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  • Archive for the 'Economics & Finance' Category

    2014 Midwest Business & Markets Conference

    Posted by Zenpundit on 9th March 2014 (All posts by )

    cross-posted to zenpundit.com

    The Union League Club of Chicago Building

    Yesterday, I attended the 2014 Midwest Business & Markets Conference at the historic Union League Club of Chicago. While business conferences are far afield from my usual interests, the main draw for me was seeing Lexington Green speak about the book he co-authored with James C. Bennett, America 3.0

     

    Michael J. Lotus (“Lex”)                       His book

    Read the rest of this entry »

    Posted in Anglosphere, Business, Chicagoania, Civil Society, Deep Thoughts, Diversions, Economics & Finance, Education, Entrepreneurship, Illinois Politics, Internet, Political Philosophy, Politics, Society, The Press, USA | 9 Comments »

    Worthwhile Reading & Viewing

    Posted by David Foster on 14th February 2014 (All posts by )

    A Valentine’s Day story from Sheila O’Malley

    Some thoughts on the color green from Gerard Van der Leun

    Germany’s war against homeschooling, and Obama’s complicity therein

    Early industrial capitalism: myths and realities

    Cashing in on connections in Washington

    The crisis of the administrative state

    Is Common Core encouraging a generic and simplistic approach to literature?

    Why does the question “do you like horror movies?” have predictive power when it comes to how long a relationship will last?

    Liberalism and the credentialist conceit

     

    Posted in Big Government, Business, Economics & Finance, Education, Germany, History, Human Behavior, Political Philosophy, Politics | 2 Comments »

    Fear of Robots: Mainframe-Era Version

    Posted by David Foster on 6th February 2014 (All posts by )

    New Yorker cartoon by David Langdon. (click to expand) I can’t find a date for this, but it was probably sometime in the late 1950s or early 1960s.

    Posted in Economics & Finance, Tech | 3 Comments »

    Pollution In India

    Posted by Carl from Chicago on 26th January 2014 (All posts by )

    The NY Times recently had an article about the high levels of pollution in India’s capital city, Delhi.

    Beijing’s air pollution has reached such toxic levels recently that the Chinese government is finally acknowledging the problem – and acting on it. But in New Delhi on Thursday, air pollution levels far exceeded those in Beijing, only without any government acknowledgement or action.

    When I was in India in late 2012 I too was overwhelmed and amazed by the level of smog and pollution in the capital. When you blew your nose, particulate matter came out in your snot. This photo taken below is out the window of our tour bus and you could not see large office buildings along the roadside a few hundred feet away.

    The tuk-tuk in the photo (it is a three wheeled semi-motorcycle used as a taxi) is green and yellow because those are the official colors of vehicles using CNG, designed to reduce pollution, which are also used for city buses. Unfortunately the streets are clogged with traditional gas powered vehicles and myriad ancient looking diesel trucks which more than make up the difference.
    Read the rest of this entry »

    Posted in China, Economics & Finance, Energy & Power Generation, Environment, India | 7 Comments »

    San Francisco and a Sneaky Win for the Red

    Posted by Carl from Chicago on 25th January 2014 (All posts by )

    In San Francisco recently there has been a minor hubub about the buses that ferry technology workers from San Francisco (where they live) to Silicon Valley (where they work). “Activists” have been blocking the city bus lanes where the technology companies pick up workers, and the city of San Francisco recently voted to charge the buses $1 for each time they stop in the bus lanes to pick up passengers, per this article. However, the “real” challenge isn’t with the buses, but the impact of Google, Facebook and other technology companies in the valley that are contributing to a rapid gentrification of the entire city

    But while logistical details of the pilot program were the reason for having the hearing, they also had nothing to do with it. For many residents, the high-ceilinged room at City Hall was a forum for airing much bigger grievances about inequality, for articulating angst against an industry attracting bands of well-paid workers to town while long-term residents are losing their homes. “These companies are filthy rich,” said a resident born in San Francisco. “We need to squeeze them for everything they’re worth.” Some speakers wanted the buses to be banned and for companies to take the money spent on shuttles and funnel it into the city’s transportation budget — advice the committee approving the proposal didn’t find too compelling.

    A similar difference in approach played out at the protest that morning. While some activists made careful arguments about the tornado of wealth, growth and housing shortages that has thrown the city into an affordability crisis, others held a giant sign with a much less nuanced message: “F*** off Google.”

