You're like a sword without a sheath. You cut well. But the best sword is kept in its sheath.--Mutsuta's Wife
There’s a way, keeping full integrity, of answering the questions you want to answer. The thing that scared me was not a question I didn’t know the answer to. Just say, ‘I don’t know.’ The thing that scared me was some question that I knew, and answered correctly, and I’d be in deep doo-doo! ... I see nothing easy in Washington. I see either analytically simple things that are politically complex, or those that are politically complex and analytically complex. I mean, look at immigration reform, you know? It is, I think, analytically easy, but politically very, very complex and very difficult. ... I always talk publicly about ‘extreme risk aversity,’ or something. Treasury secretaries don’t use ‘fear.’ But there was this—you know—there was fear, OK?--Hank Paulson
The prospect of suing the Government of the United States of America to collect a contracted fee on a nonexistent deal strikes me as one of the least intelligent decisions any major Wall Street investment bank could possibly consider nowadays.--Epicurean Dealmaker
I would pay a lot of money if people would make stuff up and pretend I said it.--Andy Roddick
It was only in a British newspaper that the American author Joyce Carol Oates was able last week to publish the following (factually accurate) account: “Kennedy chose to flee the scene leaving the young woman to die an agonising death, not of drowning, but of suffocation over a period of hours. It was over 10 hours before Kennedy reported the accident, by which time he’d consulted a family lawyer. The senator’s explanation for this unconscionable, despicable, unmanly ... behaviour was never convincing.” ... Kennedy did indeed have an extraordinarily faithful record in defending the interests, as he saw them, of the most deprived — a faithfulness that he seemed almost pathologically unable to provide in his personal affairs. The same man who treated women with abominable callousness (Kopechne was the least fortunate) was genuinely committed as a legislator for women’s rights. --Dominic Lawson
Middle-aged Russians of Prime Minister Vladimir Putin's generation—who now make up its ruling elite—grew up being told their country was the greatest in the world. They then spent the best years of their lives watching it implode. And it's not just ex-Soviet hard men like Putin who nurture this sense of grievance; smart young professionals (like Medvedev) share it as well. Small wonder, then, that Russia's quest for respect—for equality or revenge—often seems to stray beyond the rational. ... But rather than pining for the past, Russia would do well to look to Great Britain, another fallen empire, for lessons in how to stay relevant in a post-imperial world. Britain ran into disaster in 1956 when it tried to assert itself militarily in its old imperial space by making a grab for the Suez Canal. Since then, London has contented itself with slowly building new constructive relationships with its neighbors, former colonies, and big powers like the U.S. The result might not be as grand or as satisfying as macho strutting and military adventures, but it has helped keep Britain at the center of world politics long after the sun set on its empire.--Owen Matthews and Anna Nemtsova
Monday, August 31, 2009
Sunday, August 30, 2009
Now they wish they hadn't.
Saturday, August 29, 2009
During the 1970s, Kennedy was instrumental in deregulating the interstate trucking industry and airline ticket prices, two innovations that have vastly improved the quality of life in America even as—or more precisely, because—they pushed power out of D.C. and into the pocketbooks of everyday Americans. We are incalculably richer and better off because something like actual prices replaced regulatory fiat in trucking and flying. Because they do not fit the Ted Kennedy narrative preferred by his admirers and detractors alike, these accomplishments rarely get mentioned in stories about the late senator. But they are exactly the sort of legislation that we should be celebrating in his honor, and using as a model in today's debates about health care, education, and virtually every aspect of government action.--Nick Gillespie
A federal court rejected an attempt by two Ohio residents to use the so-called TurboTax defense that Timothy Geithner relied on to help win Senate confirmation as U.S. Treasury Secretary.
Friday, August 28, 2009
From what I gather, because the government is not capable of handling cybersecurity threats, it needs to shutdown everybody else off the Internet as it deems necessary. Yeah, that'll stop a virus from spreading.
Speechless. The First Amendment no longer applies to the digital world, it seemingly appears from the Senate chambers. I'm getting some bad deja vu of some Revenge of the Sith dialogue trying to process this.
UPDATE: Scott Sumner one ups Arnold:
[Paul] Krugman recently announced that the sort of expert opinions I refered to are “stupid.” How does he know this? Because he looked out of the window of his train while in Rahway NJ, and things looked kind of densely populated. Something is dense, but it ain’t New Jersey. Northeast New Jersey has about 6 million people spread over a couple thousand square miles of suburbia. Paris is 20 times as dense, with 2.2 million people in an area of only 34 square miles, all living a few blocks from subway lines that will whisk them to high speed train stations. High speed rail in America? As they say in New Jersey, fugitaboutit.
For algorithmic trading, the issue is simple. Some investors have determined to buy and others have determined to sell. They have reached these determinations however they have done it in the past; it doesn’t have anything to do with the advent of millisecond trading. Now they happen to decide to execute these trades over time as a function of the bid-offer spread, the volume of trading, the level of prices – that is, based on the same sorts of things that they would have without computers. And they can monitor what is going on with their trades over the course of the day. So this is not a tightly coupled process. A call to their broker, and the trading stops. Just like if the broker had someone doing it on the phone.
For high frequency trading, the issues are not as simple. It is possible to construct a scenario for high frequency trading where a strategy is widely shared which has a reinforcing feedback and which pushes forward without anyone intervening. But I can construct such scenarios even without the need for millisecond trading. Not just construct such scenarios – I have seen them, and so have you, in any number of bubbles and crashes.
One martini is just right. Two martinis are too many. Three martinis are never enough.--M. F. K. Fisher
Placebos are getting more effective.--Steve Silberman
In their rages, both [political] sides have forgotten that America has a Congress. --Justin Miller
And since I'm rambling and have the floor, every man needs a daughter. ALL of my male friends who had children were changed for the better by having at least one daughter. It is not a wife who socializes a husband, it is a daughter.--anonymous
If you wanted to convince me of a private school which is acting charitably, not profit-maximising, then you’d have to describe a system where pupils take the entrance exam - and then the *low*-scoring poor children are offered bursaries. That’s a school which is gambling on its ability to raise standards among disadvantaged kids. But no private school does that, and with excellent reason: the cost could be lower league table results for the school - and as you say, private schools are in competition.--Pockets
Taken together the average fuel economy of vehicles traded in [under Cash For Clunkers] was 15.8 miles per gallon, while the average for the clunker replacements was 24.9 miles per gallon. And according to Ford Motor Company, this kind of fuel-economy improvement translates to a reduction of five to ten million barrels of oil consumed over the next five years. (The nation currently consumes nine million barrels a day.) This will be oil that some other people can enjoy.--Bruce Yandle
Perhaps [disappointed liberals] thought that when Obama was elected President that the United States would suddenly morph into France. But do they want the government to build 100s of nuclear power plants? Do they want the government to be able to ram double-tracked high speed rail lines through beautiful, pastoral suburbs and exurbs and small towns of Massachusetts, Connecticut, New Jersey and Maryland, with environmentalists powerless to stop it in the courts? Do they want us to send troops to prop up corrupt African governments without UN approval? I suppose progressives would respond that they want the high quality French public services. But America was settled by the Brits, the French went to Quebec. If we tried to emulate France we’d end up with big government and lousy public services, like the British. --Scott Sumner
But expediency tends to defeat principle in political discourse, because of the focus on direct and immediate effects whereas principle tends to focus on indirect and long-run effects. Was it expedient to pursue the bailout? Of course. But was it a policy move that followed a working principle of public policy? Of course not. And once we include those indirect and long-run negative consequences the assessment of the effectivenss of the bailout on averting disaster is not as easy as Tyler [Cowen] suggests.--Peter Boettke
Money supply is always, in some sense, a proxy for functioning credit markets. If a third of the banks fail, trying to put the lost money back into the system by open market operations makes little sense. Randomly distributed cash will not restore the confidence lost when perhaps a quarter of the country sees its savings wiped out.--Megan McArdle
If the government tries to double taxes on people like me, it's in real political trouble. If it doesn't try to double taxes on people like me, it's in real solvency trouble. It looks like we may have a problem here.--James HamiltonYou might think that no one would be more inclined to sexual abuse than criminals in unisex confinement. But if you give authority to relatively normal people who can leave the prison anytime they like, they're worse.--Bryan Caplan
... I argued that economists as a group almost never blamed the Fed for recessions, at the time and place, because the Fed was reflecting the consensus views of those same [elite] macroeconomists. (Exceptions are 1921 and 1982, when recessions were viewed as acceptable costs for containing inflation.) Thus with each recession we hear the refrain "Recessions are normally due to inadequate AD, caused by insufficiently expansionary money policy. But this time it's different." There is always some factor (financial instability, supply shocks, tech bubble) that exonerates the Fed. And how could it be otherwise? People don't want to blame themselves. Only with the perspective of time or distance (Japan 1990s, US 1930s), do we blame the central bank.--Scott Sumner
Thursday, August 27, 2009
Flash trading is like offering to sell your house to your neighbor before you officially put it into the real estate listings. For that matter, it's just like what upstairs traders did in the pre-computer era: shopping an order before sending it to the exchange floor. We had no problem with this process, so why would we ban flash trading, which simply makes it more formal and produces an audit trail that the upstairs traders didn't?Part un, here. And in the comments here, some nice European boy calls me stupid. Well, my wife would agree with that at times.
