Perhaps one of the biggest roadblocks to effective economic policy is the usual impediment of both the public and politicians to get the big picture. As per usual, the subject of economics is viewed through the same black and white lens as is everything else. Everything can only be black or it can be white, there are no grays, there are no colors. The problem is that in reality, there are grays and there are colors and it is usually in these grays and colors that the most effective solutions are found. Economics is no different. When it comes to competitive free markets, the prevailing views are that of either a complete laissez-faire approach or that of onerous and stifling government intervention and control. One ideology says that the best solution is zero involvement by government while the competing ideology is that government must bludgeon the economy into submission. Both strategies are doomed to be ineffective solutions at best and outright disaster at worst.
To understand why this is the case, we must first understand how competitive free markets work. First, the principles and properties of markets is not a philosophy any more the the theory of gravity is a philosophy. We know that dropping an object, that object will fall in accordance with the laws of physics, and where gravity is the only force, that object must necessarily fall. No amount of philosophical debate will change how the physical laws act on that object. We don't need to know the math behind the laws that govern the laws to know their qualitative effects are real. The same is true with economics. The economic laws of supply and demand are fundamental economic laws, just as gravity is a fundamental physical law. It is also a fundamental fact that if there is insufficient profit opportunity to make it worthwhile for people (suppliers) to enter a market, they will simply take their effort and investment to other markets with greater opportunity for profit. The result being that if the profit opportunity is insufficient to entice people to serve that market, then that market goes under supplied and rationing results. It doesn't take a rocket scientist to understand this fundamental concept, yet people seem eternally unable to understand why free markets with price controls (or profit restrictions, or excessive punitive taxation) are subject to rationing. The key here is that unless forced labor is employed, all markets are necessarily "free" on the supply side. Unless people are forced into working particular markets, they are FREE to enter or leave any market as they see fit. If there is insufficient profit opportunity in a market to entice people to make the free choice to serve that market, they will freely choose to serve other markets. The point here being that treating markets as free markets is not a philosophical option, but a fundamental economic principle that must be considered in any economic policy.
Mathematically, the economy is represented as what is referred to as a "system of of equations." What those equations are specifically is not germane to this discussion. In fact, the equations are so complex that the exact forms of those equations are hotly debated and this is one of the reasons why attempts to directly control markets is a lost cause. If you don't even know the exact form of the math governing the economy, how can you hope to directly control the market without wrecking havoc? Fortunately for us, to construct a healthy, vibrant economy that serves us effectively and efficiently, we need not know the exact details of all of the equations.
One of my favorite illustrative stories is this. Years ago the Lotus Formula One race team embarked on a program to develop "active suspensions" for their race cars. An "active suspension" is one where computers and hydraulic rams directly control the movement of the suspension rather than with springs and shocks. What they discovered is that this approach yielded inferior results and at greater cost and complexity than conventional suspension designs. What was realized is that the classic spring and shock suspension was far more effective and efficient than direct control. The point being that if direct control could not produce better results than natural physical elements in something as relatively simple as a race car suspension, how can we conceivably hope to produce better results with direct control in something orders of magnitude more complex like the economy? To deploy an active suspension, engineers must know the exact form of all of the equations that govern race car suspension dynamics. But fortunately for race car engineers, the existing elements that compose a conventional race car suspension naturally "solve" those systems of equations effectively and efficiently. The same is true of economics in that the fundamental nature of the existing elements of economics already naturally, effectively, and efficiently "solves" the systems of equations that govern the economy, in whatever form they take, if we would only let them.
What does it mean to "solve" these systems of equations? First let me say that we don't need to know the entirety of specific details of the equations to know what the solutions look like. In mathematical terms, it would be said that we know the basic form the equations take and as such, we can also know the basic form the solution will take. So what does that mean? Its like if we see an image of a face, we don't need to know who's face of even be able to see much detail to know that it is an image of a face. OK but what does a "solution" look like? Well this is key to being able to develop practical and effective economic solutions - not what it looks like so much as what is a "solution."
Consider a bowl that occupies some space. In this example, the bowl represents what is referred to as a "solution space". Now imagine we have a marble the is free to roll around in the bowl. This marble represents what we call the "instantaneous state solution." Don't worry we're getting close. The location (and trajectory) of the marble represents inputs to the system of equations. If the system of equations are mathematically consistent with these inputs, this location is considered a solution of the system of equations. In our example, any place that the marble is located on the surface of the bowl will satisfy the system of equations that describes the bowl. If the marble is somewhere that is not in the bowl, the equations are NOT satisfied. Mathematically this means that the equation reduces down to something that is incorrect or inconsistent, such as 2=3, which is mathematically incorrect and therefore not a solution to the system of equations. So what does this mean physically and why can't we have the marble not on the bowl? Consider an articulated doll. There is a system of equations that describes the movements of the limbs and joints. Any positioning of the limbs that doesn't break the doll is thus a solution to those equations. If you attempt to put a limb in a position that is not a solution to the equations, the limb breaks or is damaged. Conversely, a position that breaks or damages a limb is not a solution to the equations that describe the doll. And this is the point in economics, if the economy is forced into a state that is not a solution to the equations that describe the economy, then things break and bad things happen to people. In extreme cases, this is things like rationing, starvation, people losing their homes and their jobs, etc.
So what does this mean for economic policy? Well, first let me just say, this is why policies that attempt to force the economy into a state that is not in the "solution space" are a bad thing. The big problem when trying to force the economy into a particular state is how do you know when a state is in the solution space or not? The problem is, given the complexity of the system, you don't. Remember the race car suspension? The good news is that just like that, we don't need to know exactly what the solution space is, if we skillfully use the properties of the natural elements we have available to us. In the example of the race car suspension and the marble in the bowl, these are what are called "equilibrium seeking systems." In the case of the race car suspension, the suspension naturally seeks equilibrium between gravity and the action of the spring against the weight of the car. In the marble in the bowl, being at the bottom is the equilibrium state and the marble will naturally roll to the bottom. The marbel also represents what is wrong with laissez-fair government policy. If the marble rolls down one side, it then rolls past the equilibrium point and up the other side. The marble could keep doing this forever unless there is some amount of rolling resistance such that it eventually stops the marble at the bottom. Obviously, never stopping at the bottom of the bowl, economically speaking, is not a good thing. This is what we refer to as an "under-damped" system. The Tacoma Narrows Bridge is a classic example of what can happen in an under-damped system. The motion of the marble in the bowl is what we call a "trajectory." The good news is that economics is also naturally an equilibrium system. The bad news is that, just as in the case of the marble rolling in the bowl, "equilibrium seeking" does not mean that equilibrium is reached in what we might consider a controlled fashion. And that being the case, the resulting trajectory could take the economy into realms where disaster results. This is at the core of arguments against free market economics. The problem with this as an argument is that it doesn't disprove the reality of market economics. This is the same as attempting to use the fact of someone dying from falling off of a cliff to disprove gravity as a philosophy. At a fundamental level, we can't understand how it is that person died if we deny gravity on philosophical grounds. Similarly, we can't understand economic calamity and take action to rectify the situation by denying market principles on philosophical grounds. You can't just nullify laws of physics or economics because you disagree with them on philosophical grounds, no matter how earnestly you hold that philosophy.
Now we have enough to get to the meat. Consider a chalet at the base of a hill. At the top of the hill is a large boulder that is rolling down the hill toward the chalet. Now, those subscribing to an ideology of government control of the economy would attempt to stop the boulder in its tracks. Obviously the first problem is simply not just getting run over by the boulder in the process. The second problem is, even if we are successful is stopping the boulder, we can't hope to simply hold it there forever. On the other hand, those subscribing to a laissez-faire ideology, would simply do nothing and let the boulder smash the chalet since philosophically, the trajectory of the boulder must not be tampered with. Obviously, both ideologies produce unacceptable results. Now what we can and should do is to deflect the boulder from it's current trajectory. This effectively uses the existing physics already at work to effectively and safely save the chalet in a sustainable manner with little effort on our part.
The best most effective economic policy is one that leverages the principles of economics that naturally and effectively "solves" the system of equations that is the economy but yet directs the trajectory of that solution into a direction that is beneficial and not counter-productive or outright destructive. In the example of the race car suspension, this is analogous to tuning the spring rates and shock rates, and choosing the geometry of the suspension components. Rather than trying to do all the work ourselves with computers and hydraulic rams with sometimes disastrous results and at great cost and complexity, let the springs and shocks and suspension components do the work that they already do effectively and tune them to produce optimal results. The key to such an economic policy, as is suspension design, is to create what is referred to as a "critically damped" system. Just as the shocks control the speed at which the suspension reacts, we can also attempt to moderate the rate at which the economy reacts. We already do this to a degree by influencing interest rates. However, when expressions such as "irrational exuberance" start creeping into the daily lexicon, that should be a indicator that we are dealing with an "under-damped" system.
The key to economic policy is thus not to attempt to directly control the economy into a state that subverts the natural equilibrium or obstructs or prevents the natural equilibrium seeking forces or, at worst, that is not a solution to the system of equations and the concomitant resulting disaster, but rather, to leverage those natural equilibrium seeking forces in a controlled manner that safely, effectively, and efficiently arrives at a sustainable equilibrium via a trajectory that the produces the maximum benefit and minimum damages.
And now for the extra credit. However, in reality we know that the economy is not a static system. The equilibrium point is a continually moving target. It is not like it is simply a problem of finding equilibrium and we're done. A simple example is a "fad". When something becomes more or less popular, this moves the equilibrium point. This is readily apparent by the fact that when something becomes more or less popular, the demand changes accordingly. Shopping for Christmas toys is usually a pretty stark example. If the producer of a popular toy, underestimates the popularity of that toy, the supply and demand equilibrium for that toy is totally thrown out of balance. This is why it is doubly important to leverage the natural "equilibrium seeking" aspect of market dynamics to function properly. It is impossible enough to directly control an economy whose equilibrium never changes, but to make that a moving target makes it yet orders of magnitude more complex a task as the shifting market must also be factored into those direct controls.
