Thursday, April 19, 2012

Medical Care

The reason for the medical care crisis in America is simple.  There is no connection between the price and the product, no relation between value provided and price paid.

Before we begin any further attempt to use the government to solve problems in the medical industry that the government created, we should give the free market a chance to work.

This involves three simple new laws:

1.  Require medical care providers to provide a good faith estimate of the cost of any good, service or proceedure before providing it (unless its an emergency, obviously), publish these prices on the internet, and limit the amout they can collect to that estimate.  This would remedy the basic problem with healthcare.  If you want to see an entire medical office go insane, just do this:  Ask how much something is going to cost.  They don't know.  They have no way to find out.  You will eventually be put on the phone with someone in billing, who will tell you they can send you an estimate by mail in 2-6 weeks.  Again, this is one basic problem with the system, and it can be fixed easily.  Yes, the health care providers will squeel that providing estimates is just too hard.  Well, it seems to me that they manage to figure out the price when it comes time to charge you.  At any rate, every other industry in the world does it.  Doctors are supposed to be smart, right?  I have every confidence they can figure it out.

2.  Make it illegal for indivudual medical care providers to charge different people different amounts for the same good or service (i.e. outlaw "price discrimination").  This is already the law for almost every other industry, and is a basic rule of antitrust/anti-monopoly law.  The health care industry got Congress to give it an exemption.  This is highly inappropriate, and needs to be reversed.

3.  Make people pay a significant part of their medical bills, so they have an incentive to use the above rules to shop around.  The best solution would be to simply outlaw anything but very high deductable ($10,000+) insurance policies.  If you have socialist leanings, at least you could agree to work within the current system by implementing a sliding scale regarding copayments, so that rich people have to pay a lot of their bill, say half, while poorer people could pay a much smaller amount, say 5%.  The point is that the amount needs to be enough for the person in question to CARE how much his medical care is costing.  This would mean that we'd have to change the law to require health insurance policies to implement this type of arrangement in their policies.

That's it.  Implement these laws and give it three years.  I absoultely guarantee you the "health care crisis," defined as runnaway costs, would be over for good.

Thursday, January 14, 2010

Whose Fault Is The Financial Crisis?

The Politicians are all trying to figure out who to blame for the financial crisis, other than themselves, of course.

Well, I'm now going to provide a perfectly accurate list of the guilty parties. By guilty, I mean people who were either grossly negligent, or outright fraudulent in their activities that lead to the housing bubble, and the resulting financial collapse. But the main component of being "guilty" is that these actors violated duties, moral and likely legal, to other people that trusted them, who as a result of that trust, got screwed.

The first guilty party is the Wall Street Investment Banks like Goldman Sachs, JP Morgan, and others that made obscene amounts of money packaging mortgages and selling them to people and institutions seeking "conservative" investments. By packaging risky mortgages, and getting the ratings agencies to give them "AAA" ratings, the Investment Banks created a supposedly safe product that yielded returns far above other "AAA" bonds. This, in turn, created a huge worldwide demand for these investments. The banks needed more mortgages to create more of these "bonds" (which they earned huge fees creating and distributing), so they put out word to mortgage brokers and homeowners that they would buy any mortgage as long as the borrower had a pulse. This, the ability of anyone to get any amount of money to buy any house, is what led to the housing bubble, period.

The reason the Investment Banks are "bad guys" is because they violated their duties, moral and probably legal, to their clients, customers, and others. They were the ones selling the bonds, supposedly to conservative investors. In essence, they conned investment managers, ratings agencies (see below), and individuals into believing that what they were selling was a "AAA" bond. But it wasn't. Imagine a client of an Investment Bank, who tells them that he wants to create a "very conservative" investment portfolio that produces steady income. The Investment Bank tells the client or potential investor that the best thing he can do is buy these mortgage backed "bonds" that they have created, and that they are "AAA" rated, meaning they're as safe as government bonds. In other words, the Investment Bank tells the conservative investor to invest in the most risky asset imaginable, a bond that is sure to become worthless as soon as the housing bubble bursts.

