Sensible Healthcare Reform

I've resisted posting on healthcare reform here for 2 reasons:

1. No one wants to read a 10,000 word rant complete with charts and analogies.
2. I can't find the time to write said 10,000 word rant.

So, I leave it to others with greater powers of brevity. Charles Krauthammer has two suggestions that should be tried before any radical restructuring of the current healthcare system. They will genuinely reduce costs and lessen the influence of government in our lives.

(1) Tort reform: As I wrote recently, our crazy system of casino malpractice suits results in massive and random settlements that raise everyone's insurance premiums and creates an epidemic of defensive medicine that does no medical good, yet costs a fortune.

I'm a lawyer, and even I agree with that. The inability of malpractice insurance companies to predict what crazy awards juries will give leads to astronomical premiums. In addition, it causes doctors to order unnecessary procedures "just to make sure:"

An authoritative Massachusetts Medical Society study found that five out of six doctors admitted they order tests, procedures and referrals -- amounting to about 25 percent of the total -- solely as protection from lawsuits. Defensive medicine, estimates the libertarian/conservative Pacific Research Institute, wastes more than $200 billion a year.

Krauthammer envisions something like the workers' compensation plan to handle malpractice incidents.

Abolish the entire medical-malpractice system. Create a new social pool from which people injured in medical errors or accidents can draw. The adjudication would be done by medical experts, not lay juries giving away lottery prizes at the behest of the liquid-tongued John Edwardses who pocket a third of the proceeds.

The pool would be funded by a relatively small tax on all health-insurance premiums. Socialize the risk; cut out the trial lawyers. Would that immunize doctors from carelessness or negligence? No. The penalty would be losing your medical license. There is no more serious deterrent than forfeiting a decade of intensive medical training and the livelihood that comes with it.

Second, uncouple health insurance from employment and from geography:

(2) Real health-insurance reform: Tax employer-provided health care benefits and return the money to the employee with a government check to buy his own medical insurance, just as he buys his own car or home insurance.

There is no logical reason to get health insurance through your employer. This entire system is an accident of World War II wage and price controls. It's economically senseless. It makes people stay in jobs they hate, decreasing labor mobility and therefore overall productivity. And it needlessly increases the anxiety of losing your job by raising the additional specter of going bankrupt through illness. . . . If we additionally eliminated the prohibition on buying personal health insurance across state lines, that would inject new and powerful competition that would lower costs for everyone.

Good common-sense things to try which will lower the cost of medical care and reduce both the need for, and the cost of, health insurance.

Darkness and Light - 20 years since Tiananmen Square

Since few others marking this day, I will.

The Tiananmen protests started in April 1989, when students began calling for greater democracy and anti-corruption measures. After weeks of protests, which saw the square packed with up to 1 million people, troops and tanks moved in on the night of 3-4 June 1989. An unknown number of people were killed in the crackdown. Estimates range from 0 - 5000. For what it's worth, the Chinese Government acknowledges 241 dead and 7000 injured. Thousands more were arrested throughout the country. Some are still held, others haven't been seen since. Among the "disappeared" is the unknown man in the photo above. It is known he was arrested, but the Chinese government has not been able to "find" him in response to international pressure.

The last official statement from the PRC government about the "Tank Man" came from Jiang Zemin in a 1990 interview with Barbara Walters. When asked about the whereabouts of the "Tank Man", Jiang responded that the young man was "I think never killed".

Kudos to the BBC - they have a story about the official Chinese reaction to the anniversary. And a video of a reporter trying to enter the square:



These brave students may well have been part of the cause of the great events of 1989 - the fall of the Berlin Wall being the most memorable. They were the last great uprising against communism to be ruthlessly suppressed, the ones that came after succeeded, and the world is a better place for their courage.

They deserve to be remembered together with The Hungarians in 1956, and the Czechs in 1968.

We must remember that Communism is not just another political system, it has objectively measurable, real effects on the lives of the people oppressed by it. The ultimate ends are the destruction of the human soul, both body and spirit, grinding pervasive poverty, darkness and death.

This darkness is not just spiritual, but literal as this composite satellite image of the nighttime Earth shows:



Japan is the string of lights from bottom center to top right, surrounded by the dark of the ocean - Japan is a thriving democracy, and is an island.

South Korea is center left, surrounded by darkness too - South Korea is a thriving democracy. South Korea is not an island.

The darkness to the north is North Korea - the "purest" communist nation on Earth. The scattered "Islands" north of that are Communist China.

No matter how much we talk and trade with them, communists are evil. We must never forget that. And we must never forget those who died 20 years ago today.

Fight The System

Putin's Genius

I read a very insightful article today on how Vladimir Putin's totalitarianism can survive when so many others have failed.

The author points out the one crucial difference which seems to make his rule palatable to ordinary Russians. I think he is absolutely correct. It's a thought I've had floating around in my head for a while.

People are often more tolerant of Government interference in big things than in little ones.

