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Dec 30, 2008

Diplomacy and Terrorism

Diplomacy and Terrorism
12/30/08 - ChicagoBoys by Shannon Love
[edited] For nearly three decades people like Greenwald claimed that if Israel merely ended the occupation of the Palestinian territories it would get peace. Instead it got human bombs and rocket attacks. Ditto for the withdrawal from Lebanon.

Terrorists stop for only two reasons: (1) They win and graduate to despotic rule (Mugabe), or (2) they’re physically prevented from acting. Israel has decided to go for reason (2). The rest of us should hope it succeeds.

Matthew Alexander on Torture

Matthew Alexander on Torture
12/30/08 - Schneier.com
I learned in Iraq that the No. 1 reason foreign fighters flocked there to fight were the abuses carried out at Abu Ghraib and Guantanamo. Our policy of torture was directly and swiftly recruiting fighters for al-Qaeda in Iraq."

The AIG Junket Fable

The AIG Junket Fable
12/30/08 - American Thinker by Tony Kondaks

[edited] Elizabeth Vargas repeated the myth that AIG executives wined, dined, and partied to the tune of $440,000 at the posh St. Regis resort in California just a week after AIG received $85 billion in a government bailout.

The St. Regis trip was a common incentive that agents compete for. They qualify by producing business during a designated time period. Virtually every life insurance company in the United States holds similar contests.

The junket was not for AIG executives or employees. It was for independent agents who sold insurance products for the American General subsidiary of AIG and received commissions and incentives. These agents probably represent another 5 or 6 insurance companies.

American General operates independently and enjoys a thriving financial status with high ratings separate from its parent company AIG.

Dec 29, 2008

Keynes, Digger of Holes

Obama’s Keynesian Error
12/29/08 - ChicagoBoys by Shannon Love

No one should trust a theory that predicts greater prosperity from digging holes. Yet, this is the theory by Keynes that Obama is following, and many past presidents have followed, to forcibly change our society. We will supposedly create even more wealth in the future by wasting our current wealth today.

I know. I must be wrong. No one could believe such a thing. Certainly no President of a great country would listen to a dead crank who spouted such nonsense. But, there it is.

The promised future wealth has never appeared. What will our leaders say when, again, the wealth does not appear, after wasting the resources that we have today. "So sorry. We just had to try something."

[edited] Keynes famously said that the government could stimulate the economy by simply burying large amounts of money in the ground and then letting people dig it up again. The money spent to dig up the money would drive the economy again.

Keynes' economic theory says that the movement of money itself from person to person creates a good economy. Keynes thought recessions occurred when people saved too much and spent too little, causing the money to stop moving. Government could “prime the pump” of the economy by taking the saved "static" money and spending it.

Money communicates information not by moving, but by differences in prices. Keynes was like a naive individual who discovers that phones lines carry information with electricity. He then decides that pushing more electricity will send more information. In reality, all he would get is a squeal. Likewise, moving money through the economy does nothing if that movement does not transmit information about the real value of economic choices.

The New Old Big Thing in Economics
01/08/09 - Online.WSJ.com by Sudeep Reddy
Another story about Keynes:

During a 1934 dinner in the U.S., one economist carefully removed a towel from a stack to dry his hands. Mr. Keynes swept the whole pile of towels on the floor and crumpled them up, explaining that his way of using towels did more to stimulate employment among restaurant workers.
Keynes point was brilliant, if you forget that the restaurant owner had already paid to provide clean towels. Keynes didn't offer to pay for the mess. The owner had to pay to replace the towels. Keynes's ideas are wonderful, as long as you can find owners to take resources from. After that, no more clean towels, and no need for restaurant workers to keep them available.

It seems that Keynes liked to be destructive, then say he was really helping everyone out.

- -
"Keynesian Economics" in The Political Dictionary
Understand politics by knowing the meanings of things.

Econ 201: The Myth of the Economic Multiplier
You don't create $40 in wealth by paying $10 to mow your lawn.

The Deadweight Loss of Taxes
Collecting $1 in extra tax kills $2 in production.

A Short Argument Against Stimulus
It isn't so stimulating when you know that it must be paid back.

Let's Counterfeit Our Way to Wealth
If Obama and Keynes are correct, that there is a 1.5 wealth multiplier on spending, then $100 in spending produces $150 in wealth, and we should all benefit from counterfeiting. It is not my fault that the belief in a multiplier is so outrageous that it leads to this outrageous result.

The Deadweight Loss of Taxes

Production and employment is reduced by increasing taxes, despite increased government spending. Raising taxes on anyone, especially the rich, lowers production in the U.S., and so lowers the number of jobs and pay levels. It is ironic that taxing the rich makes everyone poorer, the same effect as taxing the middle class. It makes us a lot poorer.

The term "deadweight loss" refers to what is lost or never produced because of some policy. A higher income tax rate produces responses that decrease investment and production (jobs).

The primary effect is to remove money from individuals who would invest it more efficiently than the government. People will also work less, earn less, and pay less tax, if they don't think the extra money they could keep after tax is worth the extra hours or risk.

The secondary effect is to give investments a lower rate of return after tax, so investors tolerate less risk and invest more in tax free bonds and legal advice to avoid taxes. This also lowers investment in new activities and reduces opportunities for better paying jobs.

As an extreme example, a 95% tax rate would convince most people to work less and spend more time and trouble on avoiding the tax. Any investment with even a little risk would be avoided.

In November 1999, Martin S. Feldstein was the George F. Baker Professor of Economics at Harvard University and former President of the US National Bureau of Economic Research. He investigated the current effects of income tax rates on the economy.

Tax Avoidance And The Deadweight Loss Of The Income Tax

[edited] Traditional analyses of the income tax greatly underestimate deadweight losses by ignoring its effect on compensation and consumption [jobs]. The full deadweight loss is easily calculated to be as much as 30% of total revenue.

The deadweight loss caused by increasing tax rates above current levels may exceed $2 per $1 of revenue increase.

I will restate this. Government activities and transfer payments had better be useful to the society, because economic output has already been lowered by 30% of the taxes currently collected. Further, $2 worth of production (jobs) will be destroyed for every additional $1 collected through increased tax rates.

To restate this, society begins with three units of production and jobs. After an increase in tax rates on the rich, those three units disappear, transferring just one unit to the purposes of the government. Two units just disappear, the deadweight loss of increasing the tax. The loss could be all three units if the activities of government produce nothing of value.

This is a severe loss, because there is no "stimulus" from that "extra" $1 in government spending. That $1 would have been invested or spent anyway. Taxes only move goods around from some people to other people, at great expense.

To transfer $1 to a needy voter, or bail out a public loss, the government will take $1 from a richer person, eliminating $2 in production of goods and services, also called jobs. By the same analysis, $1 of reduced tax from lower rates supports increased investment that in turn supports $2 in new production and jobs.

This easily explains why tax rate cuts under Reagan and G.W.Bush increased the prosperity of the U.S. And, it explains why the threat of tax rate increases under Obama has so frightened and lowered the stock market.

Government subsidies, guarantees, and bailouts kill prosperity because they require borrowing now and higher tax rates later. Higher tax rates usually produce increased revenue for government, while destroying twice as much income for the population in the bargain. Government spending today will be paid by printing money "out of thin air". This will cause inflation that will make everyone holding cash in a bank account pay for current spending as prices rise and their savings buy less.

The Myth of the Economic Multiplier
I consider why it seems there should be a stimulus that goes beyond each dollar of spending, and why this is wrong. Government spending is a banquet, not a stimulus.

Public Tax Meeting
A story about proposed tax policy. What is it like in a small town to raise taxes on the wealthy 35% and give a rebate check to the 65%.

Dec 26, 2008

Mencken's Timeless Insights

Mencken's timeless insights
12/26/08 - PittsburghLive by Donald J. Boudreaux
An excerpt from a great article.
[edited] If I could bring one person back to life for an evening of good food, stiff drink and sterling conversation, that person would be H.L. Mencken (1880-1956).

Mencken thought the typical politician is a "merchant of delusions," a "pumper-up of popular fears and rages. The politician is never to be trusted.

"What is a political campaign save a concerted effort to turn out a set of politicians who are admittedly bad and put in a set who are thought to be better?"

"If experience teaches us anything at all, it teaches us this: that a good politician, under democracy, is quite as unthinkable as an honest burglar. His very existence, indeed, is a standing subversion of the public good in every rational sense. He is not one who serves the common weal; he is simply one who preys upon the commonwealth."

"It is to the interest of all the rest of us to hold down his powers to an irreducible minimum and to reduce his compensation to nothing; it is to his interest to augment his powers at all hazards, and to make his compensation all the traffic will bear."