... Yet according to Mr. Schumer, in flash trading "a privileged group of insiders receives preferential treatment, depriving others of a fair price for their transactions." The truth is that there's no particular privilege involved. Any broker can enter flash orders or respond to them, even when executing on behalf of ordinary individual investors.
... The real issue here is that innovators like Direct Edge are able to use new systems like flash trading to challenge entrenched institutions like the New York Stock Exchange by attracting their own new pools of liquidity. Innovators profit most when trading is internalized within their new pools, drawing market share away from incumbents. The incumbents typically seek self-protective regulation, characterizing the creation of new pools as "fragmentation" of the equity markets.
In fact, trading innovations do not create fragmentation. They expand the market, drawing in entirely new liquidity that wouldn't have otherwise existed.
Since introducing flash trading in 2006, Direct Edge's market share has soared to 12% from 2%. No wonder, then, that Duncan Niederauer, chief executive officer of NYSE Euronext, said in June that "we're spending a lot of time in Washington." And no wonder that Mr. Schumer has suddenly developed an interest in the microstructure of equity markets.
Competition is what makes America's equity trading system the envy of the world. Let's not throttle it by demonizing the innovations that improve it.
The financial services industry is particularly vulnerable to hubris because sections of it are not very competitive, and randomness plays a large role in the outcome of speculative transactions. It is therefore particularly easy for those who work in financial institutions to make the mistake of believing that their success is the result of exceptional skill rather than good fortune. What more natural to believe than that extraordinary talent will find pots of gold under other rainbows? Until vanity is vanquished, I anticipate that diversification to the level of incompetence will continue to be a powerful element in business behaviour.--John Kay
[Joseph] Gregory was forced to resign in June of last year. But it was already too late. He had earlier played a key role in pushing out Mike Gelband—the head of fixed income at Lehman. Gelband had been urging the firm to take precautions, reduce its leverage and dependence on the asset backed commercial paper market. Gregory and [Dick] Fuld decided to ignore their in-house debt expert. After a lunch with Gregory where he once again failed to make a dent in the determination to keep taking on more risk and bigger risks, Gelband quit. And now Gregory wants Lehman to make him whole for money he "earned" while destroying Lehman Brothers.--John Carney
It was an ambush. They chopped his head off while he was still carrying their water.--former Merrill Lynch employee on the treatment of brokerage head Dan Sontag
I have always known that it is useless in this day and age for a man to be a kung fu fighter. So what? He can easily be killed with one bullet from a gun. Bang. That’s it. I would be dead. If one of them had made a move to pull out a gun I would have attacked him immediately. Now, actually, I myself owned two guns. ... But I never carried them. My reasoning was this: if people came to hear that I carried a gun then they would try to shoot first. But if they knew I never carried a gun they would know they didn’t need to use a gun. If I relied on my hands alone I knew I had a ninety per cent chance of winning but if I carried a gun I had a ninety per cent chance of being killed. So I always left my guns at home.--King Hui, as told to Jonathan Chamberlain
... several “empty” lots in Glassboro, N.J., valued at more than $3,000; a stock fund worth at least $250,000; an IRA account with more than $250,000 in assets; and investment fund account worth between $50,000 and $100,000.The answer, should not surprise those of us around here.
Cool video of amazing feats with the football, whether you are into football or not:
*Ended up with Moss, Barber, Welker, Gates, Parker and Schaub, with the 8th pick in a 12 team league.
Tuesday, August 25, 2009
... for the most part the peak-oil crowd rests its case on three major claims: that the world is discovering only one barrel for every three or four produced; that political instability in oil-producing countries puts us at an unprecedented risk of having the spigots turned off; and that we have already used half of the two trillion barrels of oil that the earth contained.
Let’s take the rate-of-discovery argument first: it is a statement that reflects ignorance of industry terminology. When a new field is found, it is given a size estimate that indicates how much is thought to be recoverable at that point in time. But as years pass, the estimate is almost always revised upward, either because more pockets of oil are found in the field or because new technology makes it possible to extract oil that was previously unreachable. Yet because petroleum geologists don’t report that additional recoverable oil as “newly discovered,” the peak oil advocates tend to ignore it. In truth, the combination of new discoveries and revisions to size estimates of older fields has been keeping pace with production for many years.
Just as, in the 1970s, it was the Arab oil embargo and the Iranian Revolution, today it is the invasion of Iraq and instability in Venezuela and Nigeria. But the solution, as ever, is for the industry to shift investment into new regions, and that’s what it is doing. Yet peak-oil advocates take advantage of the inevitable delay in bringing this new production on line to claim that global production is on an irreversible decline.
In the end, perhaps the most misleading claim of the peak-oil advocates is that the earth was endowed with only 2 trillion barrels of “recoverable” oil. Actually, the consensus among geologists is that there are some 10 trillion barrels out there. A century ago, only 10 percent of it was considered recoverable, but improvements in technology should allow us to recover some 35 percent — another 2.5 trillion barrels — in an economically viable way. And this doesn’t even include such potential sources as tar sands, which in time we may be able to efficiently tap.
And as the debate about Rubin’s culpability grows among the chattering classes, people who know Rubin say this debate is also growing inside his head. Rubin has been privately wrestling with his role as senior adviser to former Citi CEOs Sandy Weill and Chuck Prince when the risk taking began (and reached immense proportions), and falling back on the fact that he didn’t have “operating responsibilities,” meaning he had authority but no direct responsibility to manage those risk takers. He concedes that he advocated more risk taking, but he says he wanted Citi to do it smartly, “like we did it at Goldman,” he has said. (What makes him feel bad is that he knows that even his old friends on Wall Street say he needs to own up to the damage caused by that wild risk taking.)As you can see, Rubin likes the way risk went at Goldman, and hated how it turned out at Citi. Now check out what I wrote 2 years ago:
I think Rubin is a superior leader, and admire his effective strong dollar advocacy and market stabilization in the Clinton administration, but I think he is a bit like Bill Parcells. Unfortunately, the [Bill] Belichick of my equation is Fischer Black, who is no longer with us. Parcells is a hall-of-fame coach with Belichick on his staff, but cannot compile a long-term winning record without him.And then again last year:
The genius of Parcells and Rubin is finding someone special and giving them a chance to shine.