    This thread crystalizes two key threads that I’ve noticed in my visits to California for work and for pleasure (Dan and I have been there a couple of times to run the Presidio 10) and I often travel to the valley to visit various companies as part of my job. The first item is that San Francisco has been completely remade, from top to bottom, and there are almost no “bad” neighborhoods left in the entire city. I’ve walked through most of the city or taken the streetcars, or driven, and since the 2008 bust the entire city has been part of an enormous revitalization as wealthy tech workers and related professionals have bought up property in the city. There still are a bunch of drunks in the Tenderloin, aggressive panhandlers everywhere, and some projects and worse neighborhoods in the corners of the city, but by and large it has been completely upgraded.

    The second thread is that the workers in Silicon Valley are so completely opposite of these “activists” that it is difficult to know how to begin the comparison. At all of the companies I’ve visited the professionals are engaged in their work and have a very “capitalistic” view of being the best and beating the competition. While California is a completely “blue” state on the map, these technology professionals couldn’t be more “red” on the issues of free markets, access to capital, and the nature of the world-wide competition that they face (I don’t know about social issues because we’d never discuss that sort of thing). These firms leverage overseas workers without a second thought, and ruthlessly prune inefficient parts of their organization to focus on their core differentiators.

    While the world was focused elsewhere San Francisco transformed into a post-industrial city full of aggressive technology workers and professionals. Due to some remaining elements of rent control there are still some of the characteristic “activists” milling around but the relentless and unstoppable force of high property values will find solutions and will eventually demolish and buy out their remaining haunts until it is just the ruthless face of the post industrial economy that can afford to live in the city.

    The “activists” will end up packing their belongings and heading over to Oakland or somewhere else where the rents are affordable and they can pick up their protests there. Unfortunately for them San Francisco’s compact size, beauty, and absence of large scale government subsidized housing will drive them completely out of the city. The college students will likely pick up some of the protests but since they don’t really vote or build a substantial power base up the wealthy firms will soon control local government and then policy and reality will align.

    If you really want to look at long term opportunities I’d recommend property in Oakland. Oakland has a great location, it just needs to be terraformed via gentrification and rising property taxes until every activist and poor person is driven out, just like it is occurring today in San Francisco. Maybe this is a 20-30 year vision, but it will happen.

    Cross posted at LITGM

    Posted in Big Government, Economics & Finance, Tech, Transportation | 24 Comments »

    Why The Post Office Is Doomed

    Posted by Carl from Chicago on 20th January 2014 (All posts by )

    The United States Postal Service (USPS) is in bad financial shape. The service is currently losing money and is unable to pay some required payments to the government for employee retirement benefits. While the USPS has retained its first class mail monopoly, it sends only a small percentage the ecommerce packages that are the backbone of the physical internet economy.

    The real failure of the postal service, however, is encapsulated in the photo above. In our River North neighborhood, where the population density is high (local residents in high rise condominiums plus innumerable tourists) and the value of real estate is high, too, there is one institution that you can count on to not shovel their sidewalk or take care of their property. The US Postal Service.

    The employees of the USPS are unionized and likely no one has the job of shoveling the sidewalk, or it isn’t in their job description. Thus it isn’t shoveled, and you need to trudge through it which becomes treacherous as the snow melts and re-freezes. Since many of the people who actually might want to use the postal service in this area are elderly, the dangerous sidewalks are even harder to defend.

    They also used to have two mailboxes in the “drive up” section where you can pull your car up to the curb in front of the River North post office. Recently when I attempted to mail Christmas cards (we don’t like to leave them with the mailman in our condominium building because we’ve heard horror stories) at the post office, I couldn’t stuff them into the mailbox, because they reduced capacity down to a single mailbox. There were a few other potential customers milling around fuming as well, since the outdoor mailbox had apparently been jammed beyond capacity for some time.
    Read the rest of this entry »

    Posted in Big Government, Business, Chicagoania, Economics & Finance | 25 Comments »

    More Obamacare News

    Posted by Michael Kennedy on 18th January 2014 (All posts by )

    The CMS has a new contractor for Obamacare, not just the web site. The previous contractor, CGI Federal, has been replaced rather suddenly.

    “Accenture, one of the world’s largest consulting firms, has extensive experience with computer systems on the state level and built California’s large new health-insurance exchange. But it has not done substantial work on any Health and Human Services Department program.
    “The administration’s decision to end the contract with CGI reflects lingering unease over the performance of HealthCare.gov even as officials have touted recent improvements and the rising numbers of Americans who have used the marketplace to sign up for health coverage that took effect Jan. 1.”

    CGI Federal is the company connected with Michelle Obama through her classmate, a fellow Princeton alumna.

