Deinonychus antirrhopus

Legislating From the Bench

Matthew Yglesias has an interesting take on "legislating from the bench". I guess I'm wondering about it a bit too. The battle cry of many conservatives is that the left/liberals are getting their agenda implemented via judicial decisions that are tantamount to legislation. But isn't this a sword that cuts both ways? Couldn't the same be said about aspects of the conservative agenda?

For example, the intelligent design/creationism legal battles are typically seen as part of the conservative agenda.¹ What about the legal fights of abortion. Couldn't these also be seen as forms of legislating from the bench?

I suppose one argument could be that there is the distinction between the constructionist view and the "Constitution as a Living Document" view (does this view have a nice short handy name for it as with the Constructionist view?). With the former it isn't legislating so much as reigning in laws and government agencies that have over-stepped their Constitutional bounds (I guess). Whereas the latter is more proactive and extends the power of the executive branch which could and maybe should be done via legislation.

Well if you want, leave a comment, I'd like to see other people's views on this.
_____
¹I know that there are many conservatives/libertarians who do not share this agenda and hence it is a bit misleading to classify it as simply part of the conservative agenda. Religious/christian conservative agenda would probably be more accurate.

Libertarian Silliness

I was driving home listening to Larry Elder and Larry was going on about some article (sorry no link) that was discussing how clueless the American people are when it comes to investing and economics in general. Larry's big point was that the conclusion was that the Left/Democrats think private accounts for Social Security is a bad idea because they think people are, in general, too stupid to be trusted with their own money.

This view is misleading and is a fine example of Libertarian silliness. Of course, the Left/Democrats don't think people are too stupid to have control of their money. If this were true, then the Democrats/Left would be advocating taxing all income 100% and having the State make all decisions.¹

A more sober take on the problem is that there are two problems with letting people have complete control over their retirement funds.

1. Investing wisely takes both time and effort.
2. Even the most knowledgable and informed investors make bad investment decisions.

The first point implies that people are only going to allocate resources towards becoming an informed and knowledgable investor to the point where the expected (marginal) benefits are equal (marginal) costs. As such, different people are going to have different levels of competence and some are going to be making decisions with very little information and probably making bad decisions. The second point is that even if people are highly knowledgable they can still loose money. Both of these points together strongly imply that a retirement system where people rely on their own means for making investments will result in a portion of people who will do badly (and in some cases very badly). In other words, we don't need to invoke stupidity to get to the position that some sort of government saftey net program for retirement could make society better off.

As for Larry's point about improving education, the first point takes care of that. Unless Larry is adovcating some sort of forced retirment education system (and I don't know what would be done with those who fail such an educational program repeatedly) you probably aren't going to get to the point of "people can invest their money better than the government". At least not for everybody. In fact, given Larry's libertarian views, I'd say we probably would never get to a situation where even a decent portion of the populace is sufficiently educated. After all we can't force people to learn about this stuff.

The bigger problem with rants like Larry is that they really don't help in dealing with the issues surrounding Social Security. Sure it sounds good, but in reality it is misleading.
_____
¹Okay, there might be some extreme elements of the Left/Democrats who think this way. However, characterizing the entire Left/Democratic Party based on these loons is no more fair than using the Religious Right to characterize all of the Right/Republican Party.

Elizabeth Edwards: DUer

I was a bit shocked to see that Elizabeth Edwards is a member and fan of Democratic Underground. I find DU is pretty much the flipside of Free Republic and many of the threads are just staggering in their vileness.

Health Care Reform

One thing I have tried to always point out in my recent posts on health care is that there is indeed a problem with health care.

Health care expenditures are growing at a rate far faster than inflation and are in all likelihood reducing the wage portion of many employees wage/benefits package. Also, with the rapidly rising health care expenditures and the looming surge in the number of people who will qualify for Medicare there are also very serious problems for the long term budget outlook that will either require large permanent tax hikes, spending cuts or both.

My problem with much of the "socialize medicine" battle cry is that many plans favor a full scale take over of the entire industry by the government. While, I suppose this could result in a decrease in the rate of increase for health care expenditures I am not convinced that we can have such a decrease along with maintaining, let alone increasing, the quality of health care. A quick and dirty way to reduce the growth rate of health care expenditures is to nationalize the entire industry and simply put in place rules and laws that make some procedures illegal or non-viable or make accessing health care a long and torturous process (long waiting lines, rude health care staff, more lines, etc.). This sure can bring down the growth rate of health care expenditures it can also make people worse off. So it isn't clear at all to me that this is a good thing. I am also not convinced that tinkering with the current situation is going to provide much benefit either. That is what we have been doing for decades and we still have a problem.

I think that one solution that has potential and needs some more looking into is Arnold Kling's notion of health care vouchers. The vouchers would work for catastrophic health care and cover part of the costs. Further the vouchers could even be based on a sliding scale that declines as one's income increases.¹ Thus, people will now have an incentive to shop around and get the best deal. Further, unless one opted for a more comprehensive plan (out of your own pocket) people would pay more out-of-pocket expenses for low cost/routine procedures, visits, etc. This itself might help reduce the growth rate of health care expenditures.

Is it just a coincidence that as out-of-pocket expenditures have declined health care expenditures have risen? Maybe it is just a coincidence, but I'm more inclined to believe there is a connection. My guess that as the out-of-pocket expenditures have declined health care expenditures have increased.²

Finally, I'd like to see whatever reform is put in place to have some built in safe guards against abuse. I don't want whatever healthcare policy is put into place to become a sort of candy jar that politicians will try to use to bribe voters much like parents sometimes try bribe their children. This could very well make a bad problem even worse.

Now I will also add, that these is not much evidence to say that my preferred policy would work the best. My general feeling though is to shy away from complex policies/programs and to make it harder to increase the benefits of such policies so that the policies will actually address the issue of rapidly increasing healtch care expenditures. I am not in favor of keeping the current system (so put a sock in it Sofla), but I'm also not about to slap any old piece of crap policy into place and call it good.
_____
¹The decreases could also be structured so as to make "earning more" preferred. For example, if the voucher is worth $5,000 when you are earning $10,000 and $4,000 when you are earning $11,000 then there the person may not want to take the $11,000 over a $10,000 job. So make the voucher's value $4,500 when income is $11,000.
²While my inclination is to believe that declining out-of-pocket expenditures is one of the things driving up health care expenditures I do concede that it might very well be the other way around. A careful statistical analysis needs to be done, IMO.

Did I Read That Right?

This is a weird post from Brad Plumer. Brad is noting first off that the Japanese have pretty high life expectancies. From this Brad, and Angry Bear Brad's source, conclude that the U.S. spends alot on health care, but gets little in return.

We've been down this road before with these kinds of sloppy ad hoc comparison's. This is like comparing the expenditures of a family in one part of the country to a family in another part of the country and then trying to draw generalizations such as one family being richer. Of course, one problem is that different parts of the country are more expensive in terms of things like housing, or have more traffic. In other words, it isn't clear that Angry Bear is comparing "apples to apples".

For example, in the U.S. infant mortality rates differ across races. How come? I know the standard knee-jerk reaction is that it is racism. Although this raises one question though...if it is racism how come the infant mortality rate is falling for blacks? I mean after all if it is the white power structure trying to kill black babies...why not keep the rate the same? So the Japanese, who are a different race than whites and the rest of Angry Bear's graph, have lower infant mortalisty rates and it is being compared to the U.S., which has a much more heterogenous population, which has a higher infant mortality rate. Could controlling for race reduce the difference?

Sticking with infant mortality how does Japan classify low birth weight/premature babies? Here in the U.S. they are classified as live births. These babies struggle mightily, consume a grea many health care resources (i.e., they rack up huge bills) and sadly many of them die. Raising infant mortality, increasing health care expenditures and decreasing our rate of return in terms on health care spending.

The point here is that we live in a multivariate world. Life expectancy and infant mortality are a product of a number of different factors. For example, Brad rightfully notes that the Japanese are extremely unlikely to be obese. But there is more as well. What is the rate of violent crime in Japan? What about car accidents? Do the Japanese drive as much as people int he U.S. do?