+ + +
The Political Manual: Adequate Compensation
As a politician, get paid what you are worth.

The Bernie Madoff I Knew

12/26/08 - PajamasMedia by Laura Goldman --> Article

InLink: The Bernie Madoff I Knew

[edited] Known as the Jewish T-bill, Bernie was very charming and low key at the meeting. The former chairman of the NASDAQ stock exchange did not want to answer questions about his investment business and strategy.

The UAW Reneges

The UAW Reneges
12/24/08 - Investor's Business Daily Editorial

[edited] The White House last week granted $17 billion in emergency bailout cash to auto makers, with conditions on both management and labor. The UAW union agreed to cut worker's pay to the levels of their successful competitors, Toyota, Honda and Nissan.

Just days before Christmas, the UAW let it be known it will fight any concessions on wages and benefits. Union boss Ron Gettelfinger broke the deal almost before the ink was dry, calling concessions "An undue tax on the workers".

Read More ...

More of the story at Bailing Out Auto Makers Without Conditions

Obama's Secretary of Earmarks

12/26/08 - WSJ.com Review and Outlook --> Article

"Doling out money" in Congress is a desired position and a respected skill, recognized by Obama in a welcoming and bipartisan manner.

[edited] Obama nominated Illinois Republican Congressman Ray LaHood to head the Transportation Department. He is a longtime member of the House Appropriations Committee and a spending superstar. He supported without apology the big spending that helped Republicans lose their majority in 2006. In fiscal 2008 he arranged $62.7 million in earmarks for his district, in the top 10% of House pork-barrelers.

He said, "The reason I went on the Appropriations Committee, the reason other people go on the Appropriations Committee, is they know that it puts them in a position to know where the money is at, to know the people who are doling the money out and to be in the room when the money is being doled out."

He said, "If people like Ray LaHood [himself] and others aren't able to earmark dollars, that money will be spent by some bureaucrat in Washington, D.C. And, who knows better how to spend money on worthwhile projects than a community and an individual Congressman?"

The Law is Going from Bad to Worse

The Law: Going from Bad to Worse
12/25/08 - Econlog.Econlib by Bryan Caplan

Maybe "The Law" is only a soothing idea to help us bear up in an arbitrary society ruled by political power and whim.

[edited] At the risk of offending many friends, I think the law is a shockingly phony discipline. Virtually everyone imagines that the law agrees with what they favor on non-legal grounds. Almost no one admits that many or most laws are so vague that there is no "fact of the matter" about what they mean.

Once in a while, a law professor has told me this verbatim, and then has gone back to arguing about the law. The philosopher in me insists, "If there's no such thing as unicorns, we can't argue about unicorns," but the Great Unicorn Debate never stops.

Problems With Green Energy

Wind Power Fail
02/17/11 - Whats Up With That

[edited]  A $200-million wind farm in northern New Brunswick, Canada is frozen solid, cutting off a supply of renewable energy for NB Power.

The 25-kilometre stretch of wind turbines has been shut down for several weeks due to heavy ice covering the blades. The ice alters the aerodynamics of the blades, rendering them ineffective as airfoils. The added weight further immobilizes the structures.

Suez's website states its wind farms on average produce about 35% of their capacity on an annual basis, accounting for daily and seasonal fluctuations in wind patterns.

Remember that figure "35% of their capacity" when you interpret stories about wind turbines and the energy they will deliver. Delivered power is always much less than rated capacity. But, costs are almost always estimated according to rated capacity, and so costs are almost always understated according to the power delivered.

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Wind Power in Spain
05/18/10 - Chicago Boys by David Foster

This information comes from a leaked Spanish government report on their wind power program.

[edited]  The report takes pains to minimize the economic harm, yet reveals exactly why electricity rates “necessarily skyrocketed” in Spain, along with the public debt spent on this disaster. The Zapatero administration recently acknowledged that the “green economy” must be abandoned, lest they risk Spain becoming Greece.

An independent study found that Spain’s “green economy” program removed 2.2 jobs for every job “created” by the state. The government report does not directly confirm this. Instead, the government figures show even greater job-losses.

Energy is a key input in industrial production. Energy costs in basic industries are three times the labor costs (cement, industrial gases, metals, basic chemicals, and steel). Electricity costs for Spanish industry are 17% higher than the European average.

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Spain's Green Economy is a Disaster
05/21/10 - Pajamas Media by Christopher Horner

La Gaceta: “Spain admits that the green economy as sold to Obama is a disaster.”

[edited]  The Spanish newspaper La Gaceta reports on Spain’s “green jobs” boondoggle, the plan cited eight times by President Obama as his model for the United States. It is now known to be a costly disaster. Even the Socialists admit this, with the media in full pursuit.

Spanish president José Zapatero had rejected a study about the fatal economic consequences of renewable energy. Now, a leaked internal document from the Spanish cabinet supports that study, and is even more negative.

Zapatero wants to continue his grand bet. But, the minister of Industry, Miguel Sebastián, worries that the enormous debt from investment in so-called clean energies could delay Spain’s exit from its economic crisis.

The leaked report admits that the price of electricity has gone up, along with the debt, due to the extra costs of solar and wind energy. Government numbers indicate that each green job created costs more than 2.2 traditional jobs, as was shown in the previous report of the Juan de Mariana Institute.

Spanish solar plants charge 12 times more than for the same energy from fossil fuel combustion. Most of this is a subsidy charged to the consumer. It is not possible to continue injecting money into these projects with the economy at the point of bankruptcy.

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Trouble Brewing for Wind?
05/14/10 - At Spectrum IEEE by Bill Sweet

[edited]  "Wind Energy Update" is an independent business intelligence service which publishes "The Wind Energy Operations & Maintenance (O&M) Report".

Current O&M costs for wind farms are two or three times higher than first projected, and there has been a 21% decrease in investment returns. O&M costs are especially high in the United States, "now the world's largest wind power market".

They estimate average world O&M costs at $.27 per kilowatt-hour (KWH). The value of US wind production credits is about $.20 per KWH. Almost 80% of the world's wind turbines are under warranty, but "this is about to change". Many gearboxes, designed for a 20-year life, are failing after six to eight years of operation.

Operation and Maintenance (O&M) costs are all of the daily costs for producing wind power. This would not include the cost of fuel (there is no fuel), or the costs of buying land and building the wind turbines.

The report of $.27 as being 2-3 times more than projected means that developers wildly underestimated the costs of operating wind turbines. They estimated $.09-$.13, but the real cost is $.27.

The major concern is that this higher cost even exceeds the subsidies ("production credits of $.20") being handed out by governments. This report does not clearly say why the costs are higher. A big part must be the failures of the gearboxes, the huge transmissions that connect the blades to the generators. These are a major, expensive component, like the transmission in a car. The gears are lasting for only one-third of their intended life.

You probably pay around $.11 per KWH for your residential electricity, which was produced for about $.03 to $.05 per KWH (Coal 2.97 Gas 5.00 Nuclear 2.03). It is costing $.27 per KWH to produce wind power, and your cost will be more, except for the cost that is hidden in government subsidies (higher taxes and fewer jobs).

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Vibrating Wind Farms
08/10/09 - American Thinker by Thomas Lifson

Neighbors of wind farms have discovered that they are far from benign, clean, efficient ways of harnessing energy to our needs. Jeff Swiatek of The Indianapolis Star reports:

[edited] The tips of those giant blades move at about 160 mph, creating low-frequency vibrations through the ground. People three-quarters of a mile away sometimes feel the vibrations in their chests. Cases of nausea, headaches, insomnia, and other ills are called "wind turbine syndrome".

That new illness is just one of a growing list of health effects, inconveniences, risks, and costs causing a backlash against wind farms in other states.

Reflections from the rotating blades creates "shadow flicker", a strobe light effect on nearby homes.

Wind farms have broad environmental impact. They are located in rural areas, often on ridgetops or in mountain passes. They require quarter-acre clear zones for the turbines, and long cuts through forests for permanent service roads.

The blades turn day and night, efficiently killing birds and bats. Some studies show large wind farms located on ridgetops or in migratory paths kill thousands of birds a year, though other studies report a lower figure.

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Germans To Pay Much For Offshore Wind Power
07/25/09 - Future Pundit by Randall Parker (Via Instapundit)

[edited] Germany is phasing out nuclear power plants before the end of their useful lives, building more coal electric plants, and will make Germans pay for offshore wind electric power.

The wholesale price will be US 21¢ per KWH, plus retail markup to pay for distribution and billing costs. Compare this to the average US retail price of 11.28¢.