    Read the rest of this entry »

    Posted in Big Government, Economics & Finance, Health Care, Management, Medicine, Politics | 18 Comments »

    Selected Posts from 2013, continued

    Posted by David Foster on 3rd January 2014 (All posts by )

    Western Civilization and the First World War…with a very good comment thread.

    The Power of Metaphor and Analogy.

    The Normalization of Abusive Government.

    Would You Trust Your Financial Future to This Woman? Patty Murray, a U.S. Senator and an obvious moron and bigot..as the quotes in this post clearly demonstrate…is head of the Senate Budget Committee.

    Whose Interests Will Jack Lew be Representing? There were some rather interesting clauses in the Treasury Secretary’s employment agreement with Citigroup.

    Time Travel. Some personal connections with the past.

     

    Posted in Britain, Economics & Finance, Europe, France, Germany, History, Human Behavior, Political Philosophy, USA, War and Peace | 8 Comments »

    A Couple of Worthwhile Posts

    Posted by David Foster on 28th December 2013 (All posts by )

    Why grade inflation hurts social mobility

    It is important to distinguish between meritocracy and credentialism.

     

    The redistribution of dreams

    Actually, I would not have used the term “redistribution” in this context. The policies of the Democratic Party are not so much a redistributor of dreams as a broad-spectrum killer of same.

     

     

    Posted in Academia, Civil Society, Economics & Finance, USA | 5 Comments »

    Divvy Bikes and Logistics

    Posted by Carl from Chicago on 26th December 2013 (All posts by )

    Divvy bikes came to Chicago this year towards the end of the summer and they seem to be a big hit. We see people riding Divvy bikes all the time and they have a distinctive “flash” light on the front (like a strobe) that is visible from far away, even from our condominium high up over River North.

    I often walk near the train station and I noticed the Divvy van loading up bikes when the obvious hit me; Divvy bikes came from all over the city and ended up near the train station. These vans were redistributing the bikes back to other stations so that the next days’ rush hour could repeat the process.

    The stations seem to have a solar powered panel; they should connect each of the bikes to a sensor and then broadcast to a central station so that they can map out bike usage in regular intervals and use this information to improve their bike distribution algorithm. I assume that they can also make some stations larger than others; this way you could collect many bikes downtown and then redistribute them to stations that they came from (presumably on the north side) during the day. Here is an article I found about the Divvy “Rebalancers“.

    Perhaps some day they could alter pricing in some sort of “congestion” model to charge people more who drop bikes off at popular stations and charge people less to ride those same bikes in the opposite direction to less popular stations. This could supplement the “rebalancers” with market forces. Grist for an MBA case study perhaps?
    Read the rest of this entry »

    Posted in Chicagoania, Economics & Finance | 4 Comments »

    A Truly Diabolical Monetary Policy (rerun)

    Posted by David Foster on 16th December 2013 (All posts by )

    (The leadership transition at the Fed inspires me to rerun this post, which initially appeared in December 2008)

    In Goethe’s Faust, Mephistopheles desires the introduction of paper money. At his instigation, courtiers approach the emperor at a masked ball and get him to sign the following document:

    To all it may Concern upon Our Earth
    This paper is a thousand guilders worth
    There lies, sure warrant of it and full measure
    Beneath Our earth a wealth of buried treasure
    As for this wealth, the means are now in train
    To raise it and redeem the scrip again

    In the bright sunlight of morning, the now-sober emperor observes hundreds of pieces of paper, each bearing his signature and claiming to be equivalent in value to gold, and demands to know what is being done to apprehend the counterfeiters.

    Treasurer: Recall–Your own self signed it at the time,
    Only last night. You stood in Great Pan’s mask
    And with the Chancellor we approach to ask:
    “Allow yourself high festive joy and nourish
    The common weal with but a pen’s brief flourish.”
    You signed: that night by men of a thousand arts
    The thing was multiplied a thousand parts
    So that like blessing should all accrue
    We stamped up all the lower series too
    Tens, Thirties, Fifties, Hundreds did we edit
    The good it did folk, you would hardly credit.
    Your city, else half molded in stagnation
    Now teems revived in prosperous elation!
    Although your name has long been widely blessed
    It’s not been spelt with such fond interest
    The alphabet has now been proved redundanct
    In this sign everyone finds grace abundant

    Read the rest of this entry »

    Posted in Economics & Finance, Poetry | 2 Comments »

    ZIRP Embodied

    Posted by Carl from Chicago on 15th December 2013 (All posts by )

    ZIRP or “Zero Interest Rate Policy” has been in effect in the USA since late 2008. From that point forward, the effective interest received on money from CD’s, banks, and non-risk bearing debt is very low, especially when taxation is taken into consideration.

