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Sunday, July 29, 2007

9/11 Stung

Have you ever been stung by a bee or wasp? I have. The first time I was stung I was about ten years old or so. The pain was worse than any pain I'd ever felt up until that point. But even worse was the fear, nay the terror, that accompanied the pain. What caused the pain? Was it going to get worse? Was it ever going to get better?

For the next few days after I was stung, everything that moved was potentially a bee. I was definitely hyper-aware of all insects. If a fly landed on me, I would just about freak out. However, after a few months I'd mostly forgotten about being stung and I pretty much lost my fear of bees.

The September 11, 2001 attack was like a sting. If you consider the United States as a single organism, the amount of damage to the United States that day was comparable to the amount of damage a single bumble bee can do to a person.

I'm not trying to make light of the tragic and unnecessary deaths that day. However, I think some relative perspective is important. Approximately 10,000 people die in the United States each day from old age, disease, accidents, murder, etc. Some fraction (perhaps all) of those deaths are tragedies as well. 9/11 may or may not have been a record number of deaths for a single day up to that point. 2001 was most likely NOT a record year for deaths. You're far more likely to die in an automobile accident than a terrorist attack (based on past data).

Tens of billions of dollars of wealth were destroyed that day. But that only represents a tiny fraction of a percent of the wealth in the United States. There was probably some not easily measurable impact on GDP as well. The financial markets were knocked off-line for a short period of time, but it was actually remarkably short - our systems seem pretty robust all in all.

No, it wasn't the actual damage that knocked us for a loop. It was the fear (that's why they're called terror attacks). What caused the attacks? Would we recover? Was it going to happen again? Was it going to happen often? Was it ever going to get better?

But just as the memory and fear of the bee sting wanes with time, it seems to me that our collective memory and fear, on average, of the 9/11 attacks has also waned over the last few years. I think that's perfectly natural. Perhaps even positive. Perhaps not.

Let's go back to the bees again. If you got stung while walking into your house, perhaps you'd want to locate the nearby hives. Depending on the locations of the hives, perhaps you'd take some sort of action to have the hives removed. If the hives were inhabited by africanized ("killer") bees right next to your door, perhaps you'd be more likely to take action than if it was just a small honey bee hive on an unfriendly neighbor's property. Perhaps you'd be so mad that you'd dedicate the rest of your life to killing bees. Perhaps not.

Lots of "perhapses". The point is that there is really a very wide range of subjective behaviors that one could pursue in response to being stung. The vast majority of these subjective approaches would be completely rational - they would differ from person to person simply due to personal preference weighing the cost of reducing the odds of being stung again against the personal dislike of being stung. In addition, each person's approach would change over time as more and more time elapsed without being stung again. Again, perfectly natural and expected.

As a result, there are very few responses to 9/11 that I think are actually crazy or even extreme. I may not agree with them since I'm entitled to my subjective preference just like everybody else, but I can understand the other perspectives and based on the premises of those perspectives and a little math, I can understand why others come to the conclusions that they do. That includes everything from doing absolutely nothing to extending the military action to Iran, Pakistan, and beyond and everything in between and/or orthogonal to those two extremes.

The one approach that makes no sense to me is to quit right in the middle of an operation. It makes no sense to stir up a hive, make the bees mad as -- well, hornets -- and then stop what you're doing. Once you start an operation against a hive, you've got to finish that operation, no matter how long it takes, even if that means staying there many years or even decades.

Stopping in the middle of the operation is exactly what were getting dangerously close to doing in Iraq. I'm very confident that is a very bad idea. I can see the merits of almost any other approach. But not that.

Friday, July 27, 2007

Manhattan Project for Energy?

The calls for the United States government to address our dependence on oil, especially foreign oil, have been increasing in frequency and intensity. For example, Rudy Giuliani, a leading candidate for president recently wrote:
I will move America toward energy independence. It will require setting goals, sticking to them and energizing the American people to achieve them.
The generally accepted wisdom seems to be that our government should embark on something like the World War II Manhattan Project for energy. I won't argue whether or not we really need to strive for energy independence in this post. For the remainder of this post, please just assume that "something" needs to be done.

Enthusiasts for big government often point to the Manhattan Project as a great success story and a reason for getting government more involved in other aspects of our lives, especially when someone conjures up some grand vision about how society ought to operate and how we ought to live. Personally, I find it a bit disconcerting that they point to a project that happened more than 60 years ago. Being successful once or twice a century doesn't instill great confidence in me. Even a broken clock is right twice a day.

Well, how about sending a man to the moon? Yes, that was a success as well. But on the less successful side, we need to consider Prohibition, the War on Poverty, the War on Drugs, etc. Indeed, the best that I can say about these other government initiatives is that they were less successful than the Manhattan Project. I'll leave it to you to decide whether they were somewhat less successful or complete disasters, but as far as achieving the stated objective, I think that it's clear that the Manhattan Project was more successful than, for example, the War on Poverty.

So what separates the more successful things that government has done from the less successful? The more successful projects were those that were not dependent on the behavior of the populace remaining static or the ability to predict changes in those behaviors over the course of the project. The Manhattan Project succeeded because those who worked on it didn't directly affect the population and the behavior of the population had no effect on the Manhattan Project. The War on Poverty was less successful because the population responded in non-positive ways to the incentives inherent in the new government policies.

Successful government projects also seem to require that cost not be much of an issue. There's little doubt that with an infinite amount of money, poverty could be eliminated (though perhaps not in a healthy way). Neither the Manhattan Project nor sending a man to the moon were inexpensive. Nor were they aimed at providing a product or service to the masses. Thus, there were minimal cost constraints and nearly unlimited budgets associated with those projects.

So how about having a government run energy project on the scale (in terms of percentage of GDP) of the Manhattan Project? I predict that it will be a less successful sort of project.

The results would directly affect the population. After all, every one of us uses energy in a dizzying variety of ways: for lighting, transportation, heating/cooling, entertainment, incorporated in the products we use, etc. Slight shifts in energy supply can cause radically different and unforeseeable energy usage patterns. For example, we're seeing things like that now with the ethanol subsidies adversely affecting the price of food (corn).

In addition, any sort of subsidy or regulation affecting price is likely to come back and bite us on a grand scale, just because energy use is such a large fraction of GDP. Perhaps if the government could just focus on the development of new energy technology and not resort to meddling sorts of policy, we can avoid that trap. However, simply by investing in particular energy technologies, the government will end up affecting the markets in a way that mimics subsidies and regulation.