You can't order up wind power in response to demand spikes. You get it only when the wind blows. Electric power that can increase in response to demand spikes commands a higher price than steady, baseload power like a nuclear power plant that runs all the time. That 21¢ wholesale price for an undependable power source is a very high price to pay.

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Problems With Green Energy.
12/26/08 - AmericanThinker by Thomas Lifson

Darn, there are always a few glitches.

[edited] Reliability and maintenance problems of green energy sources are highlighted in a strikingly honest report in today's New York Times by Kate Galbraith.
In winter, wind turbine blades ice up and may hurl chunks of ice as they rotate, biodiesel fuel congeals in the gas tanks of buses, and solar panels produce less power in the weaker sun, or no power when covered with snow.

Even in northern California, with mild winters and little snow, solar panels can generate about half as much as in the summer, depending on how much they are tilted.

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Alternative Power Is and Will Remain Useless
02/28/10 - Chicago Boyz by Shannon Love

The physical and technical reasons why alternative energy (Green Power) is a political scheme, not a useful way to produce bulk power. The comments are also good.

[edited]  There exists no alternative energy source or combination of such sources that can fully replace a single, conventional electric plant, a plant fueled by coal, gas, oil, or nuclear power. Even hydro-power needs conventional backup.

Yet, many want us to rely on these functionally useless technologies to be the primary energy sources for our entire civilization.

Most discussions consider the cost and reliability of electricity at the place it is generated. However, energy is useful only where and when you need it. Plenty of power in Arizona won't help you in Michigan. A roaring fire in July doesn't warm you in January. The only real factors that count are the cost and reliability of power at the place it is consumed. Bulk alternative energy is mismatched to its uses.

-- --

Fred:  We'll build wind turbines everywhere and store the excess energy in hydro facilities.
Mike:  That will work for places that are flat and windy, next to mountains that will support a hydro dam. What about the other places?

The Myth of Alternative Power and Hydro- Electric Storage
06/17/10 - ChicagoBoyz by Shannon Love

[edited]  "Alternative energy" can’t be used for baseline power because it is not reliable, and we can’t make it reliable by storing the electricity that it episodically generates.

What about energy storage in a hydro-electric dam? Pumps would use alternative power to lift water behind the dam. When wind or solar power is not available, we could drain the water through turbines to create electricity.

Suppose alternative power should produce 30% of our current baseline power needs. If alternative power (optimistically) operates 75% of the time, we would need a 25% stored reserve. 25% x 30% is 7.5% of our total electric power needs.

Coincidentally, hydro-electric power today produces 8% of U.S electricity. If we want to use hydro-electric storage to make alternative power reliable, we will have to recreate 93% of the generating capacity of every current hydro-electric facility. That includes Hoover Dam, the entire TVA, and all of the dams in the Rocky Mountains.

All the places with the geography and water to produce hydro-electric power are already in use. Worse, the places that produce significant amounts of solar and wind power, the desert and the plains, are very far from that geography, requiring expensive power-line connections.

The full post has more information and many interesting comments.

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Solar Panels Are Hideous

Residents of New Jersey are unhappy with the solar panels installed by the state's largest utility company on electrical poles in leafy residential neighborhoods. See a picture at the link.

Dec 25, 2008

What Caused Unemployment in the Great Depression?

Another Great Depression?
12/23/08 - TownHall.com by Thomas Sowell

[edited] You might think:
  • The 1929 stock market crash was a failure of the free market.
  • The crash led to massive unemployment in the 1930's.
  • Roosevelt rescued the economy with the New Deal.
It is a pity to spoil this story with facts, but we should avoid repeating the catastrophes of the past.

The October 1929 crash did not create massive unemployment according to both official government statistics and new statistics by scholars Richard Vedder and Lowell Gallaway in their book "Out of Work."

Vedder and Gallaway follow unemployment month by month. The unemployment rate was 5% in November 1929, a month after the crash. It hit 9% in December, then trended downward to 6.3% in June 1930, 8 months after the crash.

Then, the Smoot-Hawley tariffs were enacted, despite dire warnings by economists across the country. Five months later, November 1930, unemployment rose past 10%.

The rise in unemployment after the crash of 1929 was a blip compared to soaring unemployment reached after a series of unprecedented government interventions by Hoover and Roosevelt. From February 1932 to December 1934 (almost 3 years), the unemployment rate was at least 20%, and was 19.3% in January 1935.

The evidence suggests that it was not the financial crisis in 1929 that caused massive unemployment, but politicians' attempted "solutions". Are we repeating that history now?

The New Deal and the Great Depression We in government don't like risks or new ideas, but we can sure spend money. That will improve things.
09/19/09 - Cafe Hayek by Don Boudreaux

Don Boudreaux [edited]:

Robert Higgs in Investor's Business Daily summarizes his research. Bad policy prolonged the Great Depression, and it did not end with WWII.

Bob Higgs [heavily edited]:

The government tried to spend us out of the Depression, as it has tried several times since. But, these policies delay recovery, rather than trigger it.

Money-losing investments must be reorganized, so good assets can be put to better use. If the government saves failed companies through investments and subsidies, this reorganization is slowed or stopped. The mistakes of the past are locked in place, hindering the creation of future wealth and jobs. Such New Deal recovery efforts had exactly these effects, as do current government policies.

Roosevelt’s recovery program spent billions of dollars with no sound economic logic. But, they made matters even worse when they threatened property rights and called private investors "economic royalists". They pushed through policies attacking the foundations of private enterprise, especially after 1935.

A recovery needs knowledge, investment, and people who can do new things and manage risk. Government can supply money, but it is taken from the entrepreneurs who are vital to the recovery, and given to the people who are in failing businesses. Entrepreneurs can do less, so recovery is slowed.

Waiting for the jobs Obama is building a new society. I'll wait until he is done.
07/02/09 - Instapundit

What is causing job losses now?

Small business owners are standing by the fence and watching, paralyzed by regulatory uncertainty. They aren’t hiring precisely because of government intervention in the economy. So-called stimulus won't change that.

Dec 24, 2008

Government Efficiency - Subway

12/19/08 - FailBlog   --> All aboard the fail train

The Japanese make efficient use of transportation resources in this video clip.

Why College Is A Waste Of Money

Not Everyone is College Material
12/23/08 - DailyBeast by Zac Bissonnette
(via Subprime Education at National Review by Mark Steyn)

Mr. Bissionnette sees the waste and dispair imposed by a college system that discards about half of the students who try for a degree.

[edited] My high school was a small charter school with the mission to send all of its students to college. Our course work supported an obsession for college preparation. Most kids had full-blown college fever by senior year.

I'm now a sophomore at UMass Amherst. At least a few of the people from high school have already dropped out -- after blowing tens of thousands of dollars on tuition and fees at expensive, but not especially good, private colleges. They were great, smart people, but I knew that they lacked the focus, drive and maturity they would need to graduate.

This money came from parents, from federal Pell Grants, from the colleges, and from student loans that these kids will have to pay back while working low-wage jobs.

Government figures show that just 54% of students who entered four-year colleges in 1997 had earned a degree six years later. A professor wrote in The Atlantic that it is immoral to tell students they can go to college, then crush their dreams by failing half of them.

Imagine the millions that are wasted financing educations that never come to fruition. We could try to predict which students would be part of the 46% who don't finish, then encourage those students not to go to college. But, this would mean a lot of students would never get to try. That wouldn't be fair. So what we can do instead is identify the 5% or 10% of students who are the least likely to graduate, and not send them to college.

The current system provides no way or incentive to do that. The Free Application For Student Aid (FAFSA) doesn't consider an applicant's academic record. The rationale is reasonable and admirable: we don't want federal student aid to be restricted only to the best and the brightest. But, doesn't it make sense to withhold aid from the students who are clearly not equipped to make it through four years of college?

Bissonnette is an eye-witness to the problem. Smart young adults, many "lacking the focus, drive, and maturity" to spend the next four years in study, are faced with a do-or-die situation. Get a degree to validate a life of opportunity, or drop out to get a lower-wage job and pay back a big loan.

This is an unnecessary and cruel system that places a large burden on the students. It wastes the full contribution of those who are not suited to that burden at that time. Consider also the less fortunate students who can't afford to take four years for constant study, even with student loans.

The solution comes from what educators say but don't implement. They say that learning is a lifelong individual pursuit, not limited to colege and graduate school. But, they continue an educational system designed for well-off young adults, which delivers a single result called a "degree", if you can afford to spend four years in continuous study.

Parents tolerate this because a degree is associated with increased lifetime earnings. Does college teach skills that produce greater earnings? I think schools mostly select for greater intelligence, which then associates with greater earnings. But, we don't know, and the schools won't study or reveal their own true effectiveness compared to alternatives.