    Recently I was standing at an ATM when I saw this receipt casually left on the ground. It showed over $300,000 left in a low or non interest bearing account. To me, this embodies how ZIRP has turned the world on its head.

    When I was growing up, inflation was high and interest rates were high, too. I distinctly remember my grandfather having an argument with someone else when he said that interest rates would never go below 10% again (they were nearly 20% at the time). If you had any money, you had to put it to work to get the benefit of “compounding interest” which is basically interest earned on interest, which would make your assets grow quickly. In parallel, of course, inflation was making everything cost more, so you were probably treading water, but that is a different issue entirely.

    In the age of ZIRP, there is no point instructing anyone about the advantages of compounding interest, because the effects are too small to be believed. In the portfolios I run for my nieces and nephews, they receive ZERO CENTS most months on the cash held in their account, and the cumulative year end totals are too small to receive an interest 1099 from the IRS. The SEC fee, which amounts to a few pennies per trade, actually is a larger cost, so I am just likely to ignore both elements.
    Read the rest of this entry »

    Posted in Big Government, Business, Economics & Finance | 16 Comments »

    Source of America’s Problems Discovered

    Posted by David Foster on 12th December 2013 (All posts by )

    …quite a few of them, anyway

    The above poster was apparently often found on the walls of high-school guidance counselors in the 1970s. So says Mike Rowe, who has proposed an improved version of the poster. Link.

    via American Digest

    Posted in Academia, Advertising, Business, Economics & Finance, Education, USA | 16 Comments »

    Kipling on income inequality

    Posted by Margaret on 11th December 2013 (All posts by )

    AN IMPERIAL RESCRIPT

    Now this is the tale of the Council the German Kaiser decreed,
    To ease the strong of their burden, to help the weak in their need…

    And the young King said: — “I have found it, the road to the rest ye seek:
    The strong shall wait for the weary, the hale shall halt for the weak:
    With the even tramp of an army where no man breaks from the line,
    Ye shall march to peace and plenty in the bond of brotherhood — sign!”
    ….
    And the men drew back from the paper, as a Yankee delegate spoke: –

    “There’s a girl in Jersey City who works on the telephone;
    We’re going to hitch our horses and dig for a house of our own,
    With gas and water connections, and steam-heat through to the top;
    And, W. Hohenzollern, I guess I shall work till I drop.”

    And an English delegate thundered: — “The weak an’ the lame be blowed!
    I’ve a berth in the Sou’-West workshops, a home in the Wandsworth Road;
    And till the ‘sociation has footed my buryin’ bill,
    I work for the kids an’ the missus. Pull up? I be damned if I will!”

    And over the German benches the bearded whisper ran: –
    “Lager, der girls und der dollars, dey makes or dey breaks a man.
    If Schmitt haf collared der dollars, he collars der girl deremit;
    But if Schmitt bust in der pizness, we collars der girl from Schmitt.”

    Posted in Arts & Letters, Diversions, Economics & Finance | 4 Comments »

    “Occupy Pennsylvania Avenue”

    Posted by Jonathan on 9th December 2013 (All posts by )

    New from Kevin Villani: Occupy Pennsylvania Avenue: How Politicians Caused the Financial Crisis and Why their Reforms Failed, and the Kindle version: Occupy Pennsylvania Avenue

    (Kevin has shared on this blog a couple of prior works on the same subject. You can find those essays, and reader comments in response, here.)

    Posted in Big Government, Book Notes, Economics & Finance, Public Finance, Urban Issues | Comments Off

    Bitcoin deflation

    Posted by TM Lutas on 29th November 2013 (All posts by )

    Today, right this minute, we have a massive natural experiment in deflation going on. The demand for Bitcoin (BTC) is far outstripping any increase in supply. If this were a national currency, the central bankers would have been institutionalized for their nervous breakdowns quite some time ago. It would be front page news every day and panic would rule the airwaves.

    None of this is happening with Bitcoin. BTC insiders, movers and shakers seem pleased with the increase in value for their currency and the worry is the appreciation of the currency will go away, not that it will continue. Bitcoin pessimists like Paul Krugman, not surprisingly, believe that deflation will lead to transaction collapse and hoarding. Reality, so far, disagrees with them.

    I think that the problem is that nobody among the pessimists understands what BTC is for. It’s never going to be the legally mandated monopoly currency in any significant economic zone. The ethic of the BTC community works against that. This means that BTC is not competing against the US dollar, the euro, or even the renminbi.

    What bitcoin does very well is create a space for moving currency without the ability for it to be stopped. That challenges national currencies in crisis that want to impose currency controls to stop money leaving their borders. You can’t stop BTC transactions without draconian controls on communications.