Sunday, January 31, 2010
Saturday, January 30, 2010
If The Profit Being Made Is The Profit That Is Required To Get Food To The Table, Then It Isn't "Obscene"
People will attempt to counter explanations of free market economic principles by giving individual counter examples. The problem with this is that it is not individual behavior that moves markets, it is the behavior of individuals in aggregate that moves markets. For example, a proposed solution to health care costs is to simply pay doctors less. Free market principles tell us that the result to paying doctors less can only be to have fewer doctors in practice. Contrarians observe that if doctor pay is reduced there are doctors who will continue to practice. And this is absolutely correct. However, the problem lies not with these individual doctors who choose to continue to practice, but with those who decide it is no longer worth their while to continue to practice or to start a practice that produces an aggregate reduction in the number of practicing doctors. Reducing pay will not make some people now decide to become doctors as if "I'll become a doctor now that I'll make less money." What will happen is that people will decide it is no longer sufficiently profitable or even possible to keep their practice open and people will decide that it is no longer worth their while to make the huge investment in becoming a doctor in the first place. The only possible result to reducing doctor pay being fewer practicing doctors. And this is the case in any competitive free market.
Many people think that it is possible to choose what is the "right" amount of profit to earn in any market. They are outraged at the perceived "obscene" profits some people make in some markets. They think that it is possible to set by edict, decree, or fiat the profit one can earn in any given market. The problem is that the "right" amount of profit is that which makes supply sufficiently abundant to meet demand. This is why competitive free markets are "genius" in producing abundant supply. They naturally find the right amount of profit that is required to make sufficient supply available to meet demand, no more, no less. This is called an "equilibrium seeking" system.
Profit available in the market increases to entice more and more people to decide that it is worth their time to supply the market in question. Once demand is met, profit stabilizes and stops increasing. Profit is held in check by competitive market forces. It can be viewed as demand drives up available profits to draw in more supply to satisfy demand. Once the demand is satisfied, there is no longer a force to increase available profits any further. The "equilibrium seeking" aspect is that if profits continued to increase, this would draw in even more supply that would now be in excess of demand. When there is an oversupply, this forces prices down which results in decreasing profits. Thus a fully functional competitive market naturally limits the profits that can be made. Furthermore, if profit is reduced, it can only cause some people to reverse their decision to supply the market and available supply decreases. Thus market forces function to find the exact required profit opportunity to keep supply and demand in equilibrium.
Free competition is the mechanism that creates one of the forces that produces the "equilibrium seeking" nature of competitive free markets. Without going into detail on the mathematical principles involved (which I am happy to discuss but are much more involved than necessary for this discussion), the net effect is that market competition culls the players so that those willing to take the least amount of profit are left. No one else is willing to enter the market at the prevailing profit or less profit, or else they would already be in the market. The necessary result in reducing the available profit is that, while certainly there are those who will accept the reduction, there are those who are "fence sitters" at the prevailing profit and would thus choose or be forced to exit the market if profit is reduced. And since all players who would be willing to supply the market at the new prevailing reduced profit already entered the market at the previous higher profit, the is no one to replace those "fence sitters" who exit the market. Thus the result is can only be reduced supply in the market.
We are seeing a real-life experiment on this effect today in Venezuela. Venezuelans had access to food in relative abundance. Then Chavez decides that those providing the food are making "too much profit" and that it was "immoral" to make that much profit in providing food. So he instituted new price controls to reduce the profit these people could make. The inevitable fallout is that many of the providers decided it was no longer worth their while to provide food at the new reduced profit. As a result, the food supply has dwindled and Venezuelans now have much less access to food and some resort to black markets in order to obtain the food they need. For Venezuelans, the "right" profit is not what has been decreed, but that which enables food to be put on their tables.
Many people think that it is possible to choose what is the "right" amount of profit to earn in any market. They are outraged at the perceived "obscene" profits some people make in some markets. They think that it is possible to set by edict, decree, or fiat the profit one can earn in any given market. The problem is that the "right" amount of profit is that which makes supply sufficiently abundant to meet demand. This is why competitive free markets are "genius" in producing abundant supply. They naturally find the right amount of profit that is required to make sufficient supply available to meet demand, no more, no less. This is called an "equilibrium seeking" system.
Profit available in the market increases to entice more and more people to decide that it is worth their time to supply the market in question. Once demand is met, profit stabilizes and stops increasing. Profit is held in check by competitive market forces. It can be viewed as demand drives up available profits to draw in more supply to satisfy demand. Once the demand is satisfied, there is no longer a force to increase available profits any further. The "equilibrium seeking" aspect is that if profits continued to increase, this would draw in even more supply that would now be in excess of demand. When there is an oversupply, this forces prices down which results in decreasing profits. Thus a fully functional competitive market naturally limits the profits that can be made. Furthermore, if profit is reduced, it can only cause some people to reverse their decision to supply the market and available supply decreases. Thus market forces function to find the exact required profit opportunity to keep supply and demand in equilibrium.
Free competition is the mechanism that creates one of the forces that produces the "equilibrium seeking" nature of competitive free markets. Without going into detail on the mathematical principles involved (which I am happy to discuss but are much more involved than necessary for this discussion), the net effect is that market competition culls the players so that those willing to take the least amount of profit are left. No one else is willing to enter the market at the prevailing profit or less profit, or else they would already be in the market. The necessary result in reducing the available profit is that, while certainly there are those who will accept the reduction, there are those who are "fence sitters" at the prevailing profit and would thus choose or be forced to exit the market if profit is reduced. And since all players who would be willing to supply the market at the new prevailing reduced profit already entered the market at the previous higher profit, the is no one to replace those "fence sitters" who exit the market. Thus the result is can only be reduced supply in the market.
We are seeing a real-life experiment on this effect today in Venezuela. Venezuelans had access to food in relative abundance. Then Chavez decides that those providing the food are making "too much profit" and that it was "immoral" to make that much profit in providing food. So he instituted new price controls to reduce the profit these people could make. The inevitable fallout is that many of the providers decided it was no longer worth their while to provide food at the new reduced profit. As a result, the food supply has dwindled and Venezuelans now have much less access to food and some resort to black markets in order to obtain the food they need. For Venezuelans, the "right" profit is not what has been decreed, but that which enables food to be put on their tables.
Saturday, January 23, 2010
One "Counter Example" Does not Disprove a Body of Knowledge
I use quotes around "counter example" because often times a "counter examples" asserted by the laity is in fact not a counter example but a confirmation of the theory. Consider air travel. The design of aircraft is governed by the body of knowledge, both experimental and experientially, that describes the laws of aerodynamics, properties of materials, and gravity, etc. A thriving air travel industry has been built on the knowledge base. Now, the critic would present an airplane crash as "proof" that the theories on aerodynamics, properties of materials, and gravity are wrong. For simplicity, let's assume such a crash was the result of a structural failure in the wing. The thing is this doesn't disprove the body of knowledge but rather confirms it. The structural failure would have occurred as understood with known principles of materials properties and structural engineering, thus confirming this knowledge base, not contradicting. And one the wing had failed, the aircraft aerodynamics would be such that they could no longer counter the force of gravity, thus the plane crash is a confirmation of the laws of aerodynamics and gravity, not contradiction. The crash is a confirmation of this knowledge base, not a contradiction, because the existing knowledge base explains why and how this occurred. This is why we don't scrap the air travel industry as being based on "misguided" aerodynamics and such every time a plane crashes.
Now lets turn our attention to a current popular "contradictory example" for market economics, the failure of GM. Quite simply let's revisit one of the key principles of competitive free market economics. That is that any producer that cannot compete against other producers in a market governed by the prevailing supply and demand conditions will necessarily be forced out of the market to make room for the produces who have a more effective and efficient business model and thus better able to serve the interests of the market. In this case, the failure of GM is not in contraction but exact accordance and confirmation with market theories. GM became bloated, ineffective, and inefficient and could not operate as effective and efficient a business as, for example, Toyota. Thus, had things been allowed to progress naturally, more effective companies such as Toyota would have displaced an uncompetitive GM in the auto market. This process is explicitly why western auto manufactures produce a higher caliber of product than communist block auto manufacturers are capable of. In the free market, the market undergoes continual evolution with the result being ever more advanced product, at higher qualities, and at reduced prices. On the other hand, and this is key, in communist block countries, there is neither the incentive, as there is no opportunity for profit, nor is there a mechanism, as all production is run by the government, for someone with a better way of doing things that advances the product and makes it less expensive to displace the laggards. In the specific case of GM, that company was incapable of evolving its product focus as business model as were companies such as Toyota with the result being that they were incapable of surviving in the market. Companies such as Toyota were better able to serve the market than was GM, with the result being the GM was dying off to make way for other companies that were more capable of serving the market.
Now lets turn our attention to a current popular "contradictory example" for market economics, the failure of GM. Quite simply let's revisit one of the key principles of competitive free market economics. That is that any producer that cannot compete against other producers in a market governed by the prevailing supply and demand conditions will necessarily be forced out of the market to make room for the produces who have a more effective and efficient business model and thus better able to serve the interests of the market. In this case, the failure of GM is not in contraction but exact accordance and confirmation with market theories. GM became bloated, ineffective, and inefficient and could not operate as effective and efficient a business as, for example, Toyota. Thus, had things been allowed to progress naturally, more effective companies such as Toyota would have displaced an uncompetitive GM in the auto market. This process is explicitly why western auto manufactures produce a higher caliber of product than communist block auto manufacturers are capable of. In the free market, the market undergoes continual evolution with the result being ever more advanced product, at higher qualities, and at reduced prices. On the other hand, and this is key, in communist block countries, there is neither the incentive, as there is no opportunity for profit, nor is there a mechanism, as all production is run by the government, for someone with a better way of doing things that advances the product and makes it less expensive to displace the laggards. In the specific case of GM, that company was incapable of evolving its product focus as business model as were companies such as Toyota with the result being that they were incapable of surviving in the market. Companies such as Toyota were better able to serve the market than was GM, with the result being the GM was dying off to make way for other companies that were more capable of serving the market.
