The Paradox of Empty Storefronts

Matt Yglesias asks an interesting question:  why don't markets clear in urban storefronts?  That is, why do properties sit empty when presumably any rent is better than no rent?

He suggests there may be some regulatory problem, and I suspect that indeed, things like registration and inspections may mean that it isn't cost-effective below some minimal rent.  I also suspect that some landlords, like some homeowners, just can't give up the dream of the way things used to be.  But I mostly think that Felix Salmon and Justin Fox are right:  the real issue is lease length.  A landlord who locks in a multi-year lease in a down market does himself more harm than good.

So why not, as Fox and Salmon suggests, go to short term leases, at least until you find a better tenant?

Marcus Westbury has manged, in Newcastle, to implement the obvious solution to this problem: short-dated leases, often just 30 days long, which roll over so long as the landlord hasn't found a permanent tenant. That's good for the neighborhood, and helps drive up prevailing rents, so everybody wins -- except, of course, for the commercial real estate agents, who are disintermediated and who in any case are never going to make any money brokering 30-day deals. But many businesses are never going to find that kind of deal acceptable, even if they're already in the space in question -- remember that Kenny Shopsin, for instance, refused to extend his lease on the space he had occupied for years in the West Village by one year. "A one-year lease," explained Calvin Trillin with no further elucidation, "is obviously not practical for a restaurant". Yet somehow a brand-new teahouse in Newcastle manages to operate on a shorter lease yet.

I actually think Felix Salmon is rather answering his own question:  most renters don't want short term leases, because they have to make capital investments in the space.  A tea-house is a pretty low-intensity business, because the kinds of outfits that take 30-day leases truck in their baked goods and prepared foods, so they can get by with basically a fridge and a sort of souped up toaster oven.  A restaurant requires major investment so that the nice inspectors from health and safety and the fire department don't shut you down.

The problem for the renter on a short term lease is that once they've made the capital improvements, the landlord has them over a barrel.  If they have to move, they will have to do it all over again, plus lose business because some people won't follow them, and almost certainly have a delay while they get their inspections up to date.  If their leases are short term, the landlord will hold them up for above-market rents.

This is what economists call the problem of co-specialized assets. In theory, you could get around it by having the landlord do the capital improvements.  But the landlord does not want to rent a commercial space outfitted as a restaurant; he wants to rent a commercial space with which you can do anything you damn well please. 

There are two further problems.  First, the kind of tenant who can move in without doing much to the place is quite likely to fail, because probably seventeen other tea shops have had much the same idea.  (They're also likely to pull up stakes and skip out on the rent, but presumably you've gotten that up front).  They may not be overworried about taking care of the place.  But most importantly, the place will not show particularly well to anyone who is envisioning something other than a tea shop.  If you're trying to woo a high-end clothing store, you don't want your potential renter to be edging past tattered chairs and piles of crumbs.  This is why residential real estate agents encourage sellers to vacate the house whenever possible, and (outside of New York, with its 2% vacancy rate) large landlords let the apartment go empty before they try to rent it again.

The more interesting question is what Matt Yglesias asks:  why doesn't the same thing happen to strip malls? One possible answer is that it does, but we don't notice, because neither of us are very familiar with the world of malls.  But I think his and my impression is likely correct:  malls are less likely to have many empty storefronts than urban areas.

One guess is that malls are likely to be owned by professionals who are better managers of their retail yield than individual landlords.  First, they are professional retail managers, not just owners of property, and second of all, malls place a very high value on having foot traffic.  Stores in malls benefit greatly from spillover traffic, which is why anchor stores like Macys are big focuses of the industry.  Urban stores do too, but there's no one landlord in charge of them.  A building on Broadway and 86th Street is not going to lower the rent on its vacant space because the fish store on one block up will see an 8% rise in sales.

The other guess--or perhaps it's more of a corollary--is that because malls are not so dependant on casual foot traffic, there is less worry about lock-in.  That is, a restaurant in the Paramus Park Mall is not getting any significant number of its customers from the area immediately surrounding the mall.  Any other mall with decent foot traffic of the right demographic is a very good substitute for one they're already in, so they can leave if the landlord gets too frisky.  Plus, the space they rent very likely is a space specifically designated for a restaurant, allowing them to demand some capital improvements from the landlord that an urban tenant can't.  In the city, a pizza place that hates its landlord has to worry about finding and building out a new space, and then charming customers away from the 22 other restaurants within a ten block radius.

The New, New Thing

Financial innovation is taking quite a beating these days.  Only one man is brave enough to stand up for it.  At least, I think he's a man.  But that probably just goes to show how deeply I've internalized a heteronormative patriarchal cultural paradigm.

The point being that Economics of Contempt has some very, very interesting things to say about financial innovation, and why it doesn't make any more sense to be against financial innovation than any other sort:

It looks like it's time for everyone's favorite whipping boy, "financial innovation," to come in for another round of mockery in the blogosphere. Simon Johnson and James Kwak make all the familiar arguments about CDS and CDOs, neither of which they seem to understand in the slightest. Their discussion of CDOs is particularly specious:

The magic of a CDO, as explained in the research paper "The Economics of Structured Finance" by Joshua Coval, Jakub Jurek, and Erik Stafford, lies in how CDOs can be used to manufacture "safe" bonds (according to credit rating agencies) out of risky ones. Investors as a group were willing to buy CDOs when they would not have been willing to buy all the assets that went into those CDOs. We don't have to decide who is to blame for this situation--structurers, credit rating agencies, or investors. The fact remains that at least some CDOs boosted financial intermediation by tricking investors into making investments they would not otherwise have made-because they destroyed value.

This is usually how CDOs are portrayed these days: they're obviously voodoo finance, because--get this!--they claimed to take a bunch of risky bonds and transform them into a super safe bond. What a ridiculous idea, right? Now do you see how useless financial innovation is?

Of course, this isn't a remotely accurate description of CDOs. Notice how they conveniently leave out the explanation of how CDOs transform risky bonds into a safe bond. They do this through subordination and various other credit enhancements. Say we have a CDO with a $100 face value, backed by a pool of BBB-rated mortgage-backed securities. The CDO sells three classes of bonds: an equity tranche, a mezzanine tranche, and a senior tranche. Investors in the equity tranche will take the first 10% of the losses; investors in the mezzanine tranche will take the next 15% of the losses; and investors in the senior tranche will take the rest of the losses. Investors in the senior tranche wouldn't suffer any losses unless and until the total losses on the CDO exceeded 25%, so we'd say that the senior tranche has a subordination level of 25%. When Johnson and Kwak say that CDOs "manufacture 'safe' bonds out of risky ones," the "safe" bonds they're referring to are the senior tranches. But as you can see, the idea that the senior tranche would be "safe" isn't at all ridiculous--after all, there's almost always some level of subordination that will make the senior tranche a safe investment.

The problem, in very broad terms, was that the lending standards on the underlying mortgages significantly deteriorated, while at the same time the rating agencies were handing out AA and AAA ratings to tranches with lower and lower subordination levels. I can't find a similar chart for CDOs, but this chart of CMBS subordination levels is instructive (the trend for CDO subordination levels was similar):


But of course, we get no discussion of low subordination levels--or even the idea of tranches--from Johnson and Kwak, who use the term "CDO" as some sort of trump card, the mere mention of which automatically ends any debate on financial innovation. This apparently passes for Serious Commentary nowadays.

There are certainly problems with financial regulation:  it's hard to price, hard to regulate, and someone always gives into the temptation to take things too far.  But most of the financial instruments we use today were once dangerous financial innovation, with all the attendant problems.  It took us a long time to evolve regulatory standards and pricing frameworks for stocks and bonds that made them safe enough for home consumption . . . and nonetheless, we had the tech bubble, which was innovative only in the rationales cooked up to explain why valuations should depart so radically from historical norms.

I suppose there's an argument to be made that the pace of innovation is simply moving too fast, so that neither economic theory, nor the regulatory agencies can keep up with it.  But I'm not sure what you do with that insight.  Stop innovation altogether? It's hard to think how you actually do that without pretty much crippling your financial system, it won't keep bubbles from developing, and as Economics of Contempt goes on to illustrate, some financial innovation has turned out to be a very good thing.  We need to focus on developing the regulatory capacity to sort out the good innovations from the bad.

Of course, that's really difficult, particularly if you insist on paying your top-level financial regulators about what a secretary at Goldman Sachs makes. 

A Victory for the Not So Little Guy

Dooce on:

1)  The power of twitter

2)  What bloggers are thinking every time you write outraged letters to us announcing that you are NEVER READING US AGAIN!!! UNFOLLOW! UNFOLLOW!

3)  And the stunning, titanic indifference of major appliance manufacturers to their customers, their willingness to let let customers sit for weeks without minor conveniences like a working refrigerator or washing machine . . . right up to the point where they realize that the person they're annoying can tell tens of thousands of other potential customers just how little they care about the suffering of those foolish enough to buy their product.

Mental Health Break

The new iPhone commercial.  Thank God I went to college before the iPhone came out . . .