Granted accounting for any one of these issuse might not remove all the disparities shown in the graph, but they might reduce some of it. And yes, there might even be things that exacerbate the differences as well. But shouldn't we look at these issues before jumping into the deep end of some policy? This is the typical approach:

1. Find a problem.
2. Gin up some bad statistics to demonstrate the problem is "serious".
3. And if your good those same statistics will show that socializing the market will solve the problem. Otherwise you'll need to come up with another batch of statistics.
4. Pass legislation.
5. Watch as the problem usually gets worse.

So I guess I'm arguing for two things. First, a more careful look at this issue. Second, some pause and consideration which reform measure is the best. While the Japanese seem to have a good system taht system might not work when the population is more heterogenous.

Another weird aspect of Brad's post was the comment about genetics. Careful there Brad...some might starting thinking you're a racist.

More on Social Security as Insurance

Mark Thoma, whose blog is going on the blog roll, has a post on the isssue of whether or not Social Security is or is not insurance.

Just because an economic activity transfers income from one person or group to another does not make it welfare. Fire insurance transfers income. Some people pay premiums for their whole lives and collect nothing. Others, the unlucky few who suffer a fire, collect far more than they contribute. Does that make it welfare? Of course not.

Social Security is no different, it is an insurance program against economic risk as I explain in this Op-Ed piece. Some people will live long lives and collect more than they contribute in premiums, some will die young and collect less. Some children will lose their parents and collect more than their parents paid into the system, others will not. But this does not make it welfare.

Lets compare the two. Suppose I purchase fire insurance every year and I'm lucky and never need it. What do I get in terms of a payout? Nothing. Now, my neighbor on the other hand, also buys fire insurance, but his house does catch fire so he gets a payout.

Now for Social Security. If I retire with $500,000 in the bank, a nice long work history with pretty decent incomes, a house worth say $350,000 then why should I actually get more money than somebody who had a major financial crisis in their 40's that cost them their home, a significant chunk of their earnings and savings? Seems to me for Social Security to be considered a form of insurance I'd have my benefits reduced according to my assests upon retirement, maybe even to zero (and yes I'd still pay into the system). The problem is that we are both, under current law, gauranteed of recieving Social Security and chances are my Social Security check will be larger. If this is insurance it is crappy insurance.

Mark does bring up the problems of adverse selection and moral hazard. But as Victor noted many who favor government intervention merely invoke these two problems then conclude that the only answer is the government with very little to support the conclusion. It is as if the twin bogeymen of moral hazard and adverse selection are so overwhelming that there is no way to overcome them save by the government. While it is possibly true that no system may correct for market failures it is not clear that the government solution also entirely corrects for the market failure and also comes with its own costs as well (generally speaking). I see market failure as a necessary condition for government intervention not a sufficient condition.

Also, I feel the definition that Thoma is using for welfare is a bit misleading. The definition of transferring income means that just about any economic activity is welfare. Even going to work is welfare. At least for me, another criterion should be added. There is a transfer of income and the recipient provides nothing of value.

Lets use Thoma's example of a loan. Granted the loan will transfer income from the borrower to the lender. But the borrower gets to use funds that he currently does not have, and the lender recieves interest for the loss of ability to spend the same funds. What does a person who gives money from their paycheck get from a retired person?

The main feature of Social Security is not welfare as Samuelson asserts. The main feature is insurance against economic risks and as such it makes us collectively better off. Calling it welfare when it isn’t is misleading and causes unnecessary class distinctions and resentments from the losers ex-post.

I don't know for sure, but I'm fairly certain that the current Social Security system creates losers and winners. If you were an early recipient you contributed very little and got a nice chunk of change. Later contributors have to look forward to increasing taxes to keep the system solvent.

So do I see Social Security as a form of insurance? Not really. Sure it provides protection against winding up in extreme poverty, but it also is a given that I will get my benefits no matter what economic state I find myself in. Further, the worse my economic state is the worse my Social Security benefit is likely to be.¹ Does Social Security protect one from economic risk? Yes, but as insurance it stinks.

Update: Mark Thoma had a pretty long reply so I've copied it to the extended entry so it can be read immediately after reading my post. I'll also comment afterwards as well.
_____
¹That is, if I have a lower earnings history then my benefits from Social Security is lower.

First, welfare is fairly simple for me to define, and this is what I mean when I use the term. Others are free to use there own definitions so long as they are explicit. To me, it is a transfer of income where one person is made better off, the other worse off. That could be voluntary or involuntary.

With voluntary exchange in the marketplace, that is not the case, both are made better off, so that is not welfare. Insurance fits into this category. There is an exchange that makes both parties better off. That is not welfare. Sometimes, markets fail and governments provide the goods, but it is still Pareto improving.

Second, there are different types of efficiencies. There are political realities that went into the creation of the SS system that led to the distributional rules that currently exist. I’ll deal with those momentarily. First, let’s run through some example to see if we can get on common footing or see where we disagree.

Case 1 - The rich and poor pay in identical amounts to insure against a baseline poverty level, then identical amounts are paid out to each group as poverty insurance. Each income group gets exactly what they paid in (and there are winners and losers within each group due to different longevity). There is no transfer of income between the groups, so nobody can claim welfare, and within each group it is simply an insurance market that makes everybody better off.

But this is not efficient. Why? Because, at age 20 say, the probability of a rich person needing poverty insurance is lower than the probability of a poorer person needing insurance. Some rich will go broke and will need insurance and a priori we don’t know who they are, some poor will strike it rich not and won’t need it, but a priori we don’t know who they are either. But the probabilities of ending up in poverty differ for each group.

Case 2: Each group pays in according to the probability of their needing the insurance, payout identical to what is contributed by each group. I’m doing this quickly, but I think this will be efficient, and there is no welfare.

Finally, we’ve been thinking about poverty insurance, but you can insure against any event, including attaining a certain age (and it doesn’t matter what your income is except to the extent income affects how long you live). For example, the insurance triggers a payment each time you have a birthday – this type of insurance is much more like the SS payout, but this type of insurance is foreign enough to most people that I won’t push this, but it does get around many of the objections. Everyone who participates gets a payout each time they tick off another year so there is no means testing objection. This also solves some of the market failure issues because death is harder to manipulate than poverty/income. If pushed, I will have to work this out, but casually it seems to mimic fairly well the current SS system (I got this idea from a comment at DeLong’s site when he posted my Samuelson comment you reference above, but I don’t know who to credit right now)

Let’s tackle means testing now. Under another type of insurance, the type I’ve been talking about, poverty is the trigger for payoff. The objection everyone has involves the fact that the ex-post distributional rules differ from this. Everyone, even those above poverty, get a payout. I agree – that is not insurance against poverty (but it works under the age trigger), but saving, and this is not what I mean when I use the term insurance.

But that is the ex-post distributional rules – those can easily be changed – and it doesn’t change the fundamental nature of the program, one of insurance, not saving.

This too requires care because what I see as insurance you may see as saving. In large part, for a typical retiree, whether people view the amount they get as purely a poverty allocation (remember that it is the sole source of income for a substantial fraction of the elderly and the average payment is somewhere near $1,000), or subsistence level plus a saving component depends upon their normative view of the minimum level of support acceptable to society for someone who has worked hard all their lives but had the misfortune to outlive their assets or have health and other costs that eat away the best of plans. How should they be treated? What is subsistence in this society for the elderly? That is a normative question, economics cannot answer it, and I suspect my view on that gives a higher level of support than others who have written or will write here. If it's my mom, who has worked hard her whole life to support her family and community, I know how I want her treated in return if family and others are no longer there to help.

Political realities went into the decision to pay everyone benefits, not to means test. Ask yourself this. If you eliminated Social Security, completely eliminated it just like prior to 1935 what would happen? I believe we would lose an important form of social insurance. Sure, the system’s not perfect and you can point your finger at societies choice of distributional rules and the fact that the amount paid in doesn’t match probabilities (though doesn’t the income cap fix this to some extent, a reason I don’t like lifting the cap as a solution is because I think the pay-in should differ according to the probability of poverty and the cap moves in this direction, the rich pay less than the poor) and hold those up as examples. But I believe it is fundamentally insurance and have no problem thinking about how to better make the insurance component independent of the savings component by matching the probabilities, etc. My worry though is that any step in this direction, means testing and the like, while more efficient in an economic sense are also politically less palatable which may undermine the system entirely, an outcome I’d rather avoid.

It’s hard to say everything you need to say , or to say things with full precision in this format, so I’d like to qualify the above with the note that it was written beginning to end with a bit of cut and paste from other sources, and then I did one editing pass, so I may need to clarify, refine, or recast later on.