Letting "Immoral Profit" Get in the way of Health Care
In the Middle Ages, Western culture had the same "anti-profit" mind set regarding usury. Church doctrine at the time was that usury was immoral and therefore forbidden to Christians. The zeitgeist at the time was that profiting from the lending of money was immoral. Jews, not being part of the Christian religious establishment, where not bound by such strictures. This, combined with Jews being bared from the conventional trades of the time essentially pushed them into usury. I think a compelling argument could be made that the advent of usury gaining a toe hold and it's implementation by the Jewish community was a significant contributing factor to making the Renaissance possible by making available the financing required to drive the Renaissance. The point being that the Renaissance was made possible by getting past the notion that usury for profit was "immoral" and accepting it at least a unnecessary evil to improve the quality of life. And the corollary then is that regions that did not have access to the for-profit-lending of Jewish usury were at a developmental disadvantage as a result.
In modern times we have seen what the engine of profit opportunity in competitive free markets can achieve. And what's more we have "experimental controls" against which to compare. In scientific endeavors, experimental validation of a theory requires not only demonstration that the theory in fact produces the predicted results, but also "control sets" that demonstrate that absence of the theoretical mechanism does not produce similar or contrary results. We are well aware of the notion of "double blind trials" in medical pursuits used to validate new therapies. We have the same situation available to us for the study of market economics, if; however, not quite as rigorous as in a laboratory environment. Our market enabled consumerism has product some of the most vast leaps in technology and production. Two glaring examples are the production of automobiles and food. The stark contrast between Eastern European and Western produced autos is staggering. We have any number of manufacturers in the west that have produced the most advanced, quality, affordable, and widely available autos the world has today. Eastern European, non-market communist economies have been unable to produce anything remotely comparable. Some of the examples that we are familiar with are such as Yugo, Trabant, and Volga, cars of notoriously poor design and quality. The opportunity to make a profit in a competitive market has provided the economic engine that has produced the cars we have in the West. The absence of the opportunity to make a profit in a competitive market has produce the likes of Yugo, Trabant, and Volga.
In the production of food, profit opportunity in competitive markets has produced a food production powerhouse that feeds not only itself, but a large portion of the rest of the world. When we look at countries that deny to opportunity to make a profit in providing food, we see countries barely able to feed themselves with pitifully bare market shelves. Anecdotally, I know many people that have come from various parts of Russia and one of the things that was most shocking to them in coming to the US was the abundance of food on market shelves. They were astounded not only by the sheer abundance but also the vast variety from which to choose. And we have other illustrative examples that are virtual lab experiments. Many countries view profit making in the production and providing of food to be immoral, much like usury was viewed in the Middle Ages, and health care is viewed today. On one hand we have Cuba. A principle food distribution mechanism is the kind of "community farmers markets" where, basically, the food producers go to sell their products. In Cuba they have introduced (free markets) along with the customary government regulated markets where, well, everything is regulated by the government. In the more or less "free" markets (with some constraints) farmers are able to sell "excess" at market rates. The difference between the two is stark. The "free" markets are better stocked and with higher quality food than the regulated markets, and the prices and not dramatically different. And the people much prefer shopping at the free markets as a result of the availability and quality of the wares. Naturally this creates tension with government as a preference for "free markets" over government markets is anathema to a communist regime. On the other hand, we have Venezuela that is taking the opposite tack going from market based to government controlled. Before government controls, food availability, quality, and pricing was much like any other market based country. Now, after having government controls imposed, with the overt and stated goal of eliminating "immoral" profit opportunities as a result, many items, especially staples such as dairy, are in short supply and shelves are mostly bare. Needless to say, many Venezuelans must resort to black markets to get basic food supplies. The question becomes, which is more immoral: the making a profit in providing an essential product or making that product unavailable as a result of preventing the making of such profits?
The point here is that we should not fall into the trap of profit being "immoral" and the inability to get past that so that it effectively hamstrings our ability to reform health care so that it provides the best medical care possible. The opportunity to make a profit lending money fueled the Renaissance. The opportunity to make a profit has fueled the most advanced, abundant, quality, and affordable consumer products, such as cars and electronics, the knows today. The opportunity to make a profit providing food feeds the world while citizens of governments that prohibit "immoral profits" are starving. We can look all around the world and see that profit opportunity in competitive free markets pretty much universally outperforms government controlled and operated markets in quality, availability, affordability, advancement, and growth. Yet so many people can't get past the notion that profit is immoral and should not be allowed in the providing of health care. It's as if these people seem to think that the economic principles and realities that govern every other market known to man should somehow not be in effect in the health care market. This is like thinking gravity should or would somehow not apply if you are falling off of a cliff, because it would be immoral for gravity to cause your death. No matter how earnestly you hold such beliefs, that can't make laws of nature or laws of economics not apply simply because you are uncomfortable accepting the reality that is at odds with your ideology.
The typical counter argument is how "wonderful" European health care is. First I would say, that is debatable and there is evidence to the contrary. Secondly I would say that if you don't have a car, a Trabant might seem similarly "wonderful." That doesn't make the Trabant the best possible car. And it is argued that our health care is inferior. Again I would say there is evidence to the contrary. I would also say that there is no real basis to assume that the European model would necessarily produce any better results here as outcomes are not solely determined by the provisioning models, but also the population to which they are applied. If the populations are dissimilar, then it is unreasonable to assume identical results. Also, if you look at the segments that do in fact operate as true free markets, those segments actually outperform European models. Where the US system falls apart is in areas that do not operate as free markets, often as a result of government or anti-market meddling. It is also argued that European models manage to deliver decent health care. There is no argument about that. Yugo, Trabant, and Volga also manage to produce drivable cars that get people where they are going. However, just because cars made by Yugo, Trabant, and Volga manage to get people where they are going, do you want to limit yourself to products of that caliber or do you want products of the caliber produced by companies operating for profit in competitive free markets. The crux of the argument against government run health care is that I would prefer to have "Toyota" (high quality, widely available, technologically advanced, and affordable) health care rather than be limited to "Yugo" health care. The only way we can have "Toyota" health care is if people can get past the "immorality of profit in health care" ideology. If we cannot get past the "profit immorality in health care" ideology, our ability to advance health care development, expand availability and reduce cost will be severely limited. The net effect on health care as a result of eliminating free market economics and imposing government controls will be exactly counter-productive and in opposition to achieving to the stated reasons for doing that. It took getting past the "profit immorality of usury" ideology to make the Renaissance possible. Regions that couldn't were at relative disadvantage as a result. It takes getting past the "profit immorality in food production" ideology to allow free markets to feed the world better than government controlled markets. Citizens of governments that can't go hungry as a result. It takes free markets to produce the caliber of goods and services that we take for granted. Governments that restrict markets are held at a disadvantage and relegated to producing inferior goods and services.
If government controlled markets are so great, why are people in countries with government controlled markets chronically unable to adequately feed themselves or at least unable to eat anywhere near as well as people in countries with free markets to provide their food? The best health care reform would be to leverage into health care the same market forces that has been the engine of development that has provided the highest caliber products in other markets. But in order to do so, people must get past the "profit immorality in health care" ideology. We can see for ourselves the resulting benefits of free markets in advancement, quality, availability, and affordability in every other market yet people cannot make the leap in understanding that, economically speaking, health care is just another product or service just like any other. Just like gravity does not distinguish whether the object falling off of a cliff is a rock or a person: it produces exactly the same effect either way; laws of economics are no different: it makes no difference whether the product is big screen TVs or health care, the effect is the same. Leveraging free markets in health care would produce the same benefits it has in every other market and that preventing the natural free market from working will only produce the same disadvantages and developmental retardation that doing so has produced in every other market. Government controlled economies can produce cars too, but would you prefer a Western made car or a car made under a government controlled economy? Now ask the same question but health care instead of cars. How can you answer any differently?
In modern times we have seen what the engine of profit opportunity in competitive free markets can achieve. And what's more we have "experimental controls" against which to compare. In scientific endeavors, experimental validation of a theory requires not only demonstration that the theory in fact produces the predicted results, but also "control sets" that demonstrate that absence of the theoretical mechanism does not produce similar or contrary results. We are well aware of the notion of "double blind trials" in medical pursuits used to validate new therapies. We have the same situation available to us for the study of market economics, if; however, not quite as rigorous as in a laboratory environment. Our market enabled consumerism has product some of the most vast leaps in technology and production. Two glaring examples are the production of automobiles and food. The stark contrast between Eastern European and Western produced autos is staggering. We have any number of manufacturers in the west that have produced the most advanced, quality, affordable, and widely available autos the world has today. Eastern European, non-market communist economies have been unable to produce anything remotely comparable. Some of the examples that we are familiar with are such as Yugo, Trabant, and Volga, cars of notoriously poor design and quality. The opportunity to make a profit in a competitive market has provided the economic engine that has produced the cars we have in the West. The absence of the opportunity to make a profit in a competitive market has produce the likes of Yugo, Trabant, and Volga.
In the production of food, profit opportunity in competitive markets has produced a food production powerhouse that feeds not only itself, but a large portion of the rest of the world. When we look at countries that deny to opportunity to make a profit in providing food, we see countries barely able to feed themselves with pitifully bare market shelves. Anecdotally, I know many people that have come from various parts of Russia and one of the things that was most shocking to them in coming to the US was the abundance of food on market shelves. They were astounded not only by the sheer abundance but also the vast variety from which to choose. And we have other illustrative examples that are virtual lab experiments. Many countries view profit making in the production and providing of food to be immoral, much like usury was viewed in the Middle Ages, and health care is viewed today. On one hand we have Cuba. A principle food distribution mechanism is the kind of "community farmers markets" where, basically, the food producers go to sell their products. In Cuba they have introduced (free markets) along with the customary government regulated markets where, well, everything is regulated by the government. In the more or less "free" markets (with some constraints) farmers are able to sell "excess" at market rates. The difference between the two is stark. The "free" markets are better stocked and with higher quality food than the regulated markets, and the prices and not dramatically different. And the people much prefer shopping at the free markets as a result of the availability and quality of the wares. Naturally this creates tension with government as a preference for "free markets" over government markets is anathema to a communist regime. On the other hand, we have Venezuela that is taking the opposite tack going from market based to government controlled. Before government controls, food availability, quality, and pricing was much like any other market based country. Now, after having government controls imposed, with the overt and stated goal of eliminating "immoral" profit opportunities as a result, many items, especially staples such as dairy, are in short supply and shelves are mostly bare. Needless to say, many Venezuelans must resort to black markets to get basic food supplies. The question becomes, which is more immoral: the making a profit in providing an essential product or making that product unavailable as a result of preventing the making of such profits?