I know their prop traders are really underwater, [which] buttresses my theory that since Fischer Black's passing, Goldman is just another firm now. The corollary is that, since Black died, Robert Rubin is just another suit. Black was the guy saying how LTCM was doomed well before their blowup. Goldman could be the new LTCM.
Rubin was the guy who "discovered" Black, brought him to Goldman, and then rode all the way to the managing partner office, and then SecTreas. Black dies in 1995, and Goldman hits its peak a few years later, following his risk inertia. Under my theory, it is because Black moved them ahead on risk. Look at Notre Dame: how great is Charlie Weis? [He's a] great coach; horrible, horrible recruiter. So you separate Rubin and Goldman from Black, and they are all of a sudden very average, but because their risk culture, processes and controls are so advanced vs. the competition, they continue to mine the gold.
Of course, I'm the dumbest of all, as I've been short Goldman in the personal account for many months, and it has outpaced my BAC/JPM/PFF hedge against it.
The real story is that wealth concentration solves otherwise difficult coordination problems. If I have $1 billion, I'll just go endow a new museum, and voila, a new museum sprouts up. It's that simple. If 10 of us have to donate $100 million each it gets harder, and if 1000 of us have to donate $1 million each to get things off the ground, then the creation of that museum will be harder still.--Joe Weisenthal
Programming today is a race between software engineers striving to build bigger and better idiot-proof programs, and the Universe trying to produce bigger and better idiots. So far, the Universe is winning.--Rick Cook
You could say we are breeding the perfect spammer.--Jim Buckmaster, Craigslist CEO
[Craig Newmark's] cause is not helped by the fact that if the craigslist management style resembles any political system, it is not democracy but rather a low-key popular dictatorship. Its inner workings are obscure, it publishes no account of its income or expenses, it has no obligation to respond to criticism, and all authority rests in the hands of a single man. ... And just as people who run technical companies are reaching an apex of confidence in their ability to invent new forms of community based on sharing everything, craigslist still treats social life as dangerously complex, deserving the most jaded caution. Corporate isolation, user anonymity, refusal of excessive profit, glacial adoption of new features: These all signal Newmark and Buckmaster's wariness about what humans, including themselves, might do if given the chance. There may be a peace sign on every page, but the implicit political philosophy of craigslist has a deeply conservative, even a tragic cast. Every day the choristers of the social web chirp their advice about openness and trust; craigslist follows none of it, and every day it grows.--Gary Wolf
The relationship [between Russia and China] may allow the Chinese to extract strategically important natural resources from Russia and extend their regional influence, but it affords the Russians little more than the pretense of a multipolar world in which Moscow enjoys a central role. ... China treats Russia with supreme tact, vehemently denying its own superiority -- a studious humility that only helps it maintain the upper hand. ... It is as if China went to the prom with one partner, Russia, went home with another, the United States, and then married the latter while wooing its jilted original date as a mistress. ... Russia has recovered from its moment of post-Soviet weakness but nonetheless remains a regional power that acts like a global superpower. China, on the other hand, has been transformed into a global superpower but still mostly acts like a regional power. Meanwhile, the United States is still busy trying to consolidate its triumph in the Cold War 18 years on. Recently, many people in Russia and the United States have begun to speak of a "new Cold War." This idea, however, is doubly wrong -- wrong because Russia, a regional power, cannot hope to mount a global challenge to the United States, and wrong because the old Cold War tilting never went away, with the battleground merely having been downsized, shifting from the whole globe to Kiev and Tbilisi.--Stephen Kotkin
What a strange world we live in. The government is doing everything the private sector used to do--like run car companies and fund banks--while the private sector is going all those traditionally governmental tasks--like killing people and running jails.--Lawrence Delevingne
Slavery was destroyed by capitalism.--Don Boudreaux
President Barack Obama took a break from his Martha’s Vineyard vacation today to offer Federal Reserve Chairman Ben Bernanke another four-year stint at running the central bank. In prepared remarks, Obama credited Bernanke from aggressively pulling the economy from the brink. He said Bernanke “approached a financial system on the verge of collapse with calm and wisdom.” Here, the full text of Obama’s statement.
Good morning everyone. I apologize for interrupting the relaxing I told you all to do, but I have an important announcement to make concerning the Federal Reserve.
The man next to me, Ben Bernanke, has led the Fed through the one of the worst financial crises that this nation and this world have ever faced. As an expert on the causes of the Great Depression, I’m sure Ben never imagined that he would be part of a team responsible for preventing another. But because of his background, his temperament, his courage, and his creativity, that’s exactly what he has helped to achieve. And that is why I am re-appointing him to another term as Chairman of the Federal Reserve.
Ben approached a financial system on the verge of collapse with calm and wisdom; with bold action and outside-the-box thinking that has helped put the brakes on our economic freefall. Almost none of the decisions he or any of us made have been easy. The actions we have taken to stabilize our financial system, repair our credit markets, restructure our auto industry, and pass a recovery package have all been steps of necessity, not choice. They have faced plenty of critics, some of whom argued that we should stay the course or do nothing at all. But taken together, this “bold, persistent experimentation” has brought our economy back from the brink. They are steps that are working. Our recovery plan has put tax cuts in people’s pockets, extended health care and unemployment insurance to those who have borne the brunt of this recession, and is continuing to save and create jobs that otherwise would have been lost. Our auto industry is showing signs of life. Business investment is showing signs of stabilizing. Our housing market and credit markets have been saved from collapse.
Monday, August 24, 2009
''Women with higher levels of testosterone turn out to be less risk averse, more willing to take risks,'' Luigi Zingales of the University of Chicago said in a telephone interview.
''For example, in our sample set, 36 percent of female MBA students chose high-risk financial careers such as investment banking or trading, compared to 57 percent of male students. We wanted to explore whether these gender differences are related to testosterone, which men have, on average, in higher concentrations than women.''
Previous research in England showed that higher levels of testosterone seem to boost short term success at finance. Researchers there tested male traders morning and evening, and found that those with higher levels of testosterone in the morning were more likely to make an unusually big profit that day.
Zingales and his team tested the testosterone levels of more than 500 MBA students -- males and females -- and asked them to choose between a guaranteed monetary award or a risky lottery with a higher potential payout. Students had to choose repeatedly between the lottery and a fixed payment at increasing values.
In general, men had higher levels of testosterone and were more likely to choose the risky lottery than women.
But it also turned out that women with higher levels of testosterone were almost seven times more likely to take risks that women with lower hormone levels.
On the other hand, there was no difference in risk-tasking between those with relatively low levels of testosterone -- 90 percent of women and 31 percent of men.
In addition, the researchers found that married men and women had lower levels of testosterone than single individuals.
''Married people are also known to be more risk-averse than unmarried people,'' they noted.
