SEC. 4207. Reasonable break time for nursing mothers

Still looking at HR 3590. It is a hefty document after all.

On page 459 of the PDF linked above, we have:

SEC. 4207. REASONABLE BREAK TIME FOR NURSING MOTHERS.

(r)(1) An employer shall provide—
(A) a reasonable break time for an employee to express breast milk for her nursing child for 1 year after the child’s birth each time such employee has need to express the milk; and
(B) a place, other than a bathroom, that is shielded from view and free from intrusion from coworkers and the public, which may be used by an employee to express breast milk.

The bill goes on to say An employer that employs less than 50 employees shall not be subject to the requirements of this subsection, if such requirements would impose an undue hardship by causing the employer significant difficulty or expense when considered in relation to the size, financial resources, nature, or structure of the employer's business.

Either way you look at it, this provision imposes significant costs on a small business. Either the business has to divert business funds to provide such a facility or it must be prepared to expend the time and effort and legal costs to legally prove that such accommodations will impose an undue hardship.

When the costs of a business increase, they cannot magically create money (as opposed to the way governments seem to think they can) to cover those costs. The higher costs must be passed on (to whatever extent feasible) to the prices of the goods and services such businesses provide. Given that all demand curves everywhere are downward sloping, this means they will be able to sell less. If a business is selling less, it means it is producing less which means the business needs fewer workers. The net effect of these provisions is always to depress employment, just like an explicit tax.

At least, with a tax, a business knows what it must pay. With a provision like this, there is considerable uncertainty as to what type of a facility will be considered acceptable if an employee ever decides to file a complaint.

Altruism, spite and selfishness

In economics, altruism is defined as being willing to give up some of your own stuff in return for someone else getting more stuff.

Most market interactions do not involve such interpersonal preferences. You go to the marketplace, give up some stuff to get other stuff you like better. This is the case of much maligned selfish preferences. In your calculation as to whether you should see another movie, you do not take into account the feelings of the actors who appear in the movie: You only care if seeing the movie will make you happier than other things you can enjoy with the money you pay to see the movie.

In contrast, spite corresponds to a willingness to give up some of your own stuff so that someone else has less stuff as well.

For example, if you speed up your pace to be able to hold a door open for the elderly lady who is carrying her groceries, you have done something altruistic. On the other hand, upon hearing footsteps in the hallway, you hit the Close Door button in the elevator repeatedly so you do not have to share the elevator with others, you have done something spiteful.

A so-called selfish individual is not made any better or worse off because Bill Gates makes another billion dollars this year. Keeping everything else constant, she is worse off if she makes less money this year than the last and she is better off if she makes more money this year than she did last year.

On the other hand, a friend of Bill Gates might feel happier that Mr. Gates is richer because she puts a positive weight on his happiness even if she does not see an additional dime. That is, her preferences display altruism towards Mr. Gates.

A spiteful individual, would feel worse off because of Mr. Gates' additional resources even if his own situation is not affected at all.

In general discourse, spite displays itself as an unhealthy obsession with what's happening to the income distribution rather than what's happening to the total resources available to society. Societies with large number of spiteful individuals tend to have a lot of haggling over trying to get a slightly larger slice of the ever-shrinking pie.

In contrast, societies with a lot of people who focus on how well they themselves are doing without regard to others tend to have more resources.

Former Enron adviser: Death panels will save money

The video clip speaks volumes:

Why support Pell Grants and not school vouchers?

The White House is touting the $40 billion expansion of the Pell Grant Program was signed by President Obama as part of the health care reconciliation bill.

Pell Grants provide financial assistance to low income college students. The assistance is not conditional on students going to a particular college: That choice is left to the student (and, of course, to the admissions committees of the schools).

Put simply, Pell Grants are school vouchers for college students.

I just have a hard time how all these people who love school vouchers when it comes to college students cannot stand the thought of giving low income families similar resources to enable them to send their children to whichever high school they like.

Is an individual mandate absolutely necessary?

The Tax Police and the Health-Care Mandate, William McGurn of the WSJ does an excellent job of discussing how the individual mandate to purchase health insurance might or might not be enforced. Mr. McGurn provides excellent insight and I definitely recommend the article.

However, I was disappointed to see him make the following assertion:

There's no way to afford expensive provisions such as forcing insurance companies to cover people with, say, pre-existing conditions unless millions of healthy people who won't need insurance are forced to pay into the system. With the mandate, the government gets more healthy people into the risk pool—and with the penalty it gets their money whether they buy coverage or not.

His conclusion as to why the individual mandate exists is definitely correct. However, there is a way to afford those expensive provisions without an individual mandate with the right set of incentives for individuals and with a more flexible and competitive insurance market.

The first step is to ensure that there is no law forcing any hospital, doctor or other health care provider to provide services for free. (That does not mean allowing them to turn away any critically ill or injured person that shows up at the emergency room.)

The second step is for the government not to provide any direct assistance to individuals up to —and I am picking an arbitrary number here— say, the first $100,000 of health care expenditures a year.

Third, no government entity should be allowed in specifying what can go into insurance contracts. If I want to be able to buy a health insurance contract with a $10,000 annual deductible that does not cover things like sexually transmitted diseases, abortion and drug addiction and someone is willing to sell me that policy, I should be able to purchase it.

This, of course, has to be coupled with changes in regulations that allow a plan offered by an Arizona company to be purchased by an individual who lives in New York. I am not constitutional scholar, but based on my understanding, this would actually be a legitimate application of the interstate commerce clause.

Insurance companies must be free to set premiums and co-pays freely based on risk factors.