My reaction is to Mark's example of insuring against reaching a certain age. For example, could there be an insurance market for reaching age 40? I pretty sure that for the most part the answer is going to be "no". The reason is that the probability of reaching 40 is going to be pretty high. On the other hand, there is a market for insurance that I'll die at age 40 (with the payoff going to my wife and/or son). The reason is that the probability of me dying in the next three or so years is pretty small.

Now in the latter case there is still problems with adverse selection and moral hazard. There isn't much the insurance company can do about moral hazard save maybe putting in various clauses that will result in a zero payment for death due to certain reasons (suicide, AIDS, etc.). To reduce the problem of adverse selection many insurance companies will conduct screening where the individual will give various samples of bodily fluids. Still a market is able to form in this case. But when most people who are 30 - 39 have a probability of living to 40 with probabilities 0.9 and up, the prospects of such an insurance market forming seems unlikely to me.

The following comment,

Let’s tackle means testing now. Under another type of insurance, the type I’ve been talking about, poverty is the trigger for payoff. The objection everyone has involves the fact that the ex-post distributional rules differ from this. Everyone, even those above poverty, get a payout. I agree – that is not insurance against poverty (but it works under the age trigger), but saving, and this is not what I mean when I use the term insurance.

Seems to indicate that Social Security as we have it today is not insurance.

While Mark has put forward the case that Social Security is a form of social insurance, I'm still not convinced. I don't see the "insurance" aspect here in that the idea of insurance is to insure against the bad state. In this case the bad state is poverty. Okay, so come up with a system that provides for those in the bad state. The current program provides for everybody whether they are in the bad state or not.

Social Security, Retirement and the Failure of Private Insurance Markets

In the comments to this post Brad Plumer pointed out a paper by Mark Thoma that looks at variable longevity and whether there is a market failure with private insurance. I have only skimmed the paper, but here is the short form that I've gathered from my skim.

The problem is when individuals have private information concering longevity. In this case, people who live longer end up having a shortfall in terms of retirement insurance.

Thoma notes that the government can overcome this problem by requiring mandantory insurance for everyone with a contribution to a pooled fund. My question is if this is the only way to solve the problem. Markets can sometimes find ways around the problems of private information.

More on Judicial Nominations and the Filibuster

In the comments to this post, the issue of confirmation rates for judicial appointees came up for each President. In looking around the web so far the source I like the best is this pdf by the Congressional Research Service.

The short form of the report is that there has been a downward trend in the rate of confirmation for judicial appointees and as is fitting with a downward trend Bush's confirmation rate is the lowest with rates of 57.1% (if you count nominations) and 78.1% (if you count individuals nominated}. The following table gives the confirmation rate from Carter forward.

Now, it seems that my guess that if the Democrats find themselves in control of the White House after 2008 they might find it even harder to get judges confirmed. After all, it seems unlikely the Democrats would dislodge enough Republicans to be able to over-ride a filibuster.

Now, this doesn't mean the Democrats should simply give up on filibustering Bush's nominees. However, I would say that it is at least a factor that the Democratic leadership should consider.

Update: If you look at the tables in the pdf, the numbers for circuit court nominees shows and even larger decline with G. W. bush's nominees being confirmed only 32.3% of the time (using nominations) or 60% (using individuals).

Social Security Metaphors

I love the metaphors the liberals come up with to describe their pet policies. With regards to Social Security it is an "insurance program" or a "safety net". Of course, the reality is completely the opposite.

A safety net, to be extremely pedantic because the liberals just don't seem to get it¹, is a net that catches trapeze and high wire performers. In case they make a mistake and fall the safety net catches them. Thus, it is something that one would prefer not to use. After all, landing badly even on a saftey net could lead to injury.

Similarly insurance is something you purchase to protect your wealth/assets from an unlikely bad event. For example, what are the risks of getting cancer, or a bad car accident? If the probabilities are suitable small enough then you can purchase insurance.² Thus, there is uncertainty and also the additional aspect that the bad outcomes are not something people typically work towards achieving.

But neither of these apply to Social Security. Virtually everybody recieves their Social Security check irrespective of how much wealth and assets they have. It isn't used only for those who have "fallen" (using the safety net metaphor) or who have wound up in the "bad state" (using the insurance methaphor). No, it is more accurately described as an entitlement program. Of course, liberals don't want to use entitlement program because from there it is but a short hop to calling it a welfare program.

The liberals love to talk about conservative/Republican code words. Things like "traditional values" implying something about homosexuals, racial minorities or gender roles. But the liberals have their own code words and here is one of them. When a liberal talks about Social Security being an "insurance program" or a "safety net" you now know they are being misleading. They are not being serious, but disingenuous. The real term they are looking for is "welfare program". So keep this in mind whenever you are listening to a liberal talk about Social Security.
_____
¹Or they do get it, but have decided to be dishonest.
²If the probability is high then the premium is also high. In the limiting case where the probability is 1, then the premium is equal to the cost of treatment.

Health Care Over Time

Matthew Yglesias has another post on health care that I've been meaning to blog about. In this one Matthew looks at the intertemporal nature of health care and tries to determine the implications for policy. Needless to say, he fails miserably.

The basic idea is that health care decisions often times can have long term consequences.

Why is the American health care system so inefficient? Well, there are a lot of reasons. But one important reason, which is especially important because it's also related to bad health outcomes, is that the horizon-line for incentives is messed up. Oftentimes, spending $X on a patient in one year will allow the patient to not get sick in a way that requires spending $3X or $4X some years down the road. From a holistic point of view, you want to spend the $X. But that requires the person who's deciding whether or not it's a good idea to spend the $X to be the same person as the one who's responsible for the $3X or $4X down the road.

This is a variation on the "an ounce of prevention is worth a pound of cure" bromide. The problem I have is with Matthew's conclusion latter on. Namely,

The last alternative would be to create a pool so large -- United States-sized -- that very few of its members would ever leave. Technically, of course, people do emigrate from the United States. But it's a small number of people. Basically, a nationwide health care system would have the right incentives to make sure investments were made at treating people when doing so would cost the least rather than waiting until the situation was so dire that it's morally (or legally) unacceptable not to provide treatment, but the treatment may be hugely expensive.

In a limited sense this might work. If for example we were to construct a theoretical dynamic model where the government is a "benevolent social dictator" then we could help solve this incentive problem of paying early for a medical issue prior to it becoming a costly medical procedure.

However, we don't live in the world where the government is a "Benevolent Social Dictator".¹ We live in a world where budgets are annual and politicians face periodic re-election. Could this be enough to screw up the incentives? Possibly. Suppose these $4x costs are 20 years down the road. That might be well outside the politician's planning horizon that Matthew noted up front. For example, one institutional constraint that could really gum up the works is that the President is limited to two terms. Term limits basically "free up" a politician in terms of taking various actions. In economic trems the incentive compatibility constraint is no longer binding. That is the voters no longer can hold re-election over the head of the President to get him to what they want. The party structure of American politics might induce some compliance, but then again it may not. The idea of a legacy (reputation) might also help with this problem as well. Still there is little reason to think that a President who if facing a problem with deficits near the end of his second term might not want to put off some current expenses till later to improve say the budget deficit.

The problem is that most individual's have planning horizons that are indefinite and most of the entities that pay for health care have definite horizons or horizons that are most likely much, much shorter than the individuals. A health insurance company that renews its policy every year would have a similar incentive problem to the one Matthew is noting. Would switching to a 4 or 8 year plan solve the problem? Some of them I suppose, but not necessarily all of them.

Another problem with this is that the overall effect of Matthew's solution might not be as large as he thinks it is. Arnold Kling notes something interesting about the U.S. and...France.

That same OECD briefing offers a sliver of data pertaining to what could be a very persuasive indicator about the differences between the U.S. and other countries. It looks at spending by age bracket in two countries -- France and the United States. In the United States, per capita spending in the 19-44 age group is about $2500, compared with about $5000 in the 55-64 group and about $8000 in the 65-74 group. In France, per capita spending is about 1200 euros in the younger age group, rising to 2500 euros and 3500 euros in the older age groups, respectively. Thus, the pattern of relative spending is very similar in the two countries.