So the Investment Banks are "bad guys" because they either (1) knowingly defrauded their clients and ratings agencies or (2) were so incompetent that their conduct rises to the level of gross negligence in recommending (or even mentioning) these "bonds" to clients. Add to that their obvious motive to peddle these "bonds", in the form of huge origination and distribution fees, and the case is closed. These people should either be in jail, or at the very least sued into poverty. And, just in case there were any doubt, one can recall that some Investment Banks (Goldman Sachs) were actively betting against these "bonds", and made lots of extra money when they went bad.

The second "bad guys" are the rating agencies that gave these "bonds" "AAA" ratings. To make a long story short, they gave the "AAA" rating because the bonds were insured by an insurance company that itself had a "AAA" rating, like AIG. Because the insurer of the bonds (bond insurance guarantees that the bonds will pay out as promised) was "AAA", the bonds themselves were "AAA", according to the rating agencies. Problem is, the insurance companies had issued so much insurance on bonds, that they were headed for a certain bankruptcy if the bonds went bad. Thus, the insurance companies themselves were not "AAA" by any stretch of the imagination, but rather they were "junk" investments. And thus, the bonds were actually "junk".

It was the ratings agencies duty to investors and the system to figure this out. Their failure to do so is at best gross negligence. But a jury would probably conclude that it was intentional based on circumstantial evidence: The ratings agencies had a huge monetary motive to give the bonds "AAA" ratings, because they were getting huge fees every time a new bond was issued. It wasn't that hard to figure out that insurers like AIG were at risk of bankruptcy, if the Ratings Agencies had bothered to look (assuming they didn't, which is a stretch). The people responsible for the bogus "AAA" ratings of the insurance companies should go to jail for fraud. The people who, though not charged with assessing the insurance companies credit worthiness, nevertheless gave mortgage bonds "AAA" ratings without looking into the rigor of the "AAA" rating of the insurer were negligent, and should be sued into poverty.

The third "bad guy" is the Federal Reserve. It kept interest rates far below a market rate, which caused lots of over-investment in housing. Thye have a duty to society not to be downright stupid. Their stupidity is negligence at best.

The final bad guys are politicians, state, local, and most importantly Federal (Congress and past Presidents), for putting in place a host of idiotic programs and Ponzi schemes. But they are always the bad guy.

The following actors were not " bad guys", in that they never violated any duty to a specific third person, although their conduct may have deviated from the perfectly moral path: Mortgage originators like banks and mortgage brokers. People who took out crazy zero-down adjustable rate mortgages. With Wall Street BEGGING people to borrow money, and BEGGING mortgage brokers for more mortgages to buy, these people were just acting in their interest. Of course, there are bad eggs in every basket, but generally, these groups are not to blame for the financial crisis.

Sunday, January 25, 2009

Helping Africa, A new form of government

The basis of the "nonconservative" doctrine is simple: Just as the Romans used military power to colonize the world, the U.S. should use its power to democratize the world. It is viewed as a moral imperative, under the basic principle that, if a fellow human is suffering under tyranny, you should help liberate him, if you can. That was the underlying basis of the War in Iraq, i.e. to establish a democracy in the heart of the middle east. I supported the war originally on this basis alone (I never bought the WMD argument), but changed my opinion after the high cost was revealed. In short, because we can't afford it, we shouldn't do it. Too late now, I suppose.

I am of the opinion that Bush will be viewed quite favorable by history regarding Iraq because a democracy will emerge there. The younger generation will have access to the internet. If you go to a third world country, and see all the school kids on computers and surfing the internet, you are immediately struck by the notion that these kids will almost surely improve upon the society that they inherited. Their minds have been set free, in a very real sense. Their parent stare at them in wonder. Its hard to imagine computer and internet literate people living in mud huts.