Consider the fallacy of Being There. Schools enroll young adults at a time of growing independence and exploration. We expect that these people will learn and change in four years. They do this while they are in school, but I think the school should get little credit for Being There at the time this happens.

Consider the fallacy of "it's worth it". The school presents a program of learning which requires large fees and almost full-time attendance. It certainly "is worth it" as compared to learning nothing, but that is a contrived comparison. There would be other options in a freer market for training and education.

There is no reason to allow this cultural monopoly to continue. Let employers do the testing that they need to select able people. Currently, employers are restricted by employment law, by the theory of  Disparate Impact.

Support a system of incremental education and testing that does not require years of resident study, unless there is a proven need (eg. medical education). Allow for experiment and validation of approaches that deliver to students (of any age) the knowledge they need, in the subjects they want, in the amounts they need, with testing and validation.

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Don't Envy the Ivy Schools
10/10/10 - Washington Post by Jay Mathews   (Via Instapundit)

Who Needs Harvard?
10/12/10 - Brookings.edu by Gregg Easterbrook

Admissions Officer:  Congratulations on being admitted to Harvard.
Mike:  I am honored to do my partying at one of the finest schools in the country.

Mathews:  [edited]  The Ivy League and other top colleges add no discernable value to the lives of their graduates. They attract students with strengths such as persistence and humor that lead to success. Applicants with such qualities do just as well in life attending schools like Boise State.

There is research on this by economists Alan B. Krueger and Stacy Berg Dale. And, there is now the movie The Social Network. None of the student characters ever study, or even talk about their courses. They talk mostly about sex, parties, and becoming important. Zuckerberg, his friends, and enemies, live on the Web. That Gov 10 paper due Friday is ignored.

That is an exaggeration, but not by much. The atmosphere is similar to what you find at most colleges. The college years are for trying out new stuff. Undergraduates devote little time to absorbing academic riches.

What about those great Ivy alumni contacts? Every college has influential alumni, if you bother to call them. The Zuckerberg character becomes a billionaire not because he went to Harvard, but because he was a computer genius, a talent he developed before he went to college.

This is part of the story at College is an Expensive IQ Test.

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Higher Education Subsidies
12/15/10 - Downsizing Government by Tad DeHaven

The Great College-Degree Scam
12/09/10 - Chronicle.com by Richard Vedder
- (Via Cato@Liberty)

[edited]:  This is a scandalous discovery. Consider everyone who graduated from US colleges from 1992 to 2008. Approximately 60% of them work in jobs that the BLS (US Bureau of Labor Statistics) considers to be low-skilled. These are jobs where many have only high school diplomas, and often less. Stated another way, only 40% of those college graduates have jobs historically requiring at least a bachelor’s degree.

We tried using different assumptions about our data to calculate the ratio of unskilled-jobs vs college-graduates for those "new" graduates. Even so, a majority is doing jobs considered to be low-skilled.

The data suggest a decline in the productivity of American education: it takes 18 years of education to earn a degree, to do jobs that past generations did with a third less time in school.

A college diploma has become more of a signaling device to potential employers. Credential inflation is occurring as more individuals earn a degree which they believe is needed to compete for a job. [They are mostly correct. -amg]

Dec 23, 2008

NYT Won't Run Op-Ed Criticising Bill Ayers

12/23/08 - PajamasMedia by Bob Owens   --> Article

The New York Times published an Op-Ed article by Bill Ayers on 12/5/08. They declined to publish a rebuttal by Larry Grathwohl. Grathwohl is the only informant to penetrate the Weather Underground for the FBI, and lived the history Ayers wants to rewrite.

Part of the story at Leading the People.

Dec 22, 2008

Don't Believe Pundits

Separating Twins is Economically Illiterate
12/22/08 - EconLog by Bryan Caplan

People propose policies and explanations without thought of the consequences or any examination of likely causes. Caplan talks about separating twins in school, and reasons given for economic success or failure.

[edited] Schools ususally put twins in different classes. The main rationale is that they will make new friends. They will, but that doesn't mean you are doing them a favor. Twins put less effort into making new friends because they already have a better friend than most of us will have. The marginal benefit of making new friends is unusually small.

There is no reason to target twins. Do kids benefit from making more new friends than they naturally want to? If you believe that, you would separate as many children as possible from their current friends. Will they thank you later? If you are certain that separation is the right answer, why not try a little self-experimentation? Cut the time you spend with your best friend in half, and tell us how you like it.

A decade ago, pundits said (wrongly) that the Japanese economy was doing well because their factories were destroyed during World War II. So, they built new factories and competed better than the victors with their musty old factories. Economists replied: If that is true, all we need to do is bomb our own factories!

Don't be fooled by pundits or by make-work bias. When the government applies some policy that interferes with people's lives and businesses, officials point proudly at all of the increased activity that results. They ignore the damage that this activity is aimed at correcting.

When you step on an ant hill, and see the ants rush out and mill around, the ants aren't better off because they have been put to work.

Dec 21, 2008

The Brains of TSA

12/21/08 - Econlog.Econlib.org by David Henderson   --> Article

[edited] I had volunteered to serve hamburgers, hot dogs, and veggie burgers at a barbecue held at my daughter's high school. At one point, about 12 people were in line waiting for food. I had about four each of hot dogs and veggie burgers. Another server made a panicked request to cook many more burgers.

But, what if some people in line wanted hot dogs or veggie burgers? I announced loudly "Anyone who's in line for hot dogs or veggie burgers please come up here." Six people came up, cutting the apparent hamburger line in half.

The server who had made the panicked request was a high-level manager at a logistics firm. He didn't see any easy way around the problem.

When Charley and I tell a story of poor thinking, we almost never name the person, but here I'll make an exception. This high-level manager was Kip Hawley, now head of the Transportation Security Administration (TSA) [The people who run security at our airports.]

The noted security expert Bruce Schneier has collected some links to his interesting posts about TSA and airline security.

Dec 20, 2008

Bailing Out Auto Makers Without Conditions

12/20/08 - Online.WSJ.com Review and outlook   --> Article

[edited] The President is lending the last $15 billion in the $350 billion Troubled Asset Relief Program (TARP) to keep GM and Chrysler afloat through inauguration. Bailing out nonfinancial companies is a bad precedent. Democrats will use it to give the next $350 billion to mortgage holders, states, cities, and anyone with political clout.

Mr. Bush agreed to rescue U.S. companies whose business and labor mistakes have been known for decades. The President explained, "In the midst of a financial crisis and a recession, allowing the U.S. auto industry to collapse is not a responsible course of action." But, that would qualify any struggling industry, and no doubt Congress will prove it.

Mr. Bush didn't mention the hedge fund Cerberus that owns most of Chrysler. It might be embarrassing to reveal that taxpayers earning far less than UAW wages will be rescuing Cerberus's rich investors.

Read more ...

There are "non-binding" terms and conditions that Detroit will supposedly meet to keep the money. Non-binding means they can miss the quantative targets if "the firm reports the reasons for these deviations and makes the business case to achieve long-term viability in spite of the deviations."
Note that the "U.S. auto industry" is not being bailed out, only the companies with highly paid union labor and many plants in Michigan. Ford refused bailout money, so far. There is a healthy auto industry represented by the U.S. branches of many "foreign" auto companies, branches that employ Americans to build cars in the U.S.

The UAW Reneges
12/24/08 - Investor's Business Daily Editorial

[edited] The White House last week granted $17 billion in emergency bailout cash to auto makers, with conditions on both management and labor. The UAW union agreed to cut worker's pay to the levels of their successful competitors, Toyota, Honda and Nissan.

Just days before Christmas, the UAW let it be known it will fight any concessions on wages and benefits. Union boss Ron Gettelfinger broke the deal almost before the ink was dry, calling concessions "An undue tax on the workers".

This is one of the most cynical acts of political manipulation. Barack Obama and congressional Democrats are big recipients of union contributions. The UAW agreed to concessions, knowing the new administration would let them renege, and the UAW read the situation correctly.

Rep. Barney Frank (D. MA) called union concessions an "unfair assault on working men and women", echoing Gettelfinger's comments.

The only real assault here on "working men and women" is the enormous cost that all working taxpayers will have to bear, $75 to $125 billion.

Dec 19, 2008

Five Holiday Health Myths Debunked

12/18/08 - M.D.O.D. by Lofty Zahari   --> Source
[edited] Many supposed holiday hazards are as innocuous as a tepid mug of apple cider. A review article in the British Medical Journal cites five fears that can officially be crossed off the holiday worry list.
  • Sugar makes kids hyperactive.
  • Suicides increase over the holidays.
  • Poinsettias are toxic.
  • You lose most of your body heat through your head.
  • Eating at night makes you fat.

