neutrality and open access (if you don't like one service blocking apps, use another), thus one less set of artificial rules to be gamed.

• Encourage faster and faster data connections to our homes and phones. It should more than double every two years. To homes, five megabits today should be 10 megabits in 2011, 25 megabits in 2013 and 100 megabits in 2017. These data-connection speeds are technically doable today, with obsolete voice and video policy holding it back.

Technology doesn't wait around, so it's all going to happen anyway, but it will take longer under today's rules. A weak economy is not the time to stifle change.

Data is toxic to old communications and media pipes. Instead, data gains value as it hops around in the packets that make up the Internet structure. New services like Twitter don't need to file with the FCC.

And new features for apps like Google Voice are only limited by the imagination. Mother-in-law location alerts? Video messaging? Whatever. The FCC better not treat AT&T and Verizon like Citigroup, GM and the Post Office. Cellphone operators aren't too big to fail. Rather, the telecom sector is too important to be allowed to hold back the rest of us. "



Very nice demonstration of the power of monopolies and of bundling.

Also a nice illustration of what anti-trust regulation is supposed to look at. Nailing Intel, Google or Microsoft because they make better products than anyone else (at the time) and everyone chooses them despite having access to alternatives is simply stupid. If this is true, then AT&T used its position to stifle innovation instead of being the best at it, which is exactly what anti-trust legislation is supposed to be for.

More from Bill Gross

More from Bill Gross

"A photograph of Bernard Baruch looms ominously on the far corner of my PIMCO office wall. Vested, with pocket watch and protruding chin thrust prominently toward the observer, this well-known financier of the early 20th century at times appears almost alive. It was Baruch who almost schizophrenically cautioned investors during the stock market’s speculative blow-off in the late 20s that “two plus two equals four and no one has ever invented a way of getting something for nothing.” Three years later during the depths of economic and financial gloom he opined just the opposite: “Two plus two still equals four,” he said, “and you can’t keep mankind down for long.” Homo sapiens, as it turns out, stayed on the deck for much longer than Baruch envisioned – some historians having suggested that it was only war and not the rejuvenating economic spirits of a capitalistic peace that eventually turned the tide – but his words, first of caution and then of optimism, typify the way that fortunes were, and still are, made in the financial markets: Get your facts straight, apply them to the current valuation of the market, take decisive action, and then hold on for dear life as the mob hopefully comes to the same conclusion a little way down the road....

The threat, of course, falls under the broad umbrella of “burden sharing” and is a difficult one to interpret and anticipate, if only because the concept is evolving in the minds of policymakers as well. But clearly, as this financial crisis has morphed from Bear Stearns to FNMA, Lehman Brothers, AIG and now Chrysler, the claims of stockholders and in some cases senior debt holders have suffered. Please hear me on this. That is the way it should be. Capitalism is about risk taking and if you’re not a risk taker, you should have your money in the bank, Treasury bills, or a savings bond, not the levered investment of a bank or an aging automobile company. Let there be no company too big, too important, or too well-connected to fail as long as the systemic health of the economy is not threatened.

Having acknowledged that, however, let me be clear that these risks, long swept under the rug of prior Administrations, are now rising to a boil. The pressure to “survive well” or simply survive period is now clearly shifting to Wall Street as opposed to Main Street. The worm has turned, and our President, whom I voted for and still strongly support, has shed his predecessor’s regal robes for a populist’s cloak.

How does one invest during such a transition? Investors should recognize that this grassroots trend signals – most importantly – an increasing uncertainty of cash flows from financial assets. Not only will redistribution and reregulation lead to slower economic growth, but the financial flows from it will be haircutted and “burden shared” by stakeholders. In turn, the present value of those flows should reflect an increasing risk premium and a diminishing multiple of annual receipts. PIMCO’s Paul McCulley, famous for a catchy phrase or a light-bulb-generating truism, asked a group of clients the other day to compare FedEx and UPS to the U.S. Post Office, if it were a public corporation. “Which one would you pay more for?” he asked. If FedEx deserves a P/E of 12, wouldn’t the value of the Post Office be substantially less? His point, and mine as well, is that as wealth is redistributed, and the invisible private hand of Adam Smith begins to resemble more and more the public fist of government, then asset values should be negatively affected. First comes the haircutting and burden sharing, most recently evidenced by Chrysler and soon to be played out via the stress testing and equity dilution of government ownership of ailing banks. In those footsteps, however, will follow a slower rate of economic growth, not just in the U.S., but worldwide as heretofore libertarian capitalism is bridled, saddled and taught to trot instead of gallop over the investment plains."