There's a much better and guaranteed method to reducing our dependence on (foreign) oil. If you want less of something, tax it heavily. This maxim is nearly universally true. If oil consumption is heavily taxed, there will be less of it. Instead of having to fight against changes in behavior that might otherwise thwart well intentioned energy programs, let the incentive from taxing oil consumption discourage people from using oil and encourage businesses to develop alternatives.

Many economists have weighed in heavily against this sort of taxation. But I think that's primarily because they don't think there should be any sort of explicit energy policy, so of course they wouldn't want energy taxes either. But if it's accepted that we must do something (I don't necessarily agree, but I'm happy enough to go along with it if that's what everybody else thinks), then the oil consumption tax approach is the least bad option in my opinion. Perhaps those economists would agree.

I know it's not as simple as I make it sound. The hardship from a consumption tax on oil would fall disproportionately on the poor. However, some sort of redistributive scheme such as a negative income tax could be put in place to even out the hardship. At first, the redistribution would attempt to even out the hardship across the spectrum of wealth. Ultimately, as people modified their behaviors accordingly, we'd basically end up paying the poor a good wage to drive less and otherwise use less energy. The poor would be better off and overall energy usage would be lower.

In order to minimize the damage to the economy from the increased taxes on oil consumption, the extra revenues raised from those tax revenues would be offset by income tax rate cuts. The total revenue to the federal government should remain constant. Again, in the beginning, the idea would be that everyone's after tax and after energy usage income would remain constant, on average. People would, of course, modify their behavior so that energy usage would drop and tax rates (on both income and oil consumption) would have to be modified accordingly.

I think that a Manhattan Project for energy would be a disaster. If we must "do something", then, in my opinion, the best alternative by far is to increase taxes on oil consumption to incentivize people to reduce that consumption.

Tuesday, July 24, 2007

Income Inequality and Technology Creation

Ultimately, knowledge and technology make us richer. From high food yields in agriculture to safe, fast, comfortable cars, to the coolest mobile phones, to robot vacuum cleaners, to the latest special-effects wizardry in the movies, virtually every service and product we consume contains a great deal of knowledge and technology.

But how does knowledge and technology get created? As I wrote in "In the Knowledge Lies the Wealth":
...[knowledge] comes from two sources: people with a need for the knowledge create it out of thin air (necessity is the mother of invention) and from people sitting around thinking with interest in some topic but with no particular need. The first type of knowledge creation I call "pull knowledge" because I think it's similar to "pull content" on the Internet. Pull content is content that someone goes searching for on the web and they "pull" information from the sites that contain the knowledge that is interesting to them. As that person is searching, they encounter advertisements and other "push content" that's "pushed" on them. The person who sits around and thinks new thoughts needs to then push the new knowledge out into the world for it to have any effect. As a result I call that sort of knowledge creation "push knowledge." Product development requires pull knowledge creation. Basic research is push knowledge creation.
Product development is driven, in turn, by (expected) demand. That is, some entrepreneur or business entity predicted that they could develop a product that would have sufficient demand to support a high enough price across adequate volume to produce profits.

Not all demand is equal and not all product development produces the same quantity of new technology and knowledge. Some new products are just the repackaging or remarketing of existing technology or incremental improvements that make a product a little cheaper but do little relatively little to push the state-of-the-art. On average, it's the demand for truly new products that create the largest increase in the formation of knowledge and technology.

That demand comes primarily from the wealthy.

Almost every new, modern product class you can think of was first sold to the relatively rich (and/or a business entity). The electric light, personal computers, gigantic flat screen HDTVs, stereos, microwaves, washing machines, cruise-control, electric windows, air bags, anti-lock brakes, cell phones, pianos, noise cancelling head-phones, digital watches, indoor plumbing, central heating, air conditioning, powered lawn mowers, vacuum cleaners, and on, and on, and on.

Income inequality concentrates wealth. The concentrated wealth provides significant disposable income in a portion of the populace that creates demand for high end products. The technology for many of those high end products does not yet exist and is very expensive when first developed. This demand then "pulls" the technology into existence by incentivizing people to invent it.

Once a product has reached saturation (everybody owns one) for a significant period of time, there's little room left for innovation. Those with limited disposable income (at the low end of the economic spectrum) buy only these products and have limited remaining disposable income for new products.

Once the wealthy provide the initial market for a product, the natural evolutionary product cycle makes it cheaper and cheaper, each stage providing incremental new technology, until far more people can afford the product (or a competing one).

The wealthy and income inequality thus serve all of us well over a long period of time.

Friday, July 20, 2007

I'm Thinking of Buying Puts

In the last book of the Bartimaeus Trilogy, a major character dies in the last paragraph. After reading that book to her, my 9 year old daughter was devastated for weeks. She kept reading the last chapter over and over again, hoping it would turn out different.

The first printing of the 7th and last book in the Harry Potter series is slated to be "an astounding 12 million copies" (at a length of 784 pages, that works out to just shy of a cool 10 billion pages - that's a lot of trees!). That's a readership of about 100 times as large as the Bartimaeus series. If Harry dies and there ends up being 12 million children, teenagers, and young adults moping about for a few weeks, that could have a significant negative impact on the economy and on the stock market.

As a result, if the stock market begins to lose steam over the next few weeks, I may hedge my position by buying puts on stock index futures. I don't mind if the stock market goes down a bit so I can buy ones that are far out of the money and that should be pretty inexpensive insurance.

By the way, this post should definitely not be construed as financial advice. I'm just jotting down some thoughts, that's all.

Reality Mirrors Satire - Again

There are some really good satirists, and by good, I mean that the stuff they write is just plausible enough to be believable. Every once in a while, they write something that closely mirrors something that happens in the future. In that case, the satirists become prophets. Scott Ott of ScappleFace is one such satirist.

ScrappleFace recently wrote:
The U.S. Senate voted yesterday to mandate a 40 percent increase in fuel economy for new cars and light trucks by the year 2020, as a way to reduce U.S. reliance on foreign oil.

In a little-noted “fairness” provision of the bill, the Senate also required other American manufacturers to increase the efficiency of their products as well. Among the new mandates with a 2020 deadline…
– U.S. meatpackers must increase the protein content of ground beef so that a single hamburger provides a week’s supply of energy. ...