Any differential tax treatment based on who is paying the premiums, the employer or the individual, must be removed. Ideally, there should be no preferential tax treatment of health insurance premiums and health care related expenditures.

Once an individual's annual health care expenditures go above $100,000 in any given year, a universal plan funded by taxes can kick in to pay, say, 97.5% of any amount above that limit.

In such a system, without the expectation that every single pill and every visit to the chiropractor and every therapy session about a childhood lost and every joint pain caused by obsessive jogging has to be paid for by one's fellow citizens, the incentives would be aligned correctly for people to seek and obtain the appropriate amount of coverage and for insurance companies to provide them with such coverage.

A finite cap on insurance company liabilities enables them to provide policies at a reasonable cost. The less than full universal coverage provided by the taxpayer preserves incentives while still helping individuals cover the cost of treating serious life-threatening illnesses.

Of course, even in such a system, there would be really poor individuals who cannot afford to buy insurance coverage. Insurance companies and health care providers can decide whether to offer discounted or free services on a case-by-case basis. Pharmaceutical companies already practice this kind of price discrimination to benefit patients who cannot afford their medications. If we want to provide an additional incentive, the system might allow such discounts and waivers to be counted as charitable contributions and make them tax deductible.

A reformed income tax system with a widely expanded earned income tax credit as well as a much simpler tax code with fewer credits, deductions, exemptions, exceptions would go a long way toward providing the poor with what they need the most: Additional purchasing power to spend on what they want and need, including appropriate health insurance coverage.

What do supporters of the tea party movement think?

Bloomberg has a new national poll which asks some interesting questions.

Right track/wrong track

These numbers are for the overall population regardless of political affiliation and this is where the main problem for President Obama lies: 58% think the country is on the wrong track whereas 34% think it is on the right track. 56% are pessimistic about the future whereas 41% are optimistic.

Supporters of the tea party movement

26% consider themselves supporters of the tea party movement, 53% do not support it and 21% are not sure. I myself probably belong in the last category: I am definitely not against the movement but I worry that they might put their support behind some funky third party candidate.

Interestingly, looking at everyone rather than just the subset who consider themselves supporters of the tea party movement, 80% think Government spending is out of control, 68% think Taxes are too high, and 58% think The United States is becoming more about socialism than capitalism, clearly showing that the overall public is in agreement with supporters of the tea party movement on these key issues.

While some fringe elements may like to associate themselves with it, the results of this poll suggest that the movement itself is a lot more mainstream than the so-called mainstream media would like us to believe.

Thank you Dana Loesch

I had never heard of Dana Loesch until I watched her school Chris Matthews and some Princeton academic.

I just want to say Thank You! for not letting those two hijack the discussion with phony accusations that anyone who thinks the federal government is too big and thinks specific "accomplishments" of the administration will not benefit most people must be racist.

Thank you!

What's wrong with Canada?

Here is an interesting news story from Montreal (hat tip James Taranto):

In a morning session on health care the conference was told that Canadians and their governments must face up to some hard facts and have "an adult conversation" about the future of the country's health care system.

The advice came from David Dodge, the past governor of the Bank of Canada and former deputy finance minister who said medicare costs will inevitably rise in coming years at a greater rate than government revenues and the country's gross domestic product, and require some unpalatable choices to be made.

Choices he suggested include new taxes specifically dedicated for health care or a steady reduction in the scope and quality of services provided by the public health system that would require people to either pay for private care themselves or suffer ever greater wait times for service in the public system.

"These are stark and unpalatable choices that we face with respect to health care, but there is no magic solution," he said. "We absolutely must have an adult debate about how we deal with this. Finding solutions in this area is extraordinarily difficult, but it is imperative."

What's wrong with Canada? Don't they have rich people they can tax?

Whence the tea party movement?

Many years ago, well into my first year in the U.S., I found myself chatting with the cashier at a store in Ithaca, NY. I think I mentioned that I was at first confused by the fact that prices on product labels in the U.S. did not include tax and we got into a discussion about job destroying effects of high taxes. At some point, I suggested that maybe — just maybe — what was needed was another Tea Party.

That got everybody excited and in a good mood. We laughed, bonded a little over independence wars fought against the English and I think I got a discount.

Almost a decade later, I arrived in Boston on a nice, warm fall or spring day — I can't remember. I took a water taxi from the airport just for the fun of it. It was a small boat and I was the only person aboard, the captain, a proud patriot, and I started chatting. He was not very fond of a certain former governor and presidential candidate and was not too happy with how things were going in D.C. So I asked him if he thought it was time for another good old tea party. A lot of heated discussion ensued, and by the end of my ride, we were shaking hands and wishing each other good luck.

Over the past two decades, there were many more instances where mentioning one of the iconic events in American history evoked a strong emotional response.

In fact, unless one has spent all one's life in the weird echo chamber of some political office, I believe it is impossible for one not to have known the significance and meaning of Rick Santelli's words and how they would resonate:

Celebrate Human Achievement Hour

View full press release

"We are so proud that millions of people plan to show their appreciation for human achievement by doing things like eating dinner, watching television, going to the movies, and brushing their teeth," says Human Achievement Hour Founder and CEI Policy Analyst Michelle Minton. "Never before has a new holiday caught on so quickly."