Bill Gross on the Deficit

Bill Gross on the Deficit.

"We are reaping the consequences of that long period of overconsumption and undersavings encouraged by the belief that lower and lower taxes would cure all.

The current annual deficit of $1.5 trillion does not even address the “pig in the python,” baby boomer, demographic squeeze on resources that looms straight ahead. Private think tanks such as The Blackstone Group and even studies by government agencies, such as the Congressional Budget Office, promise that Federal spending for Social Security, Medicare, and Medicaid will collectively increase by 6% of GDP over the next 20 years, leading to even larger deficits unless taxes are increased proportionately. Collectively these three programs represent an approximate $40 trillion liability that will have to be paid. If not, you can add that present value figure to the current $10 trillion deficit and reach a 300% of GDP figure – a number that resembles Latin American economies such as Argentina and Brazil over the past century.

So the rather conservative U.S. government debt ratio shown in Table 1 will likely be anything but in less than a decade’s time. The immediate question is who is going to buy all of this debt? Estimates suggest gross Treasury issuance of up to $3 trillion this calendar year and net offerings close to $2 trillion – almost four times last year’s supply. Prior to 2009, it was enough to count on the recycling of the U.S. trade/current account deficit to fund Treasury borrowing requirements. Now, however, with that amount approximating only $500 billion, it is obvious that the Chinese and other surplus nations cannot fund the deficit even if they were fully on board – which they are not. Someone else has got to write checks for up to $1.5 trillion additional Treasury notes and bonds. Well, you’ve got the banks and even individual investors to sponge up some of the excess, but a huge, difficult to estimate marginal supply will have to be bought. The concern is that this can be accomplished in only two ways – both of which have serious consequences for U.S. and global financial markets. The first and most recent development is the steepening of the U.S. Treasury yield curve and the rise of intermediate and long-term bond yields. While the Treasury can easily afford the higher interest expense in the short term, the pressure it puts on mortgage and corporate rates represents a serious threat to the fragile “greenshoots” recovery now underway. Secondly, the buyer of last resort in recent months has become the Federal Reserve, with its publically announced and near daily purchases of Treasuries and Agencies at a $400 billion annual rate. That in combination with a buy ticket for over $1 trillion of Agency mortgages has been the primary reason why capital markets – both corporate bonds and stocks – are behaving so well. But the Fed must tread carefully here. These purchases result in an expansion of the Fed’s balance sheet, which ultimately could have inflationary implications. In turn, nervous holders of dollar obligations are beginning to look for diversification in other currencies, selling Treasury bonds in the process.

The obvious solution to both dollar weakness and higher yields is to move quickly towards a more balanced budget once a sustained recovery is assured, but don’t count on the former or the latter. It is probable that trillion-dollar deficits are here to stay because any recovery is likely to reflect “new normal” GDP growth rates of 1%-2% not 3%+ as we used to have."



What's my take on this?

Generally, he's right. The US federal budget is out of control. It needs to get in line, or the future of this country will be a much bleaker one than the past. Taxes will hit socialism levels, unemployment will skyrocket, output will collapse, intelligent people will leave for areas of greater opportunity, social services will become unaffordable and the country will be a shell of its former self. I don't think that's a huge exaggeration.

There is one point on which he is mistaken, I believe. I agree with him that US interest rates will rise, consuming ever more of the federal budget, but his point that corporate and mortgage interest rates will rise substantially as US interest rates rise assumes that US government bonds will continue to be treated as riskless. Mortgage and corporate debt is often priced at US interest rates plus some additional number to incorporate the added risk. While it is true that the law of opportunity cost (few would buy a 10% bond with a 10% chance of default if you can buy a 5% government bond with a 1% chance of default) means that higher US interest rates mean higher corporate and mortgage rates, it likely wouldn't be as substantial a raise as he expects, simply because the risk of holding US treasuries will incorporate much of the increase (in the above example, if the 5% bond goes from a 1% chance to a 5% chance, then you start getting to a point where more investors would be interested without having to raise the 10% rate).

