Reid's political illusionism
Brooks on Afghanistan
Friday, October 30, 2009
Thursday, October 29, 2009
Wednesday, October 28, 2009
The Stock Market and a Jobless Recovery
I've been thinking. This isn't a fully formed argument; it's more of a realization.
I've never been a fan of the 'jobless recovery' predictions, because jobs are a lagging indicator - they're the last things to go down, and the last things to come back up. It's possible we're just in that transition stage when other stuff has risen but jobs haven't. But it's possible that this really is a jobless recovery, and here's why.
This earnings season, the ratio of the number of companies that exceeded analyst estimates to those who have missed is 81:13 as of this afternoon (that's about 6.2 : 1). The average company that has reported so far (halfway through earnings season, now) has beaten by between 15 and 16 percent. Since earnings began, however, stocks have been dropping pretty heavily.
Two possible explanations come to mind: 1) analysts are behind everyone else and haven't updated appropriately, or 2) All of the beats are coming on cost-cutting and currency adjustments and not on revenue growth
If it's the former, this set of explanations doesn't matter.
If it's the latter, then a "jobless recovery" actually is possible - everyone downshifts consumption and production (the velocity of money drops) and we hit a new, lower equilibrium. This is the 'plateau' scenario.
The simplest solutions to jumpstart a jobless plateaued economy are a) credit and b) innovation.
We're actually contracting credit right now on an individual basis. Part of this was because the private sector was too levered in the first place, part of it is because the weaker banks are still hurting (and they were the ones providing the easiest credit before), and part of it has to be that the government is spending like a drunken sailor (crowding out the private sector, thanks to increased prices and inflation and taxation expectations),
Individual credit contraction is necessary (we're WAY above our heads) but doesn't help create jobs.
Sustained government spending isn't as good for job creation as sustained private sector spending, so if that continues, it will not help unemployment to drop.
Weaker banks can't really recover until a) unemployment drops and people start paying off their defaulted debt or b) all of the bad debt has been recognized already. part b has happened, to an extent, but not perfectly. The credit crisis makes part a a factor, while other recessions didn't have credit crises so a wasnt quite as big a problem.
Thus, if the beats are actually cost cutting and not revenue growth, we may have to foster serious innovation to get out of the quagmire. However, environments with a high minimum wage and difficult credit makes it very difficult to innovate because labor is expensive and capital is expensive. Except for jobs requiring highly-skilled labor and very few other inputs (software/light tech and biotech come to mind), it's going to be tough to foster innovation. High taxes and high inflation don't help the matter, either.
If software/light tech and biotech are the only industries that can handle this, and biotech is about to get smacked in the mouth with a healthcare bill that wrecks their ability to eventually break even, and software/light tech doesn't have a whole lot of excitement on the horizon (until cloud computing lets us start doing things we'd never done before) and heavy tech has largely shifted to Asia...
Then I can see why they're projecting a jobless recovery.
A weak dollar may actually aid the recovery - It'll screw over every consumer in the country (especially the poor, who can't trade down very much more than they already do), but increased US exports may be the best path out of unemployment.
There is no way the Obama administration has gone through this calculus (it's doubtful they believe their healthcare plan is gonna swipe the feet out from innovation as much as everyone else agrees it will), but weak dollar is a decent side effect. If only they'd stop spending and instead use the spending they've already done to delever the Federal balance sheet, the Bush (and now Obama) weak dollar policy may actually be a powerful way to protect US superiority long term.
Of course, dropping the minimum wage wouldn't hurt, either...
Problems of taxation
New York has been bleeding people from 2000 to 2008. Part of this is due to the substantial tax burden (I'd bet real estate prices/cost of living factors in, as well, but taxes have to be a part of it)
Obamacare is going to send premiums through the roof
Is Reid re-including the public option so he can drop it as a "concession"?
Public policy trails public opinion on gay rights
Tuesday, October 27, 2009
Income Inequality paper
with the disclaimer that I haven't read the paper, this is a very cool set of findings on income inequality:
"When it comes to income inequality, conventional wisdom says that it's been getting worse for a long time. Productivity is going up, but middle-class incomes are stagnating. The rich are getting richer and the poor are getting poorer. You've heard it over and over again. Many free-market economists have argued against the conventional wisdom, only to be dismissed as out of touch. But an incredible new paper from Northwestern Professor Robert Gordon, a pillar of the "mainstream" academic establishment, says maybe they are right and have been for a long time.
With productivity growth up an average of 2% annually in the past 30 years, but real (inflation-adjusted) median household income up only 0.3%, many say that the middle-class has been ripped off. But Gordon says that correcting a few basic statistical problems eliminates almost the entire gap between these figures.
First, in the past generation, the number of people per household has declined, as has the number of hours per worker. In other words, median household income has not kept pace with actual increases in hourly income on an individual basis.
Second, the 2% growth rate of productivity only refers to the private sector. With 17% of the workforce in the government, where productivity growth is zero, economy-wide productivity (private plus public sector) has lagged behind.
Third, Gordon shows that the inflation measure the government uses to adjust incomes (the Consumer Price Index) is typically higher than the inflation measure used to adjust output for productivity calculations (the GDP deflator).
Correcting for these factors eliminates 90% of the gap between productivity and middle-class household incomes.
Gordon then goes on to show that, with one important exception, any skewing in the income distribution stopped in the early 1990s, maybe even earlier. The reason other analysts have missed this is that they assume inflation is the same for every income group. But inflation for people with lower incomes has been lower than inflation for everyone else.
Call it the Wal-Mart ( WMT - news - people ) Effect. There are certain kinds of items that make up a much larger share of the budget for the poor than for the middle class and upscale--clothing, for example. And prices for these items have not increased as much as overall inflation. There are also geographic differences. Inflation has been higher where incomes are higher--that is, on the East and West coasts vs. the Heartland. That said, we would not be surprised if the higher inflation we anticipate in the next few years--an inflation that may raise commodity prices relative to service prices--will send this process into reverse.
The exception about inequality, Gordon says, is that even though 99% of earners have stayed in the same economic position relative to each other, the top 1% of earners have increased their incomes relative to the other 99%.
But this is largely the result of more widespread use of performance-based pay systems in Corporate America. In 1993, the Clinton administration limited the deductibility of regular paychecks for highly paid workers. As a result, stock options became more ubiquitous and total pay rose with the market value of companies. In other words, government prodding may have led to the situation, not the free market.
Obviously, in a democracy, inequality matters. When people feel left behind, populism expands and freedom comes under attack. In that sense, Gordon's recent paper is important. Political demagoguery about inequality just had a huge hurdle put in front of it by an academic economist that cannot be argued with on politics alone.
Brian S. Wesbury is chief economist and Robert Stein senior economist at First Trust Advisors in Wheaton, Ill. They write a weekly column for Forbes. "
Government overreach
Brooks on Government Overreach
Samuelson on the Public Option
and a laughably terrible argument to legalize insider trading:
(the wall street journal ran a similarly dumb article yesterday....)
Monday, October 26, 2009
vitamin d prevents infection
News on nutrition that may be interesting - Vitamin D may prevent colds!
Today's news and interesting studies
The executive pay measures set very dangerous precedents with regard to contracts
The executive pay cuts are driving executives away in droves
The white house's treatment of Fox News is inappropriate
shadiness in Argentina: why small government is good!
Giving debtors power at the IMF seems dangerous.
congress is unbelievably self-interested. This should never even have been an issue.
How mandates can hurt people. As a side note, he also doesn't mention that Western Europe's mandates work in part because of US subsidy of the world's medical R+D.
and not in the news, but interesting:
how to tell if an employee will be good
coin flips aren't actually fair
Experts are more convincing when they're tentative; novices are more convincing when they're certain.
Friday, October 23, 2009
The best assessment of the financial crisis I've seen
Jamie Dimon, the CEO of JP Morgan, has been tremendously successful this recession - he's done a great job mitigating risk and helping JPM continue to grow. They repaid their bailout money the first day they could, with interest, and they've been very good about cooperating with the various government agencies that have required their attention (Obama is rumored to have called Dimon "my favorite banker").
Thus, when he talks, I listen. His 2008 shareholder letter is one of the best shareholder letters I've ever seen.
What I got from the letter:
1) While he's biased, it's a fair statement (from many sources) to say that the investment banks were stupid, not dishonest. There was plenty of dishonesty among the set of subprime consumers who started the crisis (the foreclosures then spread to more innocent homebuyers), and plenty of aggressive greed among the mortgage brokers (countrywide, etc), but railing on bankers for this crisis probably isn't the most accurate. They were dumb, they didn't know the risks they were incurring, and trust me, none of them would have done it if they'd realized the risk they were taking.