The new one-hour holiday, unknown prior to this press release, has already received overwhelming support from many of Washington, D.C.'s leading institutions. The Washington Metropolitan Area Transit Authority, for example, tells CEI that it does not plan to shut down all of the city's bus and rail lines for the "Earth Hour." The Kennedy Center, likewise, has scheduled a performance of the long-running play Sheer Madness, a jazz concert, and a dance performance to coincide with the Human Achievement Hour. Washington, D.C.'s Target store, furthermore, will remain open until 10:00pm on the evening of the 28th. The Smithsonian Institution also plans a film showing that will extend into Human Achievement Hour.

First, do no harm

So, another day, another assistance program for "home-owners" who can't pay their mortgages.

First, please, spread the word: One is NOT a home-owner if one has not paid down one's mortgage yet.

When you finance your home, you and your lender own shares in a property. In return for your promise to buy your lender's shares over time, the lender lets you live in the house.

When you obtained the mortgage, you entered into a contract with your lender. Your lender had to show you the interest rate that you had to pay, the payments you had to make etc. You accepted all of those and signed on the dotted line.

If you no longer can afford those payments, you have the option of moving to a cheaper place and pay rent.

Who does the "government help" help?

What would happen if the federal government taking money out of some taxpayers' pockets (specifically, those taxpayers who are making their mortgage and rent payments on time) and giving it to so-called homeowners to make their mortgage payments and stay in those properties and enjoy the good life?

Simple: There would be a whole lot more properties for sale in the market. That would cause housing prices to fall sufficiently so that a lot of people who believed property prices to be too high, mortgages to be too risky and stayed out of the bubble would finally decide that prices had fallen to realistic levels. In that market, it might be better for people to quickly foreclose and get out of the mortgages they can't pay and, within a few years, buy another property.

By pouring money into the pockets of people who cannot make their mortgage payments, the federal government is not helping them: After all, the things the federal government is doing right now do indeed reduce the possibility of future growth and it is very very unlikely that most people who can't pay their mortgages now will be able to in a year or two years.

In fact, there are roughly two groups of people who are getting "help": In the first group are those people who are connected to the financing of these mortgages. They benefit by the fact that the banks they own and/or work at get to avoid writing off assets. In the second group, there are those who are connected to the business of building and selling new property.

Who is harmed by this "help"? Those who stayed out of the bubble whether on the demand side or the supply side or the financing side.

If the supply of properties were not artificially depressed by these government "assistance" programs, these people would benefit. Markets would rapidly clear and we would be able to deal with whatever consequences followed.

Mortgage assistance programs of this sort do nothing to alleviate the incentive to borrow and lend at crazy terms assuming everything will be OK.

All animals are equal

It turns out there is a full version of the animated Animal Farm on YouTube. I first saw it when I was eight or nine years old. Just do yourself a favor and watch it.

How will health care be allocated five years from now? Ten years from now?

Maybe the way Chicago allocated public education under Arne Duncan?

... a list maintained over several years in Duncan's office and obtained by the Tribune lends further evidence to those charges. Duncan is now secretary of education under President Barack Obama.

The log is a compilation of politicians and influential business people who interceded on behalf of children during Duncan's tenure. It includes 25 aldermen, Mayor Richard Daley's office, House Speaker Michael Madigan, his daughter Illinois Attorney General Lisa Madigan, former White House social secretary Desiree Rogers and former U.S. Sen. Carol Moseley Braun.

Non-connected parents, such as those who sought spots for their special-needs child or who were new to the city, also appear on the log.

Read How VIPs lobbied Chicago schools for more and imagine a system in which not only your child's school but also your mother's doctor is determined on the basis of whom you know. Are you feeling all warm and fuzzy yet?

As James Taranto aptly puts it:

If you and Larry Summers both get sick and need a treatment that the Medicare Advisory Commission (dysphemistically known as the Death Panel) deems too expensive, what are the odds that you'll find a way to get it anyway and he won't? How about the other way around? In the Soviet Union, those privileged by political connections were called the nomenklatura. Here, we can call it the Obamaklatura.

Better late than never

John Conyers has said:

Under several clauses, the good and welfare clause and a couple others. All the scholars, the constitutional scholars that I know — I'm chairman of the Judiciary committee, as you know — they all say that there's nothing unconstitutional in this bill and if there were, I would have tried to correct it if I thought there were.

He seems to be thinking of Section 8 of the First Article to the U.S. Constitution:

The Congress shall have power to lay and collect taxes, duties, imposts and excises, to pay the debts and provide for the common defense and general welfare of the United States; but all duties, imposts and excises shall be uniform throughout the United States;

The simple phrase, provide for ... general welfare has caused everyone in the U.S. a lot of grief over the past century. The case of Nebbia v. New York is a painful one in that regard.

In a nutshell, New York State established a price floor for milk. That is, the law prohibited anyone from selling milk at a lower price. Nebbia, a grocer, bundled some free bread with milk. He was fined for offering his customers a better deal.

Nebbia challenged the conviction, arguing that the statute and order violated the Fourteenth Amendment:

No state shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any state deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws.

The case made it all the way to the Supreme Court of the U.S. In a 5-4 decision, the judges declared that, in the absence of other constitutional restrictions, a state may adopt an economic policy that can reasonably be said to promote public welfare, and enforce such policy by appropriate legislation.

The issue, of course, revolves around reasonably: It seems to have escaped the attention of the justices of the time that such price controls never promote the general welfare They can only serve the interests of a small group of individuals at a cost to everyone else.

The dissent put it best:

Our question is whether the control act, as applied to appellant through the order of the board, No. 5, deprives him of rights guaranteed by the Fourteenth Amendment. He was convicted of a crime for selling his own [291 U.S. 502, 544] property-wholesome milk-in the ordinary course of business at a price satisfactory to himself and the customer.