    As a practical matter, you can’t stop a coin key from crossing borders. It also creates an incredibly small unit of currency. The smallest unit in the BTC world is the satoshi, or 0.00000001BTC. Is there any currency in the world that equals one satoshi? Until bitcoin reaches the point where its smallest transactions (looking at ads and other microtransactions) can no longer be done with single satoshis, BTC will not suffer transaction reduction to to value increase.

    Current pricing would seem to imply something of a damper on BTC transaction flow when BTC rises above $100,000 USD per coin. In other words, the cheapest, cheapskate ads are offering a hundred satoshis for a second of your attention in a world where 1BTC is approximately 1,000USD. We have a long way to go before those transactions cease to be denominated in BTC. And even then, there will be prestige associated with working in BTC which will keep interest in the currency relatively high and larger transactions flowing around the $100k level. Any reduction will bring back a number of the bottom feeders from other currencies.

    There are several wannabe BTC competitors waiting in the wings for the day that people want to conduct microtransactions smaller than 1 satoshi. They have established exchanges with national currencies and with BTC itself. when BTC grows in value sufficiently to give up the low end of its microtransaction market, the marketers will move on to alternatives until one of them gains enough advantage to be the next BTC.

    Ultimately, BTC is about mad money for a lot of people. As an experiment, I’ve mined BTC overnight and done micro-tasks using the thing in my spare time. Since April of this year, without any impact on my productivity, I’ve gotten the price of a fairly nice night out with my wife in BTC right now. It’s a piece, but only a piece, of an emerging 21st century wallet which diversifies currency use and manages transactions both online and offline. That wallet probably won’t fully emerge for a decade at the very least and more likely will take two to really standardize but it will be the death of the ability of national currencies to live on their past reputations. People will gain the ability to react to currency foolishness much more quickly. BTC will be an important part of that technology suite.

    cross posted: Flit-TM

    Posted in Economics & Finance | 9 Comments »

    Another Look at ‘The Rise of the West’ – But With Better Numbers

    Posted by T. Greer on 24th November 2013 (All posts by )


    Originally published at The Scholar’s Stage on 20 November 2013.

    Why the West? I do not think there is any other historical controversy that has so enthralled the public intellectuals of our age.  The popularity of the question can probably be traced to Western unease with a rising China and the ease with which the issue can be used as proxy war for the much larger contest between Western liberals who embrace multiculturalism and conservatives who champion the West’s ‘unique’ heritage.

    A few months ago I suggested that many of these debates that surround the “Great Divergence” are  based on a flawed premise–or rather, a flawed question. As I wrote: 

    Rather than focus on why Europe diverged from the rest in 1800 we should be asking why the North Sea diverged from the rest in 1000.” [1]

    I made this judgement based off of data from Angus Maddison‘s Contours of the World Economy, 1-2030 AD and the subsequent updates to Mr. Maddison’s data set by the scholars who contribute to the Maddison Project.

    As far as 1,000 year economic projections go this data was pretty good. But it was not perfect. In many cases–especially with the Chinese data–it was simply based on estimates and extrapolations from other eras. A more accurate view of the past would require further research.

    That research has now been done. The economic historian Stephen Broadberry explains:

    As it turns out, medieval and early modern European and Asian nations were much more literate and numerate than is often thought. They left behind a wealth of data in documents such as government accounts, customs accounts, poll tax returns, Parish registers, city records, trading company records, hospital and educational establishment records, manorial accounts, probate inventories, farm accounts, tithe files. With a national accounting framework and careful cross-checking, it is possible to reconstruct population and GDP back to the medieval period. The picture that emerges is of reversals of fortune within both Europe and Asia, as well as between the two continents. [2]

    Drawing on a multiple specialized studies, Mr. Broadberry is able to create a table that is more accurate than the one I used earlier:

    Taken from Stephen Broadberry. “Accounting for the Great Divergence.” voxEU.org. 16 November 2013.

    There are a few things here worth commenting on.

    Read the rest of this entry »

    Posted in Economics & Finance, History | 10 Comments »

    How A Simple Train System Lays Bare Our Impending Decline

    Posted by Carl from Chicago on 23rd November 2013 (All posts by )



    Recently I was riding on the Metra, the commuter rail system that connects the suburbs to downtown Chicago.  I picked up “On the Bi-Level”, the flyer that Metra management makes available to riders and was browsing through it when I came upon this innocuous sounding statement:

    I certainly will not argue that Metra is without challenges.  Perhaps the biggest challenge, and one that will impact many of our plans, is our needs for more capital money to invest in our system.  We estimate Metra will need about $9.7 billion over the next decade to achieve a state of good repair on the system, and we expect to receive about a fourth of that amount from traditional federal and state sources.  Riders need to understand that fares help us cover our operating costs but have never been a significant source for capital expenses – we must rely on Washington and Springfield for that funding.