Confronting the "R-word"

One way or another, we are going to ration care, if you use "ration" to mean "allocate inherently scarce goods".  But neither side of the health care debate likes to talk about this.  They prefer to minimize the problem--the opponents by saying "they can go to the emergency room!", the proponents by discussing all the speculative ways that we might be able to save money by cutting treatments that don't do any good, or the infamous "waste, fraud, and abuse" that politicians always promise they are going to use to save money.  Somehow, that money never makes its way to the budget's bottom line in any significant amount.  And reading about how salt guidelines came to be, or any of the various histories of bygone treatments from lobotomies to prophylactic tonsillectomies, illustrates how dramatically the establishment of real-world treatment guidelines can diverge from the sober, white-coated Solons of the technocratic ideal.

Over at First Things, Eric Chevlen, an oncologist, has a thoughtful piece on how we should think about rationing:

Limiting health care's availability by the criterion of personal wealth rightly offends our sense of the dignity of the individual. Are the lives of the poor not of the same intrinsic value of those of the wealthy? To be fair, it is rare in the United States that poverty alone prevents the uninsured poor from receiving lifesaving intervention in a healthcare crisis. A poor man having a heart attack is not turned away from the emergency room, nor is the poor woman in labor sent away to have her baby at home. (I am not arguing that such enormities never occur, but the fact that such occurrences remain scandalous and newsworthy is a testament to their rarity.) Yet it is equally undeniable that the poor get a lesser share of the preventive care that can maintain health or of the quotidian care for the less dramatic challenges to their health.

There are two major alternatives to the allocating of health care on the basis of personal wealth. Both involve a large number of individuals agreeing (or having imposed on them) that the amount of health care they receive will not be in strict accord to how much they have paid for it. The cost will be distributed over the healthy as well as the sick, even though the benefit will inure only to those who are ill or who need health care to prevent illness. People accept the certainty of a bearable cost to avoid the risk of an unbearable one. But to the extent that these collective programs sever the connection between paying for health care and receiving it, they generate increased demand for health care. The individual feels that he has already paid for health care. When he is sick, or thinks that he is sick, he feels fully entitled to care with no consideration of cost. After all, he has already paid for it, hasn't he? Given the limited amount of health care that may be bought with the aggregate funds of the group, this untrammeled demand for it must always result in rationing. This is true whether the collective effort is a private insurance plan or a government program. Rationing is inevitable in all collective health care financing schemes.

Rationing must occur, but it need not be admitted. Denying the truth of rationing is more common in government-run health care schemes than private ones, because the government is reluctant to have the people know this ugly fact. Government-run programs, therefore, are more likely to disguise the rationing. This plausibly deniable form of limiting health care is called implicit healthcare rationing, and it assumes many forms. Rationing by termination occurs when patients are discharged from the hospital earlier than is medically optimal. Rationing by dilution occurs when second-best rather than first-best treatment is provided. Rationing by rejection or redirection involves healthcare providers turning away patients whose care will be inadequately reimbursed. This is commonly seen now in the Medicare and Medicaid programs, because those programs reimburse providers at a rate substantially lower than private insurance plans. Perhaps more common than those forms of rationing is rationing by delay, as exemplified by the outrageous amount of time patients in Canada must wait for hip replacement surgery or colonoscopy. The unifying theme in all these forms of implicit rationing is that, without admitting it, they force some patients to forego medical care that they want and are ostensibly entitled to receive.

Private insurance plans sometimes include an element of implicit rationing, but because they are, at heart, contractual agreements between the insurance company and the insured are more likely to ration health care explicitly. The many pages of the healthcare plan describe what is a covered service, which providers will be reimbursed for services, the duration of coverage, the dollar limit, and so on. The advantage of explicit over implicit rationing is obvious: It gives potential customers of the insurance plan information to use when deciding which insurance plan to buy, and gives them clear expectations of services to be delivered. Implicit rationing, by contrast, may have the sweetness of a promise, but is usually succeeded by the bitterness of a promise broken.

All modern societies ration health care. A wise society considers the options and chooses a method of doing so which best conforms to its values and capabilities. Thus we come to the terrible question we would so very much like to avoid: How shall we ration health care? How shall we explicitly ration it? So noxious a question is this, so offensive in its tacit assumptions and implications, that most politicians and wishful thinkers will deny that we need to address it at all. They will argue that the fundamental problem is one of distribution, not one of unmeetable demand. They will argue, with more enthusiasm than evidence, that an emphasis on preventive care would substantially reduce aggregate demand. Some will say we must reduce the role of government; others will argue that we should augment it. If only we will adopt their plan--they'll say--waste, fraud, and abuse will be abolished. There will be chicken--or at least chicken soup--in every pot, and a vaccine in every arm. People love honesty, but they hate the truth. To frankly acknowledge and address the ineluctable reality of healthcare rationing is not merely to touch the proverbial third rail of American politics; it is to lie across the tracks in front of the onrushing train.

Come, let us speak of unpleasant things. How is health care to be rationed? Who gets the short end of the stick?

Lies, Damned Lies, and Health Care Polls

Jim Lindgren illustrates why so much of the polling on health care reform is terrible.  Even outfits like NBC are asking questions which highlight only the nice sounding bits of the reform proposals:

Now I am going to tell you more about the health care plan that President Obama supports and please tell me whether you would favor or oppose it.

The plan requires that health insurance companies cover people with pre-existing medical conditions.  It also requires all but the smallest employers to provide health coverage for their employees, or pay a percentage of their payroll to help fund coverage for the uninsured.  Families and individuals with lower- and middle- incomes would receive tax credits to help them afford insurance coverage.  Some of the funding for this plan would come from raising taxes on wealthier Americans.

I'm surprised it only got 53% in favor. 

Now, what do you think those numbers would have been if NBC had included where the rest of the funding was coming from (cuts to Medicare), that it also will probably include Medicaid expansion, that it might include the creation of another state-sponsored insurance provider, or even the fact that the "plan" only manages to stay deficit-neutral by phasing in the taxes quickly, and the benefits in year four?

Of course, you could equally well get the opposite result--unlikely numbers of people rejecting it--if you phrased the question differently.  Yet people have been musing on the puzzling disconnect between people's answer to this question, and the fact that more people mistrust the government's activity than want it to go forward.

My Last Word on Guns

Jason Zengerle indicates that the real point is that openly carrying weapons at a protest makes it harder for the Secret Service to do their job.  Probably.  On the other hand, lots of things make it harder for the Secret Service to do their job.  Protesting is much harder on the Secret Service--almost certainly harder than one guy openly carrying a gun, because the protesters are a crowd of people who have to be watched constantly for suspicious movements.  Should we ban protesting?  Or force the people who do it off the premises and into a park eight blocks away?

Of course not.  Expression in a free society is important--important enough even to let us risk the president's life, as we are indisputably doing every time we allow a protest, or for that matter a crowd, near him.    You can say, well, free speech is really important, and carrying a gun isn't, but that's begging the question.  I'm going to stop discussing this after the post, because what it comes down to is liberals saying, "Conservatives with guns make me extraordinarily anxious and upset," and clearly, they're right.  Nonetheless.  Carrying a gun is clearly an attempt to make some sort of political statement, though we may not know what--rather like flag burning.  And the supreme court takes a very dim view of "Fighting words" type excuses to limit constitutional rights.

Rather like flag burning, it shouldn't happen, even though you've a perfect right to do this.  The problem with taking a narrow position is that everyone wants to push you into the broader position.  It's easier to argue with the opposite of your position than a halfhearted compromise.  And making narrow arguments in the face of towering rage and anxiety seems, well, kind of wussy. 

Nonetheless, I take the narrow position:  openly carrying a gun to a protest is idiotic.  Our president isn't the only one who has had a totally lunatic pastor.  But there's really very little statistical evidence that it's likely to cause anyone any problems except their own stress.  People who are planning to commit violence are probably going to try to conceal it until the last moment.  And the other people aren't going to pick fights with the guy with the gun. Furthermore, these protests are hardly some variation on the Seattle WTO fights.  They're small and, other than the gun freak show and the LaRouchies with Hitler signs, pretty boring.

People carrying guns are acting like jerks.  So are the liberals who have created a giant scary amalgam of a right-wing protester, who has done every bad thing that every protester has ever done.  More than one person has now asked me how I can defend someone who shows up at a rally holding a gun in one hand and a picture of Obama-as-Hitler in the other, and starts screaming about death panels? 

Moreover, having created this horrifying bogeyman, the next rhetorical move is to claim that this constitutes the whole of the opposition to your program.

Does any of this sound oddly familiar?  Wait a second . . . it'll come to you . . . yes, that's right, it's 2003 all over again!  Coldplay's on the radio, Elizabeth Smart is being reunited with her family, and the rest of America is trying to rip each other's throats out, rhetorically speaking.  The  party in power is busy branding the opposition as something close to traitors because they are skeptical about a speculative venture that the majority just knows is going to turn out beautifully . . . Meanwhile, the opposition is staging increasingly freakish demonstrations, while the loud lunatic fringe starts looking for fascist jackboots and death squads behind every tree.  The party labels have switched, but the vitriol, and the emotional tenor of the debate, seems very much the same.  You'd think that the various players would have learned something from our last outing.

Well, no, you wouldn't.  But it would be nice to think that, wouldn't it?