What happened in this case was simple:

• Nebbia was made better off by bundling a free loaf of bread with two quarts of milk, because otherwise he would not have done it.
• Nebbia's customers benefited from being able to get a free loaf of bread with two quarts of milk because otherwise they would have shopped elsewhere.
• Nebbia’s competitors wanted to prevent Nebbia from offering a better deal.

And, government power was how they promoted their own interest at the expense of the rest of the society.

Unfortunately, this boneheaded interpretation of provide for ... general welfare removed any and all obstacles standing in the way of government intervention.

Basically, the decision seems to say if the government can come up with some reasonable sounding argument (even though such argument is refuted roundly by economic theory and empirical evidence), the government can go ahead and regulate whatever the heck they want.

I am hoping that today's government lawyers will make their arguments in defense of health care reform based on their understanding of this case and the Supreme Court will take this opportunity to put some limit on the power of government to intervene in the affairs of the individual.

What is insurance?

A disturbing pattern has emerged in my discussions with people who support Obama Care: They do not know what insurance is and how it works.

I will try to make it simple enough so that even someone with a sociology Ph.D. can understand it.

An insurance policy is a contract between two parties: One party, let's call her Alice, agrees to pay a small amount every month. The other party, say Barb, agrees to cover Alice's costs if a specific bad thing happens.

For example, Alice might agree to pay $100 every month, in exchange for Barb paying $100,000 if Alice's house burned down.

Why would Barb agree to this? I can hear you scream already.

Well, Barb would agree to this contract only if:

1. the probability of one's house burning down was small enough
2. the probability that one's house burned down did not depend on whether one has insurance
3. and, there were many people like Alice

Barb can make money by collecting premiums which she then invests in other assets to earn a return. Barb's main outlays are payouts to people whose homes have burnt down and the costs involved in checking the validity of claims. In years when very few houses burn down, Barb makes a lot of money. In years when many houses burn down, Barb makes less or even loses money.

If Barb did not do a good job of verifying that claims are valid, she would go bankrupt very fast: Anyone whose home was worth less than $100,000 in the market would burn it and collect $100,000.

For Barb to be able to offer an attractive contract, the probability of one's house burning down must be fairly small. Otherwise, the premium would have to approach the actual damage amount which would mean people would find self-insurance preferable.

Of course, the whole thing only makes sense if Barb can get many people like Alice to pay $100/month to actually be able to cover a reasonable amount of claims every year.

For example, if Barb had 10,000 customers, and the probability of a house fire was 1% for each client and house fires were completely random and independent of each other, Barb would expect to pay on average 100 claims a year, and it would be relatively unlikely to have years with fewer than 70 or more than 130 claims (trust me ;-) So, with a premium of $100/month for every customer, Barb would pay out less than it collected in premiums and have money left over in years with fewer than 120 fires. The left over money can be used to add to reserves and investments and cover operating costs.

Why would Alice do this? Because if she is not rich enough, a house fire like that would wipe her out. She would buy the insurance if the premiums are low enough that permanently giving up part of her income stream in return for not being completely wiped out in the case of a fire.

Pre-existing Conditions

Say, Carl chooses not to buy insurance. One day, lightning hits his house and it burns down. Does it make sense for him to be able to go buy insurance from Barb, put down the first month's premium of $100, and have Barb pay him $100,000?

Of course, everyone would love to be able to avoid paying any premiums until something bad happens and get all one's expenses covered for a puny sum.

The question is, can there be insurance in a world where Barb is required to give Carl 99,900 dollars of her other customers' premiums in return for his $100?

After all, all Barb has are the premiums she collects from people who purchase insurance (the answer does not change if Barb is, say, a Kennedy and independently wealthy — it would just take longer to ruin Barb in that case). If one could buy insurance after the house has burned down, everyone would do it because one would save all those "unnecessary" premium payments and spend them on other things one likes.

That means, every morning, Barb might have some new customers at the door whose homes had just burnt down. With their $100 bills in their hands, they would demand that Barb pay them $99,900. If Barb cannot legally reject them, Barb's liabilities would far exceed her assets and she would have to get out of the insurance business and start making, say, abstract art in San Fransisco and hope that Ms. Pelosi would buy enough of it.

Faced with this simple analysis, I hear people say, "well, the government can tax the rich people and subsidize the insurance companies".

There is only one answer to that: There's No Such Thing as a Free Lunch

Welfare or Insurance?

People who otherwise have high IQ get really upset at this point. After all, Carl's house is gone. They feel for Carl. Somebody has to help Carl.

Caring about your fellow man is a good trait.

However, you have to remember that helping Carl after his house burned down is charity — not insurance.

Forcing insurance companies to act like charities will destroy insurance companies.

Just like forcing farmers to give food away for free will destroy the farmers, forcing bus companies to offer free rides will destroy bus companies (New York City's MTA is a good example), forcing construction workers to work for free (everybody needs a home, right?) will destroy construction workers.

If you want to help people whose homes burned down, well, there are excellent charities like the Salvation Army. Go contribute.

SEC. 2711. No Lifetime or Annual Limits

Still looking at HR 3590 which is full of amazingly fantastically awful items.

If you are wondering how this bill will bankrupt all private insurance firms in the U.S., you need only look at Section 2711:

SEC. 2711. NO LIFETIME OR ANNUAL LIMITS.

1. In General- A group health plan and a health insurance issuer offering group or individual health insurance coverage may not establish--
   1. lifetime limits on the dollar value of benefits for any participant or beneficiary; or
   2. unreasonable annual limits (within the meaning of section 223 of the Internal Revenue Code of 1986) on the dollar value of benefits for any participant or beneficiary.