Dec 18, 2008

Investment Bubbles

Pop Psychology - Investment Bubbles
12/17/08 - The Atlantic by Virginia Postrel (via Brad DeLong)

A rise in price above a reasonable value (a price bubble), followed by a fall back to that value (a crash), seems to be a part of psychology rather than bad mathematics. Maybe you can avoid losing in the next bubble.

Read more ...

[edited] Economists have repeated an experiment for 20 years. Experimental groups of about 12 people start with money and shares to trade. The shares pay dividends of 24 cents at the end of each round, for 15 rounds, each round lasting a few minutes. The dividend may be fixed, or have an equal chance of being 0, 8, 28, or 60 cents, averaging to 24 cents. Participants have the same information, can’t talk to one another, and interact only through their trading screens.

The expected (average) value of the remaining dividend payments is 15 x $.24 = $3.60 at the beginning, and of course drops by 24 cents for each round as any dividends are paid. The participants can see the average value of remaining dividends on their computer screens.

There is no doubt about the true value of these dividend payments, no hidden risks or surprise earnings announcements. So, you would think that the trading price should be close to the expected value.

That is not what happens. In 90% of trials, the trading price goes way above expected value, then crashes as the 15th round nears. The participants do not seem to be bored or fooling around. The difference between a good trading performance and a bad one is about $80 in three hours, enough to motivate students to do their best. It seems that asset markets develop bubbles even under the most controlled conditions.

Say that the shares are worth $3.12 at some point according to the dividend payoff. Participants wonder "Can I flip these shares to a buyer who will pay more than I think it’s worth?" As long as a greater fool might pay $3.50, smart people may decide to pay $3.25 in the hope of making a profit.

For a stable price, everyone has to know that everyone is rational, but that is rarely the case. People bidding in an asset market do not immediately try to figure out the fundamental value. Instead, they try to buy low and sell high. That speculation creates a bubble.

The people who stick to fundamentals do not make the most in these experiments. The winners buy a lot at the beginning and sell midway through. They take advantage of “momentum traders” who buy when the market is going up, hold when it is going down, and end with the least money. Bubbles pop when the momentum traders run out of money and can no longer push prices up.

My opinion is that most people like betting and excitement, and they see fluctuating market prices as an opportunity to ride a wave for profits. Twelve students sit at computer screens with a very unexciting situation and a small guaranteed payoff. They can buy and hold shares that will yield $3.60 per share after 3 hours of waiting, or they can buy shares at a slightly higher price on speculation and see what happens.

Say one player buys some shares at 5 cents more than the rational price, and the dividend happens to be larger than usual on that round. Other players see the share price trade up and the payoff that they missed. It is easy to think that there is money to be made by playing the market, playing the desire of others to get into the more active game.

So, a few players buy at a higher price, and sell into an even higher price as others join in. It can seem that higher prices are justified by market activity alone, regardless of the expected value of the dividend. This type of herd-following works for a while until reality sets in. Some players with the right social strategy consistently make money, which gives the feeling that the right price might be higher than just the computed value.

In life, bubbles start when some available commodity, like houses or technology companies, show a steady price gain over a few years. Hope tells people that there just might be a large payoff at the end, even if hard facts make that unlikely. They start to play the wave rather than evaluate the numbers. The price wave is exciting, and the current winners are real. The payoff calculation is on a spreadsheet or envelope, and is only as real as a thought.

So, people think that the price of a house, or Starbucks Coffee, or Krispy Kreme Donuts can only go up, or at worst will sink slowly, allowing them to get out with a profit. But, the price drops suddenly back to reality and there is no getting out.

If you personally do not know what the reasonable, central value is for something, you can't rely on what others are paying, because they probably don't know either.

Dec 16, 2008

Low Productivity Sinks Detroit Auto Makers

Detroit’s Downturn: It’s the Productivity, Stupid
12/16/08 - PajamasMedia by Rand Simberg

Union work rules make it almost impossible for the Big Three to keep up with foreign competitors.

[edited] As a former supervisor of UAW workers at a GM facility, I will say that poor management and union malpractice made the Detroit Three uncompetitive long before the government sent in their arsonists.

To put it bluntly, the UAW takes the hard-earned money of the best workers and spends it defending the very worst workers while tying up the industry with thousands of pages of work rules that make it impossible to be competitive. And the spineless management often makes short-sighted decisions to satisfy the union and maximize immediate benefits over long-term sustainability.

The strength of the union and the weakness of management made it impossible to conduct business properly at any level.

Expanding Posts in Blogger

This is how I have implemented Expanding Posts. These are posts which have an introduction on the mainpage of the blog, linked to the entire presentation at an individual post page.

My approach allows for individual preferences. You can have anything on the mainpage, followed by anything on the postpage.

As an example, you might see this on the main page to a blog:

I found a great store today and would like to tell you all about it. It is a long post, but worth it. Read More ....
And you would see this at the individual postpage by clicking on the "Read More" link:
I found a great store today and would like to tell you all about it. The store is Great Foods for All, and it was a wonderful experience to see the color and variety on the shelves. [and the story goes on]

Placing the Code

You will need to edit the HTML template code for your blog on Blogger. These are the instructions for a blog using the new "layout" template, not the older "classic" template. See the references below for the classic template.

From your blog page, click "Sign In".
Go to the Layout tab. Click "Edit HTML" in the second heading bar. Under "Edit Template", Check the box "Expand Widget Templates" at the top-right of the HTML code box.

Save a copy of your template by clicking "Download Full Template" at the link above under the heading "Backup / Restore Template". You can later reload this template file if you (unlikely) make some horrible mistake.

See the pop up box "File Download". Choose "Save"

See the pop up box "Save As". Navigate to a folder where you would like to save this XML file. Change the name to something short like "MyBlog". Click "Save".

You are back to the "Edit HTML" page. Click within the html text box to select it, and use Ctl-F (or Edit menu: Find on this page) to pop up the Find box. Enter the find text as "post.body" and click Next.

You should see the following part of the HTML template, but without the code in green.

<div class='post-header-line-1'/>

    <!-- Displays blogpage on the blog page,
         postpage on the post page -->
    <b:if cond='data:blog.pageType == "item"'> 
      <style>  div.postpage {display:inline;} 
               div.blogpage {display:none  ;} 
      <style>  div.postpage {display:none  ;} 
               div.blogpage {display:inline;}

    <div class='post-body entry-content'>
      <div style='clear: both;'/>
      <!-- clear for photos floats -->

This code defines two <div> classes to use in your blog posts.

  • <div class=blogpage> displays when your post shows on the main page of your blog.
  • <div class=postpage> displays when your post shows in its individual page.
Cut and paste the green text into the HTML template where it is shown above. Click the orange "Save Template" button at the lower-right corner of the html text box. You should see an orange box at the top middle of the Edit HTML page saying "Your changes have been saved. View Blog".

You can view your blog, and should not see any differences yet.

Using the Div Classes

Here is how to write the example page we started with. I assume your post has the URL   http://myblog.blogspot.com/2008/10/great-restaurant.html

I found a great store today and would like to tell you all about it.
<div class=blogpage>
It is a long post, but worth it.
<a href="/2008/10/great-restaurant.html">
Read More ....</a>

<div class=postpage>
The store is Great Foods for All, and it was a wonderful experience to see the color and variety on the shelves. [and the story goes on]

The html within the <div class=blogpage>. . .</div> tags displays only on the main blog page, so the comment about the long post and the link "Read More..." only shows on that page.

The html within the <div class=postpage>. . .</div> tags displays only on the individual post page, so the rest of the story only appears there.

Unlike other solutions, the link "Read More..." does not appear on every blog page, as it is not part of the template. You can include and use whatever text you want, individually by page.

Update 06 2011

This post used to use <span> as the tag for enclosing blogpage and postpage text. I have changed everything to use <div>.   <span> doesn't work correctly in the recent Firefox 4 browser. Actually, it now breaks because it works as intended in Firefox 4.

<span> is an inline tag, intended to enclose and apply styles to text within a paragraph. According to HTML specifications, it cannot enclose a block level tag like <h3> heading, <p> paragraph, or <div>. Internet Explorer and older Firefox versions did not enforce this rule. Now, Firefox terminates a <span> when any following block level tag appears.

<div> is itself block level and can enclose everything which follows, including other <div> and <span> tags. This makes <div> stable as newer browsers conform more closely to HTML standards.


How can I create expandable post summaries?
Blogger help page. Their code did not have the <style> tags and so did not work directly as shown. They have a more complicated approach that places everything into the template. They give information about the classic template.