I'm done talking about this now.  To me, liberals sound like the pro-war crowd did in 2002--positive that they're right, and constructing a lot of arguments around their ability to imagine what is going on in the heads of people they don't know very well, and like even less.  Too many conservatives sound like the lunatics heading the ANSWER brigade, who were not content to say that Bush et. al. were really, really wrong about invading Iraq--no, nothing would do but that they also be secret fascists looking for ways to increase the net stock of suffering in the world.  And too many on the right are letting these morons talk uninterrupted, including me, I suppose, because I can't bear to spend any of my precious life moments listening to Rush Limbaugh or someone even worse.

I hated it then, and I hate it now.  This country can survive Bush, Obama, or anyone else who is likely to get elected.  It cannot survive the moral equivalent of civil war.

Update:  I should add that Zengerle asks me what, besides a bet, I would take as proof that liberals are 100% serious in their beliefs about protesters.  Well, I think revealed preference is the best cue, but I would take a non-bet bet.  That is:  what would falsify your belief that these people are the vanguard of a rising tide of dangerous right-wing militia action?

I don't get the feeling that it is possible to falsify these beliefs--indeed, the rage that confronts me when I attempt the fairly anodyne task of showing that law-abiding gun owners almost never turn criminal, suggests a very considerable emotional investment in them.  But I would be happy to be proven wrong.  So:  what would falsify the belief that all these people are, in some sense, out to get you? 

A Democrat with a pro-healthcare sign and a gun on his hip does not seem to falsify the belief that the only thing carrying a gun can possibly signal is an intent to threaten and/or harm.  A black man carrying doesn't falsify the belief that this is deeply tied into a racist movement.  The utter lack of gun violence so far in no way erodes this belief--indeed, seems to strengthen it, as it can only be a matter of time.

My belief could be falsified in many ways:  on the record statements from the protesters, a shooting incident started by someone who arrived at a rally openly carrying, a plot uncovered by a law enforcement agency.  Obviously, I hope it's not the case.

The Power of the Gun

A lot of commenters seem sure that having a legal gun around substantially increases the likelihood that someone will, in a moment of rage, shoot someone--so sure that they are clearly convinced I am a lunatic for even suggesting otherwise.  I understand the intuition, and maybe it's right.  But the evidence for the proposition is not all that strong.

First of all, as it shows in the articles I linked earlier, something like 90% of homicides are committed by people with criminal records, i.e. people who probably cannot legally own a gun. A lot of the rest are committed by juveniles, or mentally unstable people, who also cannot legally own a gun.

It is perfectly true that adding a gun to a dispute involving violent criminals increases the likelihood that someone will be shot.  But violent criminals are not like the rest of us.  They have very poor impulse control, and, well, a demonstrated willingness to use violence.  They also are not likely to apply for a permit before packing heat.

Murder is not something that usually just happens, even among family members.  The people who do it are usually abnormal in some way, and it shows.  For all the fears that allowing concealed carry would lead to murderous road rage and bar fights, these incidents have failed to materialize.  I have managed to find one murder in Florida that was even arguably the result of having a gun available in a heated moment--the few others were either clearly premeditated, or involved a weapon other than a handgun.  Given how small the number is, as far as I can determine, the good done by defensive uses of concealed weapons would virtually have to outweigh the harm, since several concealed carry holders have stopped violent crimes.

And if you think about it, you already know this.  You have access to fatal weapons every day.  How often, after a fight with someone, have you been seriously tempted to run them over with your car?  Or grab a knife from the rack in the kitchen and brandish it at them?  Put rat poison in their morning coffee?  Or take an exacto blade to their throat while asleep?  The men in the readership, at least, could be fairly confident of their ability to stab their spouse to death whenever she says something really awful.  Yet none of you have done it.  Virtually no one else has done it, either, except for people who were already clearly deeply troubled--either abusive, or mentally ill.  That's why not a lot of hunters report getting into disputes with their friends or family that suddenly, unexpectedly, and tragically, turn violent.

It would be a very good thing if we could take guns out of the hands of criminals.  But they really don't seem to make ordinary people any more murderous.  (Possibly more effective suicides, but this is hard to assess, since the gun suicides may just be more determined people who would otherwise choose another, equally effective and irrevocable method).  There is more we could be doing to keep criminals from getting guns--unlike most second amendment supporters, I would support extending the requirement for background checks to private sales.  And perhaps there should be a presumptive temporary revocation for those who have restraining orders out on them. But with 220 million people in this country and a very long border, no gun control scheme is going to make much difference in the availability of guns to people who really want to have them.

What Would Milton Do?

Tyler Cowen explains why he thinks Milton Friedman favored bank bailouts.  I find this much more plausible than the alternative view that he thought the Fed should have let the banks fail, and then substituted for the destroyed demand deposits by printing physical currency. 

That's because this idea seems fairly silly.  The velocity of money was falling rapidly, which is to say that when people got their hands on money, they were holding it, rather than spending it.  Printing physical currency in the massive amounts that would have been required, assuming that it did not trigger further financial hysteria, would simply have given people more money to put under their mattress.  As far as I can tell, the only way to get that money into people's hands without creating further panic would have been expansionary fiscal policy, which the Fed didn't control.  The Fed also did not have the authority to take the country off the gold standard, which would have been required to start wildly printing hard currency.

Money supply is always, in some sense, a proxy for functioning credit markets.  If a third of the banks fail, trying to put the lost money back into the system by open market operations makes little sense.  Randomly distributed cash will not restore the confidence lost when perhaps a quarter of the country sees its savings wiped out.

Will Transaction Taxes Reduce Leverage?

The chairman of Britain's FSA wants to radically shrink the financial sector, and says he's willing to do so by any means necessary, up to and including a "Tobin tax".  Kevin Drum likes the idea:

As for the transaction tax, I don't know how practical that is.  But if it can be made to work, it's a good idea.  Not only would it raise some money, but it would put a crimp in some of the most highly leveraged investment schemes, which fundamentally depend on tiny returns multiplied by billions of dollars.  A transaction tax would make a lot of them unprofitable.  So it's a twofer.

I'm not precisely clear on what Lord Turner means by a Tobin Tax, which is technically a tax on currency transactions.  Once you get beyond there, it's sort of vague as to how and where you would apply such a tax.

But any sort of feasible tax is not going to reduce highly leveraged investment schemes.  I mean, if you're taxing debt issuance, it will increase your interest rate or the points on the loan, which might put some pressure on leverage.  But I don't think by that much.  You're talking about forcing someone to reduce their leverage from 20-to-1 to 19.8-to-1.

What a transaction tax makes less profitable is a portfolio strategy that relies on lots of quick trades.  I suppose there's a valid question about how much social value those folks provide, though you have to admit that they do at least increase the speed of the price information available in the markets, and to some extent their liquidity, which most people regard as a good thing.  But that's not going to stop anyone from borrowing vast sums and plowing them into highly illiquid assets like complex mortgage-backed securities.  That being approximately what everyone is complaining about in the current crisis.

What such a tax would also do is make a lot of people freak out.  If you tax debt transactions, you've suddenly got more points on your mortgage, your money market account stops paying much of anything, your credit card comes with a hefty annual fee, and businesses small and large have more trouble borrowing short money to cover temporary cash flow issues.  If you don't tax debt transactions, the largest effect of the tax will be to punish actively traded investment funds.  The academic literature indicates that this is stupid behavior that already is punished by sub-par returns, but it's not a social threat that looms large.

Lord Turner undoubtedly knows a lot more about finance than I do, so it is possible, even probable, that I am missing something.  But until I hear some more convincing explanation, I am officially skeptical.  If his quite sensible preferred strategy of higher capital requirements doesn't reduce the amount of unhealthy leverage in the system, I fail to see what a tax will add except, well, a tax.

Fascism and Freedom

Are we ever going to retire the F-word?  You know what I'm talking about:  fascist.  It seems that we can't go more than a few months without someone leveling this accusation at a president from the opposition party.

This is beyond moronic.  The Bush administration did many bad things.  But to call his administration fascist is both to completely abuse the term, and to belittle the millions of victims of fascism.  Fascism is not just something of which you disapprove . . . nay, not even if that something involves the military.  The things that the US did to its POWs can be very, very wrong without rising to the level of the Gestapo.  And if you think that they are even close, I suggest that you reread the reports, and then go read some history of the Gestapo.  Afterwards, tell me that you would be indifferent to being a captive of Nazi Germany or the US.  Tell me whether you'd rather be a citizen of Iraq or Nazi-era Poland.  That we even have to discuss this is ridiculous.

Similarly, the fact that Hitler liked government health care is really totally irrelevant to this discussion, thank you so much for not bringing it up.   Hitler also liked cream puffs and dogs.  Shall we get rid of anyone who shows similar predilictions?  Not all forms of state intervention in the economy are fascist.  Fascism is a particular thing, not the amalgam of everything you happen not to like.  It is an embarassment to the right that anyone would even think of saying something so awful, much less put an effing Hitler moustache on a photograph of the man who is, when all is said and done, the president of the country you claim to love so much.  Your fellow citizens elected him.  Show some respect, if not to Obama, then to democracy.

Would it be too, too trite to say that some days I despair?  Because I really do.

More on Guns

Jason Zengerle says that the idea of betting on an outcome like the discharge of a gun at another human being is "offensive".  Well, I'm betting on good behavior, which doesn't seem that offensive to me.  Zengerle et. al. are the ones claiming that people openly carrying guns have a significant probability of hauling off and shooting someone for no good reason.