The point here is that we should not fall into the trap of profit being "immoral" and the inability to get past that so that it effectively hamstrings our ability to reform health care so that it provides the best medical care possible. The opportunity to make a profit lending money fueled the Renaissance. The opportunity to make a profit has fueled the most advanced, abundant, quality, and affordable consumer products, such as cars and electronics, the knows today. The opportunity to make a profit providing food feeds the world while citizens of governments that prohibit "immoral profits" are starving. We can look all around the world and see that profit opportunity in competitive free markets pretty much universally outperforms government controlled and operated markets in quality, availability, affordability, advancement, and growth. Yet so many people can't get past the notion that profit is immoral and should not be allowed in the providing of health care. It's as if these people seem to think that the economic principles and realities that govern every other market known to man should somehow not be in effect in the health care market. This is like thinking gravity should or would somehow not apply if you are falling off of a cliff, because it would be immoral for gravity to cause your death. No matter how earnestly you hold such beliefs, that can't make laws of nature or laws of economics not apply simply because you are uncomfortable accepting the reality that is at odds with your ideology.
The typical counter argument is how "wonderful" European health care is. First I would say, that is debatable and there is evidence to the contrary. Secondly I would say that if you don't have a car, a Trabant might seem similarly "wonderful." That doesn't make the Trabant the best possible car. And it is argued that our health care is inferior. Again I would say there is evidence to the contrary. I would also say that there is no real basis to assume that the European model would necessarily produce any better results here as outcomes are not solely determined by the provisioning models, but also the population to which they are applied. If the populations are dissimilar, then it is unreasonable to assume identical results. Also, if you look at the segments that do in fact operate as true free markets, those segments actually outperform European models. Where the US system falls apart is in areas that do not operate as free markets, often as a result of government or anti-market meddling. It is also argued that European models manage to deliver decent health care. There is no argument about that. Yugo, Trabant, and Volga also manage to produce drivable cars that get people where they are going. However, just because cars made by Yugo, Trabant, and Volga manage to get people where they are going, do you want to limit yourself to products of that caliber or do you want products of the caliber produced by companies operating for profit in competitive free markets. The crux of the argument against government run health care is that I would prefer to have "Toyota" (high quality, widely available, technologically advanced, and affordable) health care rather than be limited to "Yugo" health care. The only way we can have "Toyota" health care is if people can get past the "immorality of profit in health care" ideology. If we cannot get past the "profit immorality in health care" ideology, our ability to advance health care development, expand availability and reduce cost will be severely limited. The net effect on health care as a result of eliminating free market economics and imposing government controls will be exactly counter-productive and in opposition to achieving to the stated reasons for doing that. It took getting past the "profit immorality of usury" ideology to make the Renaissance possible. Regions that couldn't were at relative disadvantage as a result. It takes getting past the "profit immorality in food production" ideology to allow free markets to feed the world better than government controlled markets. Citizens of governments that can't go hungry as a result. It takes free markets to produce the caliber of goods and services that we take for granted. Governments that restrict markets are held at a disadvantage and relegated to producing inferior goods and services.
If government controlled markets are so great, why are people in countries with government controlled markets chronically unable to adequately feed themselves or at least unable to eat anywhere near as well as people in countries with free markets to provide their food? The best health care reform would be to leverage into health care the same market forces that has been the engine of development that has provided the highest caliber products in other markets. But in order to do so, people must get past the "profit immorality in health care" ideology. We can see for ourselves the resulting benefits of free markets in advancement, quality, availability, and affordability in every other market yet people cannot make the leap in understanding that, economically speaking, health care is just another product or service just like any other. Just like gravity does not distinguish whether the object falling off of a cliff is a rock or a person: it produces exactly the same effect either way; laws of economics are no different: it makes no difference whether the product is big screen TVs or health care, the effect is the same. Leveraging free markets in health care would produce the same benefits it has in every other market and that preventing the natural free market from working will only produce the same disadvantages and developmental retardation that doing so has produced in every other market. Government controlled economies can produce cars too, but would you prefer a Western made car or a car made under a government controlled economy? Now ask the same question but health care instead of cars. How can you answer any differently?
Thursday, January 21, 2010
And yet another "Five Lessons"...
There has been a lot of hay made in the blogoshpere about everyones' "five lessons" from the recent election of Scott Brown. So, herewith my "Five Lessons":
1) Winning an election should not be automatically construed as an endorsement of your agenda.
This was a mistake Democrats made. It's also a mistake Republicans eventually made with respect to the rout of Democrats in 1994 that led to their own rout in 2006 and 2008. Democrats beat out Republicans in 2006 and 2008 and then proceeded to assume this was an endorsement of liberal Democratic ideology and then worked to impose their liberal agenda. What is probably closer to reality is that the voters voted against Republicans in repudiation of their conservative agenda. And Democrats only won because they were the benefactors of that repudiation. And now voters are sending the message to Democrats, "we didn't elect you as an endorsement to pursue a liberal agenda, we elected you to stop Republicans from pursuing a conservative agenda."
2) Everything involving people is represented by the classic "bell curve."
This is especially true when it comes to socio-political views. The vast majority of voters are somewhere in the middle. If you get voted out of office, it's probably because you are on one side or the other of the bump in the middle and have pissed off that large number of people in that bump in the middle. When you are sitting out there on the lip of the bell curve and this is why you got kicked to the curb, it makes absolutely no sense to move further out on the lip as a strategy to regain voter favor. Even if those out on the lip think you are too far toward the center and vote against you as a result, those people who might now vote for you are far fewer in number than those who will now vote against you by shifting away from the center. And yet surprisingly, or perhaps not so surprisingly, some of the Democratic demagogues are proposing doing exactly this: if people voted against us because we weren't extreme enough the answer is to become even more extreme. Well, good luck with that. If you think a lot of people voted against you before, wait and see how many vote against you after you move even farther afield.
Consider these two examples. The last time Joe Lieberman ran as a Democrat, the Democrats decreed that Joe Lieberman, the incumbent at the time, was not liberal enough to suit the Democratic demagogues, so they selected a more liberal candidate to run for the Democratic party. Joe Lieberman then ran as an independent and beat the more liberal Democrat. Recently in a race for a New York senator, two candidates were vying for the Republican nomination. The candidate who was more moderate and in all likelihood would have won had he been nominated, was ousted by the right wing demagogues in favor of the more extremely conservative candidate. Needless to say, the Democrat won. If your seat is in jeopardy, moving farther from the middle in order to "recapture your 'base'" is a "strategy" that is mathematically certain to fail.
In the end, if your candidate is to win, he must be voted for by a majority of the entire voting public, not just your "base." It does no good to "energize your base" if in the process you alienate an even larger portion of the general public. Alienating the major portion of the population in the big fat middle of the bell curve is not the path to victory but rather to defeat.
Apropos of points 1 and 2, I came across a posting on a message board where the poster stated that the voters are schizophrenic because they first voted for Democrats in 2006 and 2008 and then have been voting against them of late. Of course the flaw is that logic is the assumption that they voted _for_ Democrats in 2006 and 2008 more so than as Democrats being the benefactor of deservedly voting against Republicans. It is not schizophrenic to repudiate Republican ideological idiocy on the right in 2006 and 2008 and then repudiate Democratic ideological idiocy on the left now when all along what you wanted was the middle.
3) Solve the problems people want you to solve, not the problems you want to solve.
Too many Democrats were so mono maniacally obsessed with addressing health care that they neglected the, literally, bread and butter issues that people are most concerned about today. I think many Democrats viewed "fixing" health care as a hallmark achievement for liberal ideology and desperately wanted that trophy to hang on the wall and they put that quest above the will of the people. Serving the will of the people and actually making American's lives better should not take a back seat to "big game trophy hunting," or worse yet, get left on the curb. I think too often, the "helping people" aspect of liberal ideology is less about actually helping people and more about making the acolytes feel good about themselves about having "done something to help the people" regardless of whether or not anybody is actually any better off or even worse off as a result. Health care took on this dimension. It was no longer about fixing health care, helping anyone, or about dealing with the problems people wanted fixed, it was all about the obsession with passing health care legislation so that they could have that trophy to hang on their wall, and damn the torpedoes. The problem is that, while many people want health care reform, it is moot when what they need or are worried about is keeping a roof over their head or putting food on the table. Its good to have good health care coverage, but having health care doesn't put a roof over your head or food on the table. "Great! I have health care but I lost my job, have nowhere to live, and nothing to eat!"
4) Nothing has to be solved as an all encompassing "comprehensive reform" colossus.
In fact, most things probably can't be solved as such. And this has as much to do with the fact that it is virtually impossible to get a committee of people to agree on anything that massive that the end result will actually do anything to make anything the least bit better. The problem and the task at hand to solve it are made unnecessarily so massive that it simply can't be addressed in any meaningful way. The saying goes: "How do you eat and elephant? One bite at a time." (I've addressed the "elephant" problem in a previous post) Politicians would do well to heed this wisdom rather than trying to eat the elephant all in one bite and choking to death on it as a result. Why is it so wrong to solve a problem by tackling all the smaller problems one at a time in bite sized tractable problems especially if the end result is a much better solution or even any solution as opposed to none at all?
5) Saying a thing doesn't make it so.