To Africa: The problem we face in trying to help Africa is that most of the continent lacks the basic foundations for growing a free society. The three legs are (1) the uncorrupted rule of law under liberal, minimalist principles and a strictly limited government focused on police and public safety issues, (2) protection of private property rights, and (3) a stable currency. Once these three legs are in place, a stable, free society will grow, no matter what else happens. The Africa problem will not be solved until institutions, likely government institutions, are established that guarantee these things over an adequate geographic area.

I think we should now focus our attention on establishing a stable society somewhere in Africa. This we could likely afford. The plan, in short: (1) Pick a nice piece of land appropriate for the establishment of a new African state, (2) send the military to occupy it, (3) govern according to the three legs. I would also note that democracy is overrated. In fact, it would be counterproductive to establish democratic rule until the populace is educated, which will happen only after decades of evolution, if ever.

A post arguing against representative democracy would be too long to complete here. But I would suggest that a better form of government might be semi contractual, with the agreement between the people and the government being something along the lines of this: The government agrees to provide certain government services. The citizens agree to pay taxes to support these services. So how do we choose the rulers? We vote on contracts of a certain term, say 10 years, proposed by various sets of aspiring ruling parties, with each contract listing the power structure proposed, the services to be rendered, and the cost. Long term debt would not be allowed. If you want a contract with more services, you need to pay as you go. Also, the tax structure outlined by the contract would have to be evenly spread among the population as a flat tax, possibly with an exemption on the first, say $10,000 of income. That is the only way I see for the cost of government services to be taken into account by the body of voters. And of course, the tendency of voters to ignore the costs of the government they demand is at the root of our current problems.

Saturday, January 10, 2009

Yay for Obama

The current media take on the large "economic stimulus" package now being advanced by Mr. Obama is that it is an "attempt to save capitalism".

It is quite the opposite. It is rather a last ditch attempt to save the concept of central government planning in America. It is beyond reasonable dispute that the American economy has been centrally planned since at least the early 1970s, and the intensity of the planning effort has increased every single day, and continues to increase. Without going into the details of the myriad government interventions, regulations, and plans, suffice it to say that the vast majority of capital allocation decisions in our economy have been either directly made or fundamentally influenced by government programs, policies, or regulations. Every decision, down to a decision as small as to whether or not to buy an apple, is heavily influenced or directly controlled by government (in the case of apple, an apple is normally not subject to sales tax, so government encourages it, and a host of international trade regulations that regulate type and price of apples further limit consumer choices among foods and relative prices).

When Mr. Obama was elected, I was pleased, but was having trouble articulating why. I decided to write this post because my feeling have crystallized a bit.

The next president is going to be the standard bearer of the pro-government forces last stand, their last chance to demonstrate that a society characterized by government planning and intervention is sustainable.

Both Republican and Democratic Parties (along with all minor parties other than the Libertarians) are devout planners and regulators. It is an unfortunate fact that Americans, thanks to inexcusably incompetent media organizations and the government educational establishment, have been taught that the Republicans are a "small government" party, that they represent a non-central-planning philosophy. Of course, nothing could be further from the truth.

So either party, if given power, would do the same thing: Take all steps possible in an attempt to "save government."

Put simply, I'm happy that Obama will soon be president because I want the best, most honest, most well-intentioned, most popular, most "progressive" central planner in charge of the last ditch attempt to save government.

I (unlike many of my progressive buddies) am not thoroughly convinced in my convictions. I know that the evidence is strong and growing that a society planned by the government is not sustainable. But now we are going to find out whether central planning can work or not. If Obama cannot make it work, who can?

I would be willing to bet that Obama, despite his intelligence, integrity, and good intentions, will utterly fail. But we don't need to speculate. We're now, finally, going to see.

Saturday, September 27, 2008

The Financial Crisis

Many people are confused about what is going on in the economy right now. I thought I'd provide a post that describes how it would be viewed by adherents of the main branches of modern economics.