I find that rather offensive, given how little the people saying this sort of thing actually know about the protesters.  They may, to be sure, be gun-mad lunatics dying for a chance to shoot some random stranger. Me, I'd expect the gun-mad lunatics are probably carrying their gun concealed somewhere on their person, the better to use it without being stopped.   But I don't know. The point is, neither does the other side.  All these confident predictions of impending violence do not, to me, seem to rest on much more than the belief that people who openly carry weapons near a rally must be gun-crazed lunatics who want to intimidate Democrats with threats of violence.  This is somewhat circular to say the least.

Zengerle also conflates this with presidential assassination, as have many other commentators.  As far as I know, only one chap has been near the president, and he was a publicity stunt.  The others seem to be at less august meetings.  If a gun nut wants to assassinate a minor Senator or Congressman, he doesn't need to carry a rifle to a protest somewhere.  They're not that well protected.  And also, not that frequently attacked. 

Do I think guns should be near Obama?  I think that is for the Secret Service to say, and I would support whatever decision they rendered.  But we don't know where this guy was, or if he ever even saw Obama. 

But if I had to guess, I would say that I do not think that anyone openly carrying a weapon is likely to pose much danger to the president.  Why?  Because the Secret Service knows he is there.  You can bet they have at least one guy watching the fellow with the AR-15, and that if he had taken it off his back and begun to raise it to firing position, he would have been immediately taken out.  The people who I worry about are the ones who carry concealed weapons, the better to get a shot off before the Secret Service notices.  Or the ones who have found a good hiding place with a sightline to the president.  Etc.

It is entirely possible that some nut will shoot someone at a protest, or try to shoot the president (indeed, I expect at least one assassination attempt, as that seems to be par for the course).  But I have no reason to think that the fellows brazenly carrying pistols on their hip will be among those nuts.  Nor, I think, do the people hysterically accusing them of some pretty evil intentions.

To be clear, as I said in my previous post, I think carrying a gun to a protest is at best stupid.  Whether or not they intend to provoke hysterical fear among a substantial portion of the population, they clearly are doing so, and that is not how you make your best case for the second amendment.  It's also not very nice, even if you didn't mean it.  So I think they should stop.  Meanwhile, I think that the left should also stop claiming, on little evidence, that they are crazed militia members.  Doesn't that seem like a reasonable compromise?

Those Who Can't Teach

Steven Brill's new article on the teacher's union in New York City is absolutely savage.  With good reason.  About 5% of the teachers in the system seem to be hanging out on the payroll, doing nothing, either because they were made redundant at their old school and no other principal wants them, or because they are spending several years awaiting a hearing on charges of incompetence and misconduct.

People who blame the teacher's union for every single thing that is wrong in urban schools are way off the mark.  But the fact remains that this shouldn't happen.  The union shouldn't protect teachers who pass out drunk in their classroom.  Hearings should not take a year to go through.  People should not collect paychecks for doing nothing, simply because they're too awful to keep teaching.  This is madness.  If Barack Obama is serious about changing this ridiculous reality, he will do wonders for his party, and maybe even for education.

Are Guns at Protests Really Dangerous?

So is this guy a terrifying threat to democracy?  Or just a civic-minded citizen?  If you think that his position on healthcare changes the likelihood that he will discharge that weapon, is this a rational belief?

I think carrying guns to protests is entirely counterproductive.  Indeed, I'm not sold on the general virtues of protesting, which worked for Gandhi and the civil rights marcher, but has a dismal track record on other concerns.  But I think people have a perfect right to do it, including with guns, though I also think the secret service is within its rights to ensure that they don't have a sight line on the president.

But the hysteria about them has been even more ludicrous.  Numerous people claim to believe that this makes it likely, even certain, that someone will shoot at the president.  This is very silly, because the president is not anywhere most of the gun-toting protesters, who have showed up at all sorts of events.  It is, I suppose, more plausible to believe that they might take a shot at someone else.  But not very plausible:  the rate of crime associated with legal gun possession or carrying seems to be very low.  Guns, it turn out, do not turn ordinary people into murderers.  They make murderers more effective.

So perhaps unsurprisingly, when offered the opportunity to put some money down on the proposition that one of these firearms is soon going to be discharged at someone, they all decline. It is starting to remind me of that C.S. Lewis quote from Mere Christianity:

Suppose one reads a story of filthy atrocities in the paper. Then suppose that something turns up suggesting that the story might not be quite true, or not quite so bad as it was made out. Is one's first feeling, 'Thank God, even they aren't quite so bad as that,' or is it a feeling of disappointment, and even a determination to cling to the first story for the sheer pleasure of thinking your enemies are as bad as possible? If it is the second then it is, I am afraid, the first step in a process which, if followed to the end, will make us into devils. You see, one is beginning to wish that black was a little blacker. If we give that wish its head, later on we shall wish to see grey as black, and then to see white itself as black. Finally we shall insist on seeing everything -- God and our friends and ourselves included -- as bad, and not be able to stop doing it: we shall be fixed for ever in a universe of pure hatred.

Which is, sadly, starting to sound all to much like our current political environment.

I suspect that, like the notion that Obama is not a US citizen, or that George Bush either planned the 9/11 attacks or allowed them to happen, this is for most people what Julian Sanchez calls a symbolic belief.  They don't really believe that these people are thugs intent on murder--not in the sense that they have, with careful thought, arrived at a conclusion that they are willing to defend vigorously.  But it is pleasurable to tell yourself you believe terrible things about your enemies, and so you don't examine the thought until someone says, "Well, how about $500 on it, then?" and you think about how much it would hurt to lose $500 on, and realize that you don't actually have any reason to believe it's all that likely. 

Unfortunately, these sorts of fun pastimes are horribly corrosive to civic society.

What If?

Julian Sanchez raises an interesting objection to the thesis offered by Tyler than me:  that for libertarians, absent the bailout, we would have gotten something even worse.

this sounds an awful lot like the old debate trick I've previously referred to as the fiat shuffle. Just to refresh: The way the trick works is that, for the purposes of arguing the merits of a given policy, you assume away various real-world political barriers to the policy's being enacted--in debate lingo, you get to "fiat" the policy and restrict the argument to whether this would be a good thing without fussing over whether you could get the votes in the House (or whatever) to do it. The shuffle comes when you assume the same political constraints back in again as part of an argument that the proposed policy would create pressure for other salutary reforms, or to dismiss alternatives as infeasible.

Now, this isn't a clear case of fiat shuffle, because it's easy to imagine that we might have had the political will to resist the bailouts, but that this would not have been sufficient to forestall still more aggressive intervention later assuming things would have gotten far worse. Still, despite a an initial defeat in the house, the bailout ultimately passed by a 3-to-2 margin there, and by an even more lopsided 3-to-1 vote in the Senate. Which is to say, the world in which we didn't do the bailout is clearly a world with a pretty radically different political culture, presumably populated by legislators with a very different average worldview. When would the inhabitants of that world have given up their resistance to intervention, and how much more dramatic would the intervention have been when they did? Damned if I know, but projections based on the current composition and views of Congress probably don't apply.

I'm not totally sure that's true.  If so many conservative and libertarian pundits hadn't caved, I can imagine a world in which the Republicans continued their intransigence, and the Democrats (for understandable political reasons) refused to pass it without them.

But leaving this aside, we actually have some empirical evidence here.  In 1929, the federal government and the federal reserve took little action to bail out the banks.  In 1932, we elected FDR. 

That was a long time ago.  But when you look at modern financial crises from Iceland to Argentina, what you see is that they have a tendency to produce some, well, radical changes in the political culture.  Moreover, those trends usually tend towards populism, redistribution, and state control of substantial segments of the economy.  So if we hadn't had our Pelosis now, we'd have had them by 2012.  To a first approximation, I'd say that the bailouts are the reason that we won't have a single-payer health system or actual national automakers any time soon.

Teddy Kennedy, RIP

The end of a mighty era.

Bernanke, Again

So today we learn we'll be getting seconds on Ben Bernanke.  I'm inclined to think that's a good thing.  As more than one economist has pointed out, if you were going to pick the one guy most qualified to see us through the financial crisis, you'd probably pick Ben Bernanke. 

So why wasn't it closer to perfect?  Why did Goldman Sachs end up with gigantic profits, while we ended up with the bill?  Why did he rescue Bear Stearns and leave Lehman to twist in the wind?  Why didn't he know that money markets would lock up?  Why didn't we do what either left or right wanted:  let the bastards fail, or take them over?

Well, in part because policy is never perfect.  Crises are sui generis, and information is limited.  Bernanke bailed out Bear Stearns to prevent contagion, and let Lehman fail to prevent moral hazard, and only during the fallout from Lehman did he learn that contagion was the bigger risk.  He had a choice between becoming the fiery avenging angel of justice, or keeping the system from collapsing.  In the long run, no doubt there will be bad results from this, and many will wish that he had not done it.  But in the long run, the possibility of bread lines and 25% unemployment will seem comfortably far off.

But mostly, because central banking has always been a bit of a muddle.  Hard and fast rules are intellectually appealing, but they have so far always failed in practice.  Put yourself in Ben Bernanke's place and imagine that there was a 10% chance that either nationalization or letting banks fail would spark a panic violent enough to push us back into another Great Depression.  Would you be willing to try the experiment for the sake of principle?  Or would you be inclined to worry about the long term problems later?