How To Add The Blogger “Read More” Expandable Posts Link
Another explanation for inserting the full template code.

Dec 14, 2008

Bad Statistics From A Government

12/14/08 - StumblingAndMumbling   --> Source

The UK released statistics on knife crime. This post neatly asks questions that everyone should apply to all statistics. And more so, if it is a government trying to justify its actions and expenditures. Do the statistics really mean anything?

Read more ...

[edited] Sir Michael Scholar of the UK Statistics Authority accuses the Home Office of releasing “premature, irregular and selective” statistics on knife crime. This actually understates the case. Even if the Home Office’s numbers were accurate, they would still verge on the meaningless. There are at least seven questions which should be asked about many statistical claims.

Does the percent change mean a lot or a little?
What would have happened without special police action?
Were the selected areas special?
What is the usual volatility of the figures?
Do the figures vary by season?
What exactly do the figures measure?
What is the cost of this policy?

The Home Office makes no effort to answer these questions. This suggests they have no interest in statistical analysis, or they thought they could present such sloppy twaddle because journalists wouldn’t ask these questions.

This suggests a problem deeper than using premature numbers. It suggests that our political culture, our politicians and journalists, have no interest in proper statistical analysis at all.

This is odd. We are supposed to be living in a technocratic era without political ideology, where evidence-based policy is applied, and “what matters is what works.”

Political Contributions for Medicare Reimbursement

12/14/08 - Insureblog by Mike Feehan
Ill in Illinois?
Illinois Attorney General Lisa Madigan:
[edited] Illinois is behind in paying its bills, in particular to Medicaid providers. We have delineated the criminal acts. Blogojevich withheld Medicaid reimbursement to Children's Memorial Hospital unless he received a campaign contribution from its CEO.

This provides a glimpse behind the curtains. It shows how government control of the health care system is turned into political control of graft. It’s not a pretty picture: First, withhold government funds. Then, extract political favors as a condition for freeing up the flow of government funds. Patients suffer – but hey who cares?

Dec 12, 2008

Investing with Bernie Madoff

I Invested With Bernie Madoff Because I Knew He Was Cheating
12/12/08 - ClusterStock by Henry Blodget

The Wall Street Journal gives details about renowned broker Bernie Madoff, and his admission that he covered up losses of about $50 billion of his client's money, in Top Broker Accused of $50 Billion Fraud. The colorful information comes from ClusterStock.

[edited] Many Wall Streeters suspected a rigged game, but the wrong one. They thought it was insider trading. Here's the best part: That's why they invested with him.

So why did these smart and skeptical investors keep investing? They, like many Madoff investors, assumed Madoff was somehow illegally trading on information from his market-making business for their benefit. They didn't consider the possibility that he was clean on that score but running an old-fashioned Ponzi scheme.

People see that their associate (or leader) is hiding information and telling each group something different. They assume that the associate is crooked in some way, but not toward themselves. They don't worry about consistency or transparency, because they accept that the crooked part requires secrecy. They assume that the crook is smarter than everyone else because he hasn't been caught, and so they trust him even more, and admire him for his willingness to take risks. This crazy thinking is widespread in business and politics.

The Bernie Madoff I Knew
12/26/08 - PajamasMedia by Laura Goldman

[edited] Known as the Jewish T-bill, Bernie was very charming and low key at the meeting. The former chairman of the NASDAQ stock exchange did not want to answer questions about his investment business and strategy.

He only grudgingly admitted that he employed a split conversion strategy that used both put and call options. I did not know what to make of his opacity. I was discomfited by his saying how lucky I was that he allowed me to invest with him.

The structure of Madoff’s investment also concerned me. Similar investments would have been established as a hedge fund with a separate custodian of the assets. The general partner of a hedge fund takes a management fee and a percent of the profits. Mr. Madoff insisted on keeping the assets in house at his own brokerage firm, but only charged commissions, which meant a lower payout for him. Madoff, always the salesman, assuaged my doubts about the investment structure. “I make up for the lower fees with the additional volume of investments that my fee structure attracts.”

They Told Me That Madoff Never Lost Money
12/26/08 - NYTimes.com by Ben Stein

[edited] I have never gotten a tip from any source that made me money, except for a mention 30 years ago of Mr. Buffett’s company, Berkshire Hathaway.

The same goes for the debacle of subprime mortgages. In essence, it is a much larger version of the Drexel Burnham Lambert junk-bond debacle of the 1980s. Back then, investors were charmed by the idea that the lower-ranked the bond, the more money it would make. It seemed like a great idea: there’s this little corner of the market that the big boys turn up their noses at. But in this little corner, huge money is made. It’s almost like the myth that you get great bargains in poor parts of town.

The Empty Case for More Regulation
01/08/09 - Reason.com by Steve Chapman

[edited] James Hedges IV of LJH Global Investments: Madoff was conspicuously unable to attract many big institutions. There's no Harvard management, Yale, Penn, State of Texas, or Virginia retirement system. By page two of your 30-page due diligence investigation, you have already tripped eight alarms and said "I'm out of here".

The Wall Street Journal: The Securities and Exchange Commission had been suspicious. A competing investment executive sent them a 21-page report in 2005 arguing that Madoff was running a Ponzi scheme. The government had investigated Madoff at least eight times in 16 years, but never came close to uncovering the operation, which may have begun in the 1970s.

Why would future bureaucrats, however vast their authority, do better? The choice is not between imperfect market mechanisms and foolproof government regulations. Governments are staffed by individuals who are fooled as easily as anyone else.

I think government and its regulatory agencies have an overall negative effect. Government agencies are more easily manipulated politically because their executive's careers are subject to political interference. Maybe it is coincidence that Madoff was a big contributor to Democratic politicians.

Government crowds out most of the market for private review, giving a false sense of security to average investors. James Hedges above looks to the actions of private institutional investors for clues about the suitability of investments, not to the approval stamps of government.

It was probably government influence on credit rating agencies that led to AAA ratings on risky mortgage bonds, and our current world financial crisis. ( Write the Rating Agencies Out of Our Law )

Madoff’s World: He also cheated his friends
03/00/09 - VanityFair by Mark Seal

The author gets behind Madoff’s affable façade to reveal his most intimate betrayals. Amid the sobs, screams, and curses in Aspen, Palm Beach, and New York, victims shared their stories.

Among Bernard Madoff’s many dupes were his closest friends, including two tycoons he loved as surrogate fathers, the late Norman F. Levy and the prominent philanthropist Carl J. Shapiro. Levy's girlfriend, supermodel Carmen Dell’Orefice lost her life savings.

More Text Entry Than Medical Care

12/12/08 - WhiteCoatRants by WhiteCoat
Safety at It's Finest

[edited] The time spent on direct patient care in the recovery room was roughly 10 minutes. The time spent doing computer data entry was about 40 minutes.

I have no beef with the nurses. They were competent and caring. I have no beef about recording data about the surgery and the recovery process. That is a necessary part of medical care. But, there is a problem when health care providers are forced to record so much superfluous information for a simple surgery, that four times as much time is spent documenting than is spent with direct patient care.

This is one of the ways in which agencies such as JCAHO and the NQF (creators of the never event) have created an environment in which less provider/patient contact takes place. They are micromanaging healthcare providers into providing “safer care” by forcing them to document all the safety steps they have taken.

Dec 9, 2008

Support the Big Three and Lose Something Else

Subsidizing the Auto Industry Means Sacrificing Others
12/9/2008 - Business and Media Institute by Donald J. Boudreaux

[edited] It is impossible to know if the future benefits of electric cars are worth what could be lost by subsidizing them.

Perhaps resources artificially forced into advanced-battery development would otherwise have helped cure cancer, or encouraged development of more fuel-efficient jet engines, or deployed to keep millions of retired Americans more financially secure. Neither Neil nor Uncle Sam can know the value of what would never be created as a result of subsidizing unprofitable production in Detroit.

Dec 7, 2008

Canada's Healthcare Has Hidden Costs

The Hidden Costs of Canada's Health Care System
12/07/08 - (06/23/07) FraserInstitute by Brett J. Skinner

[edited] In 1993, Canadians waited 9.3 weeks on average for treatment by a specialist. By 2006, it was 17.8 weeks, almost twice what is clinically reasonable. Canada's Supreme Court wrote "Access to a waiting list is not the same thing as access to health care" in 2005, striking down the single-payer system in one Canadian province.

Read more ...

Canada's long waits are partially caused by a shortage of doctors. In 2004, Canada had 2.1 practicing physicians per 1,000 residents; the U.S. had 2.4. In the New York population of 8 million, imagine health care with 2,400 fewer physicians.