In other words, even with Frances wonderful socialized health care system the spending for the elderly is the largest part of per capita spending. So while there might be some savings it isn't going to be on the order of cutting health care expenditures to a quarter of their current level. The fact is when people get old their bodies start to fail, and that is when most health care expenditures are incurred.

Some other problems that one might object to are ones that arise due to personal freedoms.

You don't even need to do this European-style where the government pays for basically everything that's a bona fide medical expense. Free provision of catastrophic care combined with free provision of preventative care (including an appropriate number of check-ups and tests as determined by family history and lifecycle position) would do the trick.

For such a system to work the free preventative care would have to be mandantory. That is it is time for your bi-annual phsyical report to the doctors office (or else). Also, what about certain medical information? Might it not be relevant for the State to start snooping into the DNA of individuals looking to see if there are going to be problems down the road? Now lets combine that with a government controlled by Republicans that are beholding to the "religious right" and it turns out that there is a genetic basis for homosexuality or some other behavior that is deemed "undesirable". Strikes me as the Left's worst nightmare.

I think this is what they do in Australia -- people buy private insurance or pay out of pocket for mid-range medical expenses, and the state pays for the rest. Now that wouldn't begin to tackle America's exhorbitant end-of-life spending, but it'd be a good start on getting a handle on the situation.

Aside from the fact that the above sentences appear to contradict the free preventative care situation this also comes with its own set of incentive problems. For example, suppose there is a problem that has a cost of $x no and it is low enough to be classified as "out-of-pocket", but in 5 years it will be $3x and will be large enough (and dire enough) to be picked up by the government. Whooops, there goes that savings.

I really dislike these sophomoric posts by many on the Left. They often seem to imply there is only one incentive problem when in fact there might be more than one. The implied benefits of the solution (which oddly enough is always socialized medicine) are over-stated. Further, they ignore some of the implications of the very data points they point too. For example, could lower health care spending in Australia be due to the out-of-pocket expenses being picked up by individuals? Nawww. Nope, no matter what the facts are spin the story so that the answer is always socialized medicine.
_____
¹Makes me wonder what reality Matthew has in mind with claim that his is a "reality based blog".

Damn It All To Hell

How evil are you?

I can't believe I am scoring so damn badly. What am I doing wrong.

Wonder what Steve will get on this?

The "How Evil Are You?" Quiz.

How evil are you?

Defying Jesus?

James Joyner has an interesting post on the problem of getting Bush's judicial nominees confirmed by the Senate.

I support Frist's efforts to get judicial nominees an up-or-down vote and even support invoking the so-called "nuclear option" to get it done. However, this particular move is not only unseemly but likely to backfire. Frist's appeal is that he appears above politics. This sort of slimy tactic will not serve him in the long term, especially as he seeks the White House in 2008.

And,

This is clearly an issue the Republicans should be able to win on the merits. The idea that the president's nominees should not be able to get a vote in a Republican majority Senate is simply bizarre. But arguing that Democrats are defying Jesus with their obstructionism is unlikely to turn this one around.

Indeed. This is the kind of thing that completely turns me off to the Republicans. Throw in their willingness to regulate, spend and expand government and the only thing left is lower taxes. The current batch of Republicans are generally porkaholics.

Steven Taylor also has some interesting comments,

I must confess to being somewhat uncomfortable with the idea that this is a division of the religious v. the irreligious, as that is a false dichotomy. For one thing, the battle over the judiciary is about far more than issues of faith (translation in this context: about the social conservative agenda) but is, at its core, about how the Constitution and the laws of the land are interpreted. Of course, I will grant that legal theory would make for a less sexy event than one predicated on a war against faith.

To over simplify, the degree to which faith is the issue, it is about the views of many of the faithful on abortion. Clearly, Senate Democrats have decided that if a nominee is Catholic or an evangelical, then that person is dangerous vis-à-vis abortion rights, and therefore the nominee must be stopped. On balance, this appears to be the common thread that ties most of these nominees together.

The Democrats have to face reality on this one: a pro-life President is going to appoint pro-Life judges if he can, just as a pro-choice President will appoint pro-choicers. Is that really all that hard to understand? Indeed, is that in any way unfair?

Another thing to consider is that after 2008 the Democrats might very well find themselves in control of the Presidency...or more accurately that a Democrat is occupying the White House and Republican majorities in both Houses of Congress. I wonder how many judges such a President would see confirmed? My guess is not many at all.

Now if only the Democrats would be a little less obsessive with raising taxes, maybe tax cutting spending a bit more seriously they might actually be able to win over some of the secular Republicans and libertarians and present a real problem for the Republicans. Of course the Democrats have their extremists too.

Damn I Must Be Doing Something Wrong

I don't understand it. I know I'm evil...Liberals have told me so.

Matthew Yglesias on Health Care

Matthew has a rather deceptive post on health care and I've posted my thoughts on his mindless use of statistics over at Outside the Beltway.

Errr...What?

Over at Lean Left, Kevin has been blogging about cuts in TennCare. What caught my eye was the following comment on the benefits of TennCare.

TennCare is a good program that has made us all healthier (by getting people care and treatment that they needed before they transfered their problems to the rest of us), helped reign in health care costs (by getting people treatments before the problems escalated), helped the economy (by helping companies who did not have health insurance for their employees to miss less work and maintain their productivity), and provided a much needed safety net to people across this state to protect them form the harshness of the modern economy.

I am going to list Kevin's points here to make it easier on me to address them.

1. TennCare is a good program that has made us all healthier (by getting people care and treatment that they needed before they transfered their problems to the rest of us). I'm not sure I follow this. Transferred the problems how? Contagious/communicable diseases? Okay, sure. Some level of public expenditures on health care can in my veiw be justified on grounds of there being negative externalities. But does it necessarily mean spending billions? For example, Kevin has a quote about a woman who had a heart transplant. Was there anything contagious/communicable there? If not, then this argument of externalities does not work.

2. Helped reign in health care costs (by getting people treatments before the problems escalated). Ahhh, yes this old bromide. "An ounce of prevention is worth a pound of cure." Right, which is why billions are being spent on people going to the hospital. Sounds like the prevention part wasn't on everybody's mind. I have always found this kind of thing very suspicious. For one thing I belong to an HMO and I have to say, when it comes to preventative medicine I give them a great big whopping F. And wasn't this the big money savings that was the basis for forming HMOs to begin with? "We'll manage our patients health and control costs that way."[/end stentorian voice] Seems to me this is the last thing my HMO does. I haven't been in months...maybe over a year. They don't call to get me to come in and get a check up. They are perfectly happy taking my money and not seeing me. For all I know I could have a really costly medical problem building up and they'd be completely blind sided by it. So I don't buy this argument. Sounds nice, but I just don't see it working out the way those who utter this banality imply it will work.

3. Helped the economy (by helping companies who did not have health insurance for their employees to miss less work and maintain their productivity). Uhhh...what? So was it magic money that paid for this program? Is there an endless pit of money in Tennesse that allows them to fund these programs with no taxes, fees, and the like?

4. Provided a much needed safety net to people across this state to protect them form the harshness of the modern economy. Sounds like it is a safety net that is becoming quite expensive to maintain. One of the problems with safety nets are the impact they have in incentives. A badly structured safety net can lead to perverse outcomes. Now I don't know if TennCare has these problems, but these problems are often found in government programs.

Whenever I read these posts about how to set up a bureaucratic health care system I always am reminded of Arnold Kling's notion of sendind people a voucher. A flat out subsidy. If you are poor you get $X in a voucher that you can take to shop around for health insurance that meets your needs. Further, you could structure the voucher so that it always "pays to earn more money". For example, suppose you get a voucher of $2,000 if you make $10,000/year. Now if you get a raise and make $12,000/year we wouldn't want to cut the voucher to $0 since the person might not take the raise. Instead you could cut the voucher to $1,000. The voucher would harness the power of markets in that people would look for the best care for their voucher/out-of-pocket-dollars. If I'm young with a family and we are all healthy we might opt for a health care policy that covers catastrophic care vs. a plan that would cover more mundane medical issues.

Oh well, I don't think we will ever see anything like this. I imagine the current system will keep chugging along till it gets to be too much of mess then we'll end up with some crappy socialized medicine program.