As it says in To Kill a Mockingbird, Bernanke did the best he could with what he had.  It was not perfect.  But looking around at the mostly employed people on the streets, I'm glad he was there.

What Really Matters In Health Care Reform

Update  Clive Crook says:

I think Obama needs to drop the public option, despite the dismay this will cause among progressive Democrats, and he needs to be honest about the need to raise taxes to pay for universal coverage. Politically, one can see why he has preferred to do neither, but the calculation has gone wrong. His strategy has done a very improbable thing: it has alienated centrists and progressives alike. He cannot repair his standing with both of those groups, and must now choose whose support he needs more. In any event he must start being clear, consistent, and honest.

I disagree about the tax increases.  It is entirely true that taxes will need to go up to pay for this--all of the proposals on the table seem to be "revenue neutral" only if you squint hard and ignore the year after the 10-year deficit horizon.  But Obama cannot say so.  If he did, it would doom the reform.  And it wouldn't do much for his re-election chances, either.  Eventually he's going to have to raise taxes, but I expect him to wait until the very last minute.

Facts I Did Not Know

There is a "salt lobby".  Not that a salt lobby is particularly surprising, given how many other lobbies we have.

Update:  Apparently there is also . . . a balloon council?

Megan Live!

I'll be doing a live chat on the Washington Post tomorrow.  Those who are interested can participate, or view it, here.

How Sweet it Is

The American Heart Association has apparently issued new guidelines on sugar, urging everyone to cut their intake to 9 teaspoons a day, or a little more than one 12-ounce coke.

I'm not sure what to make of this.  Pretty clearly, almost no one is going to cut their sugar intake that far, except people who already have cut their sugar intake.  I suspect that the American Heart Association is hoping for some sort of anchoring effect:  people hearing they should cut their sugar intake to 9 teaspo0ns will maybe bring it down to 18 or 27.

But I think that anchoring only works when people actually have to participate.  When people have the option of ignoring you, making your goal too extreme may actually decrease its effectiveness. 

You can think of it in terms of the real estate market.  Sellers often insist on listing their house at an inflated price, on the off chance that someone will bite, and to enhance their bargaining position.  But often it just means that buyers don't bother to look.  Buyers can make the same mistake, lowballing their offer only to have the sellers conclude that they are not serious and refuse to negotiate.

So I suspect that where moderate guidelines might have done something, this will simply be ignored.  Along with their recommendations on sodium intake and most other forms of dangerous deliciousness.

Looking Back at the Bailouts

Now that we have the benefit of hindsight, what should with think about the bailouts?  A large number of conservatives and libertarians are against them.  I think that a large number of liberals are too, though for different reasons.  Both dislike giving state money to companies, but the right worries about the tax burden and the corrupting influence of government on the market as much as the corrupting influence of companies on the government.  They are also, I think, more worried about moral hazard, while liberals worry more that the money spent on banks can't be spent on other government programs.

All these concerns are correct.  The bailouts have probably substantially increased moral hazard, and perversely, arguably undermined the political will for regulation that might reign in that moral hazard.  Top investment bankers really do seem to have a worrying about of influence over Treasury and the Fed.  The tax burden is large, and should worry you whether you wish that money had been spent on food stamps, or returned to taxpayers.

That said, they were probably the best thing we could have done.  If you disagree, you need to sketch out a plausible alternative scenario.  Tyler Cowen poses the question for libertarians:

Without the bailouts we would have had many more failed banks, very strong deflationary pressures, a stronger seize-up in credit markets than what we had, and a climate of sheer political and economic panic, leading to greater pressures for bad state interventions than what we now see.  Milton Friedman understood all this quite well, which is why argued bailouts would have been a good idea in the 1929-1931 period. 

(By the way, some libertarians like to pretend that Milton Friedman blames the Fed for "contracting" the money supply by one-third in that period but in reality Friedman blames the Fed for having let the money supply fall by one-third and not having run a bank bailout.)

If you are a libertarian, is not our current course more favorable for liberty than would have been a repeat of 1929-1931?  If not, I would be curious to hear your counterfactual version of how matters would have proceeded, without the financial bailouts.  Is it that you think the regional banks would have raised the financing to pick up the entire bag and keep the banking system afloat?  Or is it that natural market forces would have somehow avoided a wrenching surprise deflation?  Or do you think the authorities for some reason would have not nationalized the major banks?  Please let us know.

Maybe you think that the bailouts will have disastrous long-run consequences.  And maybe they will, I worry about this too.  But if anyone should know that modern politics can only stand so much short-run panic, it is libertarians and fans of Bryan Caplan's book.  If we had not done the bailouts we did, we would, within a few months' or weeks' time have received a much worse and costlier bailout run by Congress and Nancy Pelosi.  How does that sound?

There are things about the bailouts that could have been done better; I think both Democrats and Republicans demanded too little from the large banks in return for its support.  But the basic strategy seems like the best option in a bad situation.  On the other hand, maybe this is an argument for liberals that we shouldn't have done the bailout . . .

Mental Health Break

Literal music videos:

Question of the Day

Why are so many blogs focusing on the question of whether you can pass a bill through budget reconciliation?  Is it aimed at the Senate parliamentarian, who has presumably spent a great deal more time mastering Senate rules than any of the bloggers now trying to do his job?  I deduce, from the rather strained arguments, that people think he is fairly unlikely to go along.

But it's not as if that has to stop the Democrats--they can just keep firing parliamentarians until they get a ruling they like.  That is, as I understand it, how Frumin got his job from Trent Lott.  The hard constraint is not Senate procedure; it's the political cost of tweaking it to Democratic Senators from swing states.  There are quite a lot of those.

It seems like progressives are conceding the ground war and wondering if they can't just get away with a fabulous new paint job on their bombers.  But I don't see how you can do this without winning the actual battle:  persuading Americans that they want this bill.  Which right now, they don't seem to.  Yes, I understand that if you word the question just right, you can get a majority of americans to proclaim their support for some provisions of the bills on the table.  Unfortunately, this is true of virtually every bill.  When voters are telling pollsters that they trust insurers more than the government, and Republicans are pulling ahead in the generic ballot, you have a hell of a lot of ground to make up.

What am I missing?

Worst Headline Ever

I substantively agree with the content of this article.  But the headline is so absurd, and boring, that I nearly skipped over it:

A Basis Is Seen for Some Health Plan Fears Among the Elderly

Did someone in the New York Times copyediting department misplace the bucket of active verbs?

Onto the content:  "waste, fraud and abuse", that favorite old refrain, will probably not suffice to cut Medicare costs.  Fears of "death panels" are way overblown.  Fears of "Are second knee replacements worth it?" panels are not.  And the infamous "overpayments to insurers" are actually paying for extra services, which the seniors in Medicare Advantage will probably lose, possibly along with Medicare Advantage, since providers may pull out.  You may think that these are wasteful and seniors will end up just as happy back in traditional Medicare.  But revealed preference seems to indicate that they prefer what they have.

The Business of Me-Too Drugs

I've never understood the ire against me-too drugs.  Consumer choice is usually thought of as a good thing:  competition reduces prices somewhat, therapeutic side-benefits may be discovered, and often different drugs work well on different sub-classes of patients.  If you don't think the world would be a better place with only one kind of coffee, I fail to see why you think it will be better off with only one kind of anti-depressant.

But for a large number of people, me-too drugs seem like a waste of effort, a way for soulless pharmaceutical companies to get rich copying their competitors by doing "real" innovation rather than this piddling incrementalism.  Of course, as Derek Lowe points out, me-too drugs often don't make their creators rich:

If this drug had been found ten or fifteen years ago, it might have made it though. But the trial data showed that while it made its primary endpoints (reducing vertebral fractures, for example), it missed several secondary ones (such as, well, non-vertebral fractures). And the side effect profile wasn't good, either. That combination meant that the drug was going to face at hard time at the FDA for starters, and even if it somehow got through, it would face a hard time competing with generic Fosamax (and Lilly's own Evista).

So down it went, and it sound like the right decision to make. Unfortunately, given the complexities of estrogen receptor signaling, the clinic is the only place that you can find out about such things. And there are no short, inexpensive clinical trials in osteoporosis, so the company had to run one of the big, expensive ones only to find out that arzoxifene didn't quite measure up. That's why this is a territory for the deep-pocketed, or (at the very least) for those who hope to do a deal with them at the first opportunity.

One more point is worth emphasizing. Take a look at the structures of the two compounds (from those Wikipedia links in the first paragraph). Pretty darn similar, aren't they? Arzoxifene is clearly a follow-up drug in every way - modified a bit here and there, but absolutely in the same family. A "me-too" drug, in other words, an attempt to come up with something that works similarly but sands off some of the rough edges of the previous compound. But anyone who thinks that development of a follow-up compound is easy - and a lot of people outside the industry do - should consider what happened to this one.

Those sanded-off edges can make a big difference--just ask someone who's had to take a drug every six hours, and then gets to switch to a once- or twice-a-day formulation.  But there are no more guarantees in a me-too than in the "real" new drugs.

The Magic of Europe

Why do Americans like Europe so much?