It will take time for this to work out but given that we are all going to have some serious illness and die eventually, the fact that there is no cap on the liabilities of insurance companies means that eventually premiums are going to have to rise drastically. There are now two ways about this: If liabilities are unbounded, insurance markets cannot operate.

It will be painful to observe and experience this process of destruction.

Prohibition against Discrimination on Assisted Suicide — HR3590 Sec 1553

The text of the legislation is available on Thomas: I am looking at HR 3590 (version 7) in PDF format.

While trying to read and understand the law, I found Section 1553 to be very interesting:

SEC. 1553. PROHIBITION AGAINST DISCRIMINATION ON ASSISTED SUICIDE.

1. In General- The Federal Government, and any State or local government or health care provider that receives Federal financial assistance under this Act (or under an amendment made by this Act) or any health plan created under this Act (or under an amendment made by this Act), may not subject an individual or institutional health care entity to discrimination on the basis that the entity does not provide any health care item or service furnished for the purpose of causing, or for the purpose of assisting in causing, the death of any individual, such as by assisted suicide, euthanasia, or mercy killing.
2. Definition- In this section, the term `health care entity' includes an individual physician or other health care professional, a hospital, a provider-sponsored organization, a health maintenance organization, a health insurance plan, or any other kind of health care facility, organization, or plan.
3. Construction and Treatment of Certain Services- Nothing in subsection (a) shall be construed to apply to, or to affect, any limitation relating to--
   1. the withholding or withdrawing of medical treatment or medical care;
   2. the withholding or withdrawing of nutrition or hydration;
   3. abortion; or
   4. the use of an item, good, benefit, or service furnished for the purpose of alleviating pain or discomfort, even if such use may increase the risk of death, so long as such item, good, benefit, or service is not also furnished for the purpose of causing, or the purpose of assisting in causing, death, for any reason.
4. Administration- The Office for Civil Rights of the Department of Health and Human Services is designated to receive complaints of discrimination based on this section.

Does anyone understand what the law is saying here? Subection (a) seems to say that, providers and individuals cannot be discriminated against for not providing assisted suicide services or mercy killings except that subsection (c) seems to say that subsection (a) places no limits on withdrawing food, medication, treatment, or active killing by abortion or poisoning (note the part about is not also furnished for the purpose of causing, or the purpose of assisting in causing, death).

So, in effect, this section seems to prevent differential treatment in allocation of taxpayer funds of assisted suicide and abortion facilities under the guise of prohibiting discrimination against facilities that do not provide such killings.

Can we shed some sunlight on this?

Sunlight is the best disinfectant

When there is a bill that ends up on my desk as president, you the public will have five days to look online to find out what's in it before I sign it. So you know what your government is doing.

"No more secrecy", he says, "no more secrecy".

How does that jibe with "We need to pass the health care bill to find out what's in it"? I mean, the House just passed the Senate bill on Sunday. Now, in the President's own words, the bill was supposed to have been posted online for five days for the public to review before Mr. Obama signed it. But, he went ahead and signed it a scant 48 hours after the House vote.

In fact, if the White House web site is to be believed, the bill had been signed on March 14, 2010, even before it had passed:

The text of the legislation is available on Thomas: I am looking at HR 3590 (version 7) in PDF format.

Do it one more time ...

Wall Street Journal:
The One Game You Can't Miss

New York Times: One for the Books

Jeff Foote on ESPN's Campus Connection.

Lift the chorus, speed it onward,
Loud her praises tell;
Hail to thee, our alma mater!
Hail, all hail, Cornell!

The letters will not stop

There is a lot of suffering in the world.

A lot of people get sick, a lot of people die.

In case you have forgotten, we are all going to die.

Among the more irritating reasons for passing his so called health care reform used by Mr. Obama are the letters from families who have been dealing with major illness and its associated financial burdens. He wants people to think that if his agenda is passed, such suffering will not occur.

Well, maybe that particular form will not, but suffering will get worse.

For his argument is the same as the argument pushed by those who want the government to determine the right price of, say, gasoline. Anyone who thinks that saying no one can charge more than a $1.00 for a gallon of gas will mean everyone who wants to buy gas at that price can buy it is ignorant of basic economics as well as centuries of human suffering.

If goods are services are priced below market clearing levels, there will be more people who want them than those who produce them. This is a universal truth that politicians universally love to ignore.

Hayek tried to explain in the 20s, the 30s and the 40s the impossibility of planners to obtain the requisite information necessary to figure out market clearing prices.

Mises said it best:

What produces a man’s profit in the course of affairs within an unhampered market society is not his fellow citizen's plight and distress, but the fact that he alleviates or entirely removes what causes his fellow citizen's feeling of uneasiness. What hurts the sick is the plague, not the physician who treats the disease. The doctor's gain is not an outcome of the epidemics, but of the aid he hives to those affected. The ultimate source of profits is always the foresight of future conditions. Those who succeeded better than others in anticipating future events and in adjusting their activities to the future state of the market, reap profits because they are in a position to satisfy the most urgent needs of the public. The profits of those who have produced goods and services for which the buyers scramble are not the source of the losses of those who have brought to the market commodities in the purchase of which the public is not prepared to pay the full amount of production costs expended. These losses are caused by the lack of insight displayed in anticipating the future state of the market and the demand of the consumers.

External events affecting demand and supply may sometimes come so suddenly and unexpectedly that people say that no reasonable man could have foreseen them. Then the envious may consider the profits of those who gain from the change as unjustified. Yet such arbitrary value judgments do not alter the real state of interests. It is certainly better for a sick man to be cured by a doctor for a high fee than to lack medical assistance. If it were otherwise, he would not consult the physician.