Thursday, August 20, 2009
You may know that I favor small governments and decentralization. I believe that this leads to a healthy competition. Let’s suppose that the reason why China fell behind Europe is that they didn’t have this sort of healthy competition that one observed between European states. Then how can this explain why today China is the fastest growing country in the world? The answer is that by 1978, China had fallen far behind not just Europe, but also its smaller neighbors in East Asia. This was too much for even the insular “Middle Kingdom” to accept, and they responded by adopting some foreign technologies and economic practices. The fast growth reflects their catching up to the rest of East Asia.
So the root cause of European supremacy was their alphabet, the ABCs. This led to language fragmentation, national cultures, nationalism, the nation state, economic competition, and growth. Does this mean China must fragment? No. (Well, I am in China right now, so what do you expect?) In my earlier post I discussed the success of Zhejiang province. This has led neighboring provinces such as Jiangsu to adopt some of its market friendly ideas. Thus competition at the provincial level can be healthy, as long as the central government sets the appropriate rules. (I’d like to see China adopt a ban on inter-provincial trade barriers, like our “Commerce Clause.”)
There is a cottage industry among economic historians in trying to explain why Britain was the first country to industrialize. I wonder if there is an advantage to being a large fertile island that lies close enough to the mainland to absorb its ideas and technology, but far enough away to be difficult to invade. The problem is that this theory is based on a single observation. Too bad we don’t have another continent with another great civilization on the mainland. A continent that also has a nearby large, fertile island that is close enough to absorb ideas from the mainland but far enough away to be difficult to invade. With the island being the first to industrialize in its neighborhood. Any suggestions?
Innocence is no defense against bureaucracy.--Rose Friedman
I believe that the financial crisis of 2008 was the mother of all frame jobs. The commercial bankers were framed, when it was really the central bankers that created the severe recession. --Scott Sumner
LIKE elaborately plumed birds…we preen and strut and display our t-values.--Ed Leamer
Like virtually every economist I know, I believe the right approach to limiting health spending is by reforming the tax rules. But if that is not going to happen, let's not destroy the high quality of the best of American health care by government rationing and misplaced egalitarianism.--Martin Feldstein
... if you are not a pivotal voter, announcing your true preferences and views does not necessarily help you get what you want.--Tyler Cowen
Direction–not intentions, hopes, dreams, prayers, beliefs, intellect, or education–determines destination.--Andy Stanley
Okay, what are the odds that half the people who signed up to boycott Whole Foods spend $200 a week there? The class of people who are most worked up over this is not necessarily contiguous with the class of people who drops $800 every single month at a single grocery store. --Megan McArdle
[Tom Brady has] probably toned it down a little this year. He hasn't had any sheep or farm animals in his shoots. From that, he's done pretty well.--Dan Koppen
The New York Times reported that Ms. Leibovitz didn’t have “a taste for luxuries” and wasn’t an “expensive liver” who went to parties. Apparently, owning a penthouse and sprawling townhouse in Manhattan, along with the former Astor compound in Rhinebeck, N.Y., and a place in Paris (not to mention the Range Rover, trips to Paris, chef, housekeeper, live-in nanny and personal yoga instructor) don’t count as “luxuries.”--Robert Frank
Let me start with the issue of the evil of health insurance companies. As a matter of theory, I agree with my co-blogger, Bryan, that in a competitive market health insurance companies would not be evil. Those with bad reputations would lose business, and those with good reputations would obtain loyal customers.
As a matter of practice, the market for health insurance does not work that way. The individual health insurance market has been killed by a thousand cuts--or more precisely, 50 cuts, as each state regulates private health insurance and many of them (such as Maryland) pretty much regulate the insurance companies out of business.
The only functioning insurance market is the employer-provided health insurance market. There, it is up to the employer how the insurance company behaves. If the employer wants the insurance company to pay claims, that is what it does. If the employer wants the insurance company to play hardball, then that is what it does.
Now, on to the larger point. I am not a fan of employer-provided health insurance, of Medicare, or of Medicaid. That makes me totally unacceptable politically. For a politician, to question any of the major status-quo institutions in health insurance is like a soldier popping his head out of a foxhole surrounded by enemy machine guns--you just get your head blown off.
The smartest employers will quickly figure out how valuable it is to hire an applicant who can demonstrate he took all the MIT Sloan Business School courses online, by himself, and mastered them. And ten years from now, no one will know or care whether you got the degree.As a foolish young twentysomething, I was toying with the MBA idea, and saw that Sloan had the highest paid grads. Then, I was recruited by a Sloan professor interested in my price analysis work at Salomon, and he asked me to go.
Are you a follower or a leader? How you go to business school--paying through the nose or going for free--tells you all you need to know. (Via John Carney).
I have not a single iota of regret for passing on the whole shebang.
Coalitions of interest groups running at least $24 million in pro-overhaul ads hired GMMB, which worked for Obama's 2008 campaign and whose partners include a top Obama campaign strategist. They also hired AKPD Message and Media, which was founded by , a top adviser to Obama's campaign and now to the White House. AKPD did work for Obama's campaign, and Axelrod's son Michael and Obama's campaign manager David Plouffe work there.(Via Drudge).
Wednesday, August 19, 2009
Having a libertarian running Whole Foods is almost as delicious as it was having The New York Times charge for its columnists.--Andrew Samwick
I supported Obama over both McCain and Clinton partly because he opposed mandates. Now he hasn't said a word to stop them. I don't know if I could bring myself to vote for a Republican, but if the Democrats inflict this financial injury on me, they can forget about my ever voting for another Democrat. I didn't know if Obama was trustworthy; now I know.--Megan McArdle
Tuesday, August 18, 2009
As we observe the lynch mob in action, and some of us try to restrain them, we should realize that progress has always been due to those who resist the mob. Simply because this mob claims to be "progressive" doesn't imply that their actions support progress. Indeed, until they acknowledge that most advances in human happiness and well being are due to creativity, innovation, and entrepreneurship, and that freedom is sine qua non for releasing "The Creative Powers of a Free Civilization," billions of people will suffer unnecessarily.
EconAnalyst has more in the comments:
My old roommate has a theory about dating that combines the EMH and the BCG Growth Share Matrix.
2 by 2 Matrix with 'the relative ease of them sleeping with you' on the vertical axis and 'attractiveness' on the horizontal axis.
Easy & Hot - Porn Stars
Easy & Less Than Hot - Question Marks? (One Night Stands)
Hard to Get & Hot - Wives
Hart to Get & Less Than Hot - Worthless
Superimposed over this grid is an efficiency frontier that is unique for every man, based on his attractiveness, income, x-factors and state of inebriation.
There are way more details but it all boils down to this:
Nerdy guys should spend less time thinking about women and more time talking to them.
Jessica adds in the same comments:
The single women I've known who complain all the good ones are taken are usually commitment-phobes who use that as the excuse why they're single or they over-estimate their own desirability to others i.e they work a dull job and sit and watch TV every night but want a guy who's well-read, has lots of hobbies, travels & is socially engaging.
Guys are usually single because they're too chickensh*t to go up and talk to anybody new.
My own 5-second theory is that guys who are wearing the wedding ring signal greater stability--steadier cashflow, steadier temperament, less days hungry, less chance of (date) rape. Of course, a guy that would wear the ring and go past flirting might actually be signaling a stronger risk of abuse.
A second ready-to-chuck theory is that a man who is happily married will converse with a single woman with greater poise, and without the agenda that might make a single man who is competing for affections seem creepy or nervous.