And now we learn that making beef go much farther is actually very, very, very important:

Producing 2.2lb of beef generates as much greenhouse gas as driving a car non-stop for three hours, it was claimed yesterday. [...]

[T]hat 2.2lb of beef is responsible for greenhouse gas emissions which have the same effect as the carbon dioxide released by an ordinary car travelling at 50 miles per hour for 155 miles, a journey lasting three hours.
If the global warming jihadists had their way, they'd no doubt slaughter the herds and force us all to be vegans. Of course, with higher plant matter intake, we'd all experience more flatulence, so they'd have to slaughter us too in order to save the planet.

Fortunately, I've just invented an alternate solution and I'm gonna apply for a patent for it: The Solar and Battery Powered Flatulence Detector and Ignitor. Simply surgically embed it in the back end of your cow, sheep, dog, ol' uncle Albert, or any other entity with excessive flatulence, and it will automatically spark using advanced piezo-electric technology to ignite the methane and convert it into relatively harmless carbon dioxide and completely harmless water. Not only that, but it helps eliminate the smell as well. Order ten and receive a free fire extinguisher with your order.

The only problem with the product is that occasionally a cow swallows excessive air with its cud causing the burning gases to travel into the cow's digestive system, which causes the cow to explode, which, unfortunately, makes quite a mess. However, it's a small price to pay to reduce global warming. Hopefully, uncle Albert will fare a little better than that cow.

Just think, on a beautiful starry night on the range, not only will you see the flash of the firefly, but also brilliant jets of hot gas emanating from the cattle. Home on the range - what a wonderful world!

Wednesday, July 18, 2007

Vastly Underappreciated

As I emphasized in this post, innovation and adaptation are keys to good long term economic performance. Reuven Brenner described this as the commercialization of novelty.
To conclude, the broadest historical evidence suggests that prosperity would be
hindered less if governments just created the institutions that make it possible for entrepreneurship and financial markets to flourish. We can be confident that the idea that governments can frequently do more than that is a consequence of government-subsidized myth creation.
One of the great contributors to his fellow man, much to the chagrin of apocaholics, is Norman Borlaug. See here and here:

The reversal of the Mexican crop disaster was an early tiding of the Green Revolution. Over the next 30 years, Dr. Borlaug devoted himself to the undeveloped world, undoing crop failure in India and Pakistan, and rescuing rice in the Philippines, Indonesia and China. He has arguably saved more lives than anyone in history. Maybe one billion.

Dr. Borlaug was awarded the Nobel Peace Prize in 1970, yet his name remains largely unknown. Today, at age 93, he receives the Congressional Gold Medal. Perhaps it will secure the fame he merits but never pursued. Then again, perhaps not. While Dr. Borlaug was expanding human possibility, his critics -- who held humanity to be profligate and the Earth's resources finite -- were receiving all the attention. They still are.

As anti-development environmentalists preach the gospel of limits and state coercion, here is a question worth asking: How many millions of people might have perished had Norman Borlaug heeded their teachings?

As a reader at Instapundit points out:

Gregg Easterbrook has it half right about why Norman Borlaug is ignored by the press. It's not because he spent his life serving the poor, per se. Press accounts are filled with stories about those who serve the poor. It's that Mr. Borlaug didn't serve the poor by giving away other people's money, or by demanding that other people give away their money. He served the poor by DEVELOPING TECHNOLOGY, which in the view of the press is just as evil as making money, if for no other reason than someone makes money from the developed technology.

You won't see any accolades afforded all the brilliant researchers at GE Medical Systems, Pfizer, Merck, Glaxo, Medtronic, or you name it, for precisely the same reason.

Not standing in the way is very helpful. Appreciating the great benefits to the masses rather than bemoaning such innovation is even better.

Free Market vs Control

Many people who are not socialists or communists still can't resist the temptation to direct or control other people. Nor do they appreciate the nature of spontaneous order. Beyond playing with the "rules of the game" to make things work better it is difficult to improve upon freedom. George Mason economist Walter E. Williams expounds:

First, let's establish a working definition of free markets; it's really simple. Free markets are simply millions upon millions of individual decision-makers, engaged in peaceable, voluntary exchange pursuing what they see in their best interests. People who denounce the free market and voluntary exchange, and are for control and coercion, believe they have more intelligence and superior wisdom to the masses. What's more, they believe they've been ordained to forcibly impose that wisdom on the rest of us. Of course, they have what they consider good reasons for doing so, but every tyrant that has ever existed has had what he believed were good reasons for restricting the liberty of others.

Tyrants are against the free market because it implies voluntary exchange. Tyrants do not trust that people acting voluntarily will do what the tyrant thinks they ought to do. Therefore, they want to replace the market with economic planning, or as Professor Blinder calls it -- industrial policy.

Economic planning is nothing more than the forcible superseding of other people's plans by the powerful elite. For example, I might plan to purchase a car, a shirt or apples from a foreign producer because I see it in my best interest. The powerful elite might supersede my plan, through import tariffs and quotas, because they think I should make the purchases from a domestic producer.

My daughter might plan to work for the hardware guy down the street for $4 an hour. She agrees; he agrees; her mother says it's OK, and I say it's OK. The powerful elite say, "We're going to supersede that plan because it's not being transacted at the price we think it ought be -- the minimum wage."

Cohen also interviewed Professor David Card, saying that he's done "groundbreaking research on the effect of the minimum wage." Literally hundreds of studies show that increases in the minimum wage cause unemployment for the least-skilled worker, a group dominated by teenagers, particularly black teenagers. But Professor Card's study asserts that increases in minimum wage actually increase employment. Besides the fact that reviews of his study show flawed statistical techniques, that assertion doesn't even pass the smell test. If it did, then whenever there's high unemployment, anywhere in the world, governments could eliminate it by mandating higher minimum wages.

Robert Reich, President Clinton's labor secretary, said that economists who question free market theories really "want to speak to the reality of our time." That's incredible. Reality doesn't depend on whether it's 1907 or 2007. Reich probably thinks the reality of the laws of demand depends on what year it is. I wonder whether he thinks the reality of the laws of gravity does as well.

The ideas expressed by economists interviewed by Cohen, while out of the mainstream of a large majority of economists, are solidly in the mainstream of mankind's traditional vision. Throughout history, the right to pursue one's goals in a peaceable, voluntary manner, without direction, control and coercion, has won a hostile reception. There's little older in history than the idea that some should give orders and others obey.