Democrats continually trumpeted that the people wanted health care reform and that they were going to solve it and make health care so wonderful and cheap and everyone was going to have it. Well, they were right that people wanted health care. But the people didn't want the train wreck that Democrats were pushing as "health care reform." They didn't want what was being pushed and they didn't buy that it was going to produce what Democrats proclaimed it would. Democrats kept on with their mantra of how their health care reform was going to do all of these wonderful things. But as people had time to look at the text of what was being proffered, it became more and more apparent the this colossus was not going to achieve even half of what Democrats were saying it would do, if it even did anything net positive at all. Now Democrats are saying they failed to get the message out. Actually I think they did succeed and that was their problem. As people had time to digest the colossus, they discovered that what Democrats were saying it would do and what the legislation would produce in actuality were two completely different things. People saw through the smoke screens and colossally flawed logic and understood it simply was not going to do even half of what Democrats were claiming and only going create more new colossal government spending. Democrats could say what they probably honestly believed it would do, but no amount of saying what they were saying can make the legislation do it in actuality. And when politicians focus on "deficit neutrality" rather than the cost to taxpayers and even try to hide the real cost behind the smoke screen of "deficit neutrality", rest assured, it's going to hit taxpayers hard. (I've already addressed how "deficit neutral" doesn't mean free in a previous post)
You can candy coat crap all you want but that doesn't make it not crap. You can build a car and go around saying it's going to go 200 MPH, but saying it all you want, no matter how earnestly and fervently believed, won't make it go that fast if it hasn't been crafted with the engineering that is required to accomplish that. You can put a horse in high heels and a ball gown, but that doesn't make it a ballroom dancer. You can paint racing stripes on a Pinto and put race slicks on it, but it's still not going to win a Formula One Grand Prix. So when people see that it's just a lawnmower engine on a plank with four wheels, and still just a horse, and still just a Pinto, don't be surprised when people don't believe your claims of 200 MPH, doing the Tango, and winning the race no matter how fervently you believe those claims yourself.
At the end of the day, any legislation has to be evaluated on the merit of what it actually accomplishes, not on fancy feel-good titles and flowery rhetoric. I even remember a time when it seemed that every piece of legislation coming out of politicians nether regions was touted as "for the children." As if saying "it's for the children" even when seemingly no children are involved is supposed to obviate any need to evaluate the legislation based on actual merit and efficacy. "I should support this without actually understanding what it really does because I know that whatever it does in the end has to be good when they tell me 'it's for the children.' How could you oppose anything that is 'for the children'?" You can say "it's for the children" all you want, but that doesn't mean that any children are actually going to be better of as a result. Only legislation crafted in view of pragmatism and reality can produce the desired result, not fancy titles and flowery rhetoric based in ideology and denial.
1) Winning an election should not be automatically construed as an endorsement of your agenda.
This was a mistake Democrats made. It's also a mistake Republicans eventually made with respect to the rout of Democrats in 1994 that led to their own rout in 2006 and 2008. Democrats beat out Republicans in 2006 and 2008 and then proceeded to assume this was an endorsement of liberal Democratic ideology and then worked to impose their liberal agenda. What is probably closer to reality is that the voters voted against Republicans in repudiation of their conservative agenda. And Democrats only won because they were the benefactors of that repudiation. And now voters are sending the message to Democrats, "we didn't elect you as an endorsement to pursue a liberal agenda, we elected you to stop Republicans from pursuing a conservative agenda."
2) Everything involving people is represented by the classic "bell curve."
This is especially true when it comes to socio-political views. The vast majority of voters are somewhere in the middle. If you get voted out of office, it's probably because you are on one side or the other of the bump in the middle and have pissed off that large number of people in that bump in the middle. When you are sitting out there on the lip of the bell curve and this is why you got kicked to the curb, it makes absolutely no sense to move further out on the lip as a strategy to regain voter favor. Even if those out on the lip think you are too far toward the center and vote against you as a result, those people who might now vote for you are far fewer in number than those who will now vote against you by shifting away from the center. And yet surprisingly, or perhaps not so surprisingly, some of the Democratic demagogues are proposing doing exactly this: if people voted against us because we weren't extreme enough the answer is to become even more extreme. Well, good luck with that. If you think a lot of people voted against you before, wait and see how many vote against you after you move even farther afield.
Consider these two examples. The last time Joe Lieberman ran as a Democrat, the Democrats decreed that Joe Lieberman, the incumbent at the time, was not liberal enough to suit the Democratic demagogues, so they selected a more liberal candidate to run for the Democratic party. Joe Lieberman then ran as an independent and beat the more liberal Democrat. Recently in a race for a New York senator, two candidates were vying for the Republican nomination. The candidate who was more moderate and in all likelihood would have won had he been nominated, was ousted by the right wing demagogues in favor of the more extremely conservative candidate. Needless to say, the Democrat won. If your seat is in jeopardy, moving farther from the middle in order to "recapture your 'base'" is a "strategy" that is mathematically certain to fail.
In the end, if your candidate is to win, he must be voted for by a majority of the entire voting public, not just your "base." It does no good to "energize your base" if in the process you alienate an even larger portion of the general public. Alienating the major portion of the population in the big fat middle of the bell curve is not the path to victory but rather to defeat.
Apropos of points 1 and 2, I came across a posting on a message board where the poster stated that the voters are schizophrenic because they first voted for Democrats in 2006 and 2008 and then have been voting against them of late. Of course the flaw is that logic is the assumption that they voted _for_ Democrats in 2006 and 2008 more so than as Democrats being the benefactor of deservedly voting against Republicans. It is not schizophrenic to repudiate Republican ideological idiocy on the right in 2006 and 2008 and then repudiate Democratic ideological idiocy on the left now when all along what you wanted was the middle.
3) Solve the problems people want you to solve, not the problems you want to solve.
Too many Democrats were so mono maniacally obsessed with addressing health care that they neglected the, literally, bread and butter issues that people are most concerned about today. I think many Democrats viewed "fixing" health care as a hallmark achievement for liberal ideology and desperately wanted that trophy to hang on the wall and they put that quest above the will of the people. Serving the will of the people and actually making American's lives better should not take a back seat to "big game trophy hunting," or worse yet, get left on the curb. I think too often, the "helping people" aspect of liberal ideology is less about actually helping people and more about making the acolytes feel good about themselves about having "done something to help the people" regardless of whether or not anybody is actually any better off or even worse off as a result. Health care took on this dimension. It was no longer about fixing health care, helping anyone, or about dealing with the problems people wanted fixed, it was all about the obsession with passing health care legislation so that they could have that trophy to hang on their wall, and damn the torpedoes. The problem is that, while many people want health care reform, it is moot when what they need or are worried about is keeping a roof over their head or putting food on the table. Its good to have good health care coverage, but having health care doesn't put a roof over your head or food on the table. "Great! I have health care but I lost my job, have nowhere to live, and nothing to eat!"
4) Nothing has to be solved as an all encompassing "comprehensive reform" colossus.
In fact, most things probably can't be solved as such. And this has as much to do with the fact that it is virtually impossible to get a committee of people to agree on anything that massive that the end result will actually do anything to make anything the least bit better. The problem and the task at hand to solve it are made unnecessarily so massive that it simply can't be addressed in any meaningful way. The saying goes: "How do you eat and elephant? One bite at a time." (I've addressed the "elephant" problem in a previous post) Politicians would do well to heed this wisdom rather than trying to eat the elephant all in one bite and choking to death on it as a result. Why is it so wrong to solve a problem by tackling all the smaller problems one at a time in bite sized tractable problems especially if the end result is a much better solution or even any solution as opposed to none at all?
5) Saying a thing doesn't make it so.
Democrats continually trumpeted that the people wanted health care reform and that they were going to solve it and make health care so wonderful and cheap and everyone was going to have it. Well, they were right that people wanted health care. But the people didn't want the train wreck that Democrats were pushing as "health care reform." They didn't want what was being pushed and they didn't buy that it was going to produce what Democrats proclaimed it would. Democrats kept on with their mantra of how their health care reform was going to do all of these wonderful things. But as people had time to look at the text of what was being proffered, it became more and more apparent the this colossus was not going to achieve even half of what Democrats were saying it would do, if it even did anything net positive at all. Now Democrats are saying they failed to get the message out. Actually I think they did succeed and that was their problem. As people had time to digest the colossus, they discovered that what Democrats were saying it would do and what the legislation would produce in actuality were two completely different things. People saw through the smoke screens and colossally flawed logic and understood it simply was not going to do even half of what Democrats were claiming and only going create more new colossal government spending. Democrats could say what they probably honestly believed it would do, but no amount of saying what they were saying can make the legislation do it in actuality. And when politicians focus on "deficit neutrality" rather than the cost to taxpayers and even try to hide the real cost behind the smoke screen of "deficit neutrality", rest assured, it's going to hit taxpayers hard. (I've already addressed how "deficit neutral" doesn't mean free in a previous post)
You can candy coat crap all you want but that doesn't make it not crap. You can build a car and go around saying it's going to go 200 MPH, but saying it all you want, no matter how earnestly and fervently believed, won't make it go that fast if it hasn't been crafted with the engineering that is required to accomplish that. You can put a horse in high heels and a ball gown, but that doesn't make it a ballroom dancer. You can paint racing stripes on a Pinto and put race slicks on it, but it's still not going to win a Formula One Grand Prix. So when people see that it's just a lawnmower engine on a plank with four wheels, and still just a horse, and still just a Pinto, don't be surprised when people don't believe your claims of 200 MPH, doing the Tango, and winning the race no matter how fervently you believe those claims yourself.
At the end of the day, any legislation has to be evaluated on the merit of what it actually accomplishes, not on fancy feel-good titles and flowery rhetoric. I even remember a time when it seemed that every piece of legislation coming out of politicians nether regions was touted as "for the children." As if saying "it's for the children" even when seemingly no children are involved is supposed to obviate any need to evaluate the legislation based on actual merit and efficacy. "I should support this without actually understanding what it really does because I know that whatever it does in the end has to be good when they tell me 'it's for the children.' How could you oppose anything that is 'for the children'?" You can say "it's for the children" all you want, but that doesn't mean that any children are actually going to be better of as a result. Only legislation crafted in view of pragmatism and reality can produce the desired result, not fancy titles and flowery rhetoric based in ideology and denial.
How do you east an elephant?
One bite at a time.