The fact that there’s a moral order out there doesn’t mean there’s a God. On the other hand, it’s evidence in favor of the God hypothesis and evidence against [Nobel laureate Steven] Weinberg’s worldview [who wrote "The more the universe seems comprehensible, the more it also seems pointless. ... It’s not a moral order out there. It’s something we impose.] In the great divide of current thought—between those, including the Abrahamics, who see a higher purpose, a transcendent source of meaning, and those, like Weinberg, who don’t—the manifest existence of a moral order comes down clearly on one side.--Robert Wright
If it's wrong to make people sick on purpose, is it also wrong to forcibly withhold medical care from them that they're willing to pay for? If so, then much about Canadian health care is wrong; ditto for the Food and Drug Administration, which forcibly withholds drugs from residents of the United States.--David Henderson
The Cuban government recently began handing out idle state land to private farmers across the island in an effort to boost food production. Cuba is hoping that private farmers can literally plow the island out of a huge $11 billion trade deficit this year caused by rising food import costs and falling exports. The policy marks a major shift away from inefficient state farms that once occupied the lion's share of the island's agricultural land.--David Adams
When I was a socialist believer, I too found it hard to imagine that decent human beings could support free markets. I went to graduate school at the University of Chicago in order to discover how the Chicago economists, who claimed to be scientists, could believe in something so self-evidently evil. And, upon learning economics at Chicago, I gradually discovered that common academic perspectives on capitalism were empirically false.--Michael Strong
Sociology is the most leftist of all the academic disciplines; it was (and is) the worst department of all for anyone who is pro-market, less alone a black Randian libertarian woman [like Anne Wortham].--Michael Strong
Almost a third of Republicans, according to a recent poll, believe the unsupported story that Mr Obama was not born in the US (in which case he would be disqualified from serving as president). But remember that more than a third of Democrats subscribe to the even more outlandish theory that the Bush administration knew about the attacks of September 2001 in advance.--Clive Crook
And many Progressives (not all, as [Elizabeth] Warren illustrates) seem to want to side with [Hank] Paulson, and especially with Ben Bernanke, in deciding to save the dinosaurs. I wish we could have a clean, nonideological way of answering that question.--Arnold Kling
The fallacy embedded in the Efficient Market Hypothesis Wealth Corollary can be hard for financial journalists to grok, because we have such a high financial-sophistication-to-wealth ratio. ... The American Dream is fundamentally meritocratic: if you’re smart and work hard, you can be massively successful. But the reality is different: some people are massively successful, and some non-negligible proportion of those people is not smart at all, especially not when it comes to finances. Having lots of money, sometimes, just makes it that much easier not to ever worry or think about matters financial. And that, in turn, makes it much more likely that you’ll end up being taken advantage of.--Felix Salmon
As for getting an MBA ... it’s not what you learn at business school that matters, it’s the screening function. Top business schools screen for the attributes that certain types of companies, including consulting firms and investment banks, value – above-average intelligence, ambition, presentability, ability to get along with others, willingness to follow orders, and a strong streak of conformism.--James Kwak
Monday, August 17, 2009
The Federal Home Loan Banks, or FHLB's, were known as the "flubs." They were created in the 1930's to serve as a lender of last resort for the savings and loans, because the Fed would not do so. When the saving and loan industry fell apart in the 1980's and their regulation and deposit insurance was taken over by the FDIC around 1990, there was no longer any reason for the flubs to exist. Of course, this being the government, they were not shut down. Instead, looking for something to do, they decided to compete with Freddie and Fannie by playing around in the mortgage market.
As a taxpayer, you really have to resent losing money via the flubs. Just because they could not bear to get rid of some public sector workers, your Congress allowed these people to gamble away gobs of your money.
Good thing we have government to correct all the moral failures of the unfettered market.
Having turned gambling, which once was treated as a sin, into a social policy, government looks unusually silly criminalizing online forms of it.--George Will
Obama sips it. Paris Hilton loves it. Mary J. Blige won't sing without it. How did a plastic water bottle, imported from a military dictatorship thousands of miles away, become the epitome of cool?--Anna Lenzer
I'm not in favor of business. I'm in favor of competition.--Megan McArdle
Automobiles are becoming more fuel efficient at a much faster rate than light rail, which gets its power largely from carbon-spewing power plants. That regrettable, counter-intuitive fact is an unintended consequence of "the Prius Effect," as the rise of hybrids and increasingly fuel-efficient cars outstrips the environmental benefits of light rail. --Chuck Plunkett
One unintended byproduct of the current U.S. debate [on healthcare] is that the British will dally in reforming their NHS. It is now harder for them to admit they have a relatively bad system.--Tyler Cowen
My nascent theory is that artists are inclined to view business as not just different from but antithetical to what they do. Artists (at least modern artists) are into self-expression. In other words, they're inherently selfish. Business people, on the other hand, are into selling. This means they have to discern other people's wants and cater to them. Artists call that selling out. --Larry Ribstein
... it is not business that filmmakers dislike, but rather the control of firms by profit-maximizing capitalists. The article argues that this dislike stems from filmmakers' resentment of capitalists' constraints on their artistic vision. Filmmakers' portrayal of business is significant because films have persuasive power that tips the political balance toward business regulation.--Larry Ribstein
They had a different dim sum cart for the white folks. If it had been a soul food restaurant, we’d have had grounds for a lawsuit.--Jason Kuznicki
Why does it seem even worse when its over employment:
Speaking to a packed house in West Tisbury Sunday night, Kenneth Feinberg rejected the title of "compensation czar," but he also said said his broad and "binding" authority over executive compensation includes not only the ability to trim 2009 compensation for some top executives but to change pay plans for second tier executives as well.
In addition, Mr. Feinberg said he has the authority to "claw back" money already paid to executives in the seven companies whose pay plans he will review.
This reminds me of The Empire Strikes Back, when Lando Calrissian realized that it's really better not to deal with Darth Vader, when the Sith Lord kept changing the terms of his deals.
Darth Vader: Calrissian. Take the princess and the Wookie to my ship.
Lando: You said they'd be left at the city under my supervision.
Darth Vader: I am altering the deal. Pray I don't alter it any further.
Photo link here.