Bryan gives some good reasons why America is better for 37-year-olds with young children, namely lots of living space and easy shopping.  But I view much of Western Europe as better for the elderly, if only because it requires less driving and they are more likely to live close to their children and perhaps also they receive more respect.  Western Europe is probably better for children too, for reasons related to safety and health care.

My alternative view is that Americans rate European life so highly (in part) because the buildings from previous eras are so striking and attractive.  If all of the U.S. looked like U.S. postwar construction, the country would still impress more or less as it does.  If all of Europe looked like its postwar construction, Americans would be less likely to admire European policies and political institutions.  Yes I know about Lille, and contemporary Spanish architecture, but in reality most Americans would think of Europe as some kind of dump.

Tyler is spot on, I'd say.  Without the pretty buildings, what would often most strike Americans is the cramped space and a succession of petty inconveniences.  One of my friends who lived in Toronto, and is a raging europhile and a liberal, was nonetheless fond of pointing out that, due to a building boom in the 1970s, much of the city reminded her of nothing so much as her childhood in the Soviet Union.  Toronto is a lovely, liveable city for most of the reasons that people say they like European cities.  But its architecture is mostly pretty dreary, and it rarely captures the heart of American tourists or ex-pats the way that London, Paris, Rome and Amsterdam do.

Thinking Thin

Reader Susan from LA writes:

I wanted to comment on your Bloggingheads event with David Frum and his total non-responsiveness to your theory about why people overeat. As someone who works in the entertainment industry in Los Angeles--land of the perfect body--I totally agree that government pressure will do nothing to make people lose weight. People will only give up one pleasure in exchange for a more intense pleasure. And if you're poor and miserable, and eating is the high point of your life, you'll always reach for the cheetos.

I suspect the only way people will change their behavior is a sudden desire to move up the social ladder. Being thin and attractive gives you a competitive edge, especially if you live in a city with lots of talented people. The moment someone I know suddenly gets ambitious, or makes partner, or needs investors, they start losing weight. In California, being fat will hurt any career, whether you're a doctor, lawyer or accountant. We all take our cues from television/movie industry and the message is clear: you must be sexually appealing, no matter what you do. And so we tune out the Dominos commercials and reach for the tuna. Thank God for sushi, or we'd all go crazy.

No one I know is starving, but no one is ever full. But the point is we're compensated in other ways...

Good News/Bad News on the Budget

Well, I was wrong that the news on the budget would be worse than projected, but right that the Obama administration wasn't delaying its first mid-session budget review in order to hide the bad news in the August doldrums.  The budget deficit is going to be $1.6 trillion, instead of $1.8 trillion.

The good news is, we've spent considerably less on bailouts than we expected to, and slightly less on other programs.  The bad news is, revenue was $83 billion less than expected.  The revenue declines tend to lag the recession, so we'll be in that boat for a while.    The bailout money, on the other hand, is a one-year savings.

Still, it's hard to be unhappy about a $200 billion decline in the government.  $1.6 trillion to go . . .

Something is Wrong With the Model

Why are life expectancy and obesity going up in tandem?

#1: More people are exercising than they used to. How many joggers and walkers did you see on the streets 20, 30 years ago?

#2: Fewer people are smoking. Forget lung cancer (if you can). The big risk for smokers is premature vascular disease. Normally we all have carbon monoxide in our blood (it comes from the breakdown of hemoglobin). [ Brit. Med. J. vol. 296 pp. 78 - 79 '88 ] Natural carbon monoxide production would lead to a carboxyhemoglobin level of .4 - .7%, but normal levels in nonsmokers in urban areas are 1 - 2%. Cigarette smoke contains 4% carbon monoxide, so smokers have levels of 5 - 6%. This can't be good for their blood vessels.

#3: Doctors know more than they did. My brother is a very competent internist. He took over the practice of a similarly competent internist after his very untimely many death years ago. Naturally he got all the medical records on the patients. He found letters (now over 25 years old) from the late MD to his patients informing them of their lab results, and assuring them that their cholesterol was just fine at 250 mg%.

#4: The drugs are better. In addition they may be working in ways that we have yet to fathom. Consider the statins -- their effect on vascular disease is far greater than their effect on blood lipids (cholesterol, triglyerides) -- particularly when compared to other agents that lower blood lipids to the same extent.

#1 can't be it, since most obese people probably don't jog.  I would imagine the second is very powerful--and also somewhat related to quitting smoking, since the average weight gain after quitting is six to eight pounds, and one in ten smokers appears to gain up to thirty pounds.  Smoking is much, much worse for your health than being fat.  I imagine #3 and #4 contribute as well. 

(H/t Derek Lowe)

Vengeance is Mine, Sayeth the Lord

I found myself on the phone last night trying to explain the decision to release Lockerbie terrorist Abdel Baset al-Megrahi so he could go home to Libya to die of cancer.  The rationales didn't sound convincing even to me, and I'm pretty liberal on imprisonment.  I was forced to say, lamely, "Well, the British and the Scottish don't think about crime the way we do."

But of course, that's not exactly true.  Their governments don't think about crime the way we do.  But individual Britons do, and Clive Crook is outraged:

Nobody can accept or even understand the "compassionate release" rationale as laid out by Kenny MacAskill. A convicted mass murderer, found guilty of this most appalling atrocity, is set free as an act of mercy? Have these people gone quite mad? It seems to me a very fair question.

MacAskill, interviewed on US television, radiated the most repellent sanctimony I have ever seen in a politician--and that is saying something. His manner suggested that the whole thing is more about his own implacable self-righteousness than the demands of justice. He was followed on air by victims of the relatives. They were restrained and dignified, but plainly dismayed and distraught, and feeling horribly betrayed. Does the exercise of compassion not also take into account compassion for the victims and their families, one wondered? No, he seemed to argue, for that would be to choose vengeance not justice. False. There is such a thing as just punishment. How could it be unjust for a man guilty of a crime like this to die in prison? I would advise MacAskill not to visit the US for the foreseeable future. Indeed, calculations of justice aside, I wonder if the Scottish government has the smallest inkling of the harm it has done to its standing in the US--not to mention the prospects of future co-operation on security--with this bizarre act.

My mother never did understand it.  "If you'd been on that plane," she said, "I'd be over in Libya right now, looking for a hit man."

Despite all that, I'm pretty sure this isn't going to work.

The Canadian Quandary

Kevin Drum is puzzled:

Well, here's today's [chart]: day trips to Canada are down.  Way down.  It's not clear why, either.  The accompanying story blames it mostly on new passport rules, along with "other factors, including the recession and the higher Canadian dollar."  But that doesn't really hold water.  The downward spike from May to June might be due to new passport rules, but the chart makes clear that travel has been steadily decreasing ever since it recovered from 9/11 in early 2002.  Obviously passport rules have nothing to do with this 7-year trend, and neither does the recession or the strength of the Canadian dollar.

So what is it?  Take your guesses in comments.

Continue reading "The Canadian Quandary" »

Comment of the Week

In response to a drop-in commenter with a penchant for all caps:

Caps lock, it's cruise control for cool! 

~Alsadius

Was There a Second Gunman In Phoenix?

It's not like I think this is a huge story, but nutty theories are fun, so:

There is a meme going around the blogosphere that MS-NBC might not have edited the video of the guy toting the AR-15 to carefully disguise the fact that he was black--a video that the anchor presented as an example of possible . . . white racism.  You see, one CNN reporter says he saw someone else with a rifle at the rally.  (CNN refers to it as an "assault rifle", which is totally inaccurate.  Assault rifles are full auto, and thus illegal for civilian possession in most cases. The AR-15 is semi-automatic, meaning that you get one bullet fired per trigger pull.  This is mostly a digression, except that it does go to show that the CNN reporters are not exactly crack weapons experts capable of reliably identifying the guns they see.)

Here's the CNN video, which I expect most of the memesters found via The Daily Show:



No one else saw this guy at the rally, as far as I can tell, which the local paper reports as being a dozen strong.  But say he was there.  What are the odds that he happened to be wearing exactly the same thing as the African-American guy carrying an assault rifle, down to the pistol on his right hip?  Did they buy the outfit from the same designer? 

Look at the video above, and then check out the MSNBC footage: 



This is entering into the level of implausibility embraced by those who defended the Rathergate Memos.  Yet I've seen it stated as a positive fact in several comment sections.

But here's how we know, beyond a shadow of a doubt, that the footage was not of the protester's white doppelganger:  you can see the CNN reporter in the MSNBC footage.  Yet that reporter makes it clear during the interview that he did not see the mysterious other guy who was identically dressed and armed, but possibly white.

There is no reasonable doubt that MSNBC cropped the guy's race out of the video with some extremely weird editing.  I don't know whether the anchor knew about it or not--I presume she didn't--or why they chose to edit it that way.  But the evidence is pretty overwhelming that they did, and that at the very least, the anchor made some stupid and unwarranted assumptions.

The guy carrying the gun, by the way, was not a rage-filled lunatic looking to take out the president.  It was a publicity stunt staged by a local (libertarian) talk radio host.