This is wisdom that it would behoove politicians to heed. A big part of the problem why Congress can't accomplish anything is that everything has to be "solved" in one colossal singular piece of "comprehensive reform" legislation. Its always "comprehensive this reform" and "comprehensive that reform." Its as if politicians seem to think that the only way to eat an elephant is in one massive bite. And of course, the result being they choke on it. What is so wrong with breaking a problem down into surmountable problems? When you design a computer, you don't start by creating one chip that has every required function integrated on to it. You start by breaking the design down into smaller, tractable subsystems, such as processor, memory, peripherals, power supply, etc. One bite at a time.
For some reason, politicians don't seem to get this basic principle. Part of the problem, I think is that politicians believe that anything worth doing is worth doing with headline grabbing grandiose legislation. They are probably afraid that if they broke things down into solvable problems they wouldn't get grand public recognition for "_SOLVING_ _PROBLEMS_." They want that "big game trophy" to hang on the wall. So instead, they get grand public notice for failing to solve any problems because they try biting off so much they choke on it. And it's also partly "obstructionist politics" that are to blame that creates this environment of an inability to break things down into solvable problems. Whenever someone tries to solve a well defined tractable problem, critics will obstruct this by claiming, "you can't do that because it doesn't solve the WHOLE problem." Well, no it doesn't, it solves one smaller problem that is an important part of the whole problem, and what is wrong with that? Isn't it far better to solve something a bit at a time than failing to solving any of it in one all inclusive colossus? A good example of this is immigration reform. Many ideas were floated to address narrowly defined immigrant issues, and many of these ideas had merit for the issues they were designed to target. However, the critics and nay-sayers responded not by critiquing the efficacy in solving the issues they were intended to address, but rather by proclaiming that each of these solutions didn't address the entire colossal issue of illegal immigration and therefore they can't be considered. Why is it that, for example, border security can only be addressed in concert with addressing every other facet of society touched by illegal immigration? Why can't a border security solution simply deal with border security?
Take "health care." Why does this have to be tackled in one massive colossus that no one can agree on and to which everyone finds something to take exception. President Obama says that now we need to work on passing the parts of health care reform that everyone agrees on. Wow, what a concept. It takes a near fatal torpedoing of the health care colossus to figure out that this should be solved in less ambitious pieces? If it had started that way from the get-go, large portions of the health care conundrum probably could have been reformed by now. Why can't we, say, pass legislation to remove the exemption from anti-trust and anti-competition laws for health insurance providers? Why can this only be done as part of a massive colossus of legislation? Then move on to legislation reforming Medicare/Medicaid to incentivise quality of care instead of quantity and how doctors and hospitals are compensated. And so on, one bite at a time. And sooner or later (and probably sooner than later as compared to the "comprehensive" approach) health care has been reformed, costs have been controlled by making the providing of health care more efficient, effective, and less wasteful.
True, there would not be any celebratory fanfare at the end for all of the politicians to gloat and thump their chests about how wonderfully they have "served the people" regardless of whether or not anyone is actually any better off: "we passed massive legislation that says the people are better off so it must be so - we are so wonderful." There would be no singular "big game trophy" to hang on the wall and point at. But in the end, effectively solving big problems one tractable problem at a time would better server the people. If a smaller, well defined, tractable problem is solved by focusing problem solving on that problem alone without the distractions of trying to deal with it as part of a colossal, over-arching (over-reaching?) effort, much more effective and beneficial solutions will be produced. Thus, taken as a whole, all of the smaller solutions end up producing a better over all "comprehensive" result in the end. That is assuming that something would come of a colossal "comprehensive reform" effort in the first place.
This is wisdom that it would behoove politicians to heed. A big part of the problem why Congress can't accomplish anything is that everything has to be "solved" in one colossal singular piece of "comprehensive reform" legislation. Its always "comprehensive this reform" and "comprehensive that reform." Its as if politicians seem to think that the only way to eat an elephant is in one massive bite. And of course, the result being they choke on it. What is so wrong with breaking a problem down into surmountable problems? When you design a computer, you don't start by creating one chip that has every required function integrated on to it. You start by breaking the design down into smaller, tractable subsystems, such as processor, memory, peripherals, power supply, etc. One bite at a time.
For some reason, politicians don't seem to get this basic principle. Part of the problem, I think is that politicians believe that anything worth doing is worth doing with headline grabbing grandiose legislation. They are probably afraid that if they broke things down into solvable problems they wouldn't get grand public recognition for "_SOLVING_ _PROBLEMS_." They want that "big game trophy" to hang on the wall. So instead, they get grand public notice for failing to solve any problems because they try biting off so much they choke on it. And it's also partly "obstructionist politics" that are to blame that creates this environment of an inability to break things down into solvable problems. Whenever someone tries to solve a well defined tractable problem, critics will obstruct this by claiming, "you can't do that because it doesn't solve the WHOLE problem." Well, no it doesn't, it solves one smaller problem that is an important part of the whole problem, and what is wrong with that? Isn't it far better to solve something a bit at a time than failing to solving any of it in one all inclusive colossus? A good example of this is immigration reform. Many ideas were floated to address narrowly defined immigrant issues, and many of these ideas had merit for the issues they were designed to target. However, the critics and nay-sayers responded not by critiquing the efficacy in solving the issues they were intended to address, but rather by proclaiming that each of these solutions didn't address the entire colossal issue of illegal immigration and therefore they can't be considered. Why is it that, for example, border security can only be addressed in concert with addressing every other facet of society touched by illegal immigration? Why can't a border security solution simply deal with border security?
Take "health care." Why does this have to be tackled in one massive colossus that no one can agree on and to which everyone finds something to take exception. President Obama says that now we need to work on passing the parts of health care reform that everyone agrees on. Wow, what a concept. It takes a near fatal torpedoing of the health care colossus to figure out that this should be solved in less ambitious pieces? If it had started that way from the get-go, large portions of the health care conundrum probably could have been reformed by now. Why can't we, say, pass legislation to remove the exemption from anti-trust and anti-competition laws for health insurance providers? Why can this only be done as part of a massive colossus of legislation? Then move on to legislation reforming Medicare/Medicaid to incentivise quality of care instead of quantity and how doctors and hospitals are compensated. And so on, one bite at a time. And sooner or later (and probably sooner than later as compared to the "comprehensive" approach) health care has been reformed, costs have been controlled by making the providing of health care more efficient, effective, and less wasteful.
True, there would not be any celebratory fanfare at the end for all of the politicians to gloat and thump their chests about how wonderfully they have "served the people" regardless of whether or not anyone is actually any better off: "we passed massive legislation that says the people are better off so it must be so - we are so wonderful." There would be no singular "big game trophy" to hang on the wall and point at. But in the end, effectively solving big problems one tractable problem at a time would better server the people. If a smaller, well defined, tractable problem is solved by focusing problem solving on that problem alone without the distractions of trying to deal with it as part of a colossal, over-arching (over-reaching?) effort, much more effective and beneficial solutions will be produced. Thus, taken as a whole, all of the smaller solutions end up producing a better over all "comprehensive" result in the end. That is assuming that something would come of a colossal "comprehensive reform" effort in the first place.
Tuesday, January 19, 2010
The People Are Speaking. Are Democrats Listening?
In the campaign for this election, Democrats made a point that it was about about a Congressional vote on their health care proposals. They made an issue of the fact that Scott Brown was a vote against their health care proposals. As such, they effectively turned this into a referendum on their health care proposals and they therefore ought to heed the message of that referendum. And now, they have their answer on how the public feels about the Democrats proposals. And it's pretty clear that feeling is "nay." And if a heavily Democratic and liberal leaning state votes against where Democrats are trying to take this country, what does that say about what the rest of the country must be thinking? The question then becomes, will the Democrats heed this message that the people don't want their health care and their other boondoggles, or will they arrogantly cling to the notion that they know what's best for us irrespective of what the people have made clear? (Not that I necessarily think that "The People" are a paragon of contemplative and pragmatic problem solving. It was, after all, "The People" that bought houses they could never afford with loans they could never pay back. Sure it was banks that unwisely offered such loan products to such people, but it was ultimately the people that freely chose to sign on the dotted line.) My wager goes to continued arrogance and denial.
In 2008, the people voted for change and handed a mandate to the Democrats to fix things. It was not a mandate for the liberal demagogues to run amok and ram liberal ideology down our throats. The change was supposed to be to fix things not to trade one nut-job ideology for another nut-job ideology.
From a report on Yahoo News:
"I voted for Obama because I wanted change. ... I thought he'd bring it to us, but I just don't like the direction that he's heading," said John Triolo, 38, a registered independent who voted in Fitchburg.
To which I respond: and what direction did you think Democrats would take us?
I am reminded of the story of the fox and the scorpion. In their travels, a fox and a scorpion find themselves at a river. The scorpion says to the fox, "please Mister Fox, let me ride on your back while you cross the river." The fox replies, "But Mister Scorpion, if I let you on my back you would only sting me." To which the scorpion replies, "But why would I sting you for surely we would both drown?" The fox acquiesces and allows the scorpion on his back. Half way across the river the scorpion stings the fox. The fox asks, "why did you sting me for now we will both drown?" The scorpion replies, "I am a scorpion, why would you think I would not sting you?"
What the people voted for was someone to work to understand the problems we face and create solutions that solve those problems. Instead what we got is the same "tax and spend" "problem solving" that was rejected in 1994. Instead of solving problems with pragmatic solutions that people elected them to do, Democrats have simply resorted to the same out of control "tax and spend" approach to "problem solving" that was rejected in 1994. Unfortunately both Democrats and voters forgot the lessons that led to the rout of Democrats in 1994. And unless the Democrats realize that people want real solutions and not demagoguery and ideology, they may again find themselves soon kicked to the curb. We can't afford Republican inaction and incompetence, but neither can we afford Democrats' incompetent "solutions" that spend mind-boggling amounts of tax payer money without anything approaching actual solutions. If only real problem solving was as simple as mindlessly throwing mountains of money at the problem.
In 2008, the people voted for change and handed a mandate to the Democrats to fix things. It was not a mandate for the liberal demagogues to run amok and ram liberal ideology down our throats. The change was supposed to be to fix things not to trade one nut-job ideology for another nut-job ideology.