Even when ruthless tyranny is not the motivation, a gentler form can be just as problematic. Better to feel wonderful about those good intentions even if the results aren't so good.

HT: Mark Perry

Big Bad China

A friend wrote the following in an email list:
What happens to the US economy if we get into a skirmish with China, between a) they make a lot of the stuff for US companies, and b) they hold a significant part of a trillion dollars in US treasury bills?
I don't think much would happen to the economy. We might have a temporary shortage of poisoned toothpaste or maybe vacuum cleaners, but the total value of trade with China is a bit over $200 billion per year which is only about 2% of the U.S. gross domestic product. Furthermore, except for poisoned toothpaste, everything China makes is also made somewhere else so those other countries could probably ramp up fairly quickly to provide the required production capacity. I think the average person in the U.S. would be unaware of any problems even if trade with China stopped completely tomorrow.

Also, in a "skirmish", China would be unable to do anything with the U.S. Treasuries they hold. We would simply put a "hold" on those Treasury instruments till the "skirmish" ended. These aren't bearer bonds and you can't transfer or redeem them without the knowledge and permission of the U.S. government (or you can "transfer" them, but the buyer is taking the risk that the U.S. decides to never redeem them).

Many people seem awfully afraid of China. I'm not. I'm more afraid for the Chinese. I think they're a very corrupt and backwards country with some very large and potentially very violent hurdles to overcome in order to become part of the 1st world. I wish them luck and I'm not at all concerned about any potential future skirmishes between China and the United States.

Word Verification is Off

I've had complaints about blogger's captcha word verification for comments so I've disabled it for now. Perhaps the comment spam we've had in the past was a fluke.

Let's see what happens.

An Inconvenient Truth

Well, Al Gore's movie was inconvenient to watch, and that's the truth. That was primarily because Blockbuster rented me a scratched up copy which stuttered and stopped many times. I figure I missed two or three minutes spread throughout the flick because of that, but that'll just have to do - there's no way that I'm watching the whole thing again just to catch a couple of minutes.

With all the awards, publicity, and build up from some of my friends I had high expectations for the flick. I didn't necessarily expect the science to be particularly good, but I did expect it to be extremely compelling and masterful propaganda. I didn't expect it to be compelling to me, but I am usually able to view or read things from different perspectives and understand how and why it could be compelling to someone else.

I was thoroughly disappointed. In my opinion, it was yet another bumbling, boring, wonkish, pedantic and condescending performance by Gore, reminding me yet again of some of the reasons why I didn't vote for him for President in 2000. The format was a slide show (presented by Gore) interspersed with seemingly irrelevant clips about Gore's personal life and why he entered into his fanatical quest against global warming.

I'd find it surprising if anybody except the very young and/or very naive was swayed even one iota by this film. If, prior to viewing the movie, you hadn't yet formed any opinion whatsoever regarding climate change (perhaps because you've been living on Mars for the last few years and hadn't heard of it), and you have no inclination to be skeptical about anything, then maybe you'd be tempted to adopt this movie's story as your opinion. Otherwise, there just wasn't all that much information presented (after all, just how much science can one present in a bit over an hour?) and it was very dully presented (this is Al Gore, after all).

If you idolize Al Gore and hang on his every word, or you're an apocaholic whose current apocalyptic drug of choice is climate change, I can understand why you might like this movie. But if you don't fall in one of those two categories, I'll bet that you won't particularly enjoy it. This film won an academy award for "Best Documentary". That being so, I don't think I'll bother watching many documentaries in the future - they must all be terrible.

I won't comment much on the science part, because that's not why I watched it. I expected the science to be misleading and wrong. However, I will say that there were far fewer blatantly wrong statements than I expected. There was plenty of misleading stuff, but what do you expect in a piece like this? That's called marketing license - even a documentary is allowed a bit of marketing license! An example or marketing license was when Gore talks about the oceans rising twenty feet. By the sequence of statements during the presentation, you might've ended up with the impression that he said that the oceans would rise twenty feet this century, which would be blatantly false. But he didn't actually say that. He only said that the oceans could rise twenty feet sometime (which might be plausible, I suppose, if every last bit of ice on earth melted, including the cubes in your ice trays in your freezer), but he didn't say when. There was lots of stuff like that - not actually false, but put forth in an misleading manner.

The biggest disappointment to me was that near the beginning of the film, Gore said that Global Warming is a moral issue. I expected him to discuss why he thinks it is a moral issue. He repeated that statement other times during the movie, but never bothered to elaborate. For him, it's clearly a given that it's a moral issue. It's almost as if anti-Global Warming Environmentalism is a religion or something.

In case it's not obvious from the above, I would strongly recommend not bothering to watch this movie. I wanted to see it because many schools are showing it and I'm generally concerned about showing propaganda to children in schools. But now that I've seen it, I confident that there will be little long lasting damage caused by this film. By the time the school age children are old enough to do something about it, the world will have moved on from caring about global warming.

Tuesday, July 17, 2007

Health Care reading

At some point in the future I'll post a roundup of ideas and material relevant to the health care debate. Having read many books and articles on the subject, I want to take the time to praise the efforts of Dr. David Gratzer for his outstanding book THE CURE. If you read only one book on the subject, this is it.

We are surrounded by medical miracles: polio has been eradicated; childhood leukemia is now treatable; death by cardiovascular disease has declined by two-thirds in the last fifty years. Yet while American medicine has never been better, angst over American health care has never been greater.

Why is American health care such a mess? In this pathbreaking book—Nobel laureate Milton Friedman calls it "fascinating and thorough"—Dr. David Gratzer goes to the heart of the problem, showing that the crisis in American health care stems largely from its addiction to outmoded and discredited economic ideas.

What needs to be done? Dr. Gratzer mounts a bold and provocative argument, rejecting the conventional wisdom that socialized health care is compassionate and that top-down government agencies like the FDA actually save lives. Instead, he prescribes a strong dose of capitalism.

The Cure offers a detailed overview of American health care, from economics and politics to medical science. Weighing in on the most controversial topics in health care, Dr. Gratzer makes the case that it’s possible to reduce health expenses, insure millions more, and improve quality of care while not growing government or raising taxes.
A book which I have on order is Who Killed Health Care? by Regina Herzlinger. Based upon what I've read by her in the past and this interview, I'm looking forward to a worthwhile read.