2) Headline numbers on TARP are way, way too high - it's not an $800 billion dollar bank bailout when a lot of it is just symbolic to help the weaker banks not die from the stigma associated with taking the money. All of the banks are repaying some of the TARP, and many will repay all, with interest.
3) Regulation was poor, and in many ways, it stoked the crisis instead of restraining it (see: Fannie and Freddie's mandate to lower lending standards to increase the number of people who could buy homes). It needs to be better coordinated. That said, the answer isn't "more regulation" - it's "better regulation". None of what happened was a shock to regulators, who allowed it to happen. The interactions and the magnitude were the surprises.
4) Illiquid and complex assets stoked the fire. They're getting phased out, slowly.
5) The US needs to reduce its trade deficit. Relatedly, it also needs to get off of foreign oil - natural gas, coal, solar, wind, geothermal, hydro, tidal - the US has abundant resources in all of these areas, and we should do whatever it takes, but foreign oil is a big problem. An appropriate response (using abundant US natural gas and coal as a bridge to clean and renewable energy) would have been incredibly valuable. Replacement of old infrastructure, industrial equipment and appliances with identical or better, but more energy-efficient, appliances would be key, but I don't think you can solve this problem by reducing overall energy demand (true carbon taxes or cap-and-trade). I am skeptical about the ability of Congress to tax or legislate our way out of this, except as a threat if replacement to more efficient equipment doesn't happen... An appropriate response would make US credit flows much, much easier to manage, as well as managing global warming and improving national security.
I've quoted interesting bits below.
"We believe we have corrected for the underwriting mistakes of the past. Essentially, by the end of 2008, we saw a return to old-fashioned home lending standards... in addition, we closed down all business originated by mortgage brokers. My worst mistake of the past several years was not doing this sooner. In general, the credit losses in the broker originated business are two to three times worse than that of our own directly originated business. Unfortunately, approximately 30% of our home loans were originated through the broker channel."
and more:
"On October 13, 2008, I went to Washington, D.C., with eight chief executives of other financial firms. There, we were asked by [government agencies] to agree to accept a package of capital from the government... the US... was proposing some powerful measures to help fix the collapse in the credit and lending markets. They prevailed upon the nine of us to set an example for others by accepting this capital infusion as a sign of our unanimous support of these measures... if any banks declined the TARP funds, then many of the additional banks might not want to be tainted by their acceptance of the TARP money because it might be viewed as a sign of weakness. We felt then that accepting the TARP funds was the right thing to do for the US financial system, even though it may not have been as beneficial for JPMorgan Chase as it was for some of the others... the TARP program had asymmetric benefits to those accepting it; i.e., it was least beneficial to strong companies like ours and vice versa. That said, we believe that accepting the TARP funds was the right thing to do for the US financial system, and that JP Morgan Chase should not be parochial or selfish and stand in the way of actions that the government wanted to take to help the whole financial system."
and more
"Simplistic answers or blanket accusations will lead us astray.... many of the main causes [of the crash] were known and discussed abundantly before the crisis. However, no one predicted that all of these issues would come together in the way that they did..."
he goes on to note a number of factors that caused the crisis, but in regards to the housing bubble...
"The combination of no-money down mortgages, speculation on home prices and some dishonest brokers and consumers who out-and-out lied will cause damage for years to come. This, in no way, absolves the poor underwriting judgments made by us and other institutions, and it certainly doesn't absolve anyone who mis-sold loans to consumers."...
and in regards to the excessive leverage and resulting liquidity crisis:
"Surely no one deliberately built a system with these fundamental flaws and imbalances. Clearer heads will understand that much of this was not malfeasance - our world had changed a lot and in ways that we didn't understand the full potential risk. But when the panic started, it was too much for the system to bear."
"Some banks, hedge funds, SIVs and CDOs were using short-term financing to support illiquid, long-term assets. When the markets froze, these entities were unable to get short-term financing. [Thus breaking the financial commandment, do not borrow short to buy long]."
...
"No major commercial bank that was regulated by the OCC wrote option ARMs (possibly the worst mortgage product). A very good argument could be made that the lower standards of the unregulated parts of the business put a lot of pressure on those players in the regulated parts of the business to reduce their standards so they could compete. In this case, bad regulation trumped good regulation."
...
"In a crisis, pro-cyclical policies make things worse. I cannot think of one single policy that acted as a counterbalance to all of the pro-cyclical forces... loan loss reserving causes reserves to be at their lowest level right when things take a turn for the worse... fair value [mark-to-market] accounting... may not reflect underlying values [and] can contribute to a downward spiral where losses deplete capital, and lower capital causes people to respond by selling more, at increasingly lower values... ratings agencies...continually downgraded credits, [which, because of how ratings agencies are treated by the law], required many financial institutions to raise more capital, thus adding to the vicious cycle."
...
"I suspect when analysts and economists study the fundamental causes of this crisis, they will point to the enormous US trade deficit as one of the main underlying culprits. Over an eight year period, the US ran a trade deficit of $3 trillion...Foreign countries took these dollars and purchased, for the most part, US treasuries and mortgage-backed securities... this process kept US interest rates very low, even beyond Federal Reserve policy, for an extended period of time. It is likely that this excess demand also kept risk premiums (i.e. credit spreads) at an all-time low for an extended period of time. Low interest rates and risk premiums probably fuled excessive leverage and speculation...in the summer of 2008, [the] third energy crisis further [imbalanced] capital flows."
...
"Political agendas or simplistic views will not serve us well. Often we hear the debate around the need for more or less regulation. What we need is better and more forward-looking regulation...
(he lists a number of areas for improvements)
Certain vehicles like hedge funds and private equity funds need to be regulated but only to protect the system against risk. These vehicles do not need to be heavily regulated like a deposit-gathering bank... This all could be done without compromising flexibility or disclosing confidential positions while allowing these vehicles to move capital as freely and aggressively as they see fit."
...he talks about the changes in mark-to-market that would be valuable.
Dems
Things the Democrats are doing wrong:
Things the Democrats are doing right:
we'd all be better off if they focused on social issues (immigration, abortion, gay marriage).
more tariffs
This trade war is getting ridiculous. It's a pretty safe bet that Chinese tire makers didn't deserve "anti-dumping" measures, because there was no competition on that end of the market. China does abuse trade in some ways but not that one. The rest of this has all just been going back and forth.
If the Democrats' idea of how to manage power is to intervene in private industry pay, impose tariffs that increase the cost of living for everyone, strengthen unions and their ability to strongarm their members through card check, raise taxes and socialize private industries, they're gonna lose votes from a lot of independents.
This Banker Pay Hysteria is Getting Out of Hand
In what world does it make sense to mandate greater risk (Congress forced a lot of the subprime lending to happen - both directly, through legislation, and indirectly, through artificially low interest rates) and then excoriate the people who were at the helm?
Anyone who thinks banker pay caused this crisis has absolutely no idea how this crisis happened. It's popular to reduce banker pay, because, as De Tocqueville put it (paraphrased), Americans [and people in general] would rather slave in equality than prosper in inequality.
There are financial regulation reforms that make sense - proxy voting, flash trading, dark pools, high-frequency trading, separating taxpayer-backed portions of the business (like commercial deposits) and riskier/more speculative portions with no federal backstop (like prop trading).
But I'm pretty sure the US government has never stepped in and tried to regulate the pay of private companies before.
The Feinberg component I understand. I don't necessarily agree with it, because the 7 companies he's looking at need about as much talent as they can get right now, and driving away high paid employees is a good way to lose the executives other companies would be interested in. The Federal government, however, does own a large percentage of these firms and giving the Federal government say in how these companies are run isn't ridiculous.
The idea that the government can regulate the entire INDUSTRY'S pay is ridiculous, however.
Tuesday, October 20, 2009
On the social side of things...
our immigration system is broken, and is hurting the country's innovation badly.
Singapore's fascinating healthcare system
The founder of Human Rights Watch criticizes the group for losing its way.
Educational persistence and national incomes
Monday, October 19, 2009
The US and trade/policy problems with Russia and China
From Tyler Cowen (www.marginalrevolution.com):
"Chinese workers save a lot, maybe forty to fifty percent of their incomes. There are some demographic reasons for that but it also suggests fear and foreboding. They wonder if the Chinese economic miracle can continue. There aren't full contingent claims markets in China but this quantity (of savings) is reflecting an implicit price for transferring wealth into possible bad world-states. That implicit price suggests a fair amount of worry.