Krugman on Health Care

Why does an economist that is considered to be one of the top academics in his field use measures like life expectancy and infant mortality when assessing the quality of U.S. health care? Also, how come he doesn't even attempt to back out the subsidies countries like France and Canade recieve due to Americans paying for drug R&D? Oh wait...we are talking about Paul Krugman who will not let things like facts get in the way of his bashing the current Administration.

And after reading this I have to wonder what planet Krugman is on,

This last point is, in a way, good news. In the long run, medical progress may force us to make a harsh choice: if we don't want to become a society in which the rich get life-saving medical treatment and the rest of us don't, we'll have to pay much higher taxes. The vast waste in our current system means, however, that effective reform could both improve quality and cut costs, postponing the day of reckoning.

Does he really think that by nationalizing health care that there will be huge reductions in waste, fraud and abuse that will enable both quality to increase and costs to decline? I'm highly doubtful of this outcome at least with the standard approach to "reforming" health care that we see being offered.

To get effective reform, however, we'll need to shed some preconceptions - in particular, the ideologically driven belief that government is always the problem and market competition is always the solution.

The irony here is so thick you could cut it with a knife.

Ahhh...Krugman has been reading his Drum.

The fact is that in health care, the private sector is often bloated and bureaucratic, while some government agencies - notably the Veterans Administration system - are lean and efficient.

The only problem is that this view is also rather suspicious for a number of reasons:

1. The people pushing this notion that the V.A. is lean and mean have ideological driven beliefs on this issue.
2. The V.A. was not always lean and mean.
3. The measure of quality was rather limited.

Once again we see some shoddy research from Krugman. Looks like he basically spent an hour or so googling around and reading Political Animal. Pretty pathetic if you ask me.

Update: Arnold Kling also has a Tech Central Station article on health care waste.

Economists do not believe that a politician should be taken seriously when he suggests that government spending can be reduced simply by eliminating waste, fraud, and abuse. Instead, we believe that the only way to bring down spending is to make large, politically difficult reductions in major programs.

Similarly, I do not believe that health-care reformers should be taken seriously when they suggest that spending on health care in the United States could be brought down to the levels in other countries simply by eliminating waste.

I agree with him. For one thing the U.S. has both a much larger population as well as a pretty diverse population that might explain some of the differences in health care expenditures. Further, there are other social factors that have to be controlled for. For example, was there a crack epidemic or something similar in France or other countries that have socialized medicine? The crack epidemic in the U.S. hit the New York black community pretty hard and also was a significant contributing factor to an increase in low birth weight babies; babies that often require a great deal of health care resources (link). Also, lets not forget all of those numerous headlines that scream about how fat Americans are. Does that help increase health care expenditures? I would be surprised if it reduced them, but shouldn't we at least look?

I am skeptical of this idea that we can provide health care to more people for less money. The idea of "more for less" while a nice slogan is often quite hard to accomplish.

Also check out Kling's comments on infant mortality and life expectancy and why they are problematic in terms of measuring the efficiency of health care in any given country.

A Contender for Economic Idiot

I think Kevin Drum would make a fine nominee for Tim Worstall's Economic Idiot Award. Kevin's latest post looks at health care and decides that we need the French system. But is the French system all that much better?

Now the French system does seem pretty good. This story makes you think the French have managed to do it right. However, my wife recently had a fairly serious medical issue and her treatment was if anything even better, at least in terms of things getting done. She got the x-rays, cast, and so forth much faster. Of course, that might be due to differences in rural vs. suburban settings. Also, this article says that France has the number one health care system in the world.

However, there is one interesting fact in that article. France spends a lot on its health care system, 10.4% of GDP in 2002. So it isn't cheap, one of the main arguments put forward by people such as Kevin that it would be cheaper does not necessarily follow. Granted, the U.S. does spend more, 14.9% of GDP in 2002, but it is not correct to assume that if we switch to the French system we will spend 10.4% of GDP. There are differences between the populations that could result in either the same level of spending, more spending or less spending here in the U.S. I don't know which of the three will result and neither does Kevin.

But that isn't the end of the stupidity.

And who benefits from it? Citizens? Probably 95% of us would be better off with France's system than with ours. Businesses? Why should they be saddled with the cost and hassle of providing healthcare? Doctors? Maybe a bit, but an awful lot of them would probably be better off in France too. Insurance carriers and pharmaceutical companies? Bingo.

Somebody has to pay for it, but apparently in KevinWorld nobody is on the hook for the cost...or it is some unstated group. The reality is that the costs would be paid for by the U.S. citizens in the end. If the tax is levied on corporations it will eventually be born by people (the shareholders and customers), if it is levied on individuals it will be paid by some sort of tax. I don't know who else the cost could be levied on...maybe Kevin thinks we'll invade France and make them pay.

Also, there are large out of pocket payments in France. According to the link that has France as the number one health care system there is this bit of information,

Most residents of France fund their personal contribution via a "top up" insurance policy. There are a wide variety of providers (including at least 2 UK insurers) offering an extensive range of plans to meet individual circumstances. Again this vital element of choice is apparent. Someone who is in general good health may only wish cover for the really expensive items e.g.; hospitalisation. A routine visit to the doctor would be funded out of his own pocket. On the other hand someone on regular medication may require a plan that would cover this. (prescribed medicines are reimbursed 35% or 65% by the state).

Suppose you have a prescription drug bill of $150 and get 35% reimbursment; you would still be spending $79.5. And what is that part about paying the full cost of a routine doctor's visit?!?!?! The horror!

Kevin is right that the current system is seriously messed up, but it isn't clear that we can have the French system. For one thing it would mean trusting those dimwits in Washington D.C. to set up the system just like the French system and then let them have control of it for the indefinite future. Granted this criticism applies to any and all reform proposals, but I think it also provides a good reason to stay away from the complex proposals.

Economic Idiot Award II

Tim has the second award ready, but isn't sure who it should actually go to.

Some Thoughts on Gay Marriage

Generally my view of gay marriage is that I don't care who wants to marry whom (Hey Dave, is it 'who' or 'whom' there or doen't it matter?). However, Megan McArdle has written a long post that puts forward some interesting arguments that at the very least have given me pause to think about the issue more closely. I don't know if what she has written means that gay marriage is a good thing, a bad thing or is neutral, but it sure has some interesting ideas.

One thing that struck me was the comment about evolutionary-like processes in society.

You don't have to be a rock-ribbed conservative to recognise that there is something of an evolutionary process in society: institutional features are not necessarily the best possible arrangement, but they have been selected for a certain amount of fitness.

It might also be, of course, that the feature is what evolutionary biologists call a spandrel. It's a term taken from architecture; spandrels are the pretty little spaces between vaulted arches. They are not designed for; they are a useless, but pretty, side effect of the physical properties of arches. In evolutionary biology, spandrel is some feature which is not selected for, but appears as a byproduct of other traits that are selected for. Belly buttons are a neat place to put piercings, but they're not there because of that; they're a byproduct of mammalian reproduction.

However, and architect will be happy to tell you that if you try to rip out the spandrel, you might easily bring down the building.

Also, her argument that simply referencing one's own experience is insufficient when looking at this issue is very good. One thing that annoyed during one of President Clinton's townhall meetings was his flippant comment about the cost of his universal health care proposal. A businessman got up and asked how he was expected to stay in business with the added costs to staying in business the proposal would impose. Clinton blithely asked why the guy could "...raise the price of his pizza's by a buck?" Clinton then went on to state that he'd still buy pizzas that were priced $1 higher. It was very annoying in that it ignored basic economics. Costs cannot be passed on entirely to consumers save in special cases. Raising the costs for firms would invariably drive some firms out of the market. The same problem applies here. Simply because I don't see how gay marriage would bother me doesn't mean it wouldn't have an effect on others, and maybe even a large effect.

At the very least Megan is right that this issue probably needs a great deal more thought on this. She is also right that many conservatives/libertarians want liberals to slow down and think about interfering in the economy, so why is not slow down and think about interfering in social institutions. Anyhow I suggest reading all of Megan's post.

Shelter and Enable Pedophiles...

...and get a promotion. Bernard Law, the archbishop who resigned...supposedly in disgrace, is now a Cardinal and celebrated Mass in mourning of Pope John Paul II.

Police broke up a small but symbolic protest staged by two victims of sex abuse at the hands of American clergy, escorting one of them off St Peter's Square as she was preparing to distribute fliers.

Well looks like they are still doing what they can to protect scumbags like Bernard Law.