There are in the market economy no conflicts between the interests of the buyers and sellers. There are disadvantages caused by inadequate foresight. It would be a universal boon if every man and all the members of the market society would always foresee future conditions correctly and in time and act accordingly. If this were the case, retrospection would establish that no particle of capital and labor was wasted for the satisfaction of wants which now are considered as less urgent than some other unsatisfied wants. However, man is not omniscient.

It is wrong to look at these problems from the point of view of resentment and envy.

Ludwig von Mises, Human Action, A Treatise on Economics, 1st edition, 1940, p.660. (all emphasis mine)

See also:

• A Way Out of Soviet-Style Health Care
• The Pretence of Knowledge

Go Big Red!

Cornell: 78 - Temple: 65

Congratulations all around. Jeff: I am glad you took my class so now I can brag even more strongly about Cornell's win.

Go Big Red!

Deficit schmeficit

Listening to the Democrats talking about how their health care plan du jour must be loved by fiscal conservatives because it reduces the deficit is enough to make any sane person throw up.

A government's budget deficit is given simply as government spending plus interest payments on government debt minus tax revenues.

I would be perfectly happy with a government that is only 1% of the GDP and has to run a large deficit for a few years.

On the other hand, if politicians decide to increase spending by $1,000,000,000,000 and increase taxation by $1,250,000,000,000 in one fell swoop, they can safely claim to have reduced the deficit by $250,000,000,000 or, if the budget was balanced to being with, they can claim to have created a surplus of that size.

Well, now I am doubly upset for that means not only is government activity pushing out private activity, it will be actively killing private activity with the increased tax burden.

So, I plead with fiscal conservatives: Focus on the size of the government, spending and taxation, and the size of the debt. And, I beg the democrats, please, just shut up about the deficit or I am going to throw up.

Speaking of throwing up:

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Pattern of costs in CBO analysis

Looking at the CBO analysis released today, one interesting pattern emerges.

According to Table 1 on page 6, HR 4872 will "cost" $80,000,000,000 between 2010—2014 and a whopping $714,000,000,000 over the 2015—2019 period.

The CBO do not want to extrapolate any further into the future (and, given that even trying to extrapolate into 2011 is hardly justifiable, I do not blame them), but isn't the fact that, even under the most favorable assumptions, isn't the fact that the cost in the second half of the analysis period is almost nine times the cost in the first five years a little troubling? Just a little, maybe?

Cost schmost

Yippppeee! The CBO has scored HR 4872:

The Congressional Budget Office (CBO) and the staff of the Joint Committee on Taxation (JCT) have completed a preliminary estimate of the direct spending and revenue effects of an amendment in the nature of a substitute to H.R. 4872, the Reconciliation Act of 2010; that amendment (hereafter called "the reconciliation proposal"”) was made public on March 18, 2010.

Oh, isn't it wonderful? According to the CBO analysis, the cost will be under $1,000,000,000,000. I am sure we are all very pleased with that.

My main objection to these kinds of numbers is the fact that they ignore the most basic economic definition of cost. The cost of something is not the amount money spent on it. It is what is given up to get that thing.

For example, suppose you have an acre of land in the middle of Manhattan and you decide to grow tomatoes on it and sell it on 8th avenue. Say, you spend about $50,000 every year on seeds, fertilizer, upkeep of any tools you have and pay about $50,000 every year to have the tomatoes picked up and packaged. In return, you make $200,000 selling the tomatoes.

The tax code and the kind of analysis done by the CBO would calculate your profit as $100,000/year.

An (honest) economist, however, would point out to you the that the so-called profit only exists in la-la land.

See, land on the island of Manhattan is very scarce. Your one-acre property could fetch a price in the millions or even tens of millions of dollars. By choosing to grow tomatoes on that land, you are losing the money you could have gotten from the land. You might still find it rational to grow tomatoes on that land if you think being a tomato grower in New York City is worth, say, $50,000,000 to you. Economists call the stuff you are giving up by not selling the land, the opportunity cost of your choice to become a farmer in New York City.

Therefore, even assuming away all the uncertainties and unknowns involved in trying to figure out how many people will be using the subsidies involved in two, five and even ten years from now, the CBO estimate of the costs of any legislation is (and must be) lower than the true costs of that legislation.

The simple reason for that observation is the fact that governments fund expenditures by taking money from people who produce stuff. Therefore, the things those taxpayers could have done with that money and now cannot must be included in the cost column when calculating the true, economic costs of anything the government does.

The only way to argue that such taking can increase social welfare is by assuming that legislators, bureaucrats and planners know better than the taxpayer where the taxpayers money should be spent.

To be able to produce the type of analysis demanded of them, the CBO must ignore all this and come up with some accounting tables, based on projections and extrapolations all of which will become completely invalid once the legislation goes into effect.

What is a government job worth?

When a business hires Jane Doe and decides to spend on her, say, $100,000 a year (including both the money paid to Jane and whatever other expenditures the business must incur as a result of hiring her), you know that in the best estimation of whomever made the decision, Jane is expected to add more than a $100,000 to the income of that business. Otherwise, the decision would not have been made (because business are run by blood thirsty selfish profit maximizing evil vampire capitalists).

If the business makes the mistake of hiring enough people who are not worth what the business is paying them, well the business can no longer remain viable.

Except, of course, if the government decides to bail out the workers who are not worth what they are being paid (think GM, CitiBank, Bank of America etc), but let's pretend for a minute that the world is perfect and those bailouts did not happen.