So, we will either have a government controlled health care system, as in the UK, or a consumer driven one, as in Switzerland.

A single payer system would kill our health.

We have to move elsewhere, to ourselves. You and I need to control health care: not our employers, not our insurers, not our Congress, but us.

The single-payer, government controlled health care system he advocates is great, except if you are sick.

Moore uses Cuba as a model of a great health care system. Get serious: when it comes to health care, this isn’t just propaganda; people’s lives are at stake.

In Britain, tens of thousands have died from cancer who would have survived under U.S. health care and many are placed on years long waiting lists, enduring excruciating pain from arthritic joints or blocked arteries while they wait for their operation. Sometimes they are placed on waiting lists for the waiting lists. While they wait, their problem gets worse making the operation they may finally receive all the more dangerous.

France, which he also lauds, is not a single payer system: much of the money is paid by the citizens for health care. Moore illustrates a Mother who can get her baby taken care of for a few hours a week for “free” in France; but ignores the fact that those doing the laundry are rioting in the streets and the French are drowning in taxes.

Here is how they make it happen: everyone is required to buy health insurance, the poor are subsidized, so they can buy insurance just like everybody else, the sick pay the same prices as the well. The key is that is the Swiss people who buy the insurance, not employers or governments. The people make sure they get the insurance they want at a price they are willing to pay.

The insurers risk-adjust each other so nobody makes money solely by picking only healthy people to insure. And there is a lot of transparency about insurance prices.

But the system is not perfect. The Swiss government micromanages the prices paid to hospitals and doctors, which deter innovation. And it subsidizes inefficient public hospitals which needlessly inflates the budget.

But we have very little innovation in health services which account for the bulk of health care costs. The reason is that we are not doing the buying. And also the insurers put the suppliers in a straightjacket which punishes innovation.

The most important innovation is in the management of chronic diseases which account for 80% of health care costs. These diseases typically cause lots of different problems which are treated by different doctors. A person with this kind of disease has to run all over town to get complete treatment. This fragmentation imposes costs on the patient and our economy .It is enormously wasteful.

The insurers cause it because they pay providers for procedures—doctor visits or hospital stays and not for the complete bundle of care. So the healthier doctors make the patient, the less money they earn.
My sense is that of the foreign alternatives, the Swiss model is the only one worth a lick, but we can do even better.

Saturday, July 14, 2007

The deficit watch should be fun

A couple of years ago, after the 2003 tax cuts had begun to show their positive effects and revenue and expenditure trends were established, it appeared that the federal budget might be at or near balance by the 2008 election. I mentioned this to a left leaning friend and he was incredulous. After he calmed down he offered to make a bet. I passed and simply said, "we'll see." It's not that I didn't believe the projection, just that if it got close politicians might alter the spending pattern. Also, I have no enthusiasm for a budget surplus (it forces the private sector to operate at a net deficit - bad,bad,bad!) which would be a natural extension of the projection. Observing was preferable to rooting. All of which brings me to this:

2004 - $413 billion
2005 - $318 billion
2006 - $248 billion
2007 - $205 billion

The New York Times's Paul Krugman, in December, wrote that President Bush "plunged the budget deep into deficit by cutting taxes on dividends and capital gains even as he took the country into a disastrous war." Senator Clinton went to the Senate floor in February of this year to speak of the "fiscal recklessness" of the Bush administration, which she charged had contributed to "record deficits." In March, Senator Schumer, who is now the chairman of Congress's Joint Economic Committee, spoke of "budget excesses of the past six years" that have brought us "a mounting debt to the rest of the world."

But as the shrinking figures above show, in fact the deficit is shrinking. When you look at it as a percentage of GDP, the decline is even more striking:

2004 - 3.6%
2005 - 2.6%
2006 - 1.9%
2007 - 1.5%

Steve Conover thinks that the number don't look right. Donny B. suspects some Georgejitsu:

He postulates that something bad will happen to derail the current virtuous trend very soon or that the White House is padding so as to surprise on the upside. I vote the latter. One thing that I, as a fairly close observer over the past few years, have noticed about this administration's political tactics is that they wait patiently (often to the chagrin of their cheerleaders who interpret the patience as indifference) while their political opponents stick their necks out farther and farther before they chop off their heads. Such is why I wouldn't have been surprised if Osama bin Laden had turned up dead at an opportune time (I still wouldn't). Nor will I be surprised when in the heat of the 2008 campaign, some things happen or start to get revealed that drastically alter the political calculus of the race to the detriment of this administration's opponents. As it relates to the deficit, I wouldn't be surprised if the deficit went away and the administration floated the idea of a surplus and allowed whoever gets the Republican nomination to ramp up the talk of additional tax cuts just as the 2008 campaign gets hot.
What would be nice to see as a reinforcement of positive trends would be a fix of the globally least competitive aspect of our tax code: the high corporate tax rate.
...the U.S. now has the unflattering distinction of having the developed world's highest corporate tax rate of 39.3% (35% federal plus a state average of 4.3%), according to the Tax Foundation. While Ronald Reagan led the "wave of corporate income tax rate reduction" in the 1980s, the Tax Foundation says, "the U.S. is lagging behind this time."

Foreign leaders are also learning another lesson: Lower corporate tax rates with fewer loopholes can lead to more, not less, tax revenue from business. The nearby chart shows the Laffer Curve effect from business taxation. Tax receipts tend to fall below their optimum potential when corporate tax rates are so high that they lead to the creation of loopholes and the incentive to move income to countries with a lower tax rate. Ireland is the classic case of a nation on the "correct side" of this curve. It has a 12.5% corporate rate, nearly the lowest in the world, and yet collects 3.6% of GDP in corporate revenues, well above the international average.

Research from Mr. Hassett and others has shown that high corporate tax rates reduce the rate of increase in manufacturing wages (See our editorial, "The Wages of Growth1," Dec. 26, 2006.). For that matter, most economists understand that corporations don't ultimately pay any taxes. They merely serve as a collection agent, passing along the cost of those taxes in some combination of lower returns for shareholders, higher prices for customers, or lower compensation for employees. In other words, America's high corporate tax rates are an indirect, but still damaging, tax on average American workers. One immediate policy remedy would be to cut the 35% U.S. federal corporate tax rate to the industrial nation average of 29%. That's probably too sensible for a Congress gripped by a desire to soak the rich and punish business, but a Democrat who picked up the idea could turn the tax tables on Republicans in 2008.