"In these incredible days, the Pope continues to teach us what it means ... to be a follower of Christ," Law said, reading his homily slowly in Italian. "Our faith has been reinforced."

Yes, did those teachings include protecting known pedophiles and putting other children at risk? Just asking you know.

According to studies the bishops commissioned to restore trust in their leadership, more than 11,000 abuse claims have been made against US clergy since 1950.

Well, those Archbishops sure did a fine job protecting those pedophiles. The Catholic church has apparently learned nothing from this scandal and I have serious doubts about their "reforms". Oh well, I'd rather sleep in on Sundays anyways than go to Mass.

An Economic Disaster?

Matthew Yglesias thinks that the nominal increase in wages of 2.5% and the increase in the inflation rate of 2.7% is an economic disaster. Of course, in reading the story we also find out that when benefits are factored in people actually did compensation grew faster than inflation.

With benefits factored in, workers' total compensation did outpace inflation in 2004, even if they didn't see it in their paychecks. But employers also are requiring workers to pay a greater share of their premiums.

So this really isn't a disaster. A problem? Sure, I'd go along with that, but disaster? Please.

On another interesting note, Matt thinks it is okay to be misleading in one's political rhetoric. Maybe he should tell Kevin Drum.

I Say Sue the Police And Best Buy

What a bunch of morons.

Via InstaPundit.

Carnival of the Capitalists

Check out this weeks carnival.

I'd also like to recommend Tim Worstall's post on Global Warming. It starts off pretty well,

Regular readers will know that I take roughly the Lomborg view of Global Warming. That it is happening, that we are causing at least part of it, that us causing that part comes partly from fossil fuel and partly from land use changes, that we don’t actually have to do all that much about it and that Kyoto is the most expensive piece of nonsense yet proposed about anything.

I don't know much about the technological advancements Tim discusses, but it is an interesting point and one I don't usually see in discussion of Global Warming.

A Bubble in Economics Blogs?

I don't think so. For one thing the article in Forbes wasn't that good. First off they missed Asymetrical Information, Max Speak!, Catallarchy, Brad DeLong and myself. This idea that we are adding 34 new blog related sites every year is questionable. It is quite possible that many of these "new" sites have been around for awhile, but are only now starting to get some notice/traffic.

[End Android Mode]

Anti-Evolution Jackassery

What is it that drives some people to expose their ignorance and stupidity before the entire world?

How similar are these supposedly 110-million-year-old sea turtles to today's sea turtles? Virtually indistinguishable – which is to say no different.

"For all intents and purposes, if you were to see one (of these fossils) they would look basically the same as sea turtles do today," said South Australian Museum paleontologist Ben Kear.

And why is that?

"Sea turtles have hit on the winning design and they've stuck to it," he said. "They've cracked the winning code, as it were, and it's enabled them to survive when other creatures haven't."

It's amazing they haven't taken over the world, isn't it?

Okay, it may not be stupidity...it could be just plain old dishonesty as well.

Via the World Wide Rant.

A Permanent Oil Shock?

The IMF is predicting that the current oil prices are going to be here to stay. I am usually suspicious of these kinds of doom and gloom forecasts as they tend to make an implicit assumption that there is no response these high prices. The basis for this forecast is that the IMF is predicting a sharp rise in demand and a plateau in production from non-OPEC countries.

The problem I have with these types of forecasts is that they seem to imply no demand side response. Granted, there aren't many subsitutes for gasoline, but there are ways to reduce consumption and still travel approximately the same distances. Further, as prices increase people are more interested in purchasing fuel efficient cars and other items that rely on oil. Hence research into subsitutes and more efficient means of using oil also become more attrative.

Update: Here is an informative post on why hybrids aren't getting the milage that the ads claim.

Update II: Lynne Kiesling points to this article at Macroblog (which I need to add to my blog roll...speaking of which I need to clean up some links there as well). There is also this post at Calculated Risk.

Rep. F. James Sensenbrenner, Jr.: Asshat

Rep. F. James Sensenbrenner III, R-Wis., told cable industry executives attending the National Cable & Telecommunications Assn. conference here on Monday that criminal prosecution would be a more efficient way to enforce the indecency regulations.

Children as Public Goods?

What in the orld? No, children are not public goods. A casual reference to the definition of public goods would demonstrate this.

On another note would somebody beat Matthew with an economics-clue-by-four please? Repeatedly (for example a public good that is a negative drain is called a public bad).

Update: Ahhh, now I see the confusion. Matthew is referencing this post by Kimberly at Crooked Timber that points to some research by Nancy Folbre that argues children are public goods. The article Kimberly links to is a Jstor article so I can't read it. However, Kimberly does write the following,

While parents bear most of the costs of raising children, to the extent that children grow into productive, tax-paying citizens, they create positive externalities that benefit the rest of society. People who contribute little time or money to the raising of children essentially free-ride on the parental labor of others.

First off, positive externalities does not make something a public good. This is a definitional issue here. Basically the problem is that children are rivalrous commodities (yeah, yeah, I know talking about children as commodities is probably not something one should encourage, but hey I didn't start it). That is, suppose I'm off enjoying a day at the beach with my son. Can Matthew or Kimberly also enjoy the company of my son? Nope. Matthew lives 3,000 miles away and I haven't a clue where Kimberly lives. Further, unless Matthew and Kimberly are going to hang out at the beach with us they are pretty much out of luck when it comes to enjoying my son's company.

Granted children will most likely grow up and provide things that benefit others, but even here this is stretching the definition of a public good too far. By this reasoning everybody is a public good. I pay taxes that support things that benefits Matthew and Kimberly (assuming the latter is in the U.S.). Does this make me a public good? No. Do I provide some positive externalities in this regard? Sure. I bet I also provide some negative externalities.

Are children private "goods"? Yes. They are private "goods" that come with both positive and negative externalities (after all all those diapers ain't good for the environment). I think good parents try to work it so that their children end up where the positives outweigh the negatives. But lets get the terminology straight please, externalities not public goods.

Errr...What?

I read stuff like this from Kevin Drum and it just makes me scratch my head and wonder what the heck he smokes before posting on things like taxes and economic growth. I guess my big question is does Kevin Drum understand the concept of consistency?

The chart on the right tells the story. As you can see, federal taxes (excluding payroll taxes) have declined pretty steadily for the past half century. During this period, growth rates have gone up and down, but in general have also declined fairly steadily. In fact, if you're looking for an explanation of declining growth rates, you might want to look toward the taxes that have gone up during this time: state and local taxes and the payroll tax, the most regressive taxes we have. Still, even when you add those in (see chart here), the total tax take in the United States has only gone up from 24% of GDP to about 28% of GDP in the past half century. That's just not enough to have much of an effect on anything.

See taxes have no impact on growth, but to find out why GDP has been trending down over time look to...taxes. On top of it, Kevin is displeased with the payroll tax which is rather regressive. But isn't this the tax rate that is likely to increase to save Social Security?

Also, I'm not sure about Kevin's general thesis here that it is state taxes that have been the culprit for the downward trend in economic growth. Sure, he points to some data showing that when you add up all taxes including state and local taxes you see an increasing trend in terms of share of GDP. However, the guy the New York Times article is quoting is Joel Slemrod. Slemrod is very smart and I'm sure he has looked at things like the total tax as a share of GDP.

$100,000 for the Tiger Woods Foundation

Did the Tiger Woods Foundation really get $100,000 in federal tax dollars? And what the Hell is the Geographic Information System Center of Excellence and why does it need $4,337,000 million in federal tax dollars?

Well it is nice to know that pork barrel politics is still alive and well.

Social Security and Economic Growth

Right now I am reading through Baker, DeLong and Krugman, a paper about economic growth and asset returns (download the paper here). Before I blog about the paper (if I do at all) there is one thing that sort of annoys me about this whole Social Security issue.

The Liberals/Lefties take the position that Social Security is not in crisis, can be ignored, etc. The typical story line goes like this.

1. Economic growth as forecasted by the SS actuaries is too low.
2. Using a more "reasonable" growth assumptions, and with perhaps some minor tweaks (e.g. increase the cap on income that is taxed) and the problem disappears.
3. Private accounts on the other hand are a bad idea because asset returns are not going to be high enough to provide retirement income equal to the current promised benefits.