The new czar saw that most human beings don't care who governs them, as long as the government minds its own business. And if the ruler can revive the illusion of national power, so much the better.

In my way of thinking, this is a symptom of all forms of socialism, and part of what make socialism attractive to so many. Wants are supplied, and all that's required politically is to do nothing.

The author characterizes the unspoken bargain Putin has struck with the Russian people as:

"I get the political power, you get material progress and social freedoms. Behave in the streets, and I'll stay out of your sheets."

Do what you want on your own time in your own home, and the government will leave you alone, but the "commanding heights" of the political and economic life of the nation are off limits. Wear what you want, say what you want to your friends, buy the nice products we import for you, and be content. Protesting, public criticism, political opposition - these are signs of ingratitude and threaten the status quo.

Shamelessly cynical, Putin goes through the stage-managed forms of democracy. He even permits scripted media criticism of the state (though not of himself).

But there are limits to the new totalitarianism's tolerance. You can call Putin a baboon-butt monkey-boy over the vodka bottle at your kitchen table - but don't do it in public.

Cross that line and you are, literally, dead. A deal's a deal.

Common Sense . . . Almost

I was reading about the California Woman who just gave birth to octuplets. The poor lady had 6 kids already.

It seems like the media has no shortage of advice and criticism for her. Some stories imply that any sane person would have aborted several of the babies, others wonder about a possible breach of medical ethics by the doctor who implanted 8 embryos in the first place.

I'm glad she didn't abort them, I do wonder about the doctor though. Fox news tries to at least be helpful

"Eating, sleeping and bathing are the key areas to get scheduled," he said. "The same goes for mom and dad. Parents need to make sure they're whole or else they won't be valuable to their children."

Good, so far so good, just good common sense, but then common sense seems to go right out the window:

Sophy said the expense of raising 14 children will likely be prohibitive, citing studies that estimate it costs roughly $2.5 million to raise a child to adulthood. Using that math, raising 14 children would cost roughly $35 million.

"And that's basic stuff," he said. "That doesn't include swimming lessons and things like that. It's very costly and hopefully the planning that needs to be done was done upfront."

What the heck? 2.5 million dollars? For one child? Who won't even know how to swim? I don't even have to think to know that that is patently absurd.

If your family makes $100,000 a year and spends every penny on only one child for 20 years that's still only 2 million dollars. Throw in a $100,000 college education, and another $100,000 for law school, and you're still not there.

Common sense should tell you that many people who don't earn 2.5 million dollars in their lifetime successfully raise children to adulthood. For example, the median income in the U.S. is about $50,000. that median earner will need 50 years to make 2.5 million. Obviously it doesn't cost them 2.5 million to raise one child.

The reporter makes matters worse by simply regurgitating the number and then calculating that it will take 35 million dollars to raise the 14 children in the family.

Absolutely ridiculous.

When Are You Moving?

WARNING: this is a LONG, dry, economics rant post. Beware!

"When are you moving?"

I get asked this question every time I mention that we live in Ogden, but I work in Provo. The people asking the question have a point. A 156 mile round-trip commute isn't the most pleasant part of my day, and on snow days I often can't get either down or back.

The short answer is . . . who knows!

Here follows the long answer:

I do know why we haven't moved yet. Besides the wonderful generosity of family, for which we are very grateful, housing prices are not . . . shall we say . . . stable. MSNBC has an article today about the housing market. Apparently none of the measures being taken by the Federal Reserve have done anything to stem the tide of foreclosures or to increase the number of homeowners or the median price of a house. They have a spiffy graphic showing what housing prices have done since 1999:

Now, this raises two questions in my mind.

1. Why are homes worth more in the middle of every year and less at the beginning and end?
2. How does this track with median income changes over the same period?

I have no comment on the first question, and I only asked the second because I already knew the answer. That's why I'm writing this post.

So, as to question 2 - the amount a family can afford to pay for a house is related to their income. "Well. . . duh!" you say. Bear with me. It's more obvious when you think about housing prices in terms of years of income. In the UK, for example, the size of a mortgage you can qualify for equals 3 times your annual income (ignoring all other factors). Thus if you earn $50,000, then you can get a $150,000 mortgage. The ratio in the US is a bit more generous, but, same idea. With that in mind, let's look at another chart (thank you Wikipedia):

If you'll notice, median income peaked in 1999. Since then it has declined.

Everyone assumes the housing market was healthy in 1999. So, we'll start there. In 1999 median income was about $46,000, and the average home cost about $138,000 (just eyeballing the chart for the end of the year). That works out to . . . let's see . . . carry the 2 . . . oh, yeah, 3 times the median income. Those mortgage people were on to something. I'll call this 3:1 ratio a "healthy ratio."

Now let's look at 2005. Housing prices that year were $230,000 for most of the year, while median income had declined to $45,326. That comes out to over 5 times the median income. Not a healthy ratio.