Friday, August 14, 2009
Yesterday during a town hall meeting, President Obama got his facts completely wrong. He stated that a surgeon gets paid $50,000 for a leg amputation when, in fact, Medicare pays a surgeon between $740 and $1,140 for a leg amputation.--American College of Surgeons
Work to Pass Obama's Healthcare Plan and Get Paid to Do it!$10-15 hr! ... Join motivated staff around the country working to make change happen. You can make great friends and money along the way. Earn $400-$600 a week.--Fund for the Public Interest on Craigslist
So when lefties [protest], it's called "community organizing." When conservatives and libertarians do it, it's "AstroTurf." Give me a break.--John Stossel
Remember how Democrats and media made fun of Bush for talking about “evildoers?” But those were just terrorists, not people who, you know, opposed the Obama Administration’s agenda.--Glenn Reynolds
Polls indicate that the American people are not -- or a plurality of the American people are not with the president on health care reform. He's obviously trying to change that by campaigning. ... A majority of the American people are not with the president on health care reform, the bill that -- the legislation he's trying to get through Congress. How would you say it?--Jake Tapper, to Robert Gibbs, President Obama's press secretary
It's darkly amusing to hear progressives doing the "how dare they demagogue issues which aren't relevant to the bill" routine. Remember how you won the public relations war on the Patriot Act and Social Security Reform, guys? Remember back when "congressmen didn't read the Patriot Act" and "this is an unprecedented assault on our Bill of Rights" and "they'll take away your social security and give it to Wall Street" were by-words, and no one in the Democratic Party minded much if they weren't true so long as they served to win the debate? Well, it's not admirable coming from either side, but given that half your own legislators can't describe the issues that are and aren't covered by the current bill clearly, you can hardly be surprised when people float all sorts of things around so long as they work. Clarity and transparancy would be a good defense. How about a shorter bill with clear goals next time?--Darwin Catholic
It isn't the cost. It isn't the taxes. It isn't the redistribution. It isn't even the mandate, which is borderline plausible to me in the way that mandatory auto insurance is, and forced retirement savings might be: the moral hazard is huge, because your neighbors won't let you die. My objection is primarily, as I've said numerous times, that the government will destroy innovation. It will do this by deciding what constitutes an acceptable standard of care, and refusing to fund treatment above that. It will also start controlling prices.--Megan McArdle
From his first address to Congress, Obama insisted on the dire need for restructuring the health-care system because out-of-control costs were bankrupting the Treasury and wrecking the U.S. economy -- yet the Democrats' plans would make the problem worse. --Charles Krauthammer
... I take Lipitor. The drug may extend my life. But this doesn't lower my health-care costs. Years of pill-taking increases costs. If the pill works, I may live long enough to get an even more expensive disease. And maybe I, like millions of others, take Lipitor unnecessarily because we would never have had heart attacks. We then spend more, not less, on health care.--John Stossel
One of the bewildering ironies of the health care debate is that President Obama claims to be attacking the status quo when he's actually embracing it. Ever since Congress created Medicare and Medicaid in 1965, health politics has followed a simple logic: Expand benefits and talk about controlling costs. That's the status quo, and Obama faithfully adheres to it. While denouncing skyrocketing health spending, he would increase it by extending government health insurance to millions more Americans. Just why this approach is perennially popular is no secret. Health care is viewed as a "right." Promoting it seems "moral." Cost controls suggest dreaded "rationing." So there's a powerful bias toward expansion.--Robert Samuelson
... health care and insurance are overly protected and regulated businesses. We need to allow the same innovation, entry, and competition that has slashed costs elsewhere in our economy. For example, we need to remove regulations such as the ban on cross-state insurance. Think about it. What else aren't we allowed to purchase in another state? The bills being considered in Congress address the pre-existing condition problem by forcing insurers to take everybody at the same price. It won't work. Insurers will still avoid sick people and treat them poorly once they come. Regulators will then detail exactly how every disease must be treated. Healthy people will pay too much, so we will need a stern mandate to keep them insured. And this step further reduces competition. Private, competitive insurance markets are a superior way to solve the pre-existing-conditions problem, and the only hope to lower costs.--John Cochrane
My stake in the [apartment I co-own with my ex-girlfriend] is essentially a free call option. My renters’ payments cover the mortgage payments, and the asset has already lost its value. Upside awaits. What I didn’t take into account were the externalities: an indignant fiancée, a difficult ex and an illiquid market. My biggest regret is not securitising those risks, representing them as assets and selling them to the major US banks.--Mary's fiance, updating Dear Economist
I don’t think the Obama Administration took over GM. I think GM took over the Obama Administration.--Glenn Reynolds
My new home will have solar power. It was a city requirement. I plan to brag about it to people who are passionate about the environment and bad at math.--Scott Adams
[George Bush and Dick Cheny] maintain respectful ties, speaking on the telephone now and then, though aides to both said they were never quite friends. But there is a sting in Cheney's critique, because he views concessions to public sentiment as moral weakness. After years of praising Bush as a man of resolve, Cheney now intimates that the former president turned out to be more like an ordinary politician in the end. --Barton Gellman
Ever find yourself sitting down at the computer just for a second to find out what other movie you saw that actress in, only to look up and realize the search has led to an hour of Googling? Thank dopamine. Our internal sense of time is believed to be controlled by the dopamine system. People with hyperactivity disorder have a shortage of dopamine in their brains, which a recent study suggests may be at the root of the problem. For them even small stretches of time seem to drag.--Emily Yoffee
Thursday, August 13, 2009
The trading fee is 5 cents per $10 lot for trades between 5 and 95, and 3 cents per lot outside that range. The expiry fee is 10 cents per lot. Obviously Intrade needs to take a cut somewhere, but these per-lot charges distort the markets towards the extremes. For example, there is a bid out right now on Joe Lieberman to win at 0.3%. This probably overestimates his chances, but no one will ever match that offer. Why? If you bet against Lieberman at those odds, for every lot, you'd win 3 cents. Minus 3 cents for trading and 10 cents for expiry, for a net loss of 10 cents. This means there is no reason to bet against anything at odds less than 1.4%, because you can't possibly win money. This fee system also reduces the volume of trade substantially. Right now someone is offering to buy Mark Sanford at 1.5. If I took that bet, I'd be risking $9.88 to win $0.02, or laying about 500-1 odds. Meanwhile, the person on the other side of the bet would only receive a 65-1 payout if they won. Another way of putting that is that Intrade is charging an 87% commission on that trade. That's far too high, and kills most of the action in that range. A much less distorting system would be to charge traders a small percentage of each winning trade.
Fundamentally, it makes no sense to bet against anyone at odds of 10% or less. ... [Otherwise,] it would require a greater fool to come along and risk [even more on a long dated trade]. That's not impossible, but it's never a good idea to make bets which require others' stupidity in order to succeed.
In the 1960s, a University of Wisconsin graduate student named Thomas Crocker came up with a novel solution for environmental problems: cap emissions of pollutants and then let firms trade permits that allow them to pollute within those limits.
"I'm skeptical that cap-and-trade is the most effective way to go about regulating carbon," says Mr. Crocker, 73 years old, a retired economist in Centennial, Wyo. He says he prefers an outright tax on emissions because it would be easier to enforce and provide needed flexibility to deal with the problem.
Mr. Crocker sees two modern-day problems in using a cap-and-trade system to address the global greenhouse-gas issue. The first is that carbon emissions are a global problem with myriad sources. Cap-and-trade, he says, is better suited for discrete, local pollution problems. "It is not clear to me how you would enforce a permit system internationally," he says. "There are no institutions right now that have that power."
In this case, he says Washington needs to come up with an approach that will be flexible and easy to adjust over a long stretch of time as more becomes known about damages from greenhouse-gas emissions. Mr. Crocker says cap-and-trade is better suited for problems where the damages are clear -- like acid rain in the 1990s -- and a hard limit is needed quickly.
"Once a cap is in place," he warns, "it is very difficult to adjust." For example, buyers of emissions permits would see their value reduced if the government decided in the future to loosen the caps.