The two most credible strains of economics are the Monetarists and those of the Austrian School. Keynesians represent a third school.

Monetarist theory is associated with Milton Friedman and current Fed Chairman Ben Bernanke, among others. No politicians, to my knowledge, are associated with Monetarist theory.

The Austrian School is associated with economists Fredrick Hayek, Ludwig Von Meise, and Murray Rothbard, and politician Ron Paul, among others.

The work of both the Monetarists and the Austrians are clear expansions on the work of Adam Smith ("The Wealth Of Nations", well accepted arguments in favor of free trade and free association, and of the free market mechanisms that create wealth), and have few contradictions with it.

The Keynesians are associated with John Maynard Keynes, and by implication, Carl Marx and his contemporaries. The Keynesians would claim linage to Adam Smith, but their theories are inherently inconsistent with much of Smith's work, and directly contradict the theories of the Monetarists and the Austrians.

It should be noted that no respectable economist is now a pure Monetarist or Austrian. They are two competing theories that have many of the same underlying principles, and differ mainly on whether monetary policy can be used constructively. The Federal Reserve is a tool of Monetarism, and the Fed Chairman has no choice, under law, but to act like a Monetarist, attempting to use the printing of money promote economic growth.

It should also be noted that the current system, put in place by the government, is an attempt to use the (most controversial) aspect of Monetarism that theorizes that monetary policy can be used as a productive economic tool, in conjunction with Keynesian economic planning. This is somewhat ironic, in that any serious Monetarist will reject Keynesian planning in virtually any form. This is, in practice, why Federal Reserve Officials are constantly advising Congress to reduce government interventions, warning that there is only so much they can do to support the economy.

All current elected leaders (other than Ron Paul) subscribe to the Keynesian/Monetarist hybrid philosophy, whether they know it or not. (Pure Keynesians are extinct in serious economics circles).

So how would members of the various schools view the current financial crisis?

The Keynesian/Monetarists:
The Cause: It is a Keynesian style economic "planning" effort that the United States has employed since the beginning of the 20th Century. One would expect that they would attempt to explain the current crisis in terms of fixable shortcomings an otherwise good "plan" to improve on the free market's allocation of housing, as well as more Marxist explanations related to the greed of capitalists. This is exactly what we are seeing in the news. They assert that the aspect of the "plan" now causing trouble, i.e. an artificially high rate of housing development, followed by the bursting bubble, is only causing trouble due to a lack of proper regulations, and the resulting ability of greedy businessmen to run amok. (The relevant policies related to this part of the Keynsian "plan" include the home mortgage deduction, various direct subsidies for housing including the FHA and HUD, the creation of subsidized and government guaranteed mortgage insurance with Fannie Mae and Freddy Mac, and various "civil rights" type laws requiring banks to provide loans in poor areas such as the Community Reinvestment Act, along with the Federal Reserve policy of keeping interest rates artificially low).

The Solution: Fix the plan by outlawing certain behaviors that are incentivized under the structure created by the plan (such as uncreditworthy people buying houses, and investors taking high levels of financial risk). Massive government spending financed by printing money, and lower interest rates (more printing money) will create jobs and save the economy.

The Monetarists:

The Cause: The pure Monetarists believe that the problem was cause by a fundamentally flawed "plan," which would describe virtually any economic plan conceived by government. Their theories dictate that the unavoidable misallocation of resources caused by any large scale government planning effort would, as a mathematical certainty, eventually result in a major economic contraction. The plan, they would argue, turned the irresistible forces of economics toward a bad result. They would point out that the plan created an underlying structure in which people and lenders had a strong incentive to act just as they have acted. They would argue that more regulation (i.e. a less bad plan with more laws making it difficult or inconvenient for people to act in accordance with their structural incentives) could have slowed the progression of the unavoidable adverse economic effects of the plan, making them better able to mitigate the damage through activist monetary policy.