In the U.S. T-Bill market, in contrast, there is relative optimism and froth. Lots of securities can be sold at rates close to zero. That explicit price suggests not so much worry about the creditworthiness of the U.S. government and not so much worry about China.
The two prices contradict each other and they continue to do so because explicit arbitrage is not possible. (Ideally, at least in neoclassical fantasy land, the U.S. government should be borrowing money from the Chinese and selling them back insurance at a higher price.)
From this portrait you can see why it is so hard to unwind the imbalances. (Many expositions of imbalances focus on quantities and thus may obscure this point somewhat.) If the Chinese workers are dealing with the correct price (implicit price), that means the worries are real and rates in the T-Bill market have to spike. Ouch. If the auction market for T-Bills is showing the correct price, that means the worries are false and at some point Chinese workers won't save nearly so much. Again, rates in the T-Bill market have to spike. Ouch.
Either way it ends in ouch. There's a reason why, rhetoric aside, no one wants to end these imbalances.
So who has the right price? The Chinese workers or the T-Bill bidders? As usual, the truth probably lies somewhere in between."
Big Labor gets hit in Mexico
Former US Attorney General talks about the difficulties of trying terrorists in civilian courts
Russia and its unwillingness to play by the US' way on Iran
The UN Human Rights Council is a joke. By the way, props to Hungary, Italy, Netherlands, Slovakia, Ukraine and the US for being the only members of the council with principles.
Creative problem solving at its funniest.
and on Climate:
(For every 4 jobs the government "creates" in green energy, it'll be destroying 9 or more (conservative estimate) regular ones. It's only a good policy if marginal climate change by the policy is worth an additional 1.2 jobs per new job created (9/4 = 2.2 - 1 = 1.2)
As a side note that DOESN'T involve Russia and China, here's a healthcare proposal which seems plausible (the voucher version)
Catastrophic care public option/vouchers, and normal care private?
Sunday, October 18, 2009
Incredible thought puzzle regarding the spread of HIV
Heard an incredible statement yesterday:
Based on research by Michael Kremer (almost took a class with him - went to 3 lectures and took a different one, but not cuzve Kremer, who was awesome), if sexual conservatives (in Britain, people with under 2.25 partners per year) had more sex (up to 2.25 partners per year), the spread of AIDS would slow dramatically.
The argument is illustrated by landsburg (an economist) in the following manner:
If Judith is going to have sex with Michael, you'd prefer that Michael be sexually conservative.
Why?
Split it into two cases - Judith does not have HIV and Judith does have HIV.
If Judith has HIV, you'd rather she risk transmitting it to someone who doesn't have sex with many people. (This neglects all notion of justice and desert based on behavior - the only normative thing you care about is to retard the spread of HIV). This way, the virus won't spread much more quickly as a result of this encounter.
If Judith doesn't have HIV, you'd rather she be "protected" from promiscuous men - in a sense, you shield her from HIV by keeping her with a non-promiscuous partner.
This is a vast oversimplification, of course - nobody has the guarantee of going home with somebody, so rejection by a sexually conservative person doesn't imply the other party is going home with someone else. But it's an interesting thought puzzle, if nothing else.
Another way of thinking about it (also just as a thought piece) is if most women prefer monogamy, but most men prefer 2 partners, there will be a small number of women having a LOT of sex (as prostitutes or simply very, very promiscuous women) with men, because there aren't enough women to satisfy sexual demand by women. These women are highly likely to get communicable diseases and pass them on to a lot of people. If everyone preferred 2 partners, instead, the transmission would still happen, but it wouldn't happen as quickly - more people would be more links in the chain away from an HIV positive person.
Do I have any intention of listening to Kremer? Absolutely not. But it's kinda cool nonetheless.
Based on research by Michael Kremer (almost took a class with him - went to 3 lectures and took a different one, but not cuzve Kremer, who was awesome), if sexual conservatives (in Britain, people with under 2.25 partners per year) had more sex (up to 2.25 partners per year), the spread of AIDS would slow dramatically.
The argument is illustrated by landsburg (an economist) in the following manner:
If Judith is going to have sex with Michael, you'd prefer that Michael be sexually conservative.
Why?
Split it into two cases - Judith does not have HIV and Judith does have HIV.
If Judith has HIV, you'd rather she risk transmitting it to someone who doesn't have sex with many people. (This neglects all notion of justice and desert based on behavior - the only normative thing you care about is to retard the spread of HIV). This way, the virus won't spread much more quickly as a result of this encounter.
If Judith doesn't have HIV, you'd rather she be "protected" from promiscuous men - in a sense, you shield her from HIV by keeping her with a non-promiscuous partner.
This is a vast oversimplification, of course - nobody has the guarantee of going home with somebody, so rejection by a sexually conservative person doesn't imply the other party is going home with someone else. But it's an interesting thought puzzle, if nothing else.
Another way of thinking about it (also just as a thought piece) is if most women prefer monogamy, but most men prefer 2 partners, there will be a small number of women having a LOT of sex (as prostitutes or simply very, very promiscuous women) with men, because there aren't enough women to satisfy sexual demand by women. These women are highly likely to get communicable diseases and pass them on to a lot of people. If everyone preferred 2 partners, instead, the transmission would still happen, but it wouldn't happen as quickly - more people would be more links in the chain away from an HIV positive person.
Do I have any intention of listening to Kremer? Absolutely not. But it's kinda cool nonetheless.
Friday, October 16, 2009
fascinating study in positional economics
why do people always feel like inequality is increasing, even when everyone's getting better off? The answer may lie in positional economics. This one's a good read.
How I'd build healthcare reform, part 1
This is the first in a series on how I would want to see healthcare reform built, and what has stopped us from that.
The first is on how I would want to see healthcare reform built. I welcome criticism, suggestions and ideas. They will be included with credit.
The biggest current issues in health reform:
Health insurance is costly.
the health insurance market isn't competitive
technological progress continues to push forward, with corresponding new, expensive treatments
Many people don't have insurance
can't afford it
denied coverage from pre-existing conditions
lose coverage when sick
Many people have bad insurance
doesn't cover things uniformly
loopholes to exempt the insurance company from paying for stupid reasons ("you didn't notify us within 48 hours so we won't pay..." "You didnt report your acne treatment so we won't pay for your heart attack")
lose coverage when sick.
can't choose the plan that suits their needs
Our medical innovation system is the best in the world
don't wanna disincentivize innovation, because that saves a LOT of lives
public option would hurt innovation by forcing prices of medicine down and making R+D less profitable
Health reform is costly
our government is painfully inefficient - see the post office and public schools.
many "cost saving measures" currently included will actually increase costs
the current plans will add a lot to the deficit (note that the current plan claims to be deficit neutral, but it absolutely will not be - see links from the last few days)
A list of potential reforms which, if enacted together, would constitute a reasonably efficient and compassionate overhaul, in my view:
1) an insurer is responsible for all costs incurred by a condition, even after insurance has changed.
The idea of insurance is that if I get diabetes in the time I am covered by a particular insurance plan, the insurance plan will compensate me for my loss. It makes little sense to limit payments just because coverage ends after the event that triggers the insurance
net effect: cost of insurance up. Bureaucratic difficulties for people who switch insurance. Hard determining whether new conditions are caused by preexisting ones.
On the other hand, there would no longer be such thing as "dropped coverage". Pre-existing conditions become far less of a concern (not a concern if everyone has insurance, outside of transitional costs - see 8, 12 and 14).
2) Dropped coverage is not allowed. People who materially misrepresent their own health status when applying for insurance (in order to pay lower premiums) would be fined the amount difference in what their premiums would have been, inflation adjusted with a noncompliance penalty of both damages and legal fees, and pay the higher premium going forward, while maintaining coverage for their condition. This would be determined by health courts.
net effect: insurance companies have to keep their actuarial tables on file. Costs go up. People aren't dropped when sick and contracts are maintained, but people also dont have an incentive to risk nondisclosure of their health status. Specialized health courts would be required.
3) capping punitive damages from medical malpractice and relocating malpractice trials to health courts.
net effect: while capping total payout neglects the notion that a true victim of malpractice must be "made whole", capping punitive damages and moving all trials to health courts will help avoid excessive malpractice insurance costs, reduce the number of tests ordered, and improve the reliability of malpractice judgments (to make them based on doctor behavior instead of on patient outcome). Costs go down.
