Health Care Article

Economist, Greg Mankiw, posted a link to this opinion piece on health care written by a Democrat who recently lost his father to an infection caught in the hospital. The article is exteremly interesting and filled with fascinating facts and observations. I'd like to summarize some of those facts as the article is a tad long (6 pages).

• In 1954, a minority of Americans had health insurance.
• An insured family will pay on average $654 per year of their own money on health insurance and an uninsured family will pay $583 of their own money.
• An insured family will pay on average $3,809 per year of someone else's money on health insurance and an uninsured family will pay $1103 of their someone else's money money.
• If you confiscated all the profits from health-insurance companies and the 10 biggest drug companies, it would pay for about 11 days worth of care for all Americans.
• If employers paid people directly instead buying insurance on behalf of their employees, then the average person would recieve $1.7 million dollars more in wages over the course of their life.
• From 2000 to 2005, health care costs have increased by 33% in Canada, 37% in France, and 47% in the U.K.. Very comparable to the 40% increase in the U.S.

His solution was to deregulate the most of the system, mandate that all Americans have catastrophic health insurance, get rid of the employer-based insurance system, create Health Insurance Savings accounts, and let most health care be paid for directly by the consumer rather than through insurance.

Semantics

As I prepare for the class that I'm teaching in the Fall, I came across a term that has always irked me. It's only semantics perhaps, but here goes. As the book defines it:

Market failure- occurs when markets, operating on their own, do not lead to a socially optimal allocation of resources.

When you hear that there is a "market failure" it seems to imply that markets are the wrong way to organize production of the good in question. In reality, a market failure is simply that the market is producing too much or too little of the good.

It doesn't follow from the fact that markets produce to much or too little that alternative means of production will be better. For instance, without regulation there is pollution (one kind of market failure). Our alternative is regulation to correct for the market failure. However, the regulation could be bad in a number of ways: causes output to fall too much, causes prices to rise too much, limits competition, has other unintended and undesirable outcomes.

If we're going to have a term for when markets are not maximizing social well-being, why don't we also get a term for when government does not maximize social well-being. I suggest this:

Government failure- occurs when the costs of gathering information, regulating behavior and monitoring for infractions of the law outweighs the potential benefits of a particular public policy; in other words, when the cure is worse than the disease.

I believe the children (and zombies) are our future...

Most of the people who know me know that I love zombies. So, when I found a game by the good people at PopCap called Plants Vs. Zombies, my friends would know I am already on board.

The game pits you and your garden against a shambolic hoard of the undead. The zombies slowly walk across your yard and the various flowers, mushrooms, etc. that you can plant all have their own ways of stopping the zombies.

But here is the really amazing thing about this game: not only is it fun but I think it could make kids who play it smarter.

There is a phenomenon known as the Flynn Effect. Dr. James Flynn found that IQ scores were steadily rising at about 3 points per decade*. I think games like this one have something to do with that.

Think about Tetris which a lot of people my age played as a kid. It forces you to think fast and organize a bunch of blocks as they fall past your screen. You consider the future likelihood of getting a certain kind of block. You plan to do that thing where you wait for that one piece that is four long to drop so you can eliminate four lines at once. Essentially, the games is mostly visual/spacial.

But in Plants Vs. Zombies, there is much more going on. Each plant has a different attack each zombie has a different weakness. The game is set up like a chess board and so a kid would have to plan where to put the plants to counter the walking dead (essentially visual/spacial). Also, each plant has a cost. Kids would have to budget whether expensive powerful plants are worth giving up a bunch of smaller, cheaper plants. So the game teaches that there is an economic trade-off!

There are dozens of plants that you earn as a reward for completing. Clever kids will think about the costs and benefits (which are mathematically pretty simple applications of multiplication and division) not only in the moment but also they have to do an intertemporal maximization problem in order to defeat the waves of zombies! And they do this all without thinking it is a chore.

This game would be incredible for 6 to 8 year olds. The game could easily be modified to have the math element be a litte more rigorous to have an even bigger educational effect.

Also think about this: Nintendo games were around $50 in the early 90s. That is around $70 in today's terms. Plants Vs. Zombies is only $10! Perfect for getting your kids. You can get seven different games like this for your kids for the same cost 15 years ago. More and more kids will have access to games that maybe seem silly but are sutbly teaching them important concepts.

Awesome.


*Which means that a person with a 100 IQ score today would score in the top 2.2% of the population 100 years ago.

On the Radio

Here are three slogans from the radio that alternately amused and terrified me:

Grimball Jewelers:
"Because we're hardwired to love shiny objects."

Credit Card Consolidation:
"Call now to learn how to get rid of your credit card debt in this era of government bailout."

General Motors:
"Reinventing the ownership experience."

The Rise of the Super Cow

Harvard economist, Greg Mankiw, posted on his blog experts from an article on cows and their relation to global warming. It says:

"a cow will emit four tonnes of methane a year in burps and flatulence, compared with 2.7 tonnes of carbon dioxide for an average car."

Methane also traps more heat than CO2 does. According to Wikipedia, methane is 72 times worse than CO2. Ergo, a cow is nearly 100 times worse that a car.*

The solution that the E.U. has arrived at, is to tax cows. That way the producers and consumers of beef will have to pay for damage done to the environment. The tax that the E.U. arrived at was 80 euros per cow. At today's exchange rate, that is about $100. According to Beef Magazine, where I go for all my cow-related information, the price of a cow is around $1500 or about a 7% tax.