For 10 years, 10% of doctors trained in Canada decided to practice in the U.S., due to low salaries set by government. Single-payer systems exploit medical labor; Canadian physicians earn 42% of their U.S. counterparts, on average. The average U.S. hospital is 9 years old, compared to 40 years in Canada's largest province of Ontario.

Canada ranks 13th in access to MRIs and 17th in access to CT scanners among the 24 Western nations that guarantee access to health care. This contributes to longer waiting times for diagnostic tests.

Canada's system rations medical procedures and drugs. In 2003, the U.S. performed twice as many in-patient surgeries as Canada, per capita. Only about one-third of the population is eligible for government drug programs in Canada; the rest pay cash or have private insurance.

Canada's cost advantage is an illusion. True, Canada spends less per GDP on medical care than America, but Canadians get relatively little for the money they spend. Canada's single-payer system does not cover many of the advanced medical treatments and technologies that are commonplace in America, and Canadians have access to fewer doctors, fewer treatments and fewer new drugs.

Yet, public health care spending is growing faster than the ability of Canada to pay. As of 2006, public health spending in six of 10 provinces was on pace to consume more than half of revenue from all sources by the year 2020, before considering the added needs of an aging population. As of 2003, the growing unfunded liabilities for health care reached 46% of Canada's GDP.

Dec 6, 2008

Politicians Are Not Business Experts

Letter to the Editor of the Baltimore Sun
12/06/08 - by Don Boudreaux, Chairman of the Department of Economics at George Mason University.

[edited] If you wouldn't entrust your 401(k) to a senator, why support political investments in the auto industry?

You opine that Detroit automakers "need to explain in detail to Congress how they intend to succeed.

No. These companies deserve investment funds only if they are able to make cars that will sell AND can demonstrate this to private investors. Congress is manned by people who specialize in winning popularity contests called "elections." They are not expert in judging business models, or at pondering the pros and cons of different retail-distribution methods, or equipped to accurately analyze consumer demand for automobiles, or even aware (from their track record) of the most elementary principles of finance and economics.

Dec 5, 2008

Company Paid Health Insurance is Part of Your Salary

You pay for your insurance now. You deserve to control it.

Here is the central point and main confusion of the healthcare debate. People think that their employer-paid insurance is a gift of employment. They correctly compute that they can't pay for that insurance out of their take-home pay. So, they want either more rules on employer-paid insurance, or insurance provided by the government.

People don't understand that they are already personally paying for their "employer-paid" insurance. Employers buy health insurance with part of the salary earned by the employee. Employees don't buy this insurance directly so it doesn't attach to them when they change jobs, and they can't shop around to select the insurance they really want.

We have to untangle the tax mess in healthcare. It is a tangle originally imposed by government, and now maintained by government policy. Healthcare is now tax-free when purchased indirectly through an employer, but mostly taxable in all other ways, including individually purchased insurance and direct payment for medical services.

Untangle the tax mess, remove employers from the middle, and salaries would go up in the amount of the "free" healthcare benefit through employers. Then people would have enough take-home pay to buy their own health insurance. That is what healthcare reform should be all about.

The main point for true reform is to remind ourselves that we already pay for our health insurance, but we currently have little choice about what we are buying, and true reform could put that money into our hands.

Insurance Is Not a Free Benefit

Health insurance bought through his/her employer is the cheapest insurance an employee can buy now, because he is buying it mostly tax free.

Isn't the insurance a free benefit? Why do I say that the employee is paying for all of his insurance benefits? Because, the company correctly sees the cost of providing health insurance as part of what is paid to the employee.

Companies compete to pay employees for their productivity. If the cost of health insurance disappeared for the company, salaries paid would rise by the same amount that companies currently pay to provide insurance. Then, you could personally buy insurance of the same quality, that would stay with you, and not depend on your employer. Your remaining salary would be the same as it is now.

Better, you would be free to buy more or less insurance, or a different type (catastrophic coverage vs. first dollar owed), depending on your preferences. You would have a personal insurance broker to advise you, rather than the clerk in the HR department.

Objection: Companies Won't Pay More

You might object that you won't be paid any additional salary if you refuse company provided health insurance, so you are stuck. That is currently true. Insurers contractually require companies to offer group insurance to every employee, and to not offer incentives for refusing insurance (so no extra salary for refusing).

The insurers do this so they get premiums (monthly payments) for almost everyone employed, sick or well. They reason that healthier employees would opt out if they could get more salary, leaving only the participation and expenses of the less healthy.

Changes to the tax law would create a market for insurance that would remove the special role for employers. Some people who are insured through company groups would have to pay higher premiums in the more open market, and some would pay lower premiums. All would have the benefit of not losing their health insurance because they changed jobs, were fired, or became too sick to work. The same is true for long-term disability insurance.

How the Taxes Work

When companies pay $13,000 per year for an employee's family health insurance, it is a usual expense to the company, and it is not taxed as income to the employee. It is deducted "before tax".

When an individual buys health insurance personally, he is not given a tax deduction, and the insurance cost is paid out of net income after tax. That is a large difference. That $13,000 policy paid by the company out of pre-tax income, would cost the individual $17,333. That is $4,333 (1/3rd) more in pre-tax income if the individual is in the 25% tax bracket.

Put another way, you would need $17,333 of salary (pre-tax), and pay 25% in tax on that part ($4,333), to have $13,000 remaining to pay for the insurance.

By the way, the McCain health insurance proposal was badly explained, and misunderstood. He proposed giving a $5,000 tax credit to cover the tax incurred on health insurance purchased by individuals. This would have removed the taxes from a typical $13,000 family policy.

Rising Insurance Costs

As insurance costs go up, and under current rules, it would be best for the employee if the company paid all of the insurance cost, and decreased the employee's salary by the same amount. Then, the employee would pay everything pre-tax. (I am ignoring any raises, which would be added to his salary). This would be the most tax-efficient way for the employee to get that insurance. The tax savings is why a company pays all or some of the insurance costs today.

This is an accounting game. For example, say the company is paying an employee $46,000 salary + $13,000 health insurance, for a total payment of $59,000. It is all just dollars to the company; it doesn't matter that some part is a health "benefit" and the other part is "salary". But, the government taxes only the $46,000, seeing the $13,000 as a tax-free benefit. Only companies can buy health insurance for you tax free. This is a holdover from World War II wage and price rules.

If the insurance cost goes up by $2,000 to be $15,000, the best tax result would be to adjust the split on the $59,000 salary, paying $44,000 salary + $15,000 health insurance. That is $2,000 less cash and $2,000 more health insurance. The employee pays the least tax this way.

But, most companies are not doing this. Instead, they assign some or all of the $2,000 as part of the "employee paid" portion of the health insurance cost. I will guess why.

Employee Preferences

Employees are rejecting the high cost of health insurance without understanding what is really going on. They wrongly see the "employer paid" part of the insurance as a gift, instead of rightly seeing it as part of their earnings, part of what they could control. They see insurance benefits as a gift that "good" employers provide. They want the insurance, but they don't want less take-home pay.

The companies are squeezed by insurance costs that are rising faster than total salary, and they can no longer maintain the myth that all of the insurance is a gift/benefit. So, they say "we are not lowering your salary, but you will have to pay part of your insurance". They can also offer the higher salary in advertisements, ignoring the mandated cost.

This is not tax efficient, but it may be good overall. People have respect and concern for what they earn and spend. This could move them to a better understanding that they are earning and paying for everything they receive, including insurance "benefits".

Tax Fairness and the Insurance Market

A company deducts ordinary and usual expenses that are needed to operate. It doesn't pay tax on what it spends to stay in business.

Individuals are the "little companies" of the economy. We should be able to deduct (pay tax free) all of the insurance costs and medical expenses that are ordinary and reasonable to keep us in business. Then, we could choose the amount and quality of our insurance and health care independently of corporate bosses and plan administrators who have their own incentives different from ours.

Health Insurance Or Cash
08/26/12 - Adam Smith Institute by Tim Worstall
Based on research by Kolstad and Kowalski.National Bureau Of Economic Research, March 2012
"Mandate-Based Health Reform and the Labor Market", page 3.

[edited]  Essentially, if you get $6,000 worth of health insurance from your employer, then you don't get $6,000 of wages.

Health insurance is usually an employer provided benefit in the US.  Health care costs have been rising in recent decades, from 9% of GDP to about 17%. Cash wages have been about constant, but total compensation has been rising. The increase has been paying for those rising health insurance costs.

Mandated Employer-Paid Health Insurance
12/05/08 - WhiteCoatRants. This post inspired my post above.