To me it strikes me as having one's cake and eating it too. Now, to be perfectly clear I am willing to believe that the Bush Administration is not being completely forthright with the public. However, I also get the feeling that those opposing private accounts are also not being honest and upfront with the public as well. Lets admit it, both sides have their own agenda and ulterior motives.

Here is how I see the whole issue. The U.S. has some pretty substantial unfunded liabilities that are looming on the not too distant horizon. While we can argue over whether or not there is going to be enough money for Social Security or not, there are also problems with the budget deficits and Medicare. The last one makes the (possible) problems with Social Security look like small potatoes.

So what is to be done? Raise taxes? Raising taxes carries with it several problems. The first is that tax increases are contractionary. This is fairly well accepted by economists. The idea of raising taxes to increase economic growth is a rather strange one. Now that doesn't mean that raising taxes has to result in slower economic growth, but generally the idea of tax increases tends to go with slowed economic growth.

Another option is to reduce these future liabilities. Reducing future liabilities though does mean cutting the promised benefits in the future. The Bush Administrations view on this seems to be that the benefits will be cut, but to help offset this cut there will be mandantory private accounts that will hopefully offset to varying degrees the cuts in benefits. Will it provide benefits as great as what is currently promised? Maybe, but that isn't a given. Most of the analyses I've seen say, "No." Still does that mean that private accounts are a bad idea?

I'm not entirely convinced that private accounts are bad. For one thing, we have to keep in mind the impact of these future liabilities. So what if you actually do get the current promised benefits only to have them taxed away to pay for Medicare and/or budget deficits? This is one of the problems that we run into by considering Social Security in issolation from the other problems (which is precisely what many on the Left side of the argument want to do). Ignore Medicare (it is a different problem entirely they say) and focus on Social Security.¹ On top of this many of these same people want more spending on health care (many want nationalized health care), education, and things like public housing. It is almost as if they think there is this bottomless bucket of money. Is there plenty of money for nationalizing health care? Sure. Is there plenty of money for more spending on education? You bet. Is there plenty of money for Medicare? No problem. Is there plenty of money for Social Security? Pshaw...you even have to ask? And while we are at it, lets raise the minimum wage to $8.00/hour too.

And on top of this, economic growth for the next 20 years is going to be really good. After all the economy is going to produce enough tax revenues so we can afford all these programs...well once we have raised taxes that the benighted George Bush lowered. But at the same time economic growth is going to be too low to warrant switching over to private accounts in Social Security and reducing those future liabilities. Am I missing something here? I don't think so, I just think those opposing private accounts are being just as dishonest as those (generally speaking) who support private accounts.

Update: Wow, talk about a timely post. Matthew Yglesias basically admits to just about everything in this post. In a remarkable instant of candor Matthew admits that the solution is taxes, taxes, and more taxes. Tax it all and then some.

But if you look at your robust European social democracies you'll see that the rich are soaked more than America's rich, but the middle classes are also paying more through VATs and similar regressive taxes. I would hope you could mitigate a VAT's adverse impact on the truly disadvantaged through a rebate/exemption kind of thing, but we're all going to have to pay more. VATs, because they're largely invisible and because they don't adversely impact savings, are an excellent source of revenue. Replacing progressive taxes with a VAT would be a bad idea, but adding a VAT on top of progressive revenue enhancements is an excellent idea.

As I've argued in the past. These kinds of veiws carry with them the very real possibility of lowering economic growth so that the Social Security Trustees Reports are indeed accurate.

And lets not forget that these European Social Democracies also enjoy a number of free rides on things like defense, and pharmacueticals.

Thanks Matt!
_____
¹It is such positions that add to my suspicion that those opposing private accounts aren't being honest on this. After, the reason Medicare payments are going to balloon is in part due to the demographic shift that is also a problem for Social Security. Granted Medicare has the additional problem of costs that are increasing faster than the rate of economic growth, but to think the problems aren't similar is just plain wrong, IMO.

Bad Movie! Bad, Bad Movie!

I'm talking about Sin City. Wow, was that bad. I knew I was in trouble when the opening credits included "Special Guest Director Quentin Tarantino".

It's in black and white, mostly, with the occasional blip of color here and there. It's a series of vignettes that are only marginally related with occasional overlapping characters. The vignettes are each told from one character's POV (a different character each time) via the "hearing their thoughts voice over" technique, and are not chronological. I imagine that the screenwriters dropped a pile of the comic books (the source material for this trainwreck), and no one figured out that they picked them up in the wrong order.

Each episode includes lots of blood and gore, graphic violence, and at least one crotch shot. I'm not kidding; male genitalia are frequently kicked, bludgeoned, axed, shot or stabbed.

For a while, I thought that it was a satire on 1950's era hard-boiled detective flicks, but the v/o monologues were too stilted for even Sam Spade to utter. MEGO, so I stopped trying to figure it out.

Maybe there was some artsy-fartsy symbolism that I just wasn't getting, but I couldn't muster enough interest to analyze it. Most of the antagonists wore crosses -- I suppose that was supposed to mean something, but I really didn't care.

It might be worth renting on DVD and listening to the directors' soundtrack to see if they explain The Meaning of It All, but probably not.

Infant and Child Health and Universal Health Care

One of the often cited pieces of evidence that the U.S. would be better off under universal health care is that the U.S. tends to have a fairly high infant mortality rate compared to other countries with univeresal health care. The (often) unspoken implication being that switching to universal health care would improve the infant mortality number. While one could argue that this is evidence in favor of switching to some sort of universal health care it doesn't necessarily have to be.

As Tangoman noted in comments to this post that one should control for differences in reporting of live births.

Keep in mind that the US requires all births to be recorded, even if the baby is very premature. Those babies have to struggle mightily to live and many of them die, and are thus recorded as infant mortality. Many other countries don't include such preemies as births.

My own observation is that in a more comman-and-control economy resources could be diverted from other sectors fo the economy towards infant/child health care. While there is a good outcome in reduced infant mortality numbers, there are costs with such policies.

In addition, there an article in the NBER Reporter that looks at the effectivness of WIC. WIC is a supplemental nutritional program that is to help women, infants and children obtain adequate nutrition. The standard view of WIC is that it "works". Some research (economic) research reports the following results,

economists reported that prenatal WIC participation was associated with a 50 percent decline in very preterm births, infants born before 33 weeks gestation.⁽⁵⁾

At first glance this looks good for those who favor universal health care. However, the author of that article notes several problems that many economics studies overlook when analyzing certain programs like WIC. The first problem is a seleciton problem.

The women who initiate prenatal care early, or who participate in WIC, are likely to be more motivated, less stressed, and more risk averse than the women who start care late or who do not participate in WIC. Too often we lack empirical methods for overcoming the problems caused by selection.

In other words, the women who utilize WIC might are more motivated than the average woman and hence the results are biased due to the selectivity of looking simply at women who use WIC. Further, the authors note that economists often fail to look at the clinical research.

In addition, in vetting their results, economists often neglect the clinical literature. Consider studies of the effect of programs to enhance maternal nutrition on infant health.

What are the clinical results for research on maternal nutrition and infant health?

"Trials measuring the effect of interventions at eliminating a single risk factor are numerous; uterine contractions have been suppressed, cervixes have been sewn shut, microorganisms have been eliminated, and social support, better nutrition, and prenatal care have been provided. When these factors have been studied in isolation, not one has resulted in a decline in preterm birth" (p. 54).--source

To try and overcome the problem of selection bias, the authors collected 14 years of birth certificates from New York City, and ordered that data as follows,

Because we have no convincing instruments, we take advantage of our large sample size to stratify the analysis by race, ethnicity, nativity, parity and the timing of prenatal care. The objective is to lessen unobserved heterogeneity by comparing similar women. For instance, we consider only women on WIC or on Medicaid. We further limit the sample to women with no previous live births and who thus have no experience with WIC from a prior pregnancy. We further limit the study to women who initiate prenatal care in the first months of pregnancy. These are likely to be the most motivated women with the longest exposure to WIC during pregnancy. Finally, we analyze two important subgroups separately: U.S.-born Blacks and foreign-born Hispanics.