However, I do agree with him that the twin deficits need to drop.

Gates foundation sells all healthcare holdings

The Gates Foundation sold all healthcare holdings.

I wasn't alone in my concern.

Rogoff sends a a warning

I've mentioned before the problems with the massive twin trade and budget deficits. Rogoff sees it too.

He notes that shortly, we will have to tax, inflate or default our way out of debt. He misses the fourth alternative - reduce government spending - but the idea's still there.

Cochrane's ingenious solution to healthcare

Cochrane proposes that the right to purchase future health insurance be included in current health insurance.

This protects against the development of "preexisting conditions".

Making it easier to find doctors

Free medical clinic in LA runs short of volunteers.

One reason? The state-by-state licensing of doctors that prohibits doctors from working in states where they're not specifically licensed. These licenses often cost as much as $1000 annually to maintain, but letting them lapse requires retaking the state certification test... even if you're still licensed and practicing elsewhere.

A trained doctor practicing in one state should be able to handle working in another. It seems sensible to me to drop those requirements.

White House ready to drop Public Option

White House ready to drop public option.

As long as the coops aren't propped up by the federal government past startup, and are actually allowed to fail if they fail, then this is a very, very good thing (and even if they are propped up by the federal government, this is probably a major, major improvement).

If I wasn't clear enough on healthcare

Then this guy may be a better explainer than I! Read his "Health Care Mythology" essayhere. Whether or not you agree with the commentary in his sixth and seventh points, his first five myths are well-put.

Anti-Semites receive Presidential Medal of Freedom

Obama just awarded the Presidential Medal of Freedom to Mary Robinson and Desmond Tutu.

Mary Robinson presided over the Durban I conference (famous for drafting and passing a "Zionism = Racism" statute and so blatantly anti-semitic that the US delegation left), presided over the EU's provision of $9 million per month to the PLO at the peak of their terror activities and has issued statements condoning Palestinian suicide bombings of civilians as a means of promoting Palestinian statehood.

Tutu (direct quotes):
"Zionism has very many parallels with racism"
He accused Jews of exhibiting “an arrogance--the arrogance of power because Jews are a powerful lobby in this land and all kinds of people woo their support"

He has also openly refused to refer to Israel by name, instead calling it "Palestine", and has compared it to Stalin, Hitler and apartheid.

Anyone care to try and justify this, especially the Robinson selection? This is the single highest honor the President can give, and I'm pretty sure it shouldn't be handed to controversial figures.

Another alternative to universal insurance

I've been thinking about another solution to the healthcare issue.

It would be just as fiscally disastrous for the country as universal health insurance, but if the government volunteered to subsidize a large portion (but not all) of the cost of health insurance for anybody in the country, it would pay the same amount as it would for universal health insurance. Meanwhile, individuals would go out with many forms of health insurance to choose from.

The advantage of this is that health insurance then becomes affordable to everyone, competition between health insurance companies becomes more direct and visible, and innovation is stifled far less than it would be by a government. You still have to handle the fiscal explosion, but at least the health system doesn't deteriorate in quality.

EDIT:
copy pasted an email i wrote below


In fact... if the government required everyone to get private health insurance with certain provisions for treatment, told everyone that it would pay 80% of everyone's health insurance bill, and you choose the private health insurance, it would cost no more than universal healthcare, everyone would have access to most forms of healthcare and innovation still happens. The only way that's "less equal" than universal healthcare is that if I'm willing to pay more for insurance worth an 8, I can, instead of having to enroll at the legally required minimum level of being worth a 4. You can even set the legally required minimum at the level you'd get through universal healthcare... basically, it lets me choose more healthcare than the government could provide me with, while still ensuring everyone gets a basic level of healthcare and allowing for innovation in healthcare. You have to deal with the tax fallout but you'd have to deal with that under universal coverage anyway.

And as a side note, the problem with saying "healthcare is a right" is that healthcare has gradations. If a poor person gets coverage for treatment of 50% of the diseases I currently get covered for, but I now only get covered for 50% of the diseases I used to get covered for, then we both have healthcare but you haven't reduced mortality or morbidity one iota.

EDIT 2: The government could also say "we're paying for the first $X dollars of your health insurance". That way I can pay for supplemental insurance if I want better insurance, but poor people still get decent insurance for free.