The Solution: Drastically alter the plan to slow the progress of it damaging effects. Better yet, eliminate government intervention in the economy completely. The resulting economic downturn can, to at least some degree, be mitigated by massive monetary expansion. Printing money and giving it to banks, and low interest rates.

The Austrians:

The Cause: The Austrians believe, like the Monetarists, that the problem was cause by a fundamentally flawed plan. But they would focus on the activities of the Federal Reserve, and would assert that excess money creation, artificially cheap credit (i.e. the primary tool of the Monetarists), would alone have caused the problem, regardless of the so-called "quality" of the plan. The combination of the flawed Keynesian plan and the flawed Monetarist monetary policy is the worst of all possible worlds.

The Solution: There is no solution. We are in for a major economic contraction. The more the government does to try to stop it, the deeper and longer it will be. If the government again attempts to use monetary policy to "bubble" our way out of economic trouble, it will either fail, leading to the immediate downfall of our society, or, if successful, create a bigger bubble which will cause a far more severe crash in the near future, one from which there will be no escape. The Austrians would state that the best option is to reform the monetary system, creating "sound money" and stopping the government from printing money, which will cause a very severe, but relatively short-lived (say 3-7 years), economic contraction, after which sustainable economic progress could resume. It would also be best to abandon the Keynesian plan in its entirety immediately. However, if Keynesian planning continued under a "real" money system, the damaging economic effects of the plan would be impossible to conceal.

It is an unfortunate fact that the Austrians are the only branch with any success in predicting macroeconomic trends. In early 1929, both Hayek and Von Meise predicted the then-coming depression. More recent Austrians predicted both the Internet Bubble and the current Housing Bubble. They have been warning of the current financial crisis. The Austrians also predict that, prior to the ultimate disintegration of our society, great institutions of the Keynesian system, thought invulnerable, will crumble spectacularly, like pillars of sand. That is one reason why the recent fall of all five venerable investment banks on Wall Street and the largest insurance company in the world are very concerning events to students of economics: They are late-stage predictions of the Austrians, events that occur shortly before a "death spiral".

It is worth noting that the increasing frequency with which the predictions of the Austrians were coming to pass was a central theme of Ron Paul's presidential campaign.

The Keynesian/Monetarists and the Monetarists would predict that we are in for a mere recession. Unfortunately, neither the Keynesian/Monetarists nor the pure Monetarists have any record of macroeconomic predictive success. Neither branch would have predicted the severity of the current crisis, and the Keynesian/Monetarists would have thought it utterly impossible. Further, Keynesian (and arguably some measure of Monetarist) "solutions" to the Great Depression were not successful, in terms of measurable macroeconomic effects.

Finally, it should be noted that there is much argument in serious economics circles about whether the Great Depression could have been avoided. The Keynesians are not serious participants, as it was Keynesian policies that were tried and unambiguously failed during the Depression. However, the Monetarists (notably current Fed Chairman Ben Bernanke in this PhD Thesis) argue that massive monetary expansion could have turned the Depression into a mere severe recession. The Austrians say that is rubbish, and that massive monetary expansion would have only aggravated the situation by causing hyperinflation, to go along with the economic contraction.

The current solution being attempted by the Government is a combination of Keynesian and Monetarist solutions. For us economics buffs, it will be interesting to see whether the Austrians or the Monetarists are right. Just a very bad recession, or a hyperinflationary depression? Oh well, at least its good to live in interesting times.

Friday, September 26, 2008

The Bailout

The Actual Truth About The Bailout: The basic purpose of the bailout is to allow banks to sell their toxic assets, mostly mortgage backed securities, for more than they are worth. I.e., to give free money to banks and financial companies.

The reason cited is that banks with lots of these assets cannot borrow money from each other, because one bank will not lend to another bank if the other bank has a bunch of toxic assets. This is because they don't know if that bank, the borrowing bank, will suddenly declare bankruptcy, wiping out the loan. The Bailout Plan will buy those assets. Thus, the banks will not have those toxic assets, and they will be willing to lend to each other again. This, in turn, is important, because banks usually have lots of their assets tied up in illiquid things, like business loans, so they need to be able to borrow cash when, for example, a bunch of people withdraw their money.