4) Wyden bill: insurance can be sold across state lines, and if an employee doesn't like the healthcare her job is providing, she can use the employer-provided health money with any additional amount she wishes to add to purchase different insurance from an exchange.
net effect: insurance companies would have to be mandated to share their actuarial tables. Competition in health insurance goes way up, forcing costs to drop and fairness to increase. The only reason this didn't happen was that Democrats didn't want to lose union support, and unions HATE this provision cuz they lose control of member health plans. Generally, whatever unions want in the US in 2009, it's a safe bet to go the other way.
5) Insurance companies would have to be able to share their actuarial tables and keep them on file (for #2 and #4)
net effect: small insurance companies can still be competitive. This is the reason why insurance companies have state-level antitrust protection now, which would de facto go away if 4 were enacted. costs go down. There'd have to be stiff penalties for noncompliance, probably paid intra-industry.
6) Consumers have to be given a list of conditions their health insurance will NOT cover. Anything not on the list has to be covered at a default rate which is the headlining coverage rate on the insurance. An exception may need to be the baseline plan (see 8 and 12), which would only cover what's listed.
net effect: costs up
7) no more pharmaceutical company/medtech advertising, other than non-drug specific PSAs ("Consumers - drugs exist that can cure your ED. See your doctor") and a specified format of pamphlet to inform doctors that a new treatment exists for X conditions, indicated in Y circumstances, with Z contraindications and side effects. These may be re-sent on certain dates, with a certain frequency, but doctors can't be deluged, and the format must be standard. In other words, pharma and medtech advertising to both consumers and doctors needs to be informational, not promotional. This was the law in the US up until the mid-90s, and it worked fine.
net effect: costs down, as generic usage increases and more appropriate medicines prescribed. right now, pharma/medtech advertising seems to be a type of prisoner's dilemma - it's not like you're spurring additional demand for your product; a patient is either sick or she's not, and as long as patients and doctors know that a treatment exists (informational), you're not going to get more people going on your product. however, if your competitor advertises and you don't, you get killed. Thus, everyone spends on lots of advertising and pays a fortune. this increases costs and diverts spending from other, more productive uses. Again, something similar to this policy (at least the consumer portion) has worked well for the US in the past.
8) Everyone, including immigrants, must purchase health insurance, and all health insurance spending will be tax exempt (out of pretax income). All health insurance must cover some baseline of conditions, including heart disease/strokes, diabetes, all cancers with a certain incidence in the population, trauma, HIV/AIDS, infectious disease treatments, vaccinations, and age appropriate regular checkups and screenings (physicals, mammograms/papsmears, colonoscopies, etc). I'm sure there are other issues that need coverage that I'm not thinking of, they could be added, but this would be one set of conditions to start as a baseline. (see #12 for issues w helping people pay for it)
net effect: costs up, but inefficiencies (hospitals eating unpaid costs, emergency room visits instead of PCP visits, etc) down. People who argue otherwise on the former are delusional; those who argue otherwise on the latter are confusing this with a public option.
9) Raise taxes on tobacco, trans-fats, alcohol, sugary drinks and other behavioral factors. Allow all exercise facilities (gym memberships, etc) to be tax-free.
net effect: insurance costs down. income from other taxes can pay for some of the other sets of increased costs. Hopefully, prevention improves public health cost-efficiently.
10) a % sales tax levied on pharmaceutical and medtech companies, from which all basic research R+D expenditure is deductible.
net effect: promote innovation (who wants to pay the government if you can research R+D), higher costs if the fee is passed through in drug prices, but if there are any competing treatments, it'll be less of a price hike than you'd think - it's basically a mandate that pharma companies spend X% of revenues on R+D. Given that they'll be cutting advertising costs (see 7), which will be a major net gain for them, overall drug costs may not actually go up (though this portion will contribute to higher costs, offset by 7). The idea is that smallcaps are probably spending such a massive percentage of their money on R+D that almost none would have to pay the tax. Large caps, which are less innovative right now, would be forced to keep up their R+D.
11) permission to healthcare companies to collude or bundle products when dealing with state-run healthcare plans, or perhaps some mandate that companies are not allowed to, or must pay a fine if they sell to state-run or other state-monopoly healthcare plans at a lower price than the average price paid in the US.
net effect: costs down in the US. we subsidize foreign healthcare plans by conceding them market power in negotiation with companies. These companies are forced to pass on extra costs to the US because they can't earn much money abroad.
And these are ideas I like, but they're not final - they would have to get some thought on the structure.
12) The government will give a basic voucher to everyone in the country, that covers an ultra-baseline plan (see #8 for the list of basic things covered). Anyone is welcome to spend tax-exempt money above and beyond this voucher; however, the poor will be able to purchase an insurance plan for free (private provider) that covers 90% of the serious things that could happen to them. Finding government money to pay for this would be difficult (though less expensive than the current plans in Congress)
13) The creation of a number of nonprofit health insurance companies unaffiliated with the government and forced to be self-sustaining (a la the cooperatives idea).
14) In order to help transition into #1 and #8, the government would have to offer private insurance a one-time tax break in exchange for a one-time amnesty on pre-existing conditions. This would be a large, large part of the overall cost of the plan.
The government's role in creating the current and future financial crises
A highly, highly recommended article on why liberals don't understand the opposition of conservatives to healthcare.
The government either mandated through law or was the purchaser of 80% of the mortgages that failed.
Unions have (very rightly) taken a huge image hit this year
"This $250 gambit also underscores the dishonesty behind the budget math propping up ObamaCare. Democrats are claiming that half of the new entitlement's outlays will be "paid for" with Medicare cuts in future years. But if Democrats can't tolerate a zero [cost-of-living-adjustment] for one year [after a record high cost-of-living-adjustment] in Social Security, how in the world are they going to bless $500 billion in cuts to doctors, hospitals and other Medicare reimbursements? Mr. Obama is the youthful St. Augustine of entitlement reformers: Lord, make me chaste, but not yet."
A fascinating study of deterrence and the pyrrhic nature of any successes Hezbollah may have against Israel.
In support of commercial spaceflight
http://www.nytimes.com/2009/10/16/opinion/16brooks.html?ref=opinion
Republicans should take a cue from British conservatives
Thursday, October 15, 2009
3 Ideas for improving congress
I've had a lot of links lately... sorry!
Three ideas I've had for improving the function of the government.
I've mentioned twice before my idea that Presidents and Congresspeople
should be forced to put up a percentage of their net worth at the
beginning of their candidacy, and tie it to goals they have and make
them publicly available. For example, say the requirement were 20%,
Barack Obama could choose to tie 7% to getting us out of Iraq within 3
years, 5% to a vote on healthcare reform including a public option, 5%
to a vote on climate change that increases funding to solar and wind
research by 50% and 3% to a vote and passage of financial regulation.
Whatever he achieves, he gets the money back, and whatever he doesn't,
he doesn't. He'd announce these percentages during the primary with
Hillary so people can actually look at priorities instead of charisma.
The percentage would have to be different for the house, senate and
presidency, certainly, but the concept is the same.
This system would make it very easy to determine a candidate's
priorities and how seriously they're willing to engage with them.
You'd get more altruistic people running.
Another idea would be to ban reelection in the house of
representatives. The senate can be the "experienced" branch, but the
house can be a branch where populism, special interests, and public
preening for reelection are eliminated by not allowing reelection. The
short term ensures that no congressperson can just take over and be
unaccountable to anyone. Combining the X% of net worth idea above also
ensures they do what they said they will.
Finally, why not mandate campaign finance contributions be sealed and
anonymous? Lobbyists become far less powerful when they can't credibly
show they donated. If contributions are limited, and the candidate is
not aware of who donated to him or her and sees donations only in
aggregate, it would reduce the power of lobbyists
Suspended animation a reality?
http://www.cnn.com/2009/HEALTH/10/09/cheating.death.suspended.animation/index.html
not economically related, but incredible...
not economically related, but incredible...
The dangerous world we live in
China and Russia back Iran and oppose US sanctions:
http://online.wsj.com/article/SB125560022256987089.html?mod=WSJ_hpp_MIDDLTopStories
http://www.reuters.com/article/topNews/idUSTRE59D3BG20091014
http://online.wsj.com/article/SB125560022256987089.html?mod=WSJ_hpp_MIDDLTopStories
http://www.reuters.com/article/topNews/idUSTRE59D3BG20091014
Hidden landmine costs riddle the healthcare bill:
http://online.wsj.com/article/SB10001424052748704107204574473372635087870.html
http://online.wsj.com/article/SB10001424052748704107204574473543586270418.html
"When it was a vibrant garden of ideas, Europe gave the world more
good things than one can count. Then it discovered the pleasures of
the welfare state.