    Within the utility community there is a concept called “generation equity”.  This implies that you need to spread the burden of replacement and renovation across the life cycle of users, rather than hitting them all on the first riders, such as in the case of a train line.  On the other hand, you cannot just ignore ongoing capital costs and let the system run into ruin by paying the minimal upkeep costs every year.


    In this article, Metra lays bare the facts that:

    • Fare costs (riders) only “help” them cover their operating costs
    • Funding from other sources (and debt) helps them cover the rest of their operating costs
    • Then they rely on largess from the state or Federal governments for about a fourth of their capital costs
    • And who knows where they are going to get the rest of the funds for capital replacement


    In fact, it would be impossible for Metra to re-build the train lines that they have today in the current regulatory and legal environment.  Permits, lawyers, litigation, politically favored contractors, and a welter of archaic tools and practices would make the costs impossibly high and the deadlines incredibly long.  By “capital” costs, they are generally talking about replacing bridges, stations and sections of existing track rather than “true” expansion, although they do occasionally add some incremental lines or stations.


    It is important to understand that things have gotten more EXPENSIVE but they haven’t gotten BETTER.  The infrastructure that we take for granted might as well have been built by the ancient Egyptians given how herculean the task would be to replace them.  Americans will never see another major dam built in the USA and likely few to no additional incremental nuclear or coal plants in the next 25 years.  Even major transmission lines are going to be few and far between, which will only be built because it is absolutely necessary to get electricity to new population centers.  This is all due to the layers of process and regulations and lawyers that we have overlaid atop the simplest tasks, and you can see the contrast when you go to China and see cities being built overnight. 


    At some point we are either going to need to radically re-structure how we build and pay for things or go to a completely private system where you pay for what you receive in terms of capacity, reliability and performance.  States and cities that make it impossibly expensive to build and expand will inevitably suffer relative to other locations that are freer in terms of rules and regulations, unless (as is likely) the entire US is burdened with Federal regulations that make it impossible to escape this yoke.


    Cross posted at LITGM

    Posted in Big Government, Chicagoania, Economics & Finance | 9 Comments »

    “Can You Hear Me Now? Another Health Market that Really Works”

    Posted by Jonathan on 22nd November 2013 (All posts by )

    John Goodman:

    It has taken a long time, but the price of hearing aids is in the process of falling dramatically. How has this happened? Technological innovation, of course, but there is more. There’s no shortage of technological innovation in U.S. health care. However, because third-party payers, that is, health insurers and governments, determine prices, there is no mechanism for customers to signal value to providers.
     
    This is not the case for hearing aids: Although some states have mandated insurance coverage for hearing aids, this is usually limited to disabled children. The big market for hearing aids is seniors, and Medicare does not cover hearing aids.
     
    This is another case of a phenomenon observed elsewhere by NCPA Senior Fellow Devon Herrick: Where patients pay directly for medical care, prices fall like they do in every other market.

    (Via Leif Smith on Twitter.)

    Posted in Business, Economics & Finance, Health Care, Medicine | Comments Off

    Musings on Tyler’s Technological Thoughts

    Posted by David Foster on 18th November 2013 (All posts by )

    Tyler Cowen, in his recent book Average Is Over, argues that computer technology is creating a sharp economic and class distinction between people who know how to effectively use these “genius machines” (a term he uses over and over) and those who don’t, and is also increasing inequality in other ways. Isegoria recently excerpted some of his Tyler’s comments on this thesis from a recent New Yorker article.

    I read the book a couple of months ago, and although it’s worth reading and is occasionally thought-provoking, I think much of what Tyler has to say is wrong-headed. In the New Yorker article, for example, he says:

    The first (reason why increased inequality is here to stay) is just measurement of worker value. We’re doing a lot to measure what workers are contributing to businesses, and, when you do that, very often you end up paying some people less and other people more.

    The second is automation — especially in terms of smart software. Today’s workplaces are often more complicated than, say, a factory for General Motors was in 1962. They require higher skills. People who have those skills are very often doing extremely well, but a lot of people don’t have them, and that increases inequality.

    And the third point is globalization. There’s a lot more unskilled labor in the world, and that creates downward pressure on unskilled labor in the United States. On the global level, inequality is down dramatically — we shouldn’t forget that. But within each country, or almost every country, inequality is up.

