life hereafter

random musings from a wannabe economist

Dear President Omaba;

I know you and the Congress are currently struggling with small ways we can reduce the national debt that won’t greatly impact everyone. As I was reviewing my mail this evening I saw a letter from the US Department of Commerce with the words 2010 Census on the envelope. Thinking that this was in-fact the census I opened the envelope to find it contained a letter stating that I would be receiving a letter containing the actual census in one week.

What is this? The Works Progress Administration (WPA) at work here? Did we need to bail out the Postal Service by mailing millions of letters saying “LOOK OUT, a letter is coming!” How many millions did that cost the tax payer?

I realize these are already sunk costs, however I’d like to make an early recommendation for the 2020 Census. Let’s stick to just sending out one letter with the form inside.

Sincerely,
Everyone

P.S. We are also in the 21st century. Perhaps next time we can try conducting the actual census virtually for those of us with Social Security Numbers and drivers licenses?

This is a tremendous example of well-meaning government creating inefficients and waste. Take a look at the article from across the pond:

Twelve million low-energy light bulbs were posted to households over Christmas by an energy company as part of its legal obligation to cut carbon emissions, despite government advice that many would never be used.

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A survey in July by the Energy Saving Trust found that the average home had six unused ones lying in drawers and cupboards.

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In 2008 the Government ordered the big energy companies to invest in measures for improving energy efficiency and cutting fuel poverty.

Companies can choose how to meet their obligations.

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Companies were allowed to register immediate carbon savings from every bulb issued on the assumption that all recipients instantly installed them in some of their most intensively used light sockets. In reality, many people either stored the bulbs or threw them away, often because they were the wrong fitting or wattage.

The companies can also meet their obligations by paying for homes to be insulated. This guarantees energy savings but is much more expensive.

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Companies can pass on all the costs of the scheme to their customers. Over three years it is expected to add more than £100 to the average household’s energy bills.

This is a wonderful example of a well intentioned goal, reducing carbon emissions, turning into an inefficient, inexcusable and costly piece of waste. Companies, much like indivduals, respond to positive and negative incentives. When governments create a market distortion (e.g., provide an incentive) two things will happen 1) the distortion will lead to disequilibrium and very likely unintended consequences; and 2) the companies will follow the path of least resistance, which also happens to be the path of least cost. In this situation, resulting in 12m light bulbs sent to everyone in the country creating countless waste, not to mention the environmental impact of the shipping and packaging materials used. Oh, and the fact that the customers will eventually have to pay for these bulbs, you see nothing is really free.

These politicians were moronic to think that the companies would, out of the goodness of their hearts, pay for an expensive home insulation program and eat the full cost.

Original Article: http://www.timesonline.co.uk/tol/news/environment/article6973577.ece

Fantastic article, as always, by Bruce:

A terrorist attack cannot possibly destroy a country’s way of life; it’s only our reaction to that attack that can do that kind of damage. The more we undermine our own laws, the more we convert our buildings into fortresses, the more we reduce the freedoms and liberties at the foundation of our societies, the more we’re doing the terrorists’ job for them.

Is aviation security mostly for show? CNN.com

Dear Al-Queda,

Congratulations! Look’s like once again you have struck a victory even in the face of what looks like defeat. Don’t get me wrong, your plans were not foiled in any way. The security measures in place absolutely failed to notice anything suspicious. The only thing that went wrong was your man screwed up. So, good job on accomplishing that first victory. Now, your second victory wasn’t even something you had to do in order to irreparably harm the lives of millions. The Dutch government has decided that it will shove millimeter wave scanning on all individuals traveling to the United States. Won’t be long before we have the same scanners installed on domestic flights.

You can thank the reactionary fear-mongering governments of the world for doing what you never could, which is erode the freedoms and personal liberties of the democratic and civilized world.

So once again, congratulations on your two victories. I’m sure your leadership is so proud.

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Now America, ask yourself: Could we have caught this person using full body scanners? Most likely. Could we have also caught him by profiling individuals from Muslim nations with shady backgrounds and banking transactions? Statistics point to yes. Could the attack have been prevented by following a non-interventionist foreign policy? almost assuredly.

This is surely going to be unpopular. I am in no-way justifying the attempted attack, but think about how our actions around the world drive individuals and organizations to extreme (and seemingly unprovoked) re-actions. There are two options to address this concern; the first is that you hunt down every suspected organization and individual who might pose even the slightest threat to the United States. This option is surely expensive, looks bad to the rest of the world, is very bloody, is only going to further the nanny-state and will ultimately be impossible. The other option is to stop doing the things around the world which drive people mad enough to blow themselves up and kill innocent people. (Like say, overthrowing governments only to have a more oppressive one take it’s place.)  Whichever option is ultimately chosen by the powers that be, just be prepared for the costs, monetary and otherwise.

Continue to give up liberty for a little security, just don’t come crying when you have neither.

Time for me to take a moment to talk about my favorite topic, the  way we measure our unemployment rate and misinformed reactions. Take this headline from earlier today:

Rally loses steam on Wall Street after early surge fueled by jobs report.