The Benefits of Advanced Directives

A friend whose mother has been ill for years writes:

I'm a little close to the issue of Palliative care and the New York Times article has particular resonance for me right now.  As you know she's been diagnosed with MS since 1983.  For the past 2 1/2 years she's been getting significantly worse to the point where she can not bathe, dress, go to the bathroom or, in many cases, feed herself on her own.  My father has been her primary caretaker and this has been adversely affecting his health as well.  Aside from her MS and the various side effects that come with it she is in excellent health.  She has no cancer risk, she has low blood pressure and her heart is in excellent condition.

 

For years she has had a living will which stated that she should not be put on a ventilator or feeding tube and that no extreme measures should be put in place to prolong her life.  My father has a similar document in place.  This was done when my mother was still walking, dressing, feeding and doing most day to day activities herself.  These are not documents they discussed with doctors regarding their conditions, short of making sure their physicians where aware of their wishes, these were documents put in place years ago with the help of attorneys to give them the quality of life they wanted as the end of their life neared. 

 

This year my mother started getting UTI infections which were immune to standard antibiotics.  She was in the hospital in April with a UTI infection for which she needed IV antibiotics, then again at the end of June. When she was released she told my father and I that she didn't want us calling 911 for her anymore.  She had a discussion with several of her doctors regarding what would happen if we didn't call 911 for the next UTI.  We met with an Elderlaw attorney who informed my mother that if she wanted people not to call 911 she should indicate that in a legal document.  My mother called the attorney herself the next day to make the arrangements.  My father and I were not involved in any of that, short taking my mother to the notary to "sign" the document.

 

My mother is very well informed about her condition.  She understands what the ramifications of her illness are and she understood that if she did not go into the hospital with the next UTI that there was a great likelihood she would die.  I am currently 7 1/2 months pregnant with twins and she discussed with me last month whether it would be okay if she didn't make it to see the birth of the kids.  I told her it was.

 

All of my mother's doctors were against this final no-911 directive.  But they were able to give her facts and information objectively while still expressing their extreme dislike of her decisions.

 

This weekend she fell ill with a UTI and became unconscious on Sunday.  We contacted her doctors who could have given us the drugs and ordered nursing care to clear up the infection (possibly) but they refused, saying she should be in the hospital (I am sure this is because if the antibiotics didn't work they didn't want to be held responsible for it from a malpractice standpoint...which is another issue entirely).  Based on the advanced directives she had made, including the most recent one, we could not put her in the hospital.  The doctors viewed the do not call 911 document as a refusal of treatment and have ordered palliative care for her through Hospice.  She has just been put on IV fluids and been catheterized.  She is not yet on painkillers as she does not seem to be in pain, but morphine is available should she need it.

 

And as I go over to my parents home every evening to watch my mother die a little bit more every night I am so extraordinarily grateful.  I am grateful I knew what she wanted, I am grateful that she is going to die with as much grace as she can, I am grateful that she was informed about her medical and legal options and was able to make directives both previously and as they were called for in this situation.

 

But to equate informed decisions and accurate information with something like "death panels" as some of your commenter's have done is sad and scary.  This is something everyone should think about and this is an issue where everyone should be informed, well before they actually have something wrong with them.  This is a situation where everyone can make their own, most rational decision.  Will this be abused by some?  Probably.  Will there be people who manipulate the facts to get patients to achieve the results they want them to.  Probably.  But better to be informed and to be able to make the decision than not.  I have a living will because I want no extreme measures taken.  My husband does not because, to paraphrase, he wants every machine ever invented to keep him alive as long as possible regardless of the cost.

 

The world is not perfect, but informed decisions made by doctors, lawyers and their patients are, in my opinion as I watch my mother die slowly, better than the alternative.  And knowing that my mother made her decision and is allowed to die with as much dignity as possible and free of as much pain as possible gives me a little hope.

If there is anyone I would trust to know her own mind on this subject, and make an informed decision, it was her mother.  I'm glad she got to.

A Strategic Split for Healthcare Reform

A lot of liberal bloggers like the idea of splitting health care reform into two bills:  one that does the expensive stuff (public option, Medicare/Medicaid cuts) through budget reconciliation, and one that does more popular stuff, like various insurance regulations, and gets passed with sixty votes.  Sounds plausible . . . if they can get the Massachussetts legislators to change their procedure for appointing Senators, so that Teddy Kennedy can step down and immediately be replaced by a Democrat who will vote for the second bill.  Sounds entirely plausible.

One of Kevin Drum's commenters, however, thinks this might be problematic:

... the 60 vote bill (the one with the potentially popular elements) has to go first, and only if 1) it contains what is likely to be the unpopular position, mandating participation, and 2) he is sure they can get 50 votes for a bill with a public plan, and that the public plan can be passed through reconcilation. If these provisions are not both not in it, then the whole thing falls apart. Mandatory insurance without a public plan = we all take it up the wazoo from the insurance companies forever. Guaranteed issue and community rating without mandatory participation = rates go to the sky, and the insurance companies have a credible argument that they are justified in doing so, since you could get insurance the day after you cancer diagnoisis and bankrupt them

I myself will be interested to see them actually get Medicare cuts through budget reconciliation, or any other process.  Remember Cat Care . . .

Who's Crazy Now?

A series of posts at Reason illustrates that the liberal rage at right-wing loonies is starting to sound, well, a little loonie:

From Jesse Walker: "The social construction of the brownshirt menace, chapter DXXIII:

On Tuesday, MSNBC's Contessa Brewer fretted over health care reform protesters legally carrying guns: 'A man at a pro-health care reform rally...wore a semiautomatic assault rifle on his shoulder and a pistol on his hip....there are questions about whether this has racial overtones....white people showing up with guns.' Brewer failed to mention the man she described was black."

Here's the video:



Meanwhile, Matt Welch catches E.J. Dionne going off the deep end:

Remember when National Rifle Association President Wayne LaPierre's Godwin's Law comment about "jackbooted government thugs" was the worst thing ever? Well, the mainstream commentariat continues to use the same incendiary, totalitarianism-invokingWashington Post columnist and serial public broadcasting commentator E.J. Dionne:

This is not about the politics of populism. It's about the politics of the jackboot. It's not about an opposition that has every right to free expression. It's about an angry minority engaging in intimidation backed by the threat of violence.

l
And Nick Gillespie ponders the alleged violent reaction on the right whenever a liberal president comes in:

Last night, on MSNBC's The Rachel Maddow Show, Frank Rich of The New York Times reminisces about

the walk up to the [JF] Kennedy assassination, [when] there was all this hate talk about Kennedy, and then there was the John Birch Society, they were worried that the government was going to fluoridate the water and poison the country...it always seems to happen when there's a new liberal group taking over...it's not coincidence that the militias started up again in the 1990s or when Kennedy came in...

As Matt Welch and Jesse Walker and others at this site have been pointing out, loose analogies between between angry, sputtering citizens at town hall meetings and Nazis street thugs and political assassins are pretty damn lame. As important, they are almost inevitably the result of a strange ideological lesion that precludes inclusion of inconvenient facts. A propos of the above: JFK was not assassinated by a right-wing crank, but by a demonstrably pro-Castro defector to the Soviet Union who tooks shots at a rising right-wing freakazoid not long before shooting the president (yes, Oswald done did it). And, you might remember, that revolutionary (coff, coff) violence that wracked the '60s and early '70s was the result primarily not of out-of-control Barry Goldwaterites but by groups on the left.

Precisely what relevance any of this has to the current moment is far from clear.

We'll leave aside the garden-variety hypocrisy of people who have suddenly discovered that dissent may not always be the highest form of patriotism.  (And, to be fair, those who have suddenly rediscovered their right to peaceably assemble and demand redress of grievances)

Talk of death panels and crazy signs is, if polls are to be believed, a tiny fringe of the many Americans who do not like this health care plan much.  It's even, as far as I can tell, a small minority of the many Americans attending town hall meetings to harangue their congressmen.  Democrats appear to think that blowing those people up into the totality of the movement will help them win the PR battle on healthcare.  I suspect this will do more harm to the Democrats, and their ability to effectively deliver their message, than it will to the conservatives.

I expect the conservatives to become unhinged; it's the normal response to losing power.  So why are so many journalists losing basic touch with reality?

First Person Medical

Reader Allison offers some personal insight on palliative care:

I think most people who haven't had someone close to them dying may not really understand palliative care. "Palliative Care Doctors" are not the only doctors who deal with this, and "palliative care" might sound like it's just emotional and some feel-good stuff, but modern palliative care can be quite agressive.

Here's an anecdote: my father in law found himself in terrible chest and back pain, with a terrible cough. He saw a doctor, and was immediately--the next day--referred to a pulmonary doc at Stanford Med Center who determined it was likely lung cancer. Within hours, he was having a biopsy to confirm the suspicions, and we were told by the oncologist that the cancer was end stage, that he had less than 6 months to live. The cancer had already spread to his brain and other organs. The chances of his survival? basically zero.

And then they explained they were starting radiation therapy and chemo immediately. Why? Because the rad therapy could shrink the tumor and relieve or stop the back and chest pain. The chemo could stop the spread to the brain and thereby by more time that he was lucid and had functioning control over his mind and limbs.

This was PALLIATIVE CARE. It would not extend his life (though other family members failed to understand this, it was made clear to a few of us several times.) The chemo and rad therapy continued for 3 months, until he became too sick to undergo anymore. He died a month later, having spent the last month in hospice care.