Now, when the government hires John Doe in return for salary plus benefits etc totaling $100,000, can we again automatically conclude that J.D.'s output will be worth at least $100,000?

Leaving aside the difficulty of measuring the value of any goods and services provided solely by government monopolies (how much is the value —not the price— of a ride on Amtrak between Wilmington, DE and Washington D.C., after all?), it should be immediately obvious that no such conclusion can be made.

For if a government official overestimates the value of a new hire, the most likely outcome is that the government will collect more taxes to make up for the shortfall. In fact, the opposite is true of any purchase a business makes: Pay too much for your paint supplies as a contractor, you can no longer offer the best price/quality combination. If, on the other hand, a government pays too much for paint, all it does is to pass on the mistake to taxpayers. There is a disconnect between authority and responsibility.

That's why state governments such as California's, New York's, New Jersey's and many others are in such financial trouble. If you want to know how bad it can get, take a look at Greece.

And, that is why, the cost of government is at least what it spends. Not only is a large fraction of every dollar spent by any government misallocated or simply wasteful, it is a dollar taken from someone who earned that dollar by giving up her leisure time. Take enough of one's earnings, and the incentive to keep working to finance government wanes.

How do you like your Prius now?

No, I am not referring to people who drive a Prius. No, no, no ... I am referring to the people who actually paid for those people's cars.

Yes, we all paid for some people to own the cars they liked.

First, in the form of subsidies to people who bought so-called energy efficient vehicles, and, second, in the form of Cash for Clunkers, we paid for some people to swap their cars with shiny new ones and helped them feel real special about it.

CNN told us about people who organize endurance races. These are people who drive thousands and thousands of extra miles to get a few extra mpg: Apparently, they forget the difference between an average and a total. And then, there are people who think that using a plug to charge your car generates absolutely no emissions.

Yes, we all paid for these people's cars.

For the record, my gut feeling right now is that the Prius is probably no less safe than any other car on the road and likely much safer. I have seen many a Prius easily doing over 90 MPH on the NJ turnpike or I-80 (and who can forget Albert Gore, III's Prius) and their drivers seemed to be more in control of their vehicles than the drivers of those stupid Lancers with tinted windows and spoilers ;-)

What good your edumacation to me?

Students and teachers are protesting tuition hikes, program cuts etc around the U.S. The main demand seems to be that someone else must pay for their expenses related to attending a school.

Note, I did not say education: There is a difference between getting an education and getting a degree. Learning is entirely possible without attending a school and getting a diploma. Further, it is entirely possible for people to get degrees without learning anything. I meet learned people without official diplomas and ignorant people with diplomas all the time.

Obtaining a degree is a useful signal in the job market. It signals to employers that you have the commitment and dedication to consistently show up and complete the requirements of a degree. The value employers place on the particular signal for a particular individual is reflected in the total compensation employers are willing to offer to that person.

Subsidies can be justified when the consumption or the production of a certain good or a service creates a positive externality: That is, if the transaction benefits third parties not involved in the transaction, the competitive market equilibrium will involve too little of the good or service being provided.

The question to ask, then, is who else benefits from one person obtaining a degree than the school which charges tuition, the employer who enjoys and pays for the services of the individual and the individual and people related to the individual?

The claim is sometimes made that if more people have diplomas, the society will be a better place, there will be less crime yada yada. Well, let me point out that the students were smashing windows and generally engaging in an orgy of violence as well as people in the higher levels of Enron all had at least some higher education.

Instead, in a world where individuals bear the financial burden of attending a school, those who chose to incur that burden may also be more likely not to throw away that investment. In a world where individuals bear the financial burden of attending a school, they may be more likely to want to get their money's worth.

Note also that the argument does not change when private parties willingly offer scholarships and fellowships: The only question is whether there is any justification for confiscating some people's money to pay for other people's degrees.

In fact, the disconnect between the beneficiaries of those diplomas and who pays the price is a reason tuition rates have been increasing (another is the higher premium the job market places on certain types of achievement). Given that a third party pays one's tuition and other degree related expenses means people are less likely to take into account the full cost of obtaining a degree.

A much more valid argument can be made for some government intervention in the student loan market. Potential students would like to obtain loans on the basis of future earnings but are unable to place any collateral (for, unlike a house or a car, your degree or education cannot be taken away from you). This, at least theoretically, can cause too few loans to be provided and interest rates to be too high (relative to what is economically efficient). Even then, it is far from obvious that anyone who wants a loan to attend school ought to be able to obtain any amount she wants. In fact, there were quite a few cases during the housing boom of people enrolling in a couple of classes at the local community college to obtain a student loan and use it as down-payment for a house, 'cause, you know, home values will always go up.

Remember, there was education before there were schools, and there were schools before there was a federal government. Individuals will seek the education and training that will benefit them the most given their preferences and abilities, and schools will seek the students and faculty who will help them maximize their profits. Employers will be willing to contribute to educational institutions that consistently provide them with workers that are worth their compensation be it in the form of direct donations or fellowships/scholarships offered.

It's not just about abortion

One of the panelists at a health care panel in which I participated wanted to make the point that government run health care can be great. The example he chose was, shall we say, unfortunate.

See, this older gentleman had gone on a ski vacation and injured his leg on the slopes. He was delighted that Medicare covered the treatment of his injury with no hassles and he did not have to pay a dime out of his pocket.

And, my friends, therein lies the rub: Not all health care expenditures are the result of random misfortune.