As to what will actually happen, "we'll see."

Corrective mechanisms

Government can play an important role in the provision of product safety. There are other mechanisms that greatly aid correction of failings in this area with less chance of harmful side effects.
To hear the drumbeat in Washington, you'd think trade barriers are the only way to protect Americans from tainted Chinese products. But the good news is that individual companies and the Chinese government are getting a lesson in free-market branding and quality control that will do more to promote safer products than trade barriers ever will.

American companies have not always realized how expensive Chinese-manufactured goods can turn out to be once the cost of low quality is included. Naiveté is as much to blame as greed. Western companies sometimes fail to understand how Chinese manufacturers do business--especially the way many factories outsource some work that has been outsourced to them. Several supply-chain and quality-control consultants report an uptick in business over the past few years, especially among U.S. and European small- and medium-sized enterprises.

Government does have a role to play. In the U.S., the FDA has been working to disseminate information about dangerous products so consumers and importers alike can protect themselves. The Consumer Product Safety Commission has been working as usual to facilitate product recalls.

The least productive response is U.S. protectionism, which will lead to higher prices and less competition. Other countries will respond by also using quality as an excuse for trade barriers, the way they already have against U.S. beef after a rare case of "mad cow" disease. The best education for crooked Chinese capitalists is likely to be the harsh judgment of American business partners and consumers.
Their standards improve or they lose out!

Thursday, July 12, 2007

No Limit to Resourcefulness, Courage, & Determination

This is an incredible story about the personal quest, motivated solely by the 9/11 attacks, of a mother of three from Montana against Al-Qaeda and terrorism. Using mostly just a computer keyboard she infiltrated terrorist networks and brought to justice several anti-American operatives while absorbing huge personal risk. Here's one teasing excerpt:
After the media picked up my identity at Anderson's Article 32 hearing in May 2004, I received numerous threats and, on December 5, 2004, someone stole my car out of my family's garage. It was later found wrecked two counties away from my home, riddled with bullet holes. As a result, I now have permanent security.
I highly recommend reading the whole thing. (Hat Tip: The Belmont Club)

Monday, July 09, 2007

I Was Once a Communist

No, really! I was! I wasn't a card carrying member or anything like that, but I strongly believed (perhaps even in a religious sense) in the communist ideology.

I was introduced to Marx's (Karl's, not Groucho's) works in high school history class when I was sixteen years old. I found that communism was an amazingly powerful and appealing idea. To me, it was by far the most powerful and appealing idea that I've ever heard. It was intoxicating even. A brotherhood of mankind! To each according to their needs!

So I can strongly relate to all frustrated Leftists. They are seriously addicted to an idea. An idea that appeals to the entirety of their heart, their soul, and their entire being. Have you ever been addicted to anything or interacted with addicts? If you have, you probably know that rationality is way, way down on the list of priorities for an addict. It's really pointless to try and have a rational conversation with an addict about his or her addiction.

I'm obviously not much of a communist now (though I've been called one recently at Cafe Hayek, so maybe a few traits still linger). Sometime between 16 and 46 I changed my mind about collectivism in general and communism in particular.

So what changed my mind? There were several things, of course. One of the biggest was to observe how people actually lived under communist rule.

There were always troubling reports of people fleeing communist countries There were the boat people and the communist countries did, after all, seem to build fences to keep people in. Why? The answer I was given from my respected friends was that it wasn't true at all, it was just U.S. government propaganda. As further evidence, they pointed out that government propaganda regarding marijuana was clearly bogus (as determined by our careful research and personal observations of actual users). Therefore, that was proof that the government lies about everything, right?

In 1984, Hungary and Czechoslovakia began allowing western tourists to visit. I went so I could see for myself whether or not these places were worker's paradises. What I saw with my own lyin' eyes was shocking.

First, the comparison with Germany, the country on the other side of the border from Czechoslovakia was stark. The farm land in Germany was completely planted, the barns well maintained, the houses pretty and painted. Everything was well kept up. Just on the other side of the border in Czechoslovakia, fields lay fallow, barns were falling over, and the houses looked like they hadn't been painted in decades. There was no physical reason why anything should have been different on these adjacent tracts of farmland, yet the difference was like day and night.

Prague is a spectacularly beautiful city, but it was terribly dirty and sooty, the air was terrible (I could hardly breathe), there were bullet holes everywhere (from WWII? from the ending of the "Prague Spring"? who knows?), and it was dark and dreary like a scene from an old haunted movie (I kept expecting to run into a vampire or something). And I did run into zombies - the people were depressed and lifeless. They almost never smiled. In pubs there would be many people so drunk that they had passed out on the bar. They walked slowly and sullenly as if they'd forgotten where they were going or didn't care - just like zombies.

It was a real eye-opener. But alas, my eyes were the only ones ever opened from that trip. Because as I describe this and you read it, you're probably thinking one of two things. If you've never been enticed by Marxism, what I've just described probably isn't very surprising to you. On the other hand, if you're a Leftist, you're probably thinking, "Bret's either lying or severely exaggerating, it couldn't really be that bad." In either case, my words have convinced nobody of anything. To actually be convinced to change your opinion, you would have to travel somewhere and see something you didn't expect. Like me.

One of the responses I heard was, "Oh, well, the eastern Europeans are just like that - you know, drunk and depressed." However, years later, after the Berlin wall bit the dust, I visited Prague again. I was stunned at the change. What was dirty was now clean, the air was fresh, what was dark and dreary was now bright and cheerful (perhaps a little too bright and cheerful as they had stuccoed over some of the historic stone buildings with yellow stucco), and the people had changed most of all. There were smiling faces everywhere, and everyone was moving briskly and with purpose. They radiated happiness. The zombies had come back to life and in just a few years. So no, eastern Europeans aren't "just like that." Communism made them so, plain and simple. Fortunately, it was temporary.

The point is that there's nothing that comes close to experiencing something in person as far as influencing ones perspective. Anything else is easily written off as lies and propaganda. It's harder to write off what you see with your own eyes. Your eyes might be lyin', but they're still so much more believable than anything else.

Friday, July 06, 2007

MSM aiding Defeatocrats and their allies

This from a post at Classical Values: Our success must never be an option!
...I don't think the MSM in general likes reporting success in the war against al Qaeda in Iraq, because there's a strong desire on the part of the anti-war crowd to characterize the enemy in Iraq as "insurgents."

it's what the MSM don't want most Americans to know.