From a report on Yahoo News:
"I voted for Obama because I wanted change. ... I thought he'd bring it to us, but I just don't like the direction that he's heading," said John Triolo, 38, a registered independent who voted in Fitchburg.
To which I respond: and what direction did you think Democrats would take us?
I am reminded of the story of the fox and the scorpion. In their travels, a fox and a scorpion find themselves at a river. The scorpion says to the fox, "please Mister Fox, let me ride on your back while you cross the river." The fox replies, "But Mister Scorpion, if I let you on my back you would only sting me." To which the scorpion replies, "But why would I sting you for surely we would both drown?" The fox acquiesces and allows the scorpion on his back. Half way across the river the scorpion stings the fox. The fox asks, "why did you sting me for now we will both drown?" The scorpion replies, "I am a scorpion, why would you think I would not sting you?"
What the people voted for was someone to work to understand the problems we face and create solutions that solve those problems. Instead what we got is the same "tax and spend" "problem solving" that was rejected in 1994. Instead of solving problems with pragmatic solutions that people elected them to do, Democrats have simply resorted to the same out of control "tax and spend" approach to "problem solving" that was rejected in 1994. Unfortunately both Democrats and voters forgot the lessons that led to the rout of Democrats in 1994. And unless the Democrats realize that people want real solutions and not demagoguery and ideology, they may again find themselves soon kicked to the curb. We can't afford Republican inaction and incompetence, but neither can we afford Democrats' incompetent "solutions" that spend mind-boggling amounts of tax payer money without anything approaching actual solutions. If only real problem solving was as simple as mindlessly throwing mountains of money at the problem.
Sunday, January 17, 2010
Insurance Companies Are Not Agents of Socialism
Yet people are baffled and outraged when insurance companies don't act as agents of socialism. Now, I understand were the confusion comes from. Insurance companies aggregate cost over a population. However, this is not the same thing as socialism where all pay an equal share regardless of what they receive. In socialism, everyone pays an equal amount into a pool in order to have access to a resource that may be consumed more or less than by others. The difference is that insurance companies provide a "product" and they charge customers based on the amount of "product" obtained. I will return shortly to what that product is, but first consider the following.
When some one buys a car, the price they pay is determined by the "amount" of the product they are obtaining. Someone who buys a fully option Mercedes is going to pay more than someone buying a stripped down Honda. This makes perfect sense. The Mercedes costs more to produce than the Honda and the buyer is getting a product with more value than the Honda. It is readily understandable that it doesn't make sense for the two buyers to pay the same price.
So the product that insurance companies are selling is relief of financial liability. Ok, but what does that mean? Financial liability is fundamentally the dollar value of a potential financial obligation times the probability of that liability coming to pass. Considering cars again, if someone having a Mercedes has an accident it likely will cost more to repair than someone with a Honda having and accident simply because it typically costs more to repair Mecedes than Hondas. If both drivers have accidents that total their cars, the resulting financial obligation is greater for the Mercedes than the Honda. The insurance company incurs a greater financial loss for the Mercedes than the Honda and the Mercedes owner receives greater value from the insurance company upon replacement than the Honda owner. In this way, the Mercedes owner receives a higher value product in purchasing insurance than does the Honda owner, and therefore, the policy for the Mercedes costs commensurately more than for the Honda. Also, if you have two Honda owners and one driver is twice as likely to total their car than the other, that driver represents twice the financial liability of the other. That person is twice as likely to require reimbursement for the value of the car. This person is receiving twice the product value from the insurance company and will therefore be charged commensurately higher premiums.
Thus, the value of the insurance product received, as well as the "cost" of providing that product is a function (product) of both the magnitude of a potential obligation and the probability of incurring that obligation. Mathematically, "expected value"/"expected return" is PxV, where P is the probability of the event and V is the value of the event. Essentially, insurance against event V would be priced at PxV (not counting overhead and profit). The greater the magnitude of the liability, the greater the value/cost of the insurance product. The greater the probability of incurring a particular liability, the greater the value/cost of the insurance product. (By value/cost I mean value to the purchaser of the insurance and the effective cost to the insurer in providing the insurance.) So, if event V has a 100% probability of happening, insurance against that event would simply be the the cost of that event. This is why, not surprisingly, we don't expect our auto insurance provider to pay for oil changes. We know we're going to have to have the oil changed, so an insurer would simply add the cost of the oil change to the premium. Yet surprisingly, we expect our health insurance provider to pay for regular checkups and exams. Along the same lines, most people understand that if you've had an accident and then buy auto insurance, it would be absurd to expect the insurer to pay for the accident you've already had. And if they did, they would simply bill you for the full cost of repair, and again, what would be the point in that? And yet for some reason, people expect health insurance companies to pay for the "accident" you've already had, aka "preexisting conditions". Once you already have a medical condition, buying new insurance is no longer insurance, because that's not how insurance works (it's no longer a probability, it's a fact), it's called "financing". That is unless it's being financed with other peoples' money in which case it would be socialism, but still not "insurance" because the people who are financing it are being ripped off because they are paying for a product that they are not receiving. It would be socialism because the person with pre-existing conditions is receiving 1xV but only paying for PxV, while everyone else is receiving a product of value PxV but paying PxV+Cf, where Cf is the (fractional) cost of financing the person with pre-existing conditions who is not paying full price for the value they are receiving. If every just waits until having pre-existing conditions to purchase insurance, who then is paying "Cf"? The result being that the insurer is forced to simply bill each person full price for their treatment and what would be the point of that?
The math governing insurance is virtually identical to that of casinos operating slot machines. A casino operator expects any given slot machine to earn for the casino, on average and in aggregate, Nx(C-PxV) where N is the number of times played, C is the cost to play, P is the probability (fractional, not percentage) of a payout and V is the value of the potential payout. Two things are readily apparent. One is that no sane operator is going to set the cost to play at less that the "expected value" payout as this would simply be a money loser to the casino operator. The second is that some machines will payout and some won't, and in aggregate, this cost to the casino will be NxPxV against the revenue of NxC. The math for insurance companies is the same except that slot machines are individual insurance policies, C is the insurance premium, V is a particular financial liability, P is the probability of realizing that liability, and one play is the term of the insurance policy. (N would thus be policy renewals) So similarly, insurance companies will set the premium C accordingly.
No casino operator in his right mind would put a machine on the floor such that C-PxV is a negative number as this is simply a money loser and the customer is receiving greater value than the cost to play. Alternately, the operator would then have to set C higher on other machines to make up the loss, in which case those players are being ripped off in that they are receiving less value than they are paying for and are subsidizing those who play the machine that pays excessively. This would be the socialist version of a casino and people would simply choose to play the machine that pays excessively and not play the machines used to subsidize this. Obviously, with no one playing the "ripoff" machines, there is nothing with which to subsidize the machine with excessive payouts and this cannot continue indefinitely. This makes perfect sense, yet people are surprised when health insurance companies refuse to provide insurance to people with pre-existing conditions or refuse to renew policies of those with "excessive" claims: preexisting conditions puts P at 100% and serious illness increases V. With a probability of 100% of requiring treatment for an illness, the insurer would simply set the premium C at the cost to treat the illness, 1xV, and what would be the point of that? Except that what is being expected of insurers is exactly that of implementing the "socialist casino."
I am not saying what is right or ethical or anything like that. What I am saying is that expecting insurance companies to act as agents of socialism, and being surprised and outraged when they don't, is simply irrational and unrealistic in view of the business models and economics principles, and fundamentally the math involved. Socialism is mathematically and economically a loser as a business model so it should not be surprising when entities in the business of insurance don't act as agents of socialism. It is unreasonable to get outraged at a lion for acting like a lion when that is the role it plays in the environment. Lions play an important role in the environment and expecting it to be somehow different is to ignore the principles governing the environment. Similarly it is unreasonable to get outraged at insurance companies for acting like an insurance business and not like socialists when insurance is the product they provide to the economy. Insurance companies provide a vital product to the economy and expecting it to be somehow different is to ignore economic, business, and mathematical principles.
When some one buys a car, the price they pay is determined by the "amount" of the product they are obtaining. Someone who buys a fully option Mercedes is going to pay more than someone buying a stripped down Honda. This makes perfect sense. The Mercedes costs more to produce than the Honda and the buyer is getting a product with more value than the Honda. It is readily understandable that it doesn't make sense for the two buyers to pay the same price.
So the product that insurance companies are selling is relief of financial liability. Ok, but what does that mean? Financial liability is fundamentally the dollar value of a potential financial obligation times the probability of that liability coming to pass. Considering cars again, if someone having a Mercedes has an accident it likely will cost more to repair than someone with a Honda having and accident simply because it typically costs more to repair Mecedes than Hondas. If both drivers have accidents that total their cars, the resulting financial obligation is greater for the Mercedes than the Honda. The insurance company incurs a greater financial loss for the Mercedes than the Honda and the Mercedes owner receives greater value from the insurance company upon replacement than the Honda owner. In this way, the Mercedes owner receives a higher value product in purchasing insurance than does the Honda owner, and therefore, the policy for the Mercedes costs commensurately more than for the Honda. Also, if you have two Honda owners and one driver is twice as likely to total their car than the other, that driver represents twice the financial liability of the other. That person is twice as likely to require reimbursement for the value of the car. This person is receiving twice the product value from the insurance company and will therefore be charged commensurately higher premiums.