Old Europe now lives in a world of unpayable public pension
obligations, weak job creation for its youngest workers,
below-replacement birth rates, fat agricultural subsidies for farms
dating to the Middle Ages, high taxes to pay for the public high-life,
and history's most crucial proof of decay—the inability to finance
one's armies. Only five of the 28 nations in NATO (the U.K., France,
Turkey, Greece and Spain) achieve the minimum defense-spending
benchmark of 2% of GDP. "
VAT problems
http://online.wsj.com/article/SB10001424052748704107204574469123940666200.html
Fixing natural gas pipeline leaks would be the equivalent of taking
half of America's coal fleet out of production... in an economic
manner.
http://www.nytimes.com/2009/10/15/business/energy-environment/15degrees.html?_r=1&hp
Unions blocking important education reform
http://www.nytimes.com/2009/10/15/opinion/15kristof.html?ref=opinion
It's difficult to improve failing schools when you can't create
alternatives such as charter schools and can't remove inept or abusive
teachers. In New York City, for example, unions ordinarily prevent
teachers from being dismissed for incompetence — so the schools must
pay failed teachers their full salaries to sit year after year doing
nothing in centers called "rubber rooms."...
There are no silver bullets, but researchers are gaining a better
sense of what works in education for disadvantaged children: intensive
preschool, charter schools with long hours, fewer certification
requirements that limit entry to the teaching profession, higher
compensation to attract and retain good teachers, objective
measurement to see who is effective, more flexibility in removing
those who are ineffective.
Wednesday, October 14, 2009
If it weren't so serious, it'd be funny...
http://www.nytimes.com/2009/10/12/opinion/12fatsis.html?ref=global
NFL healthcare reform
NFL healthcare reform
http://www.nytimes.com/2009/10/14/business/energy-environment/14oil.html?_r=1&hpw
The Saudis are demanding that any movement away from fossil fuels be
accompanied by payments to Saudi Arabia to compensate them for loss of
revenue.
Prisoner rights, discrimination, the budget, financial reform and healthcare
http://www.nytimes.com/2009/10/14/opinion/14wed3.html?ref=opinion
Shackling female prisoners while they give birth is cruel and unusual
Shackling female prisoners while they give birth is cruel and unusual
http://www.nytimes.com/2009/10/14/opinion/14wed4.html?ref=opinion
Groups receiving federal money should not be allowed to discriminate
based on religion
http://online.wsj.com/article/SB10001424052748704107204574470961505506386.html
"By the end of 2019, according to the administration's budget numbers,
our federal debt will reach $23.3 trillion—as compared to $11.9
trillion today. To put it in perspective: U.S. federal debt was equal
to 61.4% of GDP in 1999; it grew to 70.2% of GDP in 2008 (under the
Bush administration); it will climb to an estimated 90.4% this year
and touch the 100% mark in 2011, after which the projected federal
debt will continue to equal or exceed our nation's entire annual
economic output through 2019."
http://online.wsj.com/article/SB10001424052748704471504574443072479356040.html
The importance of contracts in the government's dealings with senior
and junior mortgage-holders
http://www.nytimes.com/2009/10/14/opinion/14trillin.html?ref=opinion
Why Wall Street collapsed. Kind of an interesting theory... no idea if
I buy it, but an interesting theory.
http://online.wsj.com/article/SB10001424052748704107204574471292249934348.html
Why the new healthcare plan is a tax
http://online.wsj.com/article/SB10001424052748703746604574463642842514678.html
Learning from New Jersey: "In the early 1990s, New Jersey also passed
legislation requiring insurers to accept all applicants, regardless of
their health status (guaranteed issue) and charge them all the same
price (community rating). President Barack Obama wants to do the same
thing nationally.
There were repeated warnings that such legislation would drive up
health insurance premiums. But New Jersey legislators ignored those
warnings. Today, New Jersey residents have relatively few health
insurance options, and coverage is significantly more expensive than
in most other states. Just across the state line in Pennsylvania, for
instance, a family can buy a comparable insurance policy for a quarter
to half the price."
[Whether it is worth it to have guaranteed issue and community rating
is one thing - it very well may be. Claiming it will lower healthcare
premiums, however, is disingenuous.]
Tuesday, October 13, 2009
Free speech fights are not dead
http://online.wsj.com/article/SB125538779820481255.html?mod=WSJ_hpp_RIGHTTopCarousel
Felony Frank's assaulted by neighborhood over its name.
Lots of things I noticed in the news
As a reminder of who we're dealing with:
"Meanwhile, Switzerland is locked in a yearlong standoff with Libya
over the fate of two Swiss businessmen held hostage in the North
African country after Geneva police arrested Moammar Gadhafi's son
Hannibal for allegedly beating two servants.
Switzerland's allies have been conspicuously silent about the
incident. In August, Swiss President Hans-Rudolf Merz traveled to
Tripoli to apologize personally for the arrest, but failed to secure
the release of the two men."
http://online.wsj.com/article/SB125538837430881287.html?mod=WSJ_hpp_MIDDLTopStories
As a reminder of what we're dealing with:
Britain's path in 1946 is not that dissimilar to where we stand today.
Sniping at climate change etc was a little unnecessary, but his point
isn't wrong.
http://online.wsj.com/article/SB10001424052748704107204574469073847604010.html
Something very different. I have no idea if I agree or disagree,
whether it makes me angry cuz've its callousness or relieved cuz
someone else thinks so... really, no idea. but it's interesting, at
least.
http://online.wsj.com/article/SB10001424052748704429304574467080047317314.html
British hospitals use donor lungs from smokers? Are they THAT short of them?
http://www.cnn.com/2009/HEALTH/10/12/soldier.lung.cancer.transplant/index.html
While capping pain and suffering awards has problems (see prior
posting, thanks to Mike), capping punitive damages would be nice...
http://www.cnn.com/2009/POLITICS/10/12/tort.reform/index.html
SUPER cool and strange article on the Large Hadron Collider
http://www.nytimes.com/2009/10/13/science/space/13lhc.html?8dpc
Disney wants to make its stores entertainment centers
http://www.nytimes.com/2009/10/13/business/media/13disney.html?hp
Small silver linings to huge black clouds: motorcycle usage increases
organ donation! (Because so many people die...)
https://www.msu.edu/~telder/donorcycles6-10-09.pdf
Monday, October 12, 2009
Racial Dating, and Government Wages
http://blog.okcupid.com/index.php/2009/10/05/your-race-affects-whether-people-write-you-back/
This site is unbelievable. You could apply supply/demand (I believe a
greater percentage of black women are single than any other
race-gender group, and they get the worst response rate)... but that
would imply more substitutability than I'd like to think exists. The
alternate explanation? Racial preference in dating... (some would call
this... racism...)
http://www.tnr.com/blog/the-stash/are-government-workers-overpaid#
This analysis is also cool. Workers are paid more by the government at
low wage jobs, but less by the government at high wage jobs... one
possibility is that the higher wages at low wage jobs represent
compensation for never being able to earn a high wage. Another
possibility, not mentioned, is that the government is inefficient in
two ways - it doesn't bargain appropriately on wages for low wage
employees (they're using other peoples' money), but they also can't
look like they're paying a high wage to anyone because it would be
embarassing and threatening.
Israel/Palestine, the debt and medical innovation
http://online.wsj.com/article/SB10001424052748704471504574446931027154794.html
Thoughts on a two-state solution's treatment of Israelis
Thoughts on a two-state solution's treatment of Israelis
http://online.wsj.com/article/SB10001424052748704429304574467071019099570.html
Insightful thoughts on the national debt
http://www.cnn.com/2009/HEALTH/10/09/war.breast.cancer/index.html
Innovation is helping us win the war on breast cancer. (Cough cough,
Baucuscare...)
Friday, October 9, 2009
More on Nobel Peace Prize
An email I got today pointed out that not only is it ridiculous that Obama was awarded it (not his fault, the Nobel committee's)... but nominations were due in February, when Obama had been President for......12 days.
One strategy for law enforcement
Applicable to most laws and regulations:
http://www.nytimes.com/2009/10/04/business/economy/04view.html?_r=2&emc=eta1
some crimes work better than others...one thing everyone in the gun
control debate forgets, on both sides, is that gun control has no
statistical effect on gun crimes either way. Restricting access to
guns doesn't reduce gun crimes, giving victims guns doesn't deter gun
crimes, but laws giving harsher punishments for crimes involving a gun
do mean less gun crimes... substitution to other weapons inevitably
reduces casualties.
