Economics & Finance

Like most people, I find it easier to spend money than to save it. Pulling out a charge card is so convenient; filling out a deposit slip and a check just seems too difficult. If you know you need to get a savings plan going, and at the same time you doubt your willpower, one answer would be an automatic investment plan. With one of these plans, you set up an automatic withdrawal from your checking account. The money is invested in a mutual fund as you go. A side benefit to automatic investment is that you are also automatically using dollar cost averaging, a popular risk-reduction strategy.

Most fund management companies make their money by imposing fees based on a percentage of the net value of each account. Small accounts may be less profitable for the management company, since some costs (printing and mailing account statements and a fund prospectus, for example) are the same regardless of the size of the account. For this reason, many fund management companies have rather high initial investment requirement ($3,000 for most Vanguard funds and $2,500 for most Fidelity funds, for example). Some also impose a fee for accounts that fall below a certain level.

The initial investment requirement is often waived for accounts with automatic investment plans in place. Without too much digging, I was able to find two no-load fund families that permit you to open new accounts with as little as $50 per month automatic investment: TIAA-CREF and T. Rowe Price. (Full disclosure: I or a member of my family hold shares in T. Rowe Price Small-Cap Value and Equity Index 500.) Both feature low expenses, so you get to keep more of your investment.

There are a couple of other things to bear in mind. First, IRA accounts usually carry lower initial or automatic investment minimums, so you can pretty much take your pick from a wider number of funds. Second, there are expenses such as account maintenance fees that do not figure into the expense ratio, since they are imposed on a per-account basis.

For more ideas, here is a screener for mutual funds by the Mutual Fund Education Alliance. You can search by Morningstar ratings, initial investment requirements, asset class, and expenses. For a guide to fund expenses and why I place so much emphasis on them try this article in The Motley Fool. For general information on mutual funds, here is the Wikipedia article, originally written by yours truly.

Of course I mean the federal CAFE standards for automobile efficiency. Jim Miller reminds about their human cost.

In response to my previous post, Malcolm Gladwell (it appears, one cannot be too certain) wrote in the comments:

“Can i suggest that before attacking my article, you first read it? I never once say that I’m in favor of dental insurance. I merely point out that people without general medical coverage can’t afford to pay for preventative dental care. And nor do I saw that the health care system is an efficient free market. I say–quite the opposite–that the amazing thing is that a country that is otherwise committed to economic efficiency would tolerate such a grossly inefficient health care system. Trust me. It’s not that hard to read a 4000 word article.”

I am certain that Mr. Gladwell is not seriously suggesting I had not read his article, but rather uses this cute device to imply that my interpretation was so far afield from his intent, one could only assume the critic (that is, I) had not in fact read the piece at all.

But it was indeed read, and several times, mostly in astonishment that such a slightly argued discussion was published in a major magazine. It appeared to contain virtually every canard supporting nationalized health care I have ever seen in print.

Others have, as I had noted, already critiqued several of its deficits. My main concern was that the initial argument introduced in that article, that:
“People without health insurance have bad teeth because, if you’re paying for everything out of your own pocket, going to the dentist for a checkup seems like a luxury.”
was never in fact demonstrated in the article.

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I’m not sure just what it is about people in my Property Law class. So far, we’ve been covering some basic economic issues, and today we touched on the topic of the tragedy of the commons. Despite some of the utilitarian thinkers whose names we were introduced to in the text, the ideas shouldn’t be so hard to grasp.

“Tragedy of the commons” may be a term of economics, but the idea is very basic. Let’s say you’ve got a communal pasture, which everyone can access, and which nobody has rights to. What happens, then, in a community of herders? You’ll get overgrazing, because when nobody owns the rights to the common pasture, and anybody can use it, nobody has an incentive to stop somebody else’s herd from grazing. It’s a recipe for environmental disaster. The basic economic idea underlying this is that, when there is open access, and no exclusive rights, resources will be consumed faster, resulting in underproduction or shortage. To prevent overgrazing in the commons, then, the community could either ban herding (which has the advantage of negating the entire scenario, but the disadvantage of being unrealistic and avoiding the question), or the community could create private property by dividing the commons into small parcels. Each property owner then has a vested interest in the productivity of his piece of pasture, and so will not only limit his own consumption, but invoke his right, guaranteed by the law, to prevent others from grazing on his part of the pasture by any reasonable means, such as by building a fence. Simple enough, right?

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In the August 29 issue of the New Yorker, Malcolm Gladwell makes so many errors in discussing national health insurance, it’s hard to believe the piece was reviewed by an editor. To fisk it all would mean to delete it.

Arnold Kling does an excellent job junking Gladwell’s misguided notion of “moral hazard” (and the notion that American health care economists are mistakenly “obsessed” with the idea).

And Slate’s Mickey Kaus nicely rips Gladwell’s claim that health care copayments are a bad idea.

But Gladwell begins his piece discussing how the lack of dental care among the poor demonstrates the need for socialized medicine.
“People without health insurance have bad teeth because, if you’re paying for everything out of your own pocket, going to the dentist for a checkup seems like a luxury.”
Curiously, he does not follow up and tell you whether this method succeeds in producing better teeth in the UK, Canada, or elsewhere.

HT: Instapundit

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