Thus, the value of the insurance product received, as well as the "cost" of providing that product is a function (product) of both the magnitude of a potential obligation and the probability of incurring that obligation. Mathematically, "expected value"/"expected return" is PxV, where P is the probability of the event and V is the value of the event. Essentially, insurance against event V would be priced at PxV (not counting overhead and profit). The greater the magnitude of the liability, the greater the value/cost of the insurance product. The greater the probability of incurring a particular liability, the greater the value/cost of the insurance product. (By value/cost I mean value to the purchaser of the insurance and the effective cost to the insurer in providing the insurance.) So, if event V has a 100% probability of happening, insurance against that event would simply be the the cost of that event. This is why, not surprisingly, we don't expect our auto insurance provider to pay for oil changes. We know we're going to have to have the oil changed, so an insurer would simply add the cost of the oil change to the premium. Yet surprisingly, we expect our health insurance provider to pay for regular checkups and exams. Along the same lines, most people understand that if you've had an accident and then buy auto insurance, it would be absurd to expect the insurer to pay for the accident you've already had. And if they did, they would simply bill you for the full cost of repair, and again, what would be the point in that? And yet for some reason, people expect health insurance companies to pay for the "accident" you've already had, aka "preexisting conditions". Once you already have a medical condition, buying new insurance is no longer insurance, because that's not how insurance works (it's no longer a probability, it's a fact), it's called "financing". That is unless it's being financed with other peoples' money in which case it would be socialism, but still not "insurance" because the people who are financing it are being ripped off because they are paying for a product that they are not receiving. It would be socialism because the person with pre-existing conditions is receiving 1xV but only paying for PxV, while everyone else is receiving a product of value PxV but paying PxV+Cf, where Cf is the (fractional) cost of financing the person with pre-existing conditions who is not paying full price for the value they are receiving. If every just waits until having pre-existing conditions to purchase insurance, who then is paying "Cf"? The result being that the insurer is forced to simply bill each person full price for their treatment and what would be the point of that?
The math governing insurance is virtually identical to that of casinos operating slot machines. A casino operator expects any given slot machine to earn for the casino, on average and in aggregate, Nx(C-PxV) where N is the number of times played, C is the cost to play, P is the probability (fractional, not percentage) of a payout and V is the value of the potential payout. Two things are readily apparent. One is that no sane operator is going to set the cost to play at less that the "expected value" payout as this would simply be a money loser to the casino operator. The second is that some machines will payout and some won't, and in aggregate, this cost to the casino will be NxPxV against the revenue of NxC. The math for insurance companies is the same except that slot machines are individual insurance policies, C is the insurance premium, V is a particular financial liability, P is the probability of realizing that liability, and one play is the term of the insurance policy. (N would thus be policy renewals) So similarly, insurance companies will set the premium C accordingly.
No casino operator in his right mind would put a machine on the floor such that C-PxV is a negative number as this is simply a money loser and the customer is receiving greater value than the cost to play. Alternately, the operator would then have to set C higher on other machines to make up the loss, in which case those players are being ripped off in that they are receiving less value than they are paying for and are subsidizing those who play the machine that pays excessively. This would be the socialist version of a casino and people would simply choose to play the machine that pays excessively and not play the machines used to subsidize this. Obviously, with no one playing the "ripoff" machines, there is nothing with which to subsidize the machine with excessive payouts and this cannot continue indefinitely. This makes perfect sense, yet people are surprised when health insurance companies refuse to provide insurance to people with pre-existing conditions or refuse to renew policies of those with "excessive" claims: preexisting conditions puts P at 100% and serious illness increases V. With a probability of 100% of requiring treatment for an illness, the insurer would simply set the premium C at the cost to treat the illness, 1xV, and what would be the point of that? Except that what is being expected of insurers is exactly that of implementing the "socialist casino."
I am not saying what is right or ethical or anything like that. What I am saying is that expecting insurance companies to act as agents of socialism, and being surprised and outraged when they don't, is simply irrational and unrealistic in view of the business models and economics principles, and fundamentally the math involved. Socialism is mathematically and economically a loser as a business model so it should not be surprising when entities in the business of insurance don't act as agents of socialism. It is unreasonable to get outraged at a lion for acting like a lion when that is the role it plays in the environment. Lions play an important role in the environment and expecting it to be somehow different is to ignore the principles governing the environment. Similarly it is unreasonable to get outraged at insurance companies for acting like an insurance business and not like socialists when insurance is the product they provide to the economy. Insurance companies provide a vital product to the economy and expecting it to be somehow different is to ignore economic, business, and mathematical principles.
"Deficit Neutral" Is Not the Same Thing As "Free"
And that's not a misunderstanding our current administration and Congress is going to shine a light on. In fact, it is arguable that this is a misunderstanding they are actively fostering.
What exactly does "deficit neutral" mean anyway? It simply means that the item in question does not result in the government spending _NET_ more than they take in. It completely ignores the fact of how much more cost the taxpayers must shoulder. This means that one way or another, for a "deficit neutral" new program, we are paying at least as much more to the government as they are increasing their spending to pay for this new program. You could write a bill that increases spending by $10 billion but raises taxes by $20 billion and then you could claim that the bill _reduces_ the deficit by $10 billion. And you would be right. It would; however, add $20 billion in new taxes that we taxpayers have to pay for. This definitely does not mean that taxpayers are saving $10 billion. It means, in this case, that taxpayers are paying $20 billion more than they were before.
So President Obama, et. al., are keen to point out that the new health care bill will "not add one dime to the deficit." Gee, Mr. President, thank you for being so "responsible." What they gloss over is the fact that it is not _costing_ us "not one dime" but in fact we will be on the hook for shelling out nearly $1 trillion more to the government than we are already doing today. We will be paying almost $1 trillion more to the government, one way or another, after this bill is passed than before. While deficit neutral is very important, we must not let that cause us to lose sight of the fact that that $0 in deficit spending is costing us $1 trillion dollars. Advocates of this health care bill are working hard to play up the "deficit neutral" aspect in order to hoodwink people into thinking they are getting something for free, while playing down the fact that this is in fact creating $1 trillion in new spending that is paid for by money coming from somewhere. And that somewhere is ultimately us. If program with "not one dime in deficits" is "free," why is it costing us almost $1 trillion more?
Proponents of the health care bill could tack on yet another $1 trillion in new taxes on top of the $1 trillion it will end up costing us and proudly proclaim that this bill is _reducing_ the deficit by $1 trillion. Wow, what a deal that would be! _Free_ health care AND reducing the deficit by $1 trillion to boot! Never mind the fact that such "free" health care and deficit reduction would end up COSTING us $2 trillion. Beware of "tax and spend" politicians proclaiming "responsibility" with "deficit neutrality" and car salesman proclaiming low monthly payments. If "deficit neutrality" is the only metric that matters, then how come we always end up paying more taxes to get it?
What exactly does "deficit neutral" mean anyway? It simply means that the item in question does not result in the government spending _NET_ more than they take in. It completely ignores the fact of how much more cost the taxpayers must shoulder. This means that one way or another, for a "deficit neutral" new program, we are paying at least as much more to the government as they are increasing their spending to pay for this new program. You could write a bill that increases spending by $10 billion but raises taxes by $20 billion and then you could claim that the bill _reduces_ the deficit by $10 billion. And you would be right. It would; however, add $20 billion in new taxes that we taxpayers have to pay for. This definitely does not mean that taxpayers are saving $10 billion. It means, in this case, that taxpayers are paying $20 billion more than they were before.
So President Obama, et. al., are keen to point out that the new health care bill will "not add one dime to the deficit." Gee, Mr. President, thank you for being so "responsible." What they gloss over is the fact that it is not _costing_ us "not one dime" but in fact we will be on the hook for shelling out nearly $1 trillion more to the government than we are already doing today. We will be paying almost $1 trillion more to the government, one way or another, after this bill is passed than before. While deficit neutral is very important, we must not let that cause us to lose sight of the fact that that $0 in deficit spending is costing us $1 trillion dollars. Advocates of this health care bill are working hard to play up the "deficit neutral" aspect in order to hoodwink people into thinking they are getting something for free, while playing down the fact that this is in fact creating $1 trillion in new spending that is paid for by money coming from somewhere. And that somewhere is ultimately us. If program with "not one dime in deficits" is "free," why is it costing us almost $1 trillion more?
Proponents of the health care bill could tack on yet another $1 trillion in new taxes on top of the $1 trillion it will end up costing us and proudly proclaim that this bill is _reducing_ the deficit by $1 trillion. Wow, what a deal that would be! _Free_ health care AND reducing the deficit by $1 trillion to boot! Never mind the fact that such "free" health care and deficit reduction would end up COSTING us $2 trillion. Beware of "tax and spend" politicians proclaiming "responsibility" with "deficit neutrality" and car salesman proclaiming low monthly payments. If "deficit neutrality" is the only metric that matters, then how come we always end up paying more taxes to get it?
Thursday, January 14, 2010
Tax or Vigilantism?
Obama says he wants to levy a tax on ALL financial institutions regardless of whether or not they received TARP finds and whether or not having received them they have paid them back. His justification? They are all to blame. Really? He gets to decide that unilaterally? So we're also going to punish financial institutions that acted responsibly, for no other reason than that they are financial institutions and therefore deserve to be punished anyway just because we don't like them much? I thought we had a court system to levy blame for wrongdoing. If they have done something wrong that deserves punishment, then in our system of government, that is supposed to be decided in the courts. Punishing people or organizations outside of the purview of the legal system is simply vigilantism. In this case, using the tax system as the cudgel. This is not entirely unexpected since liberals see nothing wrong with taxing people regardless of any factual merit simply because they don't like them very much.
In a system of "rule of law," citizens and organizations are supposed to be able to be assured of living in peace without government harassment if they follow the law. Unfortunately, liberal politicians have no qualms about molesting law abiding citizens simply because they don't like them very much. Liberals seem to think there are two governments: the government that derives from the US Constitution and the one imposed by liberal demagogues that hand down their own social order, regardless of what the Constitution says, often times using the very mechanisms that were originally intended to implement the Constitution. To avoid harassment by the government it is not sufficient to follow the law but one must also appease the liberal demagogues. Vigilantism is alive and well within our own government. Sadly we don't object as long as it is someone else being harassed. Liberals have learned well from McCarthy.
In a system of "rule of law," citizens and organizations are supposed to be able to be assured of living in peace without government harassment if they follow the law. Unfortunately, liberal politicians have no qualms about molesting law abiding citizens simply because they don't like them very much. Liberals seem to think there are two governments: the government that derives from the US Constitution and the one imposed by liberal demagogues that hand down their own social order, regardless of what the Constitution says, often times using the very mechanisms that were originally intended to implement the Constitution. To avoid harassment by the government it is not sufficient to follow the law but one must also appease the liberal demagogues. Vigilantism is alive and well within our own government. Sadly we don't object as long as it is someone else being harassed. Liberals have learned well from McCarthy.
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