For a lot of crimes, both blue collar and white collar, that strategy
could work well
Awesome links I found today
http://www.marginalrevolution.com/marginalrevolution/2009/10/a-simple-recalculation-story-about-the-stimulus.html
Decent case that GDP gains from the stimulus severely overestimate the
actual gains. This also excludes the deadweight loss from increasing
government spending that much.
http://www.bloomberg.com/apps/news?pid=20601109&sid=aFLJhn4jQA3k
Smuggling tunnels as investments for Gazans... and what happens to
Hamas' support when they're bombed. This would support the continued
bombing of Gazan tunnels by Israeli planes.
http://www.ultrinsic.com/
One of the funniest, kind of most brilliant sites I've seen in a while.
(all originally found on marginalrevolution)
Nobel Peace Prize
...is a joke.
Real people who deserve our support:
http://tfideas.blogspot.com/2009/10/nobel-peace-prize-picks.html
Mankiw's succinct take:
http://gregmankiw.blogspot.com/2009/10/first-year-grad-student-wins-nobel.html
More bad statistics
http://www.cnn.com/2009/US/10/09/military.gays.dismissals/index.html
Their argument: because more women have been dismissed from the Air Force under Don't Ask, Don't Tell than men, and there are many more men in the Air Force, it means the Air Force discriminates against women. The Army is bad, as well, with 36% of dismissals being women compared to 14% of the Army being women.
Firstly, this does not condone Don't Ask, Don't Tell. It's a horrible policy that should be repealed, and sexual orientation should not affect your ability to serve in the military. That out of the way, this is an example of terrible statistics.
This assumes that a gay man is just as likely to join the military as
a straight man, and that a gay woman is just as likely to join the
military as a straight woman. If you believe that gay men are less
inclined to join the military than straight men, and/or that gay women
are more inclined to join the military than straight women, this is an
expected outcome.
Their argument: because more women have been dismissed from the Air Force under Don't Ask, Don't Tell than men, and there are many more men in the Air Force, it means the Air Force discriminates against women. The Army is bad, as well, with 36% of dismissals being women compared to 14% of the Army being women.
Firstly, this does not condone Don't Ask, Don't Tell. It's a horrible policy that should be repealed, and sexual orientation should not affect your ability to serve in the military. That out of the way, this is an example of terrible statistics.
This assumes that a gay man is just as likely to join the military as
a straight man, and that a gay woman is just as likely to join the
military as a straight woman. If you believe that gay men are less
inclined to join the military than straight men, and/or that gay women
are more inclined to join the military than straight women, this is an
expected outcome.
I make no assertion as to the reasons for this, and I'm sorry if it's
seen as a stereotype; as a conjecture for other reasons other than the
"butch women/effeminate men" stereotype, there's a decent probability
that people don't realize DADT affects gay women, as well; certainly
the media presentation seems to focus on the dismissal of gay men, so
gay men may not wish to join in the first place while gay women don't
think it'll affect them.
David Brooks breaks down Baucuscare
I agree on most of his good points (there are side effects - it forces
hospitals to treat more people as outpatients so that they are never
admitted to be readmitted, it lets hospitals make doctors' schedules
instead of doctors - and the hospitals will probably want to increase
the number of patients)
hospitals to treat more people as outpatients so that they are never
admitted to be readmitted, it lets hospitals make doctors' schedules
instead of doctors - and the hospitals will probably want to increase
the number of patients)
The bad points seem much, much worse to me than the good points are
good, which is why I don't like this reform.
At some point, lobby-busting and union-busting needs to happen; the
Wyden bill would have been much, much better.
http://www.nytimes.com/2009/10/09/opinion/09brooks.html?ref=opinion
The good parts:
"Most impressively, the Baucus bill includes many provisions to make
government-run health care more rational. It would bundle payments to
hospitals and encourage doctors to work in efficient teams. It would
punish hospitals that have to readmit patients. It would create a
commission to perpetually squeeze costs. It would improve information
technology. It would measure the comparative effectiveness of
different treatments. No one knows how much savings would be produced
by these changes in payment method, but they could be significant."
The bad parts:
"The Baucus bill centralizes power, in contrast to the free choice
approach, which decentralizes it. The Baucus approach aims to reduce
costs, expand coverage and improve efficiency by empowering regulators
to write a better set of rules. It aims to rationalize the current
system from the top down.
This approach has many weaknesses. It entrenches a flawed system. It
creates greater uniformity and rigidity. It redistributes income from
the politically disorganized young to the politically organized old.
It squeezes people into a Rube Goldberg complex of bureaucracies based
on their income level. It will impose huge costs on people as they
rise up the income ladder, distorting the whole economy.
The biggest problem is that it will retard innovation. Top-down
systems just don't innovate well, no matter how many Innovation
Centers you put in the Department of Health and Human Services. The
bill will retard innovation by using monopoly power to squeeze costs.
It will also retard innovation by directing resources toward current
care (and current voters) and away from future technologies and future
beneficiaries."
The parts that could have been great but were killed by unions and
politicians seeking reelection:
"The Wyden approach — first introduced in a bill with Robert F.
Bennett, Republican of Utah, and now pared down to an amendment to the
current bills—would combine choice with universal coverage.
People with insurance could stay with their existing health plans. But
if they didn't like the plans their employer offered, they could take
the money their employer spends, add whatever they wanted to throw in,
and shop for a better option on a regulated exchange. People without
insurance would get subsidies to shop at the exchanges.
Americans would have real choices. The vigorous exchanges would reward
providers and insurers that are efficient, creative and innovative.
But barring a legislative miracle, the Wyden approach was effectively
killed in committee last week. The business and union lobbies worked
furiously against it. They want to control their employees' and
members' benefit packages. Many politicians support it in principle
but oppose it in practice. They fear that if they try to fundamentally
reform the system, voters will revolt."
Thursday, October 8, 2009
Nobel Peace Prize Picks
The Nobel Peace Prize will be announced on Friday. To help draw
attention to the incredibly worthy causes some of the leading
candidates have fought for, I have listed below some of the favorites.
attention to the incredibly worthy causes some of the leading
candidates have fought for, I have listed below some of the favorites.
Denis Mukwege - Opened a clinic treating rape victims in the Dem. Rep.
of Congo. Has helped over 21,000 women during its 12 year war, working
18 hour days.
http://en.wikipedia.org/wiki/Denis_Mukwege
Sima Samar - Afghan Human Rights worker. Has fought for women's rights
in Afghanistan and is currently the head of the Afghanistan
Independent Human Rights Commission. She's also the United Nations
Special Rapporteur on the situation of human rights in Sudan.
http://en.wikipedia.org/wiki/Sima_samar
Hu Jia / Wei Jingsheng - Chinese Human Rights workers. Both have been
jailed for government opposition. Hu Jia also has worked on Chinese
environmentalism and the Chinese HIV/AIDS epidemic.
http://en.wikipedia.org/wiki/Hu_Jia_(activist)
http://en.wikipedia.org/wiki/Wei_Jingsheng
Of course, there are many other worthy candidates.
The prize does have a tendency to get very political (Yasser Arafat's
inclusion in 1994, or Al Gore over Irena Sendler, for example -
http://en.wikipedia.org/wiki/Irena_Sendler), and rumor has it Obama's
been nominated, though nobody's quite sure on what grounds - maybe the
call for nuclear disarmament? Anyway, these heroes may or may not get
the recognition they deserve. I include them here in the hopes that
perhaps it will increase their exposure, just a little bit.
As a side note, I've been looking for a way to donate to the Mukwege
clinic. Does anyone know where I can do it?
Dilbert's rules of finance
Dilbert's Rules for being smart with money
1. Make a will
2. Pay off your credit cards first.
3. Get term life insurance if you have a family to support
4. Fund your 401k to the maximum
5. Fund your IRA to the maximum
6. Buy a house if you want to live in a house and can afford it
7. Put six months worth of expenses in a money-market account
8. Take whatever money is left over and invest 70% in an index stock
fund and 30% in a bond fund through any discount broker and never
touch it until retirement
9. If any of this confuses you, or you have something special going on
(retirement, college planning, tax issues), hire a fee-based financial
planner, not one who charges a percentage of your portfolio
I'd look at this list and add
4+5a Alternate between an IRA and a Roth IRA (or similarly, a 401k and
a Roth 401k), to diversify risk (Roth is better, but the government
could easily change the rules and strip existing Roth IRAs of their
tax advantage)
8a. The funds should be with reliable brokers. A non-index stock fund
can be appropriate if the strategy is a clear long-term winner and the
manager is good. Many people don't have the expertise to figure out if
the latter sentence is the case.