Because, the more the ignorant "little people" are allowed to read about al Qaeda's butchery, the more they'll tend to think entering Iraq might not have been a bad idea after all.

They might not be in as much of a hurry to pull out and leave the Iraqi children to the tender mercies of the beheaders.

Really undermining the effort.

Update: see this at Power line:
Jihadists On Defense, also this incredible atrocity.

Thursday, July 05, 2007

The Day After the 4th

Oy! My head hurts.

If the founders had even the tiniest bit of foresight and intelligence, they'd have signed the ol' declaration on "The 1st Friday in July" rather than on July 4th. I mean, what a stupid thing to do, to go an do somethin' that would lead to a hard partyin' holiday with a late night time focus in the middle of the work week. Think of all the economic damage that causes (not to mention general misery)! At least with New Years, the late night time focus is on the night before the holiday, giving everybody a whole day to recover.

And, if it was "The 1st Friday in July", we'd be able to really cut loose and celebrate. Though given the number of wrecks on the freeway I passed while driving home last night, it looked like at least some people had more than adequately cut loose for the occasion.

Nonetheless, I had a good Independence Day and I hope you did too.

Tuesday, July 03, 2007

Innovation and Adaptation

Changing circumstances in the world both of small and large magnitude force us to adapt if we wish to thrive. Arnold Kling addressed this matter through the eyes of 1993 Economic Nobel Prize winner Douglas North.

A free market system makes better use of the inherently dispersed knowledge within the economic realm. It also makes for a more efficient allocation of scarce resources.
In textbooks, economics is often defined as the study of the allocation of scarce resources among competing ends. Douglass North says that adaptation is more important than allocation.

"It is adaptive rather than allocative efficiency which is the key to long run growth. Successful political/economic systems have evolved flexible institutional structures that can survive the shocks and changes that are a part of successful evolution. But these systems have been a product of long gestation. We do not know how to create adaptive efficiency in the short run."
-- Douglass C. North, Economic Performance Through Time, the 1993 Economics Nobel Prize lecture
These flexible institutions allowed for the creation and adoption of innovations both technological and social.
Douglass North's primary field is economic history, and his primary interest is in economic change. In fact, the word "change" appears in the title of many of his works. For North's purposes, the study of allocation mechanisms is inadequate.

[textbook] economics applied to economic development or economic history may account well for the performance of an economy at a moment of time or...contrasts in the performance of an economy over time; but it does not and cannot explain the dynamics of change. The major source of changes in an economy over time is structural change in the parameters held constant by the economist -- technology, population, property rights, and government control over resources.

-- Structure and Change in Economic History, p. 57

Some of the really interesting stuff in economics involves peoples attempts to cope with uncertainty. Frank Knight claimed that this can not be modeled.
For agriculture to work well, property rights must be defined. To reach the stage that we call modern economic development, rules need to cover trading rather than basic sharing.

In short, what is required is a shift from a status-based and coercive society that relies on mutual control, respect of ranks, and strictly enforced codes of generosity, to an open society where free entry and exit, democratic governance (including acceptance of dissent), competence criteria, and socioeconomic differentiation are used as guiding principles or expressly allowed to operate.
It seems like a shakeup of the social order has lingering effects to this day.

While market prices are necessary to enable an economy to process this information (a point stressed by Ludwig von Mises and Friedrich Hayek), they are not sufficient, according to Douglass North.

The integration of this specialized knowledge with low costs of transacting requires more than an effective price system. Institutions and organizations were necessary to supplement the price system where externalities, information asymmetries, and free rider problems had to be overcome. The increasingly dispersed knowledge of modern societies requires a complex structure of institutions and organizations to integrate and apply knowledge...The growth of knowledge is dependent on complementary institutions which will facilitate and encourage such growth and there is nothing automatic about such development.

--Understanding the Process of Economic Change, p. 99

We are still grappling with improving the institutions of intellectual property and regulation.

Douglass North calls attention to the relationship between the private rate of return on innovation and the social rate of return. The social rate of return from innovation is always high, but the private rate of return can easily be low. Innovation takes place when the private rate of return is sufficiently high. Institutional arrangements determine the private rate of return from innovation, and hence they determine a society's adaptive efficiency.

Two important institutional factors are property rights and capital markets. We have just seen how North views the development of the patent mechanism for protecting intellectual property as a cornerstone for modern economic development. On capital markets, he writes,

economic change will require continual alteration in the institutional structure in order to maintain efficiency. This is particularly critical for capital markets...The history of Japan in the 1990's is a classic instance of a capital market that initially fueled extraordinary development--that of post-World War II--only to develop the sclerosis that followed.

--Understanding the Process of Economic Change, p. 123-124

Suppression of private incentives through too heavy a tax or regulatory burden has a high social and economic cost.
One reason that institutions evolve slowly is that organizations have developed with a vested interest in existing practices. Another reason is that institutions reflect the beliefs shared by a culture. North places a heavy emphasis on the role of beliefs in shaping institutions, which in turn determine economic outcomes.
Both rent seeking special interests and the established political class can make change quite difficult. Think - eliminating agricultural subsidies.

Mancur Olson addresses uncertainty, innovation, adaptation and institutions in the conclusion of his final book, Power and Prosperity:
Because uncertainties are so pervasive and unfathomable, the most dynamic and prosperous societies are those that try many, many different things. They are societies with countless thousands of entrepreneurs who have relatively good access to credit and venture capital. There is no way that a society can predict the future, but if it has a wide enough array of mutually advantageous transactions, including those for credit and venture capital, it can cover a lot of the options - more than any single person or agency could ever think of.

At least when a society has the appropriate institutions and government policies, the overwhelming majority of the firms that make huge profits are doing a huge service to the population. In a society with the right institutions and public policies, the prevailing prices will approximate the true values and costs of marginal quantities of the goods and productive inputs. A great excess of revenues over costs means that the enterprise is almost certainly putting more value into the society than it is taking out.
Contrary to what collectivists would have us believe, effective institutions that harness private incentives provide a big payoff to us all!

Sunday, July 01, 2007

Pontifications on the Extended Order - Part 3: Rights Make Might

These Pontifications are my personal Creation Myth. Not a Creation Myth that goes all the way back to the creation of the universe or life or anything insignificant like that, but rather a myth that explains some of the factors that caused us to get here and now to this particular arrangement of humanity and civilization, with the existence of life and the universe being a given.