According to the E.U. beef farmers, who lose out with the tax, production will just move to South America. They are likely right, some production would shift to a place without a tax. I think, however, it would be simple enough to make sure all imported cows and beef products have the tax levied on them as well.

But relocating production is not the only way to avoid this tax. Since the tax is per cow, the simple solution is to breed even bigger cows and to pump them full of growth hormones. That's why I predict that Europe will be dominated by supercows within 10 years. Mark my words.

*According to Wikipedia, there are 96 million cows in the US and 229 million cars. Which suggests (if cows are 100 times worse than cars for global warming) that the focus of anti-global warming people shouldn't be the electric car, but rather the polite cow.

In this economic climate

I love the phrase, "in this wintery economic climate." To me, nothing is funnier than saying this to justify something. You here it a lot these days. I heard it on the radio saying that the current economic situation made this the perfect time to buy a new car. Paul Krugman used it to argue for $600 billion in government spending. The most recent time I heard it was in this video from CNN.com.

The video is a commentary from Campbell Brown. According to the video, the CEO of Merrill Lynch, requested a $10 million bonus this year. Why so much money? Because he kept Merrill Lynch's losses down to $11.67 billion. In a frigid economy where other companies like Bear Stearns and Lehman Brothers are going bankrupt, that is actually quite an accomplishment.

Brown's opinion is that this CEO shouldn't get the bonus, but (and I'm sure you already guessed it) my opinion is that he should get the bonus. Many people hate the idea of the huge CEO compensation packages and ask, "if the company does badly, why should they get paid millions?" But let's extend this logic...

Let's say we pay a surgeon only if she saves the patient's life. The result will be that surgeons only operate on patients that are a safe bet. The severely sick and injured patients (the ones who need the best care) will suddenly be unable to find doctors willing to help them*.

What about our education system? Most people claim the way to fix it is to pay teachers more, but let's say we only pay teachers if they're students pass. Same thing is likely to happen. The worst students will suddenly be unable to find teachers.

We're in a deep financial mess and are people reacting by saying, "the solution is to pay CEO's less," but the truth is that CEO pay is high and the contracts pay even in the event of failure because that is the only way to attract well-qualified candidates to companies that need good leadership.

The other big objection to high CEO pay is that if the company is laying off employees, then the people at the top shouldn't be earning bonuses, but if you examine this "fairness" argument, you see that it doesn't help people either.

If a manufacturing plant is no longer earning money, then it will be shut down regardless of what the CEO makes. Unprofitable operations are stopped if the CEO earns two dollars or two million dollars. People act as if there is a fixed amount of money to go round and if it goes to CEO's then it must necessarily come from the workers**. Capping CEO pay doesn't suddenly make it worthwhile to keep employing workers. In fact, a good CEO will know which branches are worthwhile and which aren't so you need to pay CEO's a good salary in order to incentivize them to find the parts that aren't working.

My feeling is that the prejudice against CEO pay is based on jealousy. Everyone likes to think that a CEO job is a nice cushy job that any idiot can do and so they shouldn't earn more than anyone else. In reality, these CEO's are working in a market where things are very uncertain and even if they pick the optimum strategy, they could still fail based on the outcome unknowable variables.

To assuage concerns you may have about the overpayment of CEO's think about the Board of Directors. They don't want to give the CEO money that could be theirs. They'll work hard to make sure the contracts don't pay out more than the CEO is worth. If the Board makes a mistake, then they'll get burned.

As I close I'd like to point out one ironic thing in this video. The tagline for this segment is "No Bias, No Bull." However, halfway through, Brown says that she has a neighbor that was laid off by Merrill Lynch. Perhaps she and this neighbor aren't friends, but if they are that then that probably qualifies as bias.

*I've seen several studies showing that the best hospitals actually have the worst survival rates because the patients that are worst off flock there.

**This is how Marx sees it.

Don't Build Factories

While browsing the internets, I came across a series of pictures. These come from the Facebook picture album of a friend of a friend. They come from a project called "Fingerpainting for Sustainability." I googled it, but nothing came up. Given that I found these pictures on Facebook, I am led to assume that a college educated person made these posters. Let's start with this one:
I'm not entirely sure how shorter showers are more sustainable. As far as I know, the water in my shower goes back into a pipe and goes back to a processing facility. So, I haven't really destroyed or used up any water. I think the assumption must be, more water in my shower less water in the lake. I guess that's true. In any case, I'd recommend another poster though: Don't Subsidize Biofuels to Save Water.
So this sounds reasonable; buying in bulk reduces packaging which reduces the need for landfills. I'm going to turn to a well-informed professor of mine, Dr Dan Benjamin, on this one. He's written a piece for PERC, on the Myths of Recyling. He notes that extensive packaging actually reduces waste by reducing breakage. This isn't exactly what this poster is getting at, but buying in bulk may increase waste. If I get food in bulk I frequently can't eat it all before it goes bad, so I would have to toss the waste food. My caption would be: Buy in bulk if it makes sense to.
This one has to be my favorite. Clearly the answer to our problems to is to stop building factories. Let's forget for the moment that the paint and the paper in this poster were both made at a factory. Factories aren't the problem. Almost everything we consume comes from a factory. Factories are good and we should build more of them. Pollution on the other hand is bad, and that's what we want less of. Instead of building fewer factories, we should be building cleaner factories. There are a number of ways to get factories to be cleaner, but the most efficient (by which I mean best for the environment and people's consumption) is to price the pollution. If firms (and ultimately consumers) have to pay more for goods that damage the environment we would either consume less or switch to greener technology. My alternative caption: Make them pay to pollute.