Clever Healthcare Idea
http://www.washingtonpost.com/wp-dyn/content/article/2009/10/07/AR2009100703048.html
Interesting thought. I like it, a lot, actually.
More Tariffs
http://www.ft.com/cms/s/0/a54fe1c4-b3cb-11de-98ec-00144feab49a.html?nclick_check=1
Obama administration considering tariffs on Chinese steel pipes.
I have to wonder if he's desperately trying to curry union favor to
get the Cadillac tax passed (or some other part of healthcare reform).
Stupid, stupid, stupid.
A disconnect
The Taliban pledges not to bother foreign governments:
http://metro.us/us/article/2009/10/08/06/3521-82/index.xml
http://metro.us/us/article/2009/10/08/06/3521-82/index.xml
The Taliban calls on Chinese Uighers to wage a holy war against the
Chinese government:
http://www.cnn.com/2009/WORLD/asiapcf/10/08/china.uyghur.threat/index.html
Seriously?
Case Studies in Bad Statistics
Statistics are vitally important to how we make decisions, and one of
the reasons I believe that every student should take a statistics
class or two is because people often dishonestly or unknowingly
misinterpret the statistics they portray. I present below a few
examples that irked me, just from today's news:
the reasons I believe that every student should take a statistics
class or two is because people often dishonestly or unknowingly
misinterpret the statistics they portray. I present below a few
examples that irked me, just from today's news:
http://www.nytimes.com/2009/10/08/opinion/08kristof.html?ref=opinion
Ensuring everyone has health insurance is a great and important goal
(my issue has always been with the monopsony effect of a public
option, and with finding ways to efficiently fund healthcare, not with
the policy goal of everyone having healthcare), but the statistics and
spin of that article are an embarassment, truly. Because using
improper facts and statistics to justify a cause is inexcusable no
matter how good or bad the cause is, I highlight them:
-It's not 15%, it's 5%, because the other 10% are a combination of
illegal immigrants who don't qualify, people with high incomes who opt
out of employer-subsidized insurance, people already implicitly
covered by Medicare and Medicaid who haven't enrolled yet but would
get benefits if they needed it, and a 6 million person census
overcount. You're improving access for 5% of Americans.
-Bush's tax breaks were 2.4 trillion over 10 years... the terrible
implementation of healthcare that Congress wants would be half of that
*per year*... the comparison is a terrible one. There's also evidence
that Bush's tax breaks actually did help the economy, a lot, for
everyone, but that's a whole separate argument.
-the "socialized health" bit is retarded, because innovation in sewers
and police are less important than healthcare innovation
-there may be 45,000 people who die annually from not having
insurance, but contrary to how he frames it, the net gain in lives
saved would not be 45,000 if universal care were initiated. There are
illegal immigrants, who comprise a very large percentage of that
number, and there are also the people whose lives would have been
saved by innovation that doesnt happen as a result of the bill. On a
net basis, we'd be lucky to achieve a third of that number. Still
significant, but it's gotta be framed properly.
- Soft drinks being 5.5% of a person's calorie intake doesn't
acknowledge the fact that quality of calories is very important. 100
calories in vegetables is digested very differently to 100 calories of
cookies; the latter is far more likely to spike your insulin and
result in obesity/diabetes/heart disease etc.
- The fact that West Virginia and Arkansas have soda taxes and have
the highest obesity rates in the nation is completely meaningless. It
is likely that the reason they have soda taxes is because they have
the highest obesity rates in the nation, and it's a way to combat the
problem. From what I understand in WV, the tax, as well as adjusting
the placement and availability of bad food in schools, have been
instrumental in slowing obesity (I haven't seen stats on Arkansas)
http://www.cnn.com/2009/TRAVEL/10/08/flight.delays/index.html
-The argument that "delays have gone up as air travel passengers have
gone up" is somewhat misleading, as well. It could be true, but the
magnitude is much less than implied. The average age of airplanes in
the fleets of the largest airlines has risen over time, and the
variety of planes they fly has gone up as new planes have been
developed but old ones phased out less quickly. Thus, it takes longer
to check all of the planes (mechanics have to look for different
things on every plane, which takes time), when something's wrong it
takes longer to find the correct parts and equipment and use them
properly, and more things go wrong because the planes are older. This
is why "hub" airports, with more big (and old) airlines, have more
delays, while smaller airports, with more small (newer) airlines, have
fewer delays.
http://www.cnn.com/2009/TECH/10/08/social.networks.connected/index.html
-vaccinating just the center of social networks against disease may be
more effective than vaccinating the same number of people selected
randomly, because they may see more people, but unlike obesity, STDs
and politics, a person's charisma presumably has no effect on whether
they get the flu - just their exposure to other people who could get
the virus. If there are 5 friends and one is at the center,
vaccinating the one does not protect the other 4 from giving it to
each other. Technically correct, magnitudal implications far
overstated- the vaccination program certainly wouldn't be "1/3" the
cost. Current methods require about 95% of a population to be
vaccinated for everyone to have "herd immunity"... if this number
reduced it to 85% it'd be miraculous.
Understanding the prosperity gap
I've had a lot of articles on why the prosperity gap is growing less
quickly than presented - non-wage benefits like healthcare (rising in
cost because of new technologies) have gone up a lot and two wars
sapped a huge amount from middle class incomes (2% annually if spread
across everyone equally; closer to 6% annually if focused on the lower
and middle class)
quickly than presented - non-wage benefits like healthcare (rising in
cost because of new technologies) have gone up a lot and two wars
sapped a huge amount from middle class incomes (2% annually if spread
across everyone equally; closer to 6% annually if focused on the lower
and middle class)
There's another point, however: the middle and lower class are
affected more by a weaker dollar because they have less savings to
invest in hedges against rising costs.
David Malpass addresses this in a very insightful article:
http://online.wsj.com/article/SB10001424052748703298004574458923186941870.html
Agreed entirely, but there's a problem he misses, though. There is no
way to consistently strengthen the dollar at the current level of the
Federal Budget. You cannot have a strong dollar for any sustained
period of time when the national debt is growing as rapidly as ours
is. Inflation is almost inevitable.
Thus, a lot of government spending on redistribution, and protections
for the lower class actually exacerbate the problems the lower-class
faces. We're getting closer to an inflection point (if the US dollar
loses some status as an international reserve currency or as the
currency of oil), this would exacerbate quickly. The budget deficit is
also twice the size it's ever been excluding world war 2, so that's
gonna be drastic, as well.
a "tax" that makes sense
Massachusetts is thinking of raising the bottle deposit and expanding
the range of bottles it applies to.
the range of bottles it applies to.
http://metro.us/us/article/2009/10/08/03/0654-72/index.xml
"Taxing" bad behavior (in this case, not recycling) is a good thing,
not a bad thing. We seriously underrecycle anyway, so this will
correct a market failure. For once, well done, Massachusetts.
Wednesday, October 7, 2009
are you kidding me, Allergan?
http://www.fool.com/investing/general/2009/10/07/daily-walk-of-shame-allergans-lawsuit.aspx?source=ihpsitth0000001
One of the dumbest lawsuits I've ever heard.
1) Individuals have first amendment rights. I don't think companies do.
2) How is it even remotely a good idea for ANYONE - the companies, the
patients, the doctors or those of us footing the bill - to allow
promotion of off-label use? I sympathize with the notion that proper
off-label use can do wonderful things and could even reduce costs.
However, isn't the downside here a lot worse? If a condition has no
cure, and something in the marketplace can treat it off-label, it's a)
very likely that the doctor on the case will figure this out and b)
it's very likely the drug will be submitted for testing to the FDA.
PROMOTING its use, however, seems like it opens up a can of worms -
basically circumventing the whole purpose of the FDA.
Dumb dumb dumb.
I oppose the healthcare plan on the basis that it doesn't allow
drugmakers to profit from their beneficial research. I've always been
more skeptical of drug marketing - while there is a benefit to
informing the public and informing doctors that they don't have to
live with the conditions they have, and that treatment exists, drug
marketing far exceeds the level required for that social purpose and,
empirically, hasn't helped the drug makers. The idea of "restricting"
(not directly, that's government interventionist scary, but by
withholding funding to labs that work with companies that spend too
much on marketing, or something along those lines) industry
ad-spending isn't a bad one. Advertising off-label is an order of
magnitude dumber than that.