    Taking the first point: Businesses and other organizations have been measuring “what workers are contributing” for a long, long time. Consider piecework. Sales commissions. Criteria-based bonuses for regional and division executives. All of these things are very old hat. Indeed, quite a few manufacturers have decided that it is unwise to take the quantitative measurement of performance down to an individual level, in cases where the work is being done by a closely-coupled team.

    It is true that advancing computer technology makes it feasible to measure more dimensions of an individual’s work, but so what? Does the fact that I can measure (say) a call-center operator on 33 different criteria really tell me anything about what he is contributing the the business?

    Anyone with real-life business experience will tell you that it is very, very difficult to create measurement and incentive plans that actually work in ways that are truly beneficial to the business. This is true in sales commission plans, it is true in manufacturing (I talked with one factory manager who said he dropped piecework because it was encouraging workers to risk injury in order to maximize their payoffs), and it is true in executive compensation. Our blogfriend Bill Waddell has frequently written about the ways in which accounting systems can distort decision-making in ultimately unprofitable ways. The design of worthwhile measurement and incentive plans has very little to do with the understanding of computer technology; it has a great deal to do with understanding of human nature and of the deep economic structure of the business.

    Read the rest of this entry »

    Posted in Book Notes, Business, Economics & Finance, Management, Systems Analysis | 14 Comments »

    Where do we go now ?

    Posted by Michael Kennedy on 13th November 2013 (All posts by )

    I don’t want to wear out my welcome with posts but this is a topic that has interested me for many years. When I retired from practice, I spent a year at Dartmouth trying to learn how we can improve health care delivery and reduce cost without reducing quality.

    The Obamacare web site now has lost its happy photo of the Obamacare girl. The fact that she is a non-citizen seems appropriate. The web site is supposed to be fixed by November 30. Will that happen ? Well, maybe not.

    On Friday, the man tasked with the digital fixes said the site “remains a long way from where it needs to be” as more and more problems emerge.

    “As we put new fixes in, volume is increasing, exposing new storage capacity and software application issues,” Jeff Zients told reporters on a conference call.

    And at Tuesday’s White House Press Briefing, Press Secretary Jay Carney again said there was “more work to be done” on repairing HealthCare.gov.

    Carney, along with Zients and other administration officials, have repeatedly said the November 30 deadline is to get the health care website working for a “vast majority” of Americans looking to enroll in the Obamacare exchanges.

    So, what happens December 2, the Monday after the “glitches” are fixed ? First, they won’t be fixed. The contractor that designed the program, not just the web site, has a terrible record.

    Read the rest of this entry »

    Posted in Advertising, Big Government, Civil Society, Economics & Finance, Health Care, Leftism, Medicine, Obama, Politics | 11 Comments »

    Misunderstanding Self-Insurance

    Posted by Jonathan on 12th November 2013 (All posts by )

    Listening to Rush today. He is brilliant on politics but not as good on economics.

    He was advocating self-insurance for small businesses and individuals, in response to the Obamacare fiasco. He mentioned as an example that he had decided to self-insure a building (I think his home near a Florida beach) in response to his property insurer’s insistence on an extremely high deductible. He also said that he self-insures for medical costs.

    Two problems with his analysis. One, property insurance covers buildings and building contents, so liability is easily estimated and is capped at replacement cost. Unlike with medical care there is no possibility of very large, unplanned expenses. Two, Rush is personally wealthy and can afford to pay any medical expenses out of pocket. For these reasons his argument has limited applicability for most people, who buy health insurance precisely because they would be unable to pay an outlier medical bill without experiencing significant hardship. The same point applies to many small businesses as well. These groups thus need real insurance to cover outlier medical expenses. A self-insurance quick-fix would be inadequate.

    Posted in Business, Economics & Finance, Health Care, Obama | 6 Comments »

    “Five Years Later: Being an Architect under the ‘New Normal’”

    Posted by Jonathan on 6th November 2013 (All posts by )

    After a long absence from his blog, the always-thoughtful Corbusier posts some ruminations about his profession during the current period of economic recession and structural change in many industries. Long but worth reading.

    Posted in Architecture, Business, Economics & Finance, Society | 8 Comments »

    Quote of the Day

    Posted by Lexington Green on 24th October 2013 (All posts by )

    [C]ontrary to what liberals are saying, these technical problems [with Obamacare] are actually a sign of deep problems with the law itself. And I would go further: I think it is the sign of a deeper problem with government intervention in general. This is yet another piece of evidence that no matter how good lawmakers’ intentions are, no matter how much money government spends, government solutions are very likely to fall short of solving most of our problems, and often turn into massive disasters. Government fails to address most problems it tackles because the incentives are arranged in such a way that it favors interest groups and doesn’t reward success or punish failures in the same way as the market does.