Let me expand on that a little. Proponents of the Democrats' health care financing plans tend to point to the hardships endured by, say, people who wake up one day to find that they have a serious disease. But not all health care expenditures are so dramatic and so disconnected from one's own actions.

For example, New York is among the 45 states that mandate that every health insurance policy cover treatment for alcohol and substance abuse (see Health Insurance
Mandates in the States 2009 by the Council for Affordable Health Insurance [PDF]). Now, I submit that there is some choice involved in exposing oneself to alcohol and/or drug addiction. And, standard economics tells us that, keeping everything else constant, the lower the cost of a negative outcome to the individual, the more likely people will be to get on the path to addiction. To put it another way, the more of the cost of addiction is borne by individuals, the less likely they will be to go binge drinking or try a few pills at a club. Switching to a One Nation, One Plan system whether through mandates or a tax-payer subsidized so-called public option, will cause everyone to bear the financial burden of providing treatment for alcoholism and drug addiction to people who chose to take that first step.

Coming back to my fellow panelist's injury: I am sure learning to ski after age 65 enriched his life. However, he chose to do so knowing full well he would not have to bear the full financial cost of any injuries his new activity might cause. And, one does not have to be old to do this: I once read in a student newspaper a column which made the argument that since college students tend to like to travel to exotic destinations and since they might sometimes contract similarly exotic diseases in these places, they have a lot to gain from "free" health-care insurance for all. But, of course, once again, not having to bear the full financial burden of the negative consequence of one's choices tends to make those risky choices more attractive. Even a slight percentage increase in such behavior, when applied to the whole population, would result in giant increase in health care expenditures.

So, if the Democrats' desires become reality, the result will not just be that we all pay for abortions. We will also pay for STDs people get from having unprotected sex with strangers; we will also continue to pay for the injuries older people sustain from participating activities that might be, well, a little too active for their age; we will also pay for every injury that a teen suffers from in skateboard parks etc etc.

I understand the moral objection and the strong feelings people have about having abortions paid for out of their tax dollars. Even leaving that aside, however, the explosion in the financial burden that would be created by a One Nation, One Plan approach, where we are all part of the same risk pool even though everyone has a different risk profile, is enough to realize that the optimistic claims made regarding the ability of such an approach to keep costs down are unrealistic.

There is, of course, a relatively straightforward way to preserve the right kinds of incentives that a fully functioning insurance market would create where premiums reflect risk.

First, allow insurance companies to compete across state lines.

Second, remove most, if not all, mandates, thereby allowing insurance companies to offer a full menu of policy options. This has the added benefit that knowing one would have to pay for that rehab center out of pocket would serve as a great commitment device against taking the first step towards drug abuse.

Third, use government power in the most useful way it can be used: Create guidelines for policy language, create standards for information dissemination, create consistent rules for dispute resolution etc.

Fourth, require everyone to have medical care insurance up to a certain given amount of expenses, say $100,000 a year (adjusted every year for health cost inflation) but leave the deductible and premiums freely determined. Tax-payer assistance can and should, under this system, be available whenever expenditures exceed this ceiling. This should be accompanied with abolishing the requirement to provide free care to anyone. Health care providers can decide on a case-by-case basis whether they will provide free care to any given patient. They can even run charities for this purpose.

Fifth, increase the supply of health care services by reducing licensing requirements, making it easier for foreign doctors and nurses to work in the U.S. Coupled with this, ensure that public databases of patient evaluations of and complaints against insurance companies, doctors, nurses, hospitals and other health care service providers can operate without intervention to enable consumers to make informed choices.

Finally, get rid of that silly tax subsidy to employers who provide health insurance. Employer provided insurance came about because of wage controls and now that one market distortion is gone, there is no need to hang on to the other.

Such a system would ensure that (1) consumers of health care services would be price sensitive and take appropriate care in preserving their health; (2) there is competition in both the health care insurance market and the health care provision market (competition in one without the other is pretty useless).

Is the polar bear the new penguin?

Back in the 80s, back before the wall came down, the big environmental issue was the ozone hole.

In Turkey, the 80s was a decade of transformation. Following the military coup in 1980 and the subsequent military rule, Turgut Özal's party had won the election and he had set out on opening Turkey's economy to the world. To say that the political environment was repressive would be an understatement — but that is topic for another day.

In mid-80s, I spent a year in Denmark as an exchange student. It was tough year in many respects: I know it is hard to imagine, but there was no internet, no cell phones, no cheap telecommunications so what little contact I had with friends and family was mostly in the form of handwritten letters and the occasional, very expensive, international phone call.

One of the last things I spent some of my very limited money on prior to my return home was a donation to Greenpeace and a t-shirt with a funny penguin on it. Upon my return to Turkey, I wore my penguin t-shirt every chance I got even though Greenpeace was probably considered a subversive organization by the state security establishment.

See, because the world was using way too much of chlorofluorocarbons, a biiiigggg hole was opening up over the South Pole. This hole would continuously grow until the earth was left with no protection against the sun's harmful waves. We would all fry. But, the penguins would be the first to die because of our refrigerators, air conditioners and deodorants. So became the penguin the symbol of choice for the campaign to ban CFCs worldwide.

Now, I am not here to challenge the existence of an ozone hole or the mechanism by which CFCs are tied to the depletion of ozone above the ozone hole or any of the associated facts and hypotheses. I do not know enough of the science or the data to even begin to talk about that. Besides, all that is history: We cannot go back and observe the behavior of the ozone hole in a universe with no limits on CFC production.

I am just wondering why the cute little penguin ceded the role of environmental mascot to the big, vicious polar bear.