The continuing development of prediction markets is important because of their success in foretelling the future in politics, economics, and science.--Miriam Cherry, Robert Rogers
What we ended up with is a program in which you trade in old clunkers for new clunkers.--Senior Obama administration official
Our media and culture are permeated with romanticism about politics and voting. I wish to disenchant people for whom democratic government is a sort of religion, so that they will consider alternatives.--Arnold Kling
In fact there are diseconomies of scale in governance, which is why Ireland is richer than Britain, Austria is richer than Germany, HK is richer than Taiwan which is richer than China. Singapore is richer than Malaysia (even controlling for ethnicity.)--Scott Sumner
We find that, by standards of OECD countries, the US does well in terms of screening for cancer, survival rates from cancer, survival rates after heart attacks and strokes, and medication of individuals with high levels of blood pressure or cholesterol. We consider in greater depth mortality from prostate cancer and breast cancer, diseases for which effective methods of identification and treatment have been developed and where behavioral factors do not play a dominant role. We show that the US has had significantly faster declines in mortality from these two diseases than comparison countries. We conclude that the low longevity ranking of the United States is not likely to be a result of a poorly functioning health care system.--Samuel H. Preston, Jessica Y. Ho
In designing Medicare and Medicaid in 1965, the government essentially adopted this comprehensive-insurance model for its own spending, and by the next year had enrolled nearly 12 percent of the population. And it is no coincidence that the great inflation in health-care costs began soon after. We all believe we need comprehensive health insurance because the cost of care—even routine care—appears too high to bear on our own. But the use of insurance to fund virtually all care is itself a major cause of health care’s high expense. --David Goldhill
All of us sports fans see all sorts of “patterns” that we think are correct. Players have hot streaks, certain hitters or teams are “clutch,” great pitchers get better with age, etc. And [Bill] James showed most of these were just hogwash, or more politely what I call cognitive illusions. What I find interesting about all this is that these illusions are almost identical to the sort of faulty thinking that led people to think Keynes and Livermore were great investors. Seeing patterns where there are no patterns. James showed that sports fans routinely engage in exactly the sort of thinking that would lead someone to falsely reject the EMH, even if the EMH was true. So who are you going to believe? Me or your lying mind?--Scott Sumner
... Your Majesty [Queen Elizabeth of England], economists did something even better than predict the crisis. We correctly predicted that we would not be able to predict it. The most important part of the much-maligned Efficient Markets Hypothesis (EMH) is that nobody can systematically beat the stock market. Which implies nobody can predict a market crash, because if you could, then you would obviously beat the market. This applies also to other asset markets like housing prices. If you think it is useless to be told you cannot predict the market, then you should change your Palace investment advisor. This knowledge will protect you from a lot of investment scams like Mr. Madoff’s and will also provoke a serious discussion of how to protect your Royal Wealth against risk in an uncertain world. ... So please tell your subjects in poor countries to keep studying basic mainstream economics. This economics not only survived the crisis, it also is the proven set of ideas that get countries out of poverty.--William Easterly
... the solution to most of the major problems that confront many black people won't be found in the political arena and by electing more blacks to high office. In fact, politicians tend to be hostile to some of the solutions to problems many blacks face such as school choice as a means to strengthen education, the elimination of oppressive licensing restrictions for various occupations, and supportive of job-destroying labor legislation such as minimum wage laws. The bottom line is there is very little evidence anywhere on the planet that political power is a necessary condition for economic power. --Walter Williams
Consistent with the prior literature, when children enter kindergarten, girls and boys are observationally equivalent in both math and reading. By the end of fifth grade, however, girls have fallen more than 0.2 standard deviations behind their male counterparts in math. The math gap is equivalent to 2.5 months of schooling. Girls are losing ground in math in every region of the country, every racial group, all levels of the socio-economic distribution, every family structure, and in both public and private schools. By the end of the sample, girls do significantly worse than boys on every math skill tested. Underperformance by girls is evident not just in mean test scores, but also in the upper tail of the math distribution. On entry to kindergarten, girls make up 45% of the top five-percentiles in math test scores; by the end of fifth grade just 28% of the top five percent are female. Girls are underrepresented in the bottom tail of the math distribution in kindergarten, but overrepresented in the bottom tail by fifth grade.--Roland Fryer and Steven Levitt
I'm a little surprised that the Republicans, who are generally very good at coming up with diminutive nicknames for their opponents, never latched on to calling Sonia Sotomayor "So-So."--Jesse Livermore
Wednesday, August 12, 2009
The EMH was a kind of jiu-jitsu response on the part of economists to turn weakness into strength. "I can't figure out how things work, so I'll make that a principle."--Emanuel Derman
See? Economists are scientists, after all. That which they can’t explain, they turn into an axiom.--Felix Salmon
It's remarkable that in the current debate over how to control health care costs so little attention is being given to the important results of our 10-year experiment with consumer driven health plans.--Alex Tabarrok
Political risk is like the worst kind of tax. It stifles valuable economic activity without raising any revenue for the government.--Paul Romer
I think most of the people demanding that I discuss nothing but current [healthcare] legislation understand this very well. That's because they feel exactly the same way about pro-lifers advocating for bans on partial-birth abortion, various sorts of counseling, waiting periods, and parental consent.--Megan McArdle
The [Bank of America] deal [for Merrill Lynch] was not altogether voluntary; as details have slowly emerged, the coercive role of the Fed and Treasury has loomed larger. What exactly happened in the weeks leading up to the merger? Did the deal save us all from economic apocalypse? And what does the government’s unprecedented role in it portend for the future of our economy?--William Cohan
Because earnings are taxed via income and payroll taxes, people have too little incentive to work and consume. In addition, because there is a negative externality associated with carbon, people have too little incentive to move their consumption basket toward less carbon-intensive products. In other words, the relative price of consumption compared to leisure is too high, and the relative price of carbon consumption compared to non-carbon consumption is too low. The trick is how to fix the second distortion [of consuming more expensive but less carbon-intensive goods] without making the first one [the disincentive of taxes to work and spend] worse. A tax on carbon with the revenues used to cut income taxes does that. Everyone who thinks there are negative carbon externalities should agree that is the efficient policy. A tax on carbon with the revenue squandered via lump-sum handouts to powerful special interests, however, fixes the second distortion but makes the first one worse. ... But there is a consensus, more or less, that we could fix one margin of adjustment without distorting the other margin more. That requires a cut in income or payroll taxes to be a key part of the environmental policy.--Greg Mankiw
The real question on the table is: Do we want to empower our government to punish bad behavior that was perfectly legal when it occurred? If you answer one way, you'll favor compensation for slaveholders, retraining programs for displaced workers and free (or at least inexpensive) cap-and-trade permits for polluting firms. If you answer the other way, you'll reverse those judgments.--Steve Landsburg
Everyone I know has at least one personal story about how screwed up our health-care system is; before spending (another) $1trillion or so on reform, we need a much clearer understanding of the causes of the problems we all experience.
How often have you heard a politician say that millions of Americans “have no health care,” when he or she meant they have no health insurance? How has a method of financing health care become synonymous with care itself?
Society’s excess cost from health insurance’s administrative expense pales next to the damage caused by “moral hazard”—the tendency we all have to change our behavior, becoming spendthrifts and otherwise taking less care with our decisions, when someone else is covering the costs. Needless to say, much medical care is unavoidable; we don’t choose to become sick, nor do we seek more treatment than we think we need. Still, hospitals, drug companies, health insurers, and medical-device manufacturers now spend roughly $6 billion a year on advertising. If the demand for health care is purely a response to unavoidable medical need, why do these companies do so much advertising?
Want further evidence of moral hazard? The average insured American and the average uninsured American spend very similar amounts of their own money on health care each year—$654 and $583, respectively. But they spend wildly different amounts of other people’s money—$3,809 and $1,103, respectively. Sometimes the uninsured do not get highly beneficial treatments because they cannot afford them at today’s prices—something any reform must address. But likewise, insured patients often get only marginally beneficial (or even outright unnecessary) care at mind-boggling cost.
Perhaps the greatest problem posed by our health-insurance-driven regime is the sense it creates that someone else is actually paying for most of our health care—and that the costs of new benefits can also be borne by someone else. Unfortunately, there is no one else.