Among many "changes" advocated by President-Elect Obama is a plan for mandated employer-based health insurance. I can't find a clear description on exactly how the plan is going to work (the plan is outlined on Obama's site, and there is an NEJOM summary), but there are many opinions out there on what the effects of the plan will be. See posts at Hot Air Blog, The Health Care Insurance Reform Blog, The Cato Institute, and John Goodman's Health Policy Blog.

I'm all for changing the current system, and I'm committed to giving Obama a chance to turn things around, but is mandating that employers pay for insurance going to improve healthcare in this country? I admit that I haven't taken an in-depth review into the pros and cons, but in principle, I think it's a bad idea. Reminds me too much of the "Hats" post I put up last year.

If you're an employer whose bottom line is hit by a tough economy and you're now forced to spend additional money to either "pay" a percentage of your payroll into a national plan or to "play" by purchasing "health insurance" for your workers, what are you going to do? You're going to find the cheapest way out.

Congress Fails Econ 101
07/24/09 - Insureblog by Henry Stern

Left : The "Public Option" will offer low cost insurance as a last resort.
Right: Employers will drop their health plans. Everyone will be on the Public Option.

Left : Employers will pay an 8% fine on payroll if they do that.
Right: No, the employee will pay that fine as an 8% lower wage.

[edited] Employers won't pay that 8% fine any more than they pay for employee's group coverage in the first place. It is a cost of doing business that comes out of the employee's gross wages. Payments on behalf of employees are simply deducted from the employees' wages when calculating the total cost of employment.

Likewise, these "fines" will be passed along to employees in the form of lower wages and to consumers in the form of higher costs.

Governments impose taxes on employment. Say a company is willing to pay $20/hour overall to employ Fred. It pays $6.50 ($13,000 per year) to buy health insurance for Fred, and gives Fred $13.50 in cash. The government then takes other taxes, leaving Fred with $12.

Say the employer drops its health plan. It is still willing to pay Fred $20 overall. It pays a fine of $1 ($2,000 per year), and pays Fred the remaining $19. If Fred wants insurance, he must pay part of that to a government approved insurance company, or pay a fine for not buying insurance. Fred's ovearall pay is constant for his market value, and the costs of his employment are deducted from his overall pay to give him his cash take-home pay.

Unintended Consequences
01/09/06 - InsureBlog by Henry Stern

A longer discussion of how employment taxes and the costs of employment relate to cash wages.

ObamaCare Will Increase Premiums, Change Coverage, and Reduce Wages
06/14/10 - Cato @ Liberty by Michael F. Cannon

Quip Fred:  I took this job because of the great healthcare plan, even though it paid less.
Mike:  So, be happy. Now you will get Obamacare, and you will be paid even less.
- -
06/14/10 - Cato@Liberty by Michael F. Cannon
  [edited]  ObamaCare increases health insurance premiums and requires the employer to pay that increase. But, the employer pays this cost out of the production of the employee. So, the employer must offer a lower wage or fire the employee. The employee will likely blame the employer, not ObamaCare.

[edited]  ObamaCare will raise health insurance premiums even higher than they would have risen. If employers or consumers try to reduce their coverage and costs, they will lose their “grandfather” protections, and be forced to purchase even more coverage under ObamaCare mandates.

Employers are required to sustain "their" contribution to the cost of health benefits. This hides ObamaCare’s effect on health insurance premiums.

Health economists almost all agree that the “employer contribution” is a fiction. Employers merely deduct what they pay for health benefits from the overall compensation offered to employees. In other words, the employee pays for his own health benefits. [The employer only writes the check for him.]

ObamaCare’s increasing costs will appear as lower wages offered. Workers would likely blame ObamaCare for rising insurance premiums, but are less likely to blame ObamaCare for stagnant take-home pay.

Government Does Not Create Jobs

The Fallacy That Government Creates Jobs
12/05/2008 - PajamasMedia by economist Daniel J. Mitchell, Senior Fellow at the Cato Institute.

A clear article in two pages describing why stimulus packages only seem to create jobs, until you consider the jobs that are destroyed by collecting the tax money or borrowing the resources that private businesses could have used. The comments are good too.

[edited excerpts] The proposed "stimulus package" to dramatically boost employment has been tried before — and failed.

Keynesian economics is the theory that the economy can be boosted if the government borrows money and gives it to people to spend. This supposedly “primes the pump” as the money circulates. This would be nice, but it overlooks that the government must first take money out of the economy through borrowing or taxes before it can give it away. There is no increase in the demand for production and jobs. The pie is not bigger, just sliced differently.

Harvard Professor of Economics Greg Mankiw calculates that each new job will cost $280,000, if it appears at all. That $280,000 would be spent more productively in the private sector. The main reason for this cost is probably the pay given to bureaucrats. Bureau of Economic Analysis data shows the average federal employee is paid nearly twice as much as a private worker.

I explain that economic "pump priming" is only an excuse to distribute taxpayer money to political supporters, in The Myth of the Economic Multiplier.

Dec 3, 2008

Government Sets Up the Next Bust

12/03/08 - TownHall by John Stossel   --> Source
Stossel quotes Jim Rogers, successful investor and author.

[edited] Why are we bailing out Citibank? Why are 300 million Americans paying for Citibank's mistakes?

Consider how the the system is supposed to work: People fail, competent people take over assets from the failed people, and then they start again with a new stronger base.

This time we are taking the assets from the competent people, giving them to the incompetent people, and saying, "OK, now you can compete with the competent people." So the nation and the economy are weakened. That's not the way it's supposed to work.

All these homeowners who did nothing wrong are now being forced to pay for the people who did crazy things.

Dec 2, 2008

Freedom or Required Community Service

12/02/08 - HumanEvents by Thomas Sowell   --> Source

[edited] Ultimately, other people are free when they can do things that you don't approve of, and you are free only when you can do things that others don't approve of.

The vision of the Left has many requirements. One of the most innocent-sounding is that students do "community service". You cannot graduate from some high schools across the country, and you will not be accepted at some colleges, unless you have done activities arbitrarily defined as "community service."

Schools arrogantly commandeer young people, not leaving them and their parents free to decide how to best use their time. They see your own notions as arrogant, as to what is or is not a service to the community.

Read more ...

Working in a homeless shelter is widely regarded as "community service", as if aiding and abetting vagrancy is necessarily a service to the community, rather than a disservice.

A community is not better off with more people not working, hanging out on the streets, aggressively panhandling people on the sidewalks, urinating in the street, or leaving narcotics needles in the parks where children play.

Handing out benefits to people, who have not worked for them, breaks the connection between productivity and reward for them. But, that connection is unbreakable for society. You can make anything an "entitlement" for some people, but nothing is an entitlement for society as a whole. Food and shelter do not exist unless they have been produced by somebody.

"Entitlements" for some people require forcing other people to work for their benefit. As a bumper sticker put it: "Work harder. Millions of people on welfare are depending on you."

Supposedly, students are to get a sense of compassion from serving others. In practice, students receive a propaganda experience to make them receptive to the Left's vision of the world.

I am sure those who favor "community service" requirements would understand the objections to this if high school military exercises were required.

The essence of bigotry is refusing to others the rights that you demand for yourself. Bigotry is incompatible with freedom, even though many on the Left would be shocked to be considered opposed to freedom.

State Pensions are Way Underfunded

12/02/08 - EconLog by Arnold Kling   --> Source

[edited] The paper below from September points out that underfunding in state pensions far exceeds that of corporate pension plans, which also are troubling. Since then, I guess that many of the pension funds have lost 25 percent or more of their value.

If you are an opponent of markets and a fan of government, then please explain why you are not frightened by the power of government to create enormous unfunded liabilities.

Read more ... Kling quotes the paper by Robert Novy-Marx and Joshua D. Rauh:

[edited] Government accounting rules obscure the underfunding of public pension plans; they allow pension liabilities to be discounted at expected rates of return on pension assets. [Smaller amounts are set aside, expecting investment returns to make up the difference.] Our analysis demonstrates that current public pension policy places a large burden on future generations.

The plans appear almost fully funded under government-chosen discount rates [estimates of generous increases in investment value], but there is a large probability of significant shortfalls in the future. The shortfalls are likely if the economy performs poorly, and so are particularly costly to future generations. The cost to taxpayers of fully providing for plan participants would approach $2 trillion ($2,000 billion).

So, the states are saying, we aren't setting aside much now, but future taxpayers will pay for all of our retiring workers. If you are a state worker, here is your deal. Work for the state today, and we will give you money after we current officials are out of office or retired ourselves. Do you think that you will collect?

For comparison, the total 2007 production of the U.S. was about $14 trillion. If you make $50,000 per year before tax, you will owe 2/14ths = $7,140 in extra tax to cover those pensions. Sorry, no deductions on that one.