The results indicate that there is no benefit from WIC in terms of fetal growth and reducing preterm births. Thus, one should be very careful in looking at programs like WIC and evaluating the results of such programs for things like universal health care. The healthiness of infants seems to be invariant to programs such as WIC and most of the improvement in infant mortality comes from improvements in technology for newborn care. In fact, if budget constraints were to reduce expenditures in development and deployment of such technology it could very well be that universal health care could result in an increase in infant mortality. I always find such statements that other countries have higher life expectancy and lower infant mortality rates and have universal health care rather frustrating. It has always struck me as a post hoc ergo propter hoc type of reasoning, since those who make such arguments never explain why switching to universal health care should result in improvements in things like life expectancy and infant mortality.

Quick Update

Just wanted to post that later I'll post on Social Security and infant/child health. Was away from the computer almost all weekend hence no posts. So check back in a bit and hopefully I'll have had some time to work on a couple of posts.

Sandy Berger Pleads Guilty

Powerline has the links to the stories, and a good analysis.

So Berger removed five copies of the Clarke report, carefully destroyed three of them "late one evening," and returned the other two to the Archives. Obviously he reviewed the notes on the five documents and destroyed the three that contained information damaging to the reputation of the Clinton administration. I do not find reassuring the Post's suggestion that these were "copies only" and that it "remains unclear whether Berger knew that." Obviously all five copies of the Clarke report were "copies." But they contained unique notes, and Berger certainly thought that they were the only "copies" of those notes in existence, or it would make no sense to destroy them. I have seen no evidence whatsoever that he was wrong.

In September of last year, while leafing through the various hand-marked drafts, Berger realizes that some of the comments are embarassing (i.e., they might show their cavalier approach to the terrorism threat was), so he decides get rid of the evidence.

[I'm still here, just been busy with the new job. I'm sure I'll have some testy posts next week regarding the upcoming election in KS

Dave]

Urrghhh

Well I'm not surprised that Paul is still on the anti-evolution hobby horse and is now including the Millennium Ecosystem Assessment Report (warning big pdf).

There are a number of problems with Paul's post. First are his claims about the Millennium Ecosystem Assessment (MEA) report. When I first read about it my thoughts were rather similar. Fortunately, Tim Worstall pointed out some good aspects of the report. Namely that some of the reports recommendations are actually pro-market and not anti-market as is often all to common with these kinds of reports. I sited one example here with agriculture, trade barriers, and how removing the latter could help improve local ecosystems. So this report is as bad as many might think due to the mainstream media's failure to note these parts of the report.

The other thing is the inconsistency in Paul's post. On the one hand it is bad that things like butter are one day the "devil incarnate" and the next it is a "health food". But it is also equally bad that evolutionary biology does not have this kind of switching going on either. I'm not sure what to make of this. Perhaps Paul thinks this is bad because he can't point to how silly evolutionary biology is as he does with the switching in other "scientific" reports.

And finally,

Just look what has happened here at Wizbang for the last few days. I dared to say the words "I don't believe ya" and they attacked with both feet.

this is misleading. I don't care who or who does not believe in the Theory of Evolution (ToE). I really don't. However, if one is going to post inaccurate information such as abiogenesis is necessary to the ToE then I'll likely respond (if I see the post). Same thing for the notion that there is not any evidence of speciation. There are hundreds of transitional fossils.¹

Frankly I don't know what to make of this post. It is just bad all around. Science changing is apparently bad, and science remaining dogmatic is also bad. Here is a question for Paul. What did the synthesis MEA report say on the bottom of page 35? Hint: the answer is something most (free) market types like.

Also see Politburo Diktat for a sarcastic response.

Update: Yikes, looks like Kevin at Wizbang decided to put Paul on permanent hiatus. I can't say I think much of that. I think letting people express their views is important and this is a somewhat popular topic (although not everybody agrees) judging by the commentary and other blog posts it spawned.

Andy from the World Wide Rant put it rather harshly,

If it's true, I think it's unfortunate. Ignorance like Paul's should be put on public display, and then corrected. While he might not learn anything from the experience, some honestly curious people might. So, there's a potential net gain involved.

I say Kevin's got a lovely barrel and he should let the fish stay. Guns at the ready, everyone.

While I feel that Paul is wrong, I'd rather he did have a place to write what he does so that others (such as myself) can point out the problems. I think removing Paul as a contributor at Wizbang is heading in the wrong direction.
_____
¹And it isn't that transitional fossils simply look similar, but that they are found in the right layers of sediment. Think of it this way. There is a sequence of three fossils, A, B, and C. B is a transitional fossil between A and C. The idea of B being transitional would be debunked if B were found in a layer of rock younger than the rock in which C is found.

Health Care and the Cost of Drugs

Drug costs are something you hear little about from the Left when they talk about the costs of health care and the benefits of universal health care. Basically many other countries get their drugs on the cheap relying on the American consumer to basically subsidize all of the R&D costs for new drugs. Interestingly enough those who advocate some sort of universal health care program run by the government never seem to bring this issue up. They'll often point to countries that are the beneficiaries of these sweetheart deals and wonder why the U.S. can't have a similar system. The answer is at least in part obvious: There Ain't No Such Thing As a Free Lunch.

The basic idea is that somebody has to pay for the R&D costs of developing new drugs. The standard argument goes like this. In a free market the price is set to equal marginal cost.¹ But marginal cost is not dependent on either fixed costs or sunk costs². If R&D is a sunk cost then it will not be reflected in the price and the firm will not engage in R&D in many cases. So to get around this problem firms that have high R&D costs and that produce products that are socially desireable they are given temporary monopoly power. In this case the price will be higher than the competitive price and hopefully will allow the firm to recover its R&D costs.

So this could be one factor that is resulting in higher health care costs in the U.S. than elsewhere. If other countries are negotiating "sweetheart deals" with the drug companies it is very much like giving these other countries a subsidy. The pharmaceutical companies may not like these deals over charging the monopoly price, but so long as they are getting their marginal costs met they will at the very least be indifferent to these deals. If they get slightly above their marginal cost then they'll agree to these deals and take the extra profit.

I'm not sure what the solution to this mess is. My first reaction is to allow for drug re-importation. That is, these "sweetheart deals" create an arbitrage opportunity. Suppose the monopoly price being charged in the U.S. for a drug is $5/pill. In Germany the price is $1/pill. Now a firm could make a profit by buying pills in Germany and selling them in the U.S. for $4.99/pill. Competition would amongst arbitragers would force the price in the U.S. down to $1/pill (transportation costs might keep the price slightly above $1/pill). However, this creates a problem in that now the pharmaceutical companies will not be recovering their R&D costs and they will now have less incentive to engage in R&D. Thus, there would be fewer new life saving drugs coming to market.

Of course, the companies could respond by no longer giving these other countries the "sweetheart deals". Thus they either pay the monopoly cost or they don't get the drug. However, this could result in the other countries changing their intellectual property laws in ways that make manufacturing drugs developed and patented in one country easier. That is, the drugs developed in the U.S. and patented there would not enjoy similar protections in these countries. If there is still liberal drug re-importation laws then it could very well result in less R&D and fewer life saving drugs coming to market.

Another solution is to consider revising current laws that give intellectual property monopoly power and also allow developers of intellectual property to recover their costs. However, there are a number of problems with this approach. Right now the pharmaceutical companies are the big winners and consumers are losers. Switching the laws on intellectual property would reverse that. Thus, it is a safe bet that the pharmaceutical industry would fight any proposed change in the law that would reduce the price and lower their profits. Also, governments don't have a great reputation doing these things right. For example, look at copyrighted material. These works are copyrighted for some ridiculous amount of time. Each extension of the copyright protections has been basically a big freebie for owners of copyrighted material. So even if the conventional argument about protecting intellectual property is right, the increasing the protections for existing works makes no sense at all based on the conventional argument.³

So I don't know how to solve this problem. But these considerations should be taken into account when comparing France's, Germany's or any other country's health care system to the U.S. Not that I expect the proponents of nationalizing health care to be this honest.
_____
¹Actually the profit maximization condition is for the firm to produce until marginal cost (i.e., the cost of an additional unit of output--in this case a pill) is equal to the marginal revenue (the revenue obtained from the additional unit of output). In a competitive market the firm has cannot influence the marginal revenue by changing its production, hence the price is the marginal revenue. That is, firms take the price as given, and not something they can influence.
²Fixed costs are those costs necessary for engaging in production such as having a building. In the long run fixed costs are also variable costs. Sunk costs are those costs that cannot be recovered once production starts.
³Since existing copyrighted works already exist extending the protection for these works will not result in more intellectual property and may result in less.