Every proposal for health-care reform has featured some element of cost control to “balance” the inflationary impact of expanding access. Yet it goes without saying that in the big picture, all government efforts to control costs have failed. Why? One reason is a fixation on prices rather than costs. The government regularly tries to cap costs by limiting the reimbursement rates paid to providers by Medicare and Medicaid, and generally pays much less for each service than private insurers. But as we’ve seen, that can lead providers to perform more services, and to steer patients toward higher-priced, more lightly regulated treatments. The government’s efforts to expand “access” to care while limiting costs are like blowing up a balloon while simultaneously squeezing it. The balloon continues to inflate, but in misshapen form.... less complicated surgical cases (the kind specialty clinics typically take on) tend to be more profitable than complex surgeries and nonsurgical admissions. Without those profitable cases, hospitals can’t subsidize the cases on which they lose money. But why are simple surgeries more profitable? Because of the nonmarket methods by which Medicare sets prices.
So what exactly makes an ER more expensive than other forms of treatment? Perhaps it’s the accounting. Since charity care, which is often performed in the ER, is one justification for hospitals’ protected place in law and regulation, it’s in hospitals’ interest to shift costs from overhead and other parts of the hospital to the ER, so that the costs of charity care—the public service that hospitals are providing—will appear to be high. Hospitals certainly lose money on their ERs; after all, many of their customers pay nothing. But to argue that ERs are costly compared with other treatment options, hospitals need to claim expenses well beyond the marginal (or incremental) cost of serving ER patients.
Why has adoption of clinical information technology been so slow? Companies invest in IT to reduce their costs, reduce mistakes (itself a form of cost-saving), and improve customer service. Better information technology would have improved my father’s experience in the ICU—and possibly his chances of survival. But my father was not the customer; Medicare was. And although Medicare has experimented with new reimbursement approaches to drive better results, no centralized reimbursement system can be supple enough to address the many variables affecting the patient experience.
I requested the total cost of the delivery and related procedures from our hospital. The answer: the hospital discussed price only with uninsured patients. What about my co-pay? They would discuss my potential co-pay only if I were applying for financial assistance. Keeping prices opaque is one way medical institutions seek to avoid competition and thereby keep prices up. And they get away with it in part because so few consumers pay directly for their own care—insurers, Medicare, and Medicaid are basically the whole game. But without transparency on prices—and the related data on measurable outcomes—efforts to give the consumer more control over health care have failed, and always will. Here’s a wonderful example of price opacity. Advocates for the uninsured complain that hospitals charge uninsured patients, on average, 2.5 times the amount charged to insured patients. Hospitals defend themselves by contending that they earn from uninsured patients only 25 percent of the amount they do from insured ones. Both statements appear to be true! How is this possible? Well, hospitals bill according to their price lists, but provide large discounts to major insurers. Individual consumers, of course, don’t benefit from these discounts, so they receive their bills at full list price (typically about 2.5 times the bill to an insured patient). Uninsured patients, however, pay according to how much of the bill the hospital believes they can afford (which, on average, amounts to 25 percent of the amount paid by an insured patient). Nonetheless, whatever discount a hospital gives to an uninsured patient is entirely at its discretion—and is typically negotiated only after the fact. Some uninsured patients have been driven into bankruptcy by hospital collections. American industry may offer no better example of pernicious “price discrimination,” nor one that entails greater financial vulnerability for American families.
One of the most widely held pieces of conventional wisdom about health care is that new technology is relentlessly driving up costs. Yet over the past 20 years, I’ve bought several generations of microwave ovens, personal computers, DVD players, GPS devices, mobile phones, and flat-screen TVs. I bank mostly at ATMs, check out my own goods at self-serve supermarket scanners, and attend company meetings by videoconference. Technology has transformed much of our daily lives, in almost all cases by adding quantity, speed, and quality while lowering costs. So why is health care different? Well, for the most part, it isn’t. Whether it’s new drugs to control previously untreatable conditions, diagnostic equipment that enhances physician productivity, or minimally invasive techniques that speed patient recovery, technology-driven innovation has been transforming care at least as greatly as it has transformed the rest of our lives. But most health-care technologies don’t exist in the same world as other technologies. Recall the MRI my wife needed a few years ago: $1,200 for 20 minutes’ use of a then 20-year-old technology, requiring a little electricity and a little labor from a single technician and a radiologist. Why was the price so high? Most MRIs in this country are reimbursed by insurance or Medicare, and operate in the limited-competition, nontransparent world of insurance pricing.
I hope that whatever reform is finally enacted this fall works—preventing people from slipping through the cracks, raising the quality standard of the health-care industry, and delivering all this at acceptable cost. But looking at the big picture, I fear it won’t. So I think we should at least begin to debate and think about larger reforms, and a different direction—if not for this round of reform, then for the next one. Politics is, of course, the art of the possible. If our health-care crisis does not abate, the possibilities for reform may expand beyond their current, tight limits.
The most important single step we can take toward truly reforming our system is to move away from comprehensive health insurance as the single model for financing care. And a guiding principle of any reform should be to put the consumer, not the insurer or the government, at the center of the system. I believe if the government took on the goal of better supporting consumers—by bringing greater transparency and competition to the health-care industry, and by directly subsidizing those who can’t afford care—we’d find that consumers could buy much more of their care directly than we might initially think, and that over time we’d see better care and better service, at lower cost, as a result.
How am I supposed to be able to afford health care in this system? Well, what if I gave you $1.77 million? Recall, that’s how much an insured 22-year-old at my company could expect to pay—and to have paid on his and his family’s behalf—over his lifetime, assuming health-care costs are tamed. Sure, most of that money doesn’t pass through your hands now. It’s hidden in company payments for premiums, or in Medicare taxes and premiums. But think about it: If you had access to those funds over your lifetime, wouldn’t you be able to afford your own care? And wouldn’t you consume health care differently if you and your family didn’t have to spend that money only on care?
Ten days after my father’s death, the hospital sent my mother a copy of the bill for his five-week stay: $636,687.75. He was charged $11,590 per night for his ICU room; $7,407 per night for a semiprivate room before he was moved to the ICU; $145,432 for drugs; $41,696 for respiratory services. Even the most casual effort to compare these prices to marginal costs or to the costs of off-the-shelf components demonstrates the absurdity of these numbers, but why should my mother care? Her share of the bill was only $992; the balance, undoubtedly at some huge discount, was paid by Medicare. Wasn’t this an extraordinary benefit, a windfall return on American citizenship? Or at least some small relief for a distraught widow? Not really. You can feel grateful for the protection currently offered by Medicare (or by private insurance) only if you don’t realize how much you truly spend to fund this system over your lifetime, and if you believe you’re getting good care in return.
Imagine my father’s hospital had to present the bill for his “care” not to a government bureaucracy, but to my grieving mother. Do you really believe that the hospital—forced to face the victim of its poor-quality service, forced to collect the bill from the real customer—wouldn’t have figured out how to make its doctors wash their hands?
Economists are nearly unanimous that Ben Bernanke should be reappointed to another term as Federal Reserve chairman, and they said there is a 71% chance that President Barack Obama will ask him to stay on, according to a survey.The weaker, and diminishing case for climate change.
I remain long this:
Tuesday, August 11, 2009
... is that we have no God-like entity to referee the debates. So all we can do is muddle through on our own. Science can make a lot of neat predictions, and hence is very useful, but only for our purposes. The way I like to think about these issues is to imagine a cat taking a nap on top of a big old boxy TV set. Does the cat know what he is sleeping on? She thinks she does. She thinks she knows that it is a 3 foot cube with a hard surface that gets a bit warm when noise and flickering light are emitted.--Scott SumnerAs a parent of 2 feisty kids, I can tell you that I've got much better things to do than to referee their debates. I don't expect a Creator-type of entity to referee mine.
This is deja vu, all over again, for some of us.