This “rally” was a 148 point rise in the DOW moments after the market opened. And for what? The apparent decline in the unemployment rate from 10.2% to 10% and the smallest amount of job losses (~11k) since the recession began in December 2007.

Take a moment to deconstruct the above statement. The media jumps all over these numbers and makes the following fallacies in their interpretations:

1. The unemployment rate went down. Good.
2. The amount of job losses this month was better than last month. Good.

At first glance this all sounds good. However, here is what the thought process should be:

1. The unemployment rate went down. Why? Was it because more Americans found work? Or, was it because some Americans have been unemployed for more than six months and are no longer considered in the standard measure for unemployment calculations?
2. The amount of job losses this month was better than last month. However, there were still job losses. Taking this little tid-bit and thinking about the unemployment rate, we can see that it is more likely that Americans are either underemployed or are no longer considered “in the labor pool.”

Is it too much to ask for this type of reporting?

Heading over to the Bureau of Labor Statistics website we can see that the raw data for the U-4¹ unemployment measure shows no decrease in unemployment.

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¹ The U-4 measure is the total number of “unemployed” persons plus “discouraged” workers. Discouraged workers are those who have not found work and are no longer considered a part of the labor pool.

The cable news media was domonated this morning with the story about a couple who “crashed” a White House state dinner this past Tuesday. First off, if this is true, it speaks volumes about the security practices currently in place. It’s not like this was a covert operation in a Bond movie where they landed on the roof, ripped off their jump suits and had a tux and dress underneath. These people just walked up to the “front door” and talked their way into the White House. I wonder if the White House does place cards or if they just didn’t sit at the dinner table??? This I guess we will never know…

Some poor soul at the Secret Service is not going to have a job on Monday…

I find it hilarious that there are pictures of them posing with Vice President Joe Biden. They look like old pals in the pictures. Good ole’ Joe!

I just read an interesting passage in The Undercover Economist which directly applies to the current healthcare debate even though it was published back in 2005.

Hartford, the book’s author, describes the current failure of the “free market” in providing an adequate healthcare system in the United States as four-fold:

1. Imperfect information, patients know more about how likely they are to make a claim than insurance companies. In the market this can be solved through self-selection. Younger and potentially more healthy individuals would self-select less coverage with a higher deductable. Older and potentially less healthy individuals would self-select greater coverage.  Due to the fact that the majority of Americans get their healthcare coverage through their employers, healthier employees subsidize less-healthy employees in the form of higher average premiums.
2. Patients have a lack of understanding regarding the full cost as they generally do not have to foot the bill. This leads to a situation where doctors run every expensive test possible, since hospitals are businesses you know. Patients, wanting to get better as quickly as possible would like to have the tests run, even though they might not understand the full cost. Health-insurance companies, also business and also very aware of the cost push back and use varied tactics to deny coverage.
3. Company provided healthcare benefit plans are ineffective based on the one-size fits all approach taken by Human Resources. These plans are ineffective for the same reasons outlined in number 1.
4. The programs run by the Federal government (e.g., Medicare, Medicaid) are extremely costly. On the order of seven times more expensive than other developed countries providing a similar level of care.

It is important to also note that Hartford points out that government run systems are not all that much better for patients. For example in the UK there is a organization which determines which procedures to cover and in which situations. This is based on the number of quality living years a treatment would provide compared to another treatment, even for very different diseases. Once again, the patient is not in control of their care, a bureaucracy makes all the decisions.

Hartford’s solution? Combine the current “market-based” system with some minor government intervention.   Require patients to pick up more of the up-front cost of healthcare, putting them in control of the decision making while providing a safety net in the event something major happens.

Government mandates and establishes as Health Savings account for individual citizens linked to a debit card. Patients are able to contribute money tax free to these accounts up to a certain limit. For individuals who do not pay any taxes or who face hardships preventing them from contributing a certain minimum amount, say $1,500, would receive that benefit from the government. (This is still cheaper per capita for the government than the programs they run now.) Individuals would use this money to pay for things like routine medical visits and simple diagnostic tests. By forcing patients to use this money to cover the “everyday” expenses individuals will take a more active role in their healthcare and really think hard weather it is worth the time and money to run 50 tests.

Finally, individuals would buy catastrophe insurance. This insurance would kick-in to cover the costs in the event that a major medical emergency such as surgery or a life-threatening illness affects the individual.

The benefit with this system is that younger individuals who are generally healthier would be able to save money in their early years to cover expenses in their later years. A 21-year old saving an average of $1,500 per year for 34 years would have $51k by age 55. Employers can even still provide a “benefit” through this plan by contributing a certain amount tax free to the employees savings accounts. I do not believe that individuals should be able to invest this money due to the fact that losses may result in a problematic situation. These accounts can be housed in regular banks in high-interest savings accounts and linked to a debit card for easy healthcare-related purchases.

Hartford notes that a similar system has been in place in Singapore for the past 20 years and seems to be working just fine. I think this is a very compelling alternative to both the current system and any proposed government run system.