Taxes drive US energy companies to Switzerland

Fear of even higher corporate taxes drives energy companies to Switzerland

The Progressive US Tax System, part 2

Let's do an exercise examining the federal tax system.

According to this site, the 2010 Federal Budget is composed of the following:

23% Medicare and Medicaid
17% Social Security
17% Defense
10% Interest on the debt
32% Other

Adds to 99% due to rounding.

According to Wikipedia, Federal receipts are the following:

44% Income Tax
35% Payroll Tax
15% Corporate Tax
7% Other Tax

Adds to 101% due to rounding.

Here's where it gets interesting.
The whole point of Social Security is, in a sense, "forced savings". You pay X over the course of your career and you receive back an inflation-adjusted X during retirement, which ensures that everybody has money to spend in their old age. Similarly, Medicare is "forced prepayment for health insurance" - you pay Y over your career in exchange for health insurance when you're old. In a world of perfectly rational, linearly discounting people, this would be unnecessary, but because we're human, it is necessary.

Because you pay X and are supposed to receive X, or pay Y and receive insurance that is supposed to be worth Y, the point of payroll taxes is not to be redistributionary. They are forced forms of saving - you are guaranteed receive the money back in the long run. This is why Social Security has an income cap, above which you aren't social-security taxed. If you're making enough money that you're likely to save it anyway, there's no reason to be forced to save it, and the government probably shouldn't be responsible for paying out ridiculously large social security checks, because the point is to keep people out of poverty in retirement. The amount you're paid should keep you roughly in the same lifestyle you enjoyed while working.

Medicare doesn't have an income cap and doesn't factor in lifestyle factors, but most people are paying something remotely approximating a person's expected health fees. Because the cost of health insurance is roughly equal for a poor person and a rich person, a little bit of redistribution happens so the people who pay more than they cost buy health insurance for people who pay less. I would prefer a system in which the money is given back to old people with the stipulation that it could only be spent on private health insurance, but government-run medicare is simply an inferior version of that. Either way, in sum, all the Medicare taxes collected should pay for Medicare, and that's it, and the purpose of Medicare taxes is that people should generally approximately save up for their own health insurance costs. A little bit progressive, but the underlying purpose is not to redistribute income - it's for people to finance the costs of their own retirement to the best of their ability. It's a savings mechanism.

Instead, progressivity should (and does) manifest in income taxes. Income taxes are the principal mechanism by which the non-savings portions of the government are run. Those able to pay more (the rich) do so, and those able to pay very little don't pay much, if anything. Back to these in a second.

Corporate taxes are intended to be similar to this, and probably are so. The additional corporate profits that come from cutting corporate taxes mostly flow through to capital-holders, who, in the public equity or debt markets, are generally people with savings. Poor people probably have very little savings, so they are taxed very little by corporate taxes (though corporate taxes may strip them of jobs by making it more expensive for companies to start up and operate). Middle-class people have some savings (for example a 401k), and richer people tend to have a lot of savings. Corporate taxes are thus functionally a tax on savings and paid overwhelmingly by the rich. (Sales taxes can be seen as the counterpart to corporate taxes - they are taxes on individual consumption. Consumption and savings are the two components of individual income. Consumption taxes are probably less progressive than savings because poor people still consume.)

Anyway - the idea is that almost all other taxes that go to the government are designed to be progressive because they fund government operations, and it isn't unreasonable to ask those who are able to pay more of government operations than those who do not have as much money.

So, to recap, before moving forward:

1) When looking at progressivity, ignore Social Security, and, if implemented, Medicare should only be progressive enough to fund itself.

2) Progressivity to fund government should come from income tax and corporate tax, with only a small amount from other taxes (mostly excise and gift/estate).

3) For the purposes of this structure, corporate tax is functionally a tax on savings. In our country, the savings rate is very low for all but rich people. (Cultural factors probably determine this)

4) The income distribution should generally be narrower than the savings distribution, because the richer you are, the greater the percentage of your income you can save.

Here is where my previous post, here, comes into play.

"In 2007—the most recent data available—the top 1 percent of taxpayers paid 40.4 percent of the total income taxes collected by the federal government. This is the highest percentage in modern history. By contrast, the top 1 percent paid 24.8 percent of the income tax burden in 1987, the year following the 1986 tax reform act.