In Part 1, I outlined the evidence that leads me to believe that man (and earlier hominids) started as "a bunch of violent primitive tribes frequently at war". In Part 2, I showed that simple geometry is one very strong motivation for a constantly warring animal to form into large groups. In this essay, I'm going to show why I believe that all rights are linked to the power of the group. In other words, I believe that might makes right, yet at the same time rights make might.

I'm certainly no authority on philosophy, interpreting philosophy, history of philosophy, or anything else to do with philosophy. But, like everything else that I'm not an authority on, I immensely enjoy spewing forth on the subject.

I've always been interested in where "natural rights" come from. I suppose natural rights are, by definition, the right of human beings to follow their nature, but since many humans are murderous brutes by nature, clearly some filtering of those rights was required for civilization to evolve. In addition, humans are fairly adaptable and generally have some culture nurtured unto them which rather obscures their true nature.

In the beginning, rights were pretty scarce. You had a right to breathe as long as you could out run that saber tooth tiger chasing you, and that was about it. An early innovation was that a group of hominids could band together and beat back the saber tooth tigers with sticks and stones to break its bones and even bring down woolly mammoths for food with the captured saber tooth tiger fangs mounted on a spear. So now as an early hominid, you had a choice. You could either remain independent, forage on your own, and provide for your own self-defense against not only saber tooth tigers, but also against bands of marauding hominids; or you could join one of those bands and pretty much give up all of your rights and live under the autocratic rule of the biggest, strongest, nastiest, and most brutal hominid of the group (i.e. the alpha-male leader). Needless to say, nearly everyone who survived chose the latter, because it seemed better to live and eat with no rights than to have rights and not eat and not live. John Locke, in his Second Treatise of Government, puts this concept as follows:
IF man in the state of nature be so free, as has been said; if he be absolute lord of his own person and possessions, equal to the greatest, and subject to no body, why will he part with his freedom? Why will he give up this empire, and subject himself to the dominion and control of any other power? To which it is obvious to answer, that though in the state of nature he hath such a right, yet the enjoyment of it is very uncertain, and constantly exposed to the invasion of others: for all being kings as much as he, every man his equal, and the greater part no strict observers of equity and justice, the enjoyment of the property he has in this state is very unsafe, very unsecure. This makes him willing to quit a condition, which, however free, is full of fears and continual dangers: and it is not without reason, that he seeks out, and is willing to join in society with others, who are already united, or have a mind to unite, for the mutual preservation of their lives, liberties and estates, which I call by the general name, property. (2nd Tr., §123)
I really don't think that early hominids (and other apes and mammals that organized into some sort of pack) were particularly worried about their estates and property, and they didn't necessarily have a word for "liberty" at that point so perhaps Locke was a few hundred millennia ahead of me (and perhaps ahead of himself as well), yet we're certainly in agreement about the "preservation of their lives" part.

Let's say you're an early human and you've joined a tribe headed by some alpha-male (let's call him Zorg). Joining the tribe (as opposed to continuing on your own) has probably doubled your life expectancy and you might now live to see thirty years of age - if you're lucky. Sure, Zorg makes you kneel down daily and grovel in the gravel at his feet, but it's better than fending for yourself, so you're better off and you're gonna stay with the tribe.

Zorg is the best off of all. He's one strong dude, but still no match on his own for saber tooth tigers and other tribes, so he benefits from the protection of the group just like you. Leading this tribe, he gets a disproportionate share of the resources in terms of edibles and babes. He also benefits more than anyone else from the power/might of the group. He's one happy camper.

But here's the thing. Zorg would be better off still if he has everyone's unwavering loyalty. Loyalty that wavers in the face of danger isn't particularly valuable. If Og's tribe attacks and you don't help fight and leave Zorg hanging out to die, then all that grovelling you did at Zorg's feet didn't really do much for his well being (or his, well, being).

So Zorg has every reason to make the members of his tribe really want him to keep being the leader. If he can do that, it increases his power. There are many ways he can increase his constituents' loyalty, but certainly one of them is to allow them certain benefits. For example, he might let them own property (we're catching up to Locke in a hurry now). If he bestows these benefits consistently and thoughtfully, then his constituents prosper and he'll have their unwavering loyalty. But not only that, because everyone is prospering, the tribe/group/nation is becoming more and more powerful. People actually begin trying to join Zorg's kingdom. Eventually, he rules all of England and changes his name to George (now we've definitely caught up to Locke).

Might makes right and rights make might. A positive feedback loop. George bestowed rights using the authority he derived from nothing but the fact that he's the alpha male. He bestowed those rights only because he thought they would make him more powerful - which they did by creating prosperity for his constituents which created loyalty to him and also the power that's derived from wealth of the group.

In my Creation Myth, rights are derived from power for the purpose of increasing power and no other factors are required. No philosophical constructs (e.g. Golden Rules, Categorical Imperatives), no religion, no God, nothing except power. As Lord Voldemort says, “There is no good and evil, there is only power...” Or was it Machiavelli who said that? No matter, I've always suspected that Machiavelli was one of Slytherin's heirs, just like Voldemort. I wonder if Machiavelli was a parselmouth?

That's not to say that leaders don't use philosophical arguments, religion, God Almighty (see, there's "might" again!), and all kinds of other propaganda to sell themselves as leaders. They might even get caught up in their own arguments and believe it. But I'm convinced, that underlying all rights, there's nothing but power.

You might wonder how I think that democracy fits into all of this. It's just a power grab, that's all. By giving rights to his constituents and cutting back on using terror to reign, George is both buying power and sowing the seeds for his eventual loss of control of the populace. The populace is emboldened by their rights and the wealth they accumulate because of it. George is extraordinarily powerful as long as he retains the loyalty of his constituents. But if he rules poorly for a spell, or luck runs against him (so it looks like he's ruling poorly), the very people he empowered with rights toss him out on his ass (or they chop off his head or something like that). The people then try to rule themselves (so as to keep power for themselves) and in a few cases a representational form of government has worked quite well. In the case of the United States, the people had the might and gave themselves rights which gave them more might - the most might ever, as a matter of fact!

In summary, this essay has described the one and only basis for all rights enjoyed by humans - and that's might. Good increases the might of the group, evil reduces the might of the group. There's nothing else.