This is the kind of care that Dr. Emmanuel has suggested is pointless. This is the kind of care that is most likely to be rationed. This is the kind of care that allowed family members to love him, to talk to him, and to make peace with all of this, as it gave him 3 good months. It didn't make anyone live a little longer, but it did make that time of living MORE VALUABLE to all of us.

Later, she adds:

Let me add that all of the suggestions of health care directives in the world will not make people confront them, and will not matter because in the end, the person controlling the choices is not the person who is dying.

My father in law knew he was about to die. He still refused to talk to a lawyer in those 3 months, always finding a way to put it off. It's called denial, and his wife wanted to spend all of her time there.

What he claimed he wanted for health care choices near the end was simply impossible. He wanted less intervention he said, and he wanted to be home. But no one could take care of him at home, and no one who recognized that was allowed to intervene. His wife was incapable of coping, but held on making inappropriate decisions despite his wish, and so bad decisions were made until other state health agencies forced his entrance into a hospice.

Living wills and things may help people to hold difficult conversations. But in much more likelihood, they only help people to hold easy conversations: if it's easy for your fmaily to talk about death and dying, then the living will will help. If it's not, then it doesn't matter what the piece of paper says, because the people living that will make the determination not the "living will" piece of paper.

Death Comes as the End

There's been a lot of talk about end-of-life counseling, but what does it mean?  Helping people to write a living will, or doing something a little blunter, like highlighting the downsides of aggressive treatment?  This New York Times article follows a palliative care doctor.  It's good, but also troubling.  It's not clear to me that the patient is better informed about their disease; indeed, the main patient the article follows is never informed that she's dying.  The palliative care doctors listens to what the patient is "really" saying, which sounds uncomfortably like old-style 1950s paternalism.

I wonder if it's possible to do this sort of thing in any kind of a neutral way.  Doctors have clear preferences about what to do; some of them want to treat aggressively and optimistically, while others are horrified by the sight of people dying with tubes in them.  The problem is, the doctors who go into palliative care are sort of definitionally disposed against extreme intervention.  Maybe extreme interventions are useless.  But it seems like the sort of decision patients should make, not their doctors.

On the other hand, patients might well be better off in some utilitarian sense not knowing.  Some of the bias towards aggressive treatments comes from elderly patients who see medical dramas and think that, for example, people can easily be shocked back to life.  Telling them that this doesn't work as often in real life as it does on TV, and that it is less likely to work on an elderly patient than a young one, is valuable information.  But at what point does valuable information shade over into scaring the hell out of someone at an already emotionally vulnerable time?

Should Whole Foods Run For the Hills?

Well, the Whole Foods boycott has certainly taken off!  At least, on Facebook, where the "Boycott Whole Foods" group has gathered 16,000 members.  Does this mean that Whole Foods is headed for the ash-heap of history?  At least one blogger thinks so:

Cohan writes: "Is this threat more bluster than bucks? If so, can you profit from it? As of Aug. 4, Whole Foods expected one percent sales growth for 2009 -- about $8 billion in revenues. But Whole Foods is showing improvements in its cash generation -- adding $322 million in the quarter ending this April and another $347 million in the quarter ending July.

"So unless the boycott movement takes away that one percent growth by a meaningful amount -- say $80 million -- I would not bet against the stock. Here's a quick estimate of how many boycotters it would take to make that much of a difference. If the typical Whole Foods customers spends $200 a week there, I estimate it would take only 7,700 boycotters a year to cut one percent from its sales."

Okay, what are the odds that half the people who signed up to boycott Whole Foods spend $200 a week there?  The class of people who are most worked up over this is not necessarily contiguous with the class of people who drops $800 every single month at a single grocery store.  Looking over the Facebook list, I see, broadly, three groups of people:

• Students
• People who live in a handful of very liberal urban areas
• People who live in hippy towns and/or college towns
  

There are exceptions, but this is the overwhelming effect of the list.  There is also an amusing minority who live in places that don't have a Whole Foods anywhere near them, like Waterloo, Iowa, or Finland. 

The students don't have any money, so their boycott will probably be mostly indistinguishable from the Finnish boycott.  As for the rest . . .

These people think they are indispensible to Whole Foods' business, because in their area, they are.  But according to Google, there are more Whole Foods per person in Houston, Texas, than in New York City.  I don't think anyone could look at a map of the distribution of Whole Foods stores in, say, Philadelphia, and proclaim that this looks much like the distribution of people who are so fired up about national health care that they are willing to cause themselves great personal inconvenience in order to punish the CEO of Whole Foods for writing an op-ed in the Wall Street Journal.


View Larger Map
 

It looks like the distribution of people with a lot of money.  Which makes excellent business sense, because Whole Foods sells a very expensive product. Who drops the most money at Whole Foods?  Extremely affluent families, most of them suburban, who have excellent health insurance.  Yes, they may well vote Democrat.  But they're not all shopping at Whole Foods because of political principle.

Even if they were . . . how many conservatives are still boycotting Dannon yogurt?

And of course, some, maybe many, of the people "boycotting" Whole Foods spend less than $50 a month there, the way I do.  Or don't shop there at all, making the boycott cost free. 

Meanwhile, Whole Foods has 70,000 fans on Facebook.  And the boycott is publicizing to a bunch of folks who probably would not otherwise have noticed that by shopping at Whole Foods, they can give money to someone who agrees with them on health care!

I could be wrong here.  But I will be very surprised if the boycott is even detectable in next quarter's numbers.

The Price of Obesity

I am, as noted before, very skeptical that public health attempts to lower the obesity rate will do much good.  Previous public health campaigns to reduce drinking and smoking failed miserably.  What worked?  Banning smoking in public places, raising cigarette taxes sky-high, raising alcohol taxes, and making it increasingly painful to be caught driving while intoxicated.  When these activities became too expensive and difficult, people stopped.

How are we going to do this for food?  What law can you enact forbidding companies to make their food taste too good?  Shall we start upping the tax on restaurants until no one can afford to eat out very much?  The problem is, unlike tobacco and alcohol, people need to eat.  If you raise the price of food, there will be real hardship.

But the other reason I'm skeptical is that there is already a really steep, immediate cost to being overweight.  From someone who's lost nearly a hundred pounds: 

Obephobia is the last socially acceptable form of discrimination in this country. In fact, Washington, D.C., is the only province in the U.S.A. with laws to protect employees from being wrongly discriminated against because of their weight. People routinely denigrate and shame overweight people with no social consequences. It reminds me of my mom's stories of growing up in Memphis at the height of Jim Crow. Please do not tell me that black people are born black but "fatties" choose to be fat; I'll decimate that argument in another blog post. This one is already too long.

I could write for hours about the embarrassment that I endured because of my previous size, but I want to point out a select few:

1. Calling a restaurant that advertised the need for a hostess. On the phone they were enthusiastic and interested, and when I showed up for the interview about an hour later, the boss looked at me from head to toe and told me the position already was filled.

2. There are all these scam charities in D.C. where canvassers approach you on the street asking for a donation to "help save the children from violence." They get cagey and defensive when you point out that they have no non-profit status or address. Once when I was approached downtown, I said, "I'm sorry, I don't give money to this type of charity." The canvasser replied, "You need to be spending your money on Metabolife."

These are far from the worst stories I've heard.  Heavy people, particularly women, have lower lifetime incomes, find it harder to date, and otherwise face discrimination and opprobrium at every turn.  What's fifty cents or a dollar on a bag of Doritos?

The Politics of Prevarication

I am, of course, happy that the Democrats' plans for our health care system are not doing well at the polls.  But my happiness is tempered, perhaps even erased, by the fact that many of the people opposing it are grievously misinformed.  Good policy shouldn't need to be sold by wacked-out lies.  (I'm looking at you, too, Democrats--who was it who told granny she was going to lose her social security during the last big Republican reform effort?)

As I've said, I think the underlying worry is valid.  It's odd to me that people settled on an obscure provision about end-of-life counseling to call "death panels", when of course, the actual proposal you have to fear will cut off your too-expensive care is IMAC.  Old people know they have it very, very good in this country, and they are reasonably afraid that a system which attempts to get costs under control--and yes, Obama did say he was going to finance this by cost-saving in Medicare!--will tell them to, well, take a painkiller instead of getting a pacemaker at age 99.

But you can say that you're worried about where this is all going without claiming that the healthcare reforms are going to send death squads out to round up Trig Palin.  There are enough actual problems with the bills on the table.  You shouldn't need to go making them up.  And if you do have to . . . well, in a democracy, you kind of deserve to lose.

An Option That Has Been Proven Difficult, and Left Untried

So here's an idea that was floating around a great deal during the 2004, but seems to have lost its luster in 2009:  health care reinsurance.  (for the ultra-wonky version, go here) The idea is that the government pools the high-risk patients and assesses the cost across the pool, making cherry picking much less attractive, and underwriting the marginal high risk patient less expensive.  As ideas go, I'm still troubled by the potential implications for future government action.  On the other hand, if we're going to have health care reform, I'd certainly support this over almost all the alternatives.

So why has it died on the vine?  Mostly, I suspect, because it doesn't control costs well. 

A recent study by Evergreen Re was completed in conjunction with Ingenix/Reden & Anders, Minneapolis. The study found that the frequency of members with paