Sunday, May 12, 2013

Happy Mothers' Day

Happy Mothers' Day to all of the mothers who:
 - Teach their children the value of hard work ... not laziness
 - Teach their children personal responsibility ... for both good decisions and bad
 - Teach their children to be self-sufficient ... not reliant upon government
 - Teach their children to be generous ... with their own money
 - Teach their children to respect others ... including their property rights 
 - Teach their children timeless moral values ... not the values of the moment
 - Teach their children self-restraint ... rather than instant gratification

and a special thank you to my Mom, for doing all of the above and more. 

Saturday, November 17, 2012

Why the Popular Vote Doesn't Matter

For years, the United States has had an electoral college, and this has been a subject of contention particularly given the nature of recent close elections.  After elections, we compare the popular vote against the electoral college, naively believing that the popular vote is a perfectly accurate reflection of popular opinion.  As we know from every economic principle - incentives matter.  This means that people base whether they vote on a combination of variables, including whether they believe their vote will matter in their state.

Compare the length of the voting lines in swing states to the lines in clearly Democratic or Republican states.  Guess what.. they are longer.  If I'm a liberal voter in Texas, I might not show up to the polls knowing that my one vote will make no difference in the outcome of the election.  If I'm a conservative voter in California, there's no way my vote will change the winner-takes-all electoral vote in the state.  Likewise, if I'm a liberal voter in Washington, D.C., I am sure that the majority will choose the liberal candidate whether I show up to the polls or not.  So why vote?

The point is not that we should or should not have an electoral college.  That's a discussion for another post.  It is that we need to understand that ex post facto reasoning does not work when analyzing election results.  Having an electoral college influences the popular vote and to assume that we can derive meaningful data about popular opinion from observing the popular vote is misguided. 

Monday, June 18, 2012

Recommended Reading


I rarely recommend reading material, but I received a book from my colleague and friend, Don Boudreaux, who compiled many of his letters to the editor in a book titled Hypocrites and Half-Wits. The letters, described as a "daily dose of sanity from Cafe Hayek," blend humor, wit and not-so-common sense in a selection of quick reads. You can find more information here. Highly recommend!


Thursday, June 14, 2012

We're Not Struggling as Much as You Think

According to a New York Times blog post, titled "Many Young Adults Still Struggle with Health Care Costs, Report Finds" by Ann Carrns yesterday, “Despite recent gains in offering health coverage to young adults, many still do not have coverage and have had to make tradeoffs because of medical costs.”  How terrible.
People make tradeoffs every day because of costs.   In fact, if there were no costs, there would be no reason to make tradeoffs.  But there are always costs – it’s just a question of whether those costs are seen or unseen, how much those costs are, and who bears the cost.  Tradeoff decisions do not imply that something costs “too much” – it just means that other things provide more value to us. 
Young adults as a group make tradeoffs about health care because they are generally healthy.  There should be little surprise that young adults estimate their health risk to be lower than the general population.  This means their cost of foregoing healthcare is less than an older or less healthy adult. When choosing among health plans, they frequently pick the lower cost options, choosing to spend their money on things that hold more value to them now.  Over time, their health care choices shift as well, and they may opt for additional coverage to match a higher likelihood of increased doctor visits as they age. 
I have made tradeoffs because of medical costs as well – when I determine how much health coverage I want for the year, I am making a guess as to what my risk of a major medical issue will be this year.  Of anyone, I am probably the best qualified to make this decision.  I know if I smoke, if I drive recklessly, if I get enough sleep, if I eat healthy food, if I plan to have children, if I plan to take up extreme sports, or if I’m genetically predisposed to health problems.  I also know what level of risk I am willing to absorb, and what I prefer to budget on healthcare versus what I prefer to budget on vacations, clothing, housing, or investments.  It doesn’t matter if I make $10,000 or $100,000; I have to make tradeoffs because my wants are boundless, but my resources are finite. 
The statistics in this article, at first glance, seem overwhelming. 
“About 39 percent of young adults age 19 to 29 -- or about 18 million people -- went without health insurance for at least part of 2011, the report found, and more than a third had medical bill problems or were paying off medical debt.
Of those with medical bills or debt, 43 percent said they had used all of their savings, and a third said they had delayed educational plans as a result. Of those who were paying off accumulated medical debt, a quarter said their debt was $4,000 or more."
Of course, these are written to make it sound like a large percentage of the populace is facing exorbitant medical expenses and struggling to survive.  Let’s look at these statistics a little bit more clearly. 
The “43 percent” of those who had medical bills or debt and claimed they had used all of their savings (I won’t go into the various ways that people define ‘savings’) account for 14% of the population of young adults surveyed, or 2.5 million people.  Of those, the 1.8 million who said they delayed educational plans a result likely did not do so purely because of cost – a medical issue, even if you are a millionaire, is a legitimate reason to delay education.  Additionally, did they delay undergraduate education?  Did they delay their MBA?  Now for the “quarter who said their debt was $4000 or more” – this sounds like a staggering number of people – but here were are talking about only 3.5% of the population, an estimated 630,000 young adults.  (Remember, the survey only covered 1,863 participants, and the reported margin of error for the study was plus or minus 3 percentage points.)
Let’s reverse the statistic: of all young adults, aged 19 – 29, 96.5 percent have less than $4000 in medical expenses, and 66 percent report having zero medical debt.  Wow, we’re not doing so badly, are we?    

Friday, December 25, 2009

Perception Management

Hope and change, hope and change ...

It seems that this was the message we heard last year, and we certainly were hoping for change after years of fiscal irresponsibility.

During the last year of the Bush administration, the budget deficit increased by about $450 billion. In the last year of Obama's presidency, it has increased by $1.8 TRILLION, or four times as much. What happened to fiscal responsibility? What happened to "not adding a single dollar to the deficit," as Obama promised just a couple months ago? Yet it seems that the public perception has been so well managed that people still believe that fiscal responsibility is on its way.

So how much is $1.8 trillion anyway? Given approximately 300 million people in the United States today, this is $6000 in debt for every man, woman and child. That's an additional $30,000 in debt for a family of five this year alone. And that number does not include interest and does not apply to the taxes that have already been paid.

So where is fiscal responsibility? Seems like the adage "if you tell a lie long enough, people will believe it" is true. Sorry, Virginia, but Santa Claus does not live in a white house in Washington, D.C.

Wednesday, September 30, 2009

An Apple a Day Keeps Government Health Care Away

It has been a while since I've posted, but I was compelled to provide insight into the "Public Option" also affectionately known as HR 3200. The full text of the bill can be found here.

I am still in the process of reading the bill, as it is 1,017 pages long.

Here's the introduction, as stated in the bill itself:
(1) IN GENERAL- The purpose of this division is to provide affordable, quality health care for all Americans and reduce the growth in health care spending.

(2) BUILDING ON CURRENT SYSTEM- This division achieves this purpose by building on what works in today’s health care system, while repairing the aspects that are broken.

(3) INSURANCE REFORMS- This division--

so that all Americans have coverage of essential health benefits.

(4) HEALTH DELIVERY REFORM- This division institutes health delivery system reforms both to increase quality and to reduce growth in health spending so that health care becomes more affordable for businesses, families, and government.
The first thing I notice is that the general purpose is for government to "provide" health care. But that's not all -- it aims to reduce the growth in health care spending as well. After that, I expected the next sentence to mandate that gravity stop weighing Americans down.

What is wrong with the current system? As far as I can tell, the only issue that people are addressing is that the cost of medical procedures and visits to the doctor is often higher than what they would like to pay. Certainly no one *wants* to go to the doctor or *wants* to have surgery, let alone pay for it.

So what is the alternative? We know from economics 101 that if we control costs through regulation -- let's say we mandate that health care is free -- that suddenly demand rises and instead of allocating health care to those who value it most, we have to use other methods of allocation, such as first-come, first-serve, lotteries, relying on connections, etc. Health care, while it may become "cheap" becomes more scarce because it can't keep up with demand. I know what many of you are thinking, "People don't particularly enjoy going to the doctor -- how is demand going to increase?" Here's one way. Suppose that I have to bear the full costs of my decisions, good and bad, and I am contemplating taking up smoking, excessive drinking, and eating copious amounts of grease-laden food. I may think twice about engaging in unhealthy behavior if I know that I will have to bear the cost of medical procedures that become necessary as a result. However, if I know that the cost is a "shared responsibility" as it states in the introduction to HR 3200, I am more likely to engage in unhealthy behaviors now because the future cost is lower.

As I've said in previous posts, the extra few ounces of prevention that we take when we bear the full cost of our actions make a big difference. Knowing that a doctor's visit will cost me at least provides some motivation to ensure that I wash my hands thoroughly, that I put bandages on cuts, that I get adequate sleep, that I eat a balanced diet.

But what happens to that "ounce of prevention" when you institute "free" health care? Suppose that apples cost $1 and doctors cost $0. Following the "an apple a day keeps the doctor away" saying really isn't compelling when doctors are cheaper than apples, is it?

Wednesday, March 18, 2009

Bailouts & Bonuses

It is widely recognized that bonuses are not a guaranteed supplement to a salary. They are typically given out of a company's profits, and when those profits are not there, bonuses are often withheld until the company is in a better position to award them. This is a function of a long-term plan that most companies operate under in a free market. However, when you institute a plethora of regulations, loopholes, and "free" taxpayer money, you have just warped this basic incentive towards long-term success. If I know that in spite of poor performance, I will receive large sums of money, am I likely to work harder and conserve that money towards promoting a stronger business model? Or am I more likely to spend that money now because I know that more will soon be on the way once the first round of funding runs out?

Instinctively, we react negatively when we hear about how our money is being given to AIG and doled out in large sums to executives. We are paying to run a company whose business model we disagree with! That is not fair! Of course, we blame the evil executives and call them greedy. But we forget that Congress and government intervention are fueling this greed. People are far more greedy when they are not spending their own money. We naturally agree with the free market, which gives us the incentive to forego short-term gain (and long-term losses) in favor of slow but steady long-term gains. The free market is just and fair, rewarding good decisions and punishing bad ones. The free market forces companies to make better decisions and spend wisely because otherwise they risk losing their incomes if they fail. Are the executives at AIG greedy? Sure! But we should not forget that it is the free market that reins in their greed and forces them to work for their bonuses, at least in the long-term. When we introduce government into the equation, we change the natural course of the market and give companies like AIG a free pass to do business with a short-term mentality rather than a long-term strategy. This is exactly what we are seeing now. AIG has not turned around in the last few months even with billions of dollars being handed over! What becomes the solution? If you ask Congress, they say that AIG just needs more money, or more conditions on how the next round of money should be spent.

What we seem to forget is that keeping the AIG name alive, does not mean that we are keeping AIG from failing. AIG has already failed. Any money that has been lost is already gone. We can either continue putting money into the bonfire in hopes of getting it back, or we can finally stop fueling the fire and let it slowly burn out.