When I look at the numbers that way, it's perfectly obvious why houses aren't selling. The latest income figures available are for 2007. They show that median income has risen slightly since 2005. It was about $50,000 in 2007. the housing slump was in full swing in 2007, so for that year the ratio declined from 4.6 times median income to 4 times median income.

What really gives me pause is this:

Looking at the income chart, median income starts to slide before every recession, and continues to decline till well after the recovery is underway. As every news outlet in the country recent told us, we are in a recession. Chances are good, therefore, that median income is falling, and has been for a while. (we don't get income figures till after the fact).

If this is one of the sharpest recessions ever, as we are reminded daily, chances are median income will fall steeply, and housing prices will continue to follow until well after the recovery is underway.

With that in mind, I'm going to make some predictions. Since they will be memorialized on the internet, we'll all see what my predictions are worth in a few years. (it's really win-win: if, as is most likely, I'm wrong, you'll all know to stop wasting your time reading my blog, and I'll know to keep my mouth shut on topics of which I am ignorant). These are also the reasons, in my mind, we aren't moving yet:

• I think housing prices will return to something much closer to the "healthy" 3:1 ratio they were at in 1999.
• Prices won't even begin to recover until unemployment starts to fall, and median income starts to increase at the earliest. (probably more like 6 months later).
• All the fancy things lenders did to make up for the increasing gap between income and housing prices are gone for good.
• I think the national median home price will easily fall below $150,000

I think the low prices will stay around a while because 1) All the speculators fueling shows like "Flip this House" lost their shirts (and good riddance), and 2) Lenders will be gun shy for a while, given the number of banks that went under from bad mortgages.

We'll see what happens, but I'm not optimistic for the next few years.


PS - Sorry for the abrupt ending, I tried to think of a good closing with a smooth transition and a hard-hitting conclusion, but I couldn't. The thoughts have stopped, hence so does the post.

...

Apparently I Don't Understand Economics

We all know inflation is bad. Rising prices devalue our money and make it harder to buy things. Apparently the opposite is also bad. Deflation - falling prices - is also bad for the economy, at least according to economists quoted by MSNBC.

“A benign decline in prices amidst a sluggish but recovering economy would be unwelcome but tolerable,” Merrill Lynch economist David Rosenberg wrote in a note to clients this week.

Unwelcome to whom, Mr. Rosenberg? I know plenty of people who like to pay less for goods of all types. I've heard of weirdos who like to pay more, but they're much more rare.

“But the price slashing now under way as the consumer beats a hasty retreat could allow that corrosive deflationary spiral to take hold — something the Fed wants to avoid at all costs.”

The Fed wants to avoid falling prices "at all costs?" boy, with friends like that, who needs enemies?

As I said, I'm not an economist, but perhaps someone who is could answer this question for me:

If inflation is bad and deflation is bad, then what, precisely, do you expect prices to do?

Should a pound of cheese always have the same price? If so, then the USSR had this economics thing all figured out. They just printed the price right on the label. Year after year a jar of tomato sauce was 40 kopeks. Your parents paid 40 kopeks and, by darn, your children would pay 40 kopeks. Is that the answer?

The problem I have with this idea is that (as I have learned both in life, and in school), in a market, there needs to be a mechanism to balance supply and demand. That mechanism is price. If I want 40 dollars for a widget, and you don't think it is worth 40 dollars, guess what? No sale. Deflation has to occur to meet your demand.

At this point any "real economist" is probably either rolling on the floor laughing, pulling out his hair in frustration, or muttering incoherently about Econ 110 having no relationship to "real economics."

Well, maybe not - but the economists in the MSNBC story seem to have nothing but contempt for consumers. They give the distinct impression that they believe the average of consumers' judgments about the worth of goods (otherwise known as the 'market price') is wrong, and that they, the "elite" know what things are worth.

Pardon my skepticism, but are these the same "elite" who have guided our economy to it's current prosperous state? The ones who never saw the housing bubble coming? Who watched house prices rise 10% per year as wages rose 2% and saw nothing to worry about? Who thought sub-prime mortgages were a terrific idea? Or, a little farther back, thought stratospheric stock prices for unprofitable .com businesses were just the "new economy?" Or thought that Pres. Bush's tax cuts would unacceptably reduce govt. revenue? or that Reagan's tax cuts would do nothing the stimulate the economy? Or thought that Sweden was a model of a well-run economy?

Now who should be laughing?

I'll say it again. Economics is not a science. It is a pseudoscience. Any claims to truth or predictive ability that it makes are a fraud.

Economics is a descriptive art - like psychology. Also like psychology, it has no power to predict future behavior because every person in the system is an agent unto herself, and not an automaton. This is why no one saw this crisis coming. Economists admit that this is unprecedented and was almost completely unforeseen - and they are right - they just don't see it as a failure of their 'science.'

Economics is (at best) a social science, a descriptive study of human behavior. It is individual psychology mis-applied to huge groups of people, and it goes through fads just like any other field of study. It also has its quacks like any other field. Keep this in mind next time an economist claims to know something.