Articles that stood out today
Friedman with an excellent article on the "three bombs" our generation
faces: Nuclear, Debt and Climate
http://www.nytimes.com/2009/10/07/opinion/07friedman.html?ref=opinion
faces: Nuclear, Debt and Climate
http://www.nytimes.com/2009/10/07/opinion/07friedman.html?ref=opinion
Examining the effect of state-level healthcare reform
http://online.wsj.com/article/SB10001424052748703298004574455560453947646.html
The author doesn't think it has been very successful. Of course, it
depends how you define success, but they certainly didn't accomplish
what they were intended to.
More strengthening of Unions by the administration
http://online.wsj.com/article/SB10001424052748703298004574455534179834894.html
No disagreement here - deceptive banking fees suck
http://www.nytimes.com/2009/10/07/opinion/07wed2.html?_r=1&ref=opinion
Tuesday, October 6, 2009
inflation
http://www.marketwatch.com/story/potential-end-of-dollar-based-oil-deals-lifts-gold-2009-10-06
if this is true, welcome back inflation. They've been talking about it
for months (years, really) so this story may not be as imminent as
marketwatch says it is... but its almost inevitable sooner or later.
It may not happen til the US economy has recovered a little more -
China certainly would oppose it anytime before then.
Currently, oil is traded in dollars. Countries that wish to buy oil
must thus have dollars to pay for it.
What this does is create a sort of artificial demand for dollars,
where people want lots of dollars but not to purchase American goods.
Switching away from it means there are more dollars out there than
people want.
This results in inflation.
Ideally, the remedy for this would be higher interest rates, but the
problem is, higher interest rates throttle the economy by making it
hard for people to get credit to buy houses, cars, start businesses,
etc, as well as making it more attractive to put your money into bonds
or the bank instead of spending it.
The other remedy is to reduce government spending - fiscal
conservatism. Unfortunately, both the Obama and the Bush
administrations have been spending like drunken sailors and it would
be extremely difficult to rein in spending quickly enough.
Important news stories
Baucus Care punishes cardiologists and oncologists and will make it
harder for cancer and heart disease patients to get care:
http://online.wsj.com/article/SB10001424052748704471504574443472658898710.html
harder for cancer and heart disease patients to get care:
http://online.wsj.com/article/SB10001424052748704471504574443472658898710.html
Obama declines to meet with the Dalai Lama so as not to upset China...
despite a willingness to slap tariffs on Chinese tires to help unions,
and to meet with any large number of dictators:
http://online.wsj.com/article/SB10001424052748704471504574449420327844600.html
From the Canadian national Post (no link):
Opponents of the [U.S. health-care] public option maintain that
Canadian-style health care would entail rationing, caps on care,
bureaucratic interference in medical decision-making and even "death
panels" deciding when the ill become too expensive to save.Most
Canadians believe this is a gross exaggeration of reality. But then
how to characterize Ontario's decision to cut off funding for
colorectal cancer patients taking a life-prolonging drug, in order to
save $9-million [about US$8.4 mllion] a year?Andre Marin, the
province's plain-speaking ombudsman, said the decision "verges on
cruelty." Marin said the "arbitrary" limit on the number of cycles of
the drug Avastin that Ontario will fund forces patients to pay out of
their own pockets or abandon treatment.Avastin does not cure cancer,
but prolongs life when taken in conjunction with chemotherapy
treatment, adding, on average, nine months of survival."For patients
whose cancer has already metastasized, it stops their tumours from
growing and prolongs their lives, at least for a while. It is, without
exaggeration, their lifeline," Mr. Marin said.
Why did Argentina not develop?
http://economix.blogs.nytimes.com/2009/10/06/what-happened-to-argentina/?hp
(Location probably factors more into it than Glaeser- a former
professor of mine - acknowledges. It's not even a particularly well
written post... just an interesting one.)
Monday, October 5, 2009
scalia: too many smart lawyers
http://blogs.wsj.com/law/2009/10/01/scalia-we-are-devoting-too-many-of-our-best-minds-to-lawyering/
Just as in finance, it's a positional externality thing - firms and
clients do better if they win than if they lose, so they constantly
want to hire better people than the opposition. It's not always clear
who's better, though, so firms need to hire lots of good people to
find one superstar. It's pretty close to a zero sum game, though -
each case has winners and losers - so salaries go up, attracting more
talented people. You end up in a "keeping up with the Joneses"
situation where lots of good people become lawyers and firms keep
paying them lots of money.
You can't regulate it easily, though, short of some very scary
communist impositions on industries.
The solutions, however, differ for law and finance. The main
difference with law and finance is that you can simplify the legal
code to make it less important to have a great lawyer... that will
make great lawyers less important and reduce the number of "best
minds" that go into law. The world is complicated and there will
always be situations that require great lawyers, but if there are less
of these situations, there's less lawyers.
Finance, that can kind of work (make M+A less intensive and crazy by
changing tax laws and such, discourage fast trading with taxes, etc).
At a certain point, equity and debt capital is necessary for growth,
and the day stocks and bonds stop being an attractive place for smart
people is the day that the US economy has started collapsing... so
there's not a whole lot you can do to keep them out. To an extent,
there's societal value in funding good enterprises and having people
who can discern good from bad enterprises, so you don't want your
financiers to be incompetent, but I understand that effect is only
important up to a point, and we're probably beyond that point.
Still, I fully acknowledge that there's progress that can be made with
some simple regulations on banks (compensation controls are
scary-communist, but certainly risk controls and elements that make
the market fairer for long-term investors instead of short term
speculative traders... basically, reduce the profits of being a middle
man with no societal value as opposed to a provider of capital with
societal value)
More news stories that surprised me
Did you know that the government forces seniors to take Medicare or be
forced to give up Social Security payments (which they paid taxes for
their whole lives)?
http://online.wsj.com/article/SB10001424052748704471504574446831381142174.html
forced to give up Social Security payments (which they paid taxes for
their whole lives)?
http://online.wsj.com/article/SB10001424052748704471504574446831381142174.html
Zelaya is currently blaming Israel for helping Micheletti rise to
power and keep him down with "high frequency radiation":
http://blog.newsweek.com/blogs/wealthofnations/archive/2009/09/25/blaming-israeli-mercenaries-surviving-on-biscuits-zelaya-looks-for-an-endgame.aspx
Carville claims that if you don't want America to have the Olympics,
you don't love America:
http://politicalticker.blogs.cnn.com/2009/10/05/beck-is-out-and-out-nuts-carville-says-2/
note that the Olympics usually loses billions of dollars in actual
money and commands the attention of politicians for 7 years, at the
expense of more pressing social projects.
When did the right all of a sudden encompass the reasonable positions
in politics? A year ago, they were slobbering all over Sarah Palin;
now they're the only ones with any sense of the center.
We seriously need a third party.
Medical commentary
http://online.wsj.com/article/SB10001424052748704471504574449513730221946.html
former president of the AMA. Totally agree.
More Iran
http://online.wsj.com/article/SB10001424052748703628304574452933624279114.html?mod=WSJ_hpp_MIDDLTopStories
On what planet does it make sense to actively acknowledge any Iranian
nuclear program as legitimate? and how does it make sense to help them
enrich their uranium!?
Friday, October 2, 2009
Employee Free Choice Act
Interesting. I haven't read the bill, so I don't know what the pluses
and minuses are, but the article is interesting, at least:
and minuses are, but the article is interesting, at least:
http://online.wsj.com/article/SB10001424052748704471504574446921885356260.html
Thursday, October 1, 2009
Ratings Agencies
This article, in my opinion, misses one major point:
The notion that you can just disband the ratings agencies implies that there is some better way of doing things than relying on them. AAA doesn't mean completely safe, it means lowest risk. People make mistakes. Say what you like about Moody's, Fitch and S+P, but they are no worse than any other institution that rates securities and publicizes their findings - in fact, given how bad most public raters are, they're probably the best we can do.
The big problem is that anyone with a talent for rating securities will make a lot more using that talent on the buy side - to operate a hedge fund or mutual fund, or invest money, than they will for telling people about it. There is no easy quantitative method for rating securities that doesn't require human discretion. So while the NRSROs have plenty of problems, the solution isn't to disband them for a worse alternative, it's to help people understand that they're not guaranteed ratings - everything has risk.
The notion that they can be sued for bad ratings is thus appalling to me. If they had material information and chose to not publish it, that's different, that's misleading, and I understand that the corporate culture at these places, as well as the way in which the companies are paid, very much incentivize telling people what they want to hear instead of what they need to hear. But if they just made bad decisions, not dishonest ones, suing them isn't really reasonable.
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