    Veronique de Rugy

    Posted in Economics & Finance, USA | 15 Comments »

    Where health care may be going.

    Posted by Michael Kennedy on 23rd October 2013 (All posts by )

    UPDATE: I posted this as much for myself as for others to read. Today, Peggy Noonan weighs in. In case this is behind the paywall, here is her conclusion.

    Even though it’s huge, and those who are reporting the story every day are, by and large, seasoned and have seen a few things, no one seems to know how it will end. Because it’s new territory. Does anyone believe the whole technological side can be fixed quickly? No. The president may eventually accept a brief delay in implementation—it is almost unbelievable that he will not—but does anyone think that the economics of the ACA, the content as set out and expressed on the sites, will flow smoothly, coherently, and fully satisfy the objectives of expanding health-insurance coverage while lowering its cost? You might believe that, but early reports of sticker shock, high deductibles and cancelled coverage are not promising. Does anyone think the president will back off and delay the program for enough time not only to get the technological side going but seriously improve the economics? No. So we’re not only in the middle of a political disaster, we’re in the middle of a mystery. What happens if this whole thing continues not to work? What do we do then?

    This is the Titanic, folks.

    I have watched the failed rollout of Obamacare this past three weeks and wondered where it was going. I have some suspicions. There is a lot of talk about delaying the individual mandate, as Obama did with the employer mandate. Megan McArdle has a post on this today. I think it is too late to fix or delay Obamacare.

    With Nov. 1 storming toward us and the health insurance exchanges still not working, we face the daunting possibility that people may not be able to sign up for January, or maybe even for 2014. The possibility of a total breakdown — the dreaded insurance death spiral — is heading straight for us. The “wait and see if they can’t get it together” option no longer seems viable; we have to acknowledge that these problems are much more than little glitches, and figure out what to do about them.

    She has already described the insurance death spiral. I think it is here.

    Am I exaggerating? I know it sounds apocalyptic, but really, I’m not. As Yuval Levin has pointed out, what we’re experiencing now is the worst-case scenario for the insurance markets: It is not impossible to buy insurance, but merely very difficult. If it were impossible, then we could all just agree to move to Plan B. And if it were as easy as everyone expected, well, we’d see if the whole thing worked. But what we have now is a situation where only the extremely persistent can successfully complete an application. And who is likely to be extremely persistent?

    Very sick people.

    People between 55 and 65, the age band at which insurance is quite expensive. (I was surprised to find out that turning 40 doesn’t increase your premiums that much; the big boosts are in the 50s and 60s.)
    Very poor people, who will be shunted to Medicaid (if their state has expanded it) or will probably go without insurance.

    Levin points out: It is now increasingly obvious to them that this is simply not how things work, that building a website like this is a matter of exceedingly complex programming and not “design,” and that the problems that plague the federal exchanges (and some state exchanges) are much more severe and fundamental than anything they imagined possible. That doesn’t mean they can’t be fixed, of course, and perhaps even fixed relatively quickly, but it means that at the very least the opening weeks (and quite possibly months) of the Obamacare exchanges will be very different from what either the administration or its critics expected.

    The insurance industry is already reacting to Obamacare and this will quickly become irreversible. This article is from September.

    IBM, Time Warner, and now Walgreens have made headlines over the past two weeks by announcing that they plan to move retirees (IBM, Time Warner) and current employees (Walgreens) into private health insurance exchanges with defined contributions from employers.

    The article calls it “maybe a good thing” but that supposes the exchanges will function. What if they don’t for a year or more ? What will health care look like in November 2014 ?

    What happens next — as we’ve seen in states such as New York that have guaranteed issue, no ability to price to the customer’s health, and a generous mandated-benefits package — is that when the price increases hit, some of those who did buy insurance the first year reluctantly decide to drop it. Usually, those are the healthiest people. Which means that the average cost of treatment for the people remaining in the pool rises, because the average person in that pool is now sicker. So premiums go up again . . . until it’s so expensive to buy insurance that almost no one does.

    Will that be apparent a year from now ? I’m sure the administration, and the Democrats, will do almost anything to avoid that. What can they do ? They’ve already ignored the law to delay the employer mandates. It’s too late to delay the individual mandate because individual policies are being cancelled right now.

    Read the rest of this entry »

    Posted in Big Government, Economics & Finance, Health Care, Leftism, Medicine, Politics, Predictions | 7 Comments »