Remarkably, the share of the tax burden borne by the top 1 percent now exceeds the share paid by the bottom 95 percent of taxpayers combined. In 2007, the bottom 95 percent paid 39.4 percent of the income tax burden. This is down from the 58 percent of the total income tax burden they paid twenty years ago.

To put this in perspective, the top 1 percent is comprised of just 1.4 million taxpayers and they pay a larger share of the income tax burden now than the bottom 134 million taxpayers combined.

Some in Washington say the tax system is still not progressive enough. However, the recent IRS data bolsters the findings of an OECD study released last year showing that the U.S.—not France or Sweden—has the most progressive income tax system among OECD nations. We rely more heavily on the top 10 percent of taxpayers than does any nation and our poor people have the lowest tax burden of those in any nation."


Nobody can really know how corporate taxes would flow to people if abolished, but it's a safe bet that between income taxes and our corporate taxes (the highest of all developed economies, I believe, and one of the highest rates in the world), the United States government relies on the contributions of the rich more than any other country. It's also a safe bet that the middle class in America contribute less to government than any other middle class in the world.

Does the income distribution contribute to part of this? Certainly, but the middle class in America are still richer than the vast, vast majority of middle classes in the rest of the world (maybe the richest, I don't know). They can afford to support the government.

In other words, if the government thinks it can or should fund a massive fiscal expansion by taxing the rich and leaving the middle class untouched, it may have another thing coming. The rich already fund most of the government, and there is very little reason why a rich person can't just leave the country if taxes get too high relative to what they receive from the government. Given the skills and the savings of most rich people, that would be very, very bad for the future of the US.

Criminalization of poverty, and the minimum wage

An article on the criminalization of poverty.

While I disagree on a couple points (while I don't think marijuana use should be imprisonable, it should be illegal and fine-able, for example, and I'm not quite sure what to think about the "he committed a felony at 15 and is now unemployable" part), in general I thought this was well done. Being poor isn't a crime, so some of the arrests seem ludicrous.

I also question how badly the minimum wage harms these people. Without a minimum wage, they may be able to get a (lousy) job, in which case they would at least be able to earn some money, and gain some skills and experience to start working their way out of homelessness.

Say what you like, but we've come a long way

An old children's book.

The US Tax System is the Most Progressive in the World

From the Tax Foundation,

"In 2007—the most recent data available—the top 1 percent of taxpayers paid 40.4 percent of the total income taxes collected by the federal government. This is the highest percentage in modern history. By contrast, the top 1 percent paid 24.8 percent of the income tax burden in 1987, the year following the 1986 tax reform act.

Remarkably, the share of the tax burden borne by the top 1 percent now exceeds the share paid by the bottom 95 percent of taxpayers combined. In 2007, the bottom 95 percent paid 39.4 percent of the income tax burden. This is down from the 58 percent of the total income tax burden they paid twenty years ago.

To put this in perspective, the top 1 percent is comprised of just 1.4 million taxpayers and they pay a larger share of the income tax burden now than the bottom 134 million taxpayers combined.

Some in Washington say the tax system is still not progressive enough. However, the recent IRS data bolsters the findings of an OECD study released last year showing that the U.S.—not France or Sweden—has the most progressive income tax system among OECD nations. We rely more heavily on the top 10 percent of taxpayers than does any nation and our poor people have the lowest tax burden of those in any nation."


The part of this that I find incredible is that this is just income taxes.

This lines up with the numbers at the Congressional Budget Office:
http://cbo.gov/ftpdocs/88xx/doc8885/EffectiveTaxRates.shtml

That's the income tax side of revenue. If you look at all taxes, this gets a little more complicated, depending on how you look at payroll taxes. If you consider them to be 50% corporate taxes and 50% income taxes, which most people do, it's a similar outcome. Then, if you included all other federal and state tax revenue, this gets even more extreme, because the rich also pay more in capital gains taxes, sales taxes, estate taxes, gift taxes, etc.

If the far left think they're going to fund the entire government on the increased taxation of the rich, good luck.

Market Imperfections and Health Insurance

I don't know whether it's moral hazard or adverse selection (the big difference being whether fatter people chose to get health insurance or whether health insurance made people fatter), but people with health insurance tend to be fatter.

Pharma companies

The Atlantic on why drug companies aren't evil. A little snarky but well done, I think.

Saudi Arabian Family Sues a Genie

Saudia Arabian courts accept a case in which a family is suing a genie.