The bailout plan is not necessary because for several reasons.

First, most banks are not in trouble. They did not make the large returns that the now toxic bonds paid. They were conservative. There are enough banks to provide all the credit our economy needs. It should be noted that none of the major financial conglomerates are in trouble, e.g. BofA, Wells Fargo, JP Morgan.

The bailout is for $700 billion (it will ultimately be at least twice, maybe ten times that much). The argument is that only the government can come up with that much money. That is a specious argument. This $700 billion is not just one chunk of money, but a whole bunch of small chunks. The private market will provide capital to save the banks that can and should be saved. Private capital has already saved Morgan Stanly, Goldman Sachs, and saved the depositors of Washington Mutual. Without the bailout, the worst managed banks and financial companies, those that cannot raise capital, will fail. And guess what? They should fail

The only things the bailout accomplishes are(1) saving a group of recklessly managed banks and financial companies that made exorbitant profits for years by investing in risky securities, and (2) giving free money to strong banks, that don't really need it, but will happily take free money.

The overall effect of the bailout will be negative for Main Street. The positive effects of the $700 billion of printed money pumped into the banks will be more than offset by the negative effects of a declining dollar, increased inflation, and the structural effects of keeping all of the bad financial institutions in business.

And, of course, can there be any doubt that there will be wholesale corruption? This $700 billion is likely to be little more than a piggy bank for the administration and its friends. Do you think a bank with shareholders that are enemies of the administration will be getting loans? Fat chance. So the other result will be that the Administration will be able to give its friends a huge business advantage over its enemies.

Frankly, we'd be better off funding increased amounts of insurance deposits (the FDIC) to make sure that depositors don't lose their money, (even over $100,000). That would prevent bank runs.

Then, the government could handle crisis individually, as they come up. But it the private market will not come in to save an institution, there is no conceivable reason that the government should.

Monday, September 22, 2008

Post to Wired Website

The American Revolution represented the expulsion of religion from government.

So, those who had forever held power on the basis of divine right needed a new religion that would avoid the new rules.

The answer: Socialism. The priests of social engineering.

Their proposition: We will give you Heaven on Earth. You need need only give us control of your government.

Our only defense to this attack was reason.

So they perpetrated the lie that social engineering is something that can be accomplished by the ignorant through the whims of the heart. Reason is not relevant in matters of social engineering, they said. They told you that your opinion is what really matters, your innate spiritual sense of right and wrong, and you believed it. They told you that those greatest of economic minds, Hayek, Von Meise, Friedman, Smith, were false prophets. Their mathematics were false. Their empirical data corrupted. The engineers were the priests, and the priests the engineers.

They told you to just do what feels good. Just believe. They said: "Know that if we are your rulers, you are righteous, moral, true, good. But if we are not your rulers, you prove yourself greedy, base, inhuman."

So I ask you, if you have persuasive counterarguments against the great libertarian economists (most are Nobel laureates), why have you not yet received prizes and accolades recognizing your transcendent insights?

If you have discovered the secret of centrally planned social engineering that will not lead to civilizational collapse, as the true economists all predict (their predications are coming to pass as I write), publish it. You'll be the most famous economist in human history.

The answer is that you are the worst kind of fools. You are the modern day armies of inquisition. You have brought our society to the edge of the abyss by your determination to impose your religion on society by force. You are no different than all the tyrants, and their ignorant minions, before you.

Obama is the Great Prophet of the Socialists, though he cannot call himself this. The great Priest of Social Engineering. His blank-eyed minions, entranced baying mobs, worship every word he utters.

We are doomed.

(By the way, McCain is merely a lesser priest of the same sect. Ron Paul was our last hope, and, though unable to defeat his arguments, you rejected him and the great economists whose views he advanced, as would an Evangelical an atheist).