This is the same country where Obama bowed to the king and who he is absolutely tiptoeing around in most Middle East-related policies.

A Question on IT Outsourcing

Instead of a point, today I have a question.

How fast will IT outsourcing to India grow? How about R&D or Engineering outsourcing? Most importantly, why? What economic, social or other factors lead to that conclusion?

A better alternative to Universal Care

The public option thrown around by Obama is intended to be a true comprehensive alternative to private healthcare. The problem with this is that it will have the ability to quash any competition with private insurance, leading to monopsony. That will reduce quality of care for everyone as doctors exit, demand for doctors increases, and research declines. True universal healthcare in the US is ill-conceived at best.

However, because healthcare is a good that you do want people to consume some of, perhaps a discount level of health insurance is a good idea. Instead of being comprehensive, this discount health insurance could serve to fund the basic healthcare steps that you want to incentivize everyone to get without covering every single health ailment.

This addresses the problem of "rising health care costs", which are a function of the fact that we can treat so many more things now that we never used to be able to treat. For example, chemotherapy didn't exist 30 years ago, and it's expensive. People back then didn't have to pay for chemotherapy because they couldn't get it, so their medical costs were low.

It's a basic law of economics that you can't reduce price without reducing the incentives of providers to provide, which is a major negative. But if you offered a form of discount health insurance to people just for basic care, or just for catastrophic care, the premiums would be much lower without killing quality of care. People with no healthcare could now "buy in" to a small amount of healthcare for a much cheaper rate, presumably increasing the healthcare provided.

In other words, think of healthcare as a separable good - you get basic care (checkups, antibiotics, routine health problems) and catastrophic care (cancer, emergency surgery, etc). You can also separate it into getting older forms of care and getting cutting edge forms. Healthcare is comprised of many goods and services, and someone with more knowledge of different services and goods could probably come up with different packages of insured and uninsured procedures and medicines taht would be cheaper but still much more attractive than nothing.

Currently, it is only offered completely packaged, because most people want packaged care. As packaged care gets better, it gets more expensive - so why not offer more options?

You could have a Basic Care option, where catastrophe means you dont get care but you get covered on basic stuff. You could have a catastrophe care option, more along the lines of typical insurance in other fields- you pay for the basic stuff but if you're faced with anything huge, you're saved. You could have a "turn back time" option, where you get access to the same quality of care you would have had 15 years ago when everything was cheaper - you get basic care, and then the less expensive forms of catastrophe care.

The variations can go on, and this can be provided privately. An extremely baseline option could even be public care without compromising quality of care very much, because you shouldn't see many people moving from comprehensive care down to the baseline government care, but you would move everyone with no care up to the baseline government care.

For example, imagine the government offered coverage only for basic antibiotics, trauma surgery, rehab for smoking/alcohol/drugs, diabetes treatments, heart attack/stroke treatments, lung, prostate, breast, testicular, colon, skin and maybe a few more cancer treatments, and regular physicals, mammograms or enemas.

There are certainly many things that would go uncovered... but this is a basic list encompassing a very large number of the problems that people have. You could offer those treatments for a fraction of the cost of regular healthcare and still ensure that most people are covered for most of the problems they're going to have. Nobody with full healthcare would want to shift down, but it's a darn sight better than no healthcare at all. Costs stay low for these people, while still providing them with some healthcare, and without impacting the R&D machine that has so improved the quality of medical options in the US over the last 30 years.

EDIT: you can actually even have a situation where insurance covers the common stuff for low deductible, and then everything else for very high deductibles. That way, with a stretch, you may even have everyone able to afford things. I haven't worked with that idea that much (and there is plenty of potential for screwing it up) but it's just an idea

On Nurse Practitioners

Interestingly, I learned today here that Nurse Practitioners refer 1/3 of patients, while Family Care doctors refer 1/10 of patients - raising costs because of the need for 2 visits.

I have often pushed for allowing nurses to do more, but that's a damning statistic.

That said, if you allowed uninsured patients the OPTION of a nurse or a doctor (instead of the doctor-only option now), allowing them to pay less for the nurse option with the understanding they may need a referral.

This will raise the ire of the "health care is a right not a good" people, but relative to the status quo, it could entice some people unwilling to pay a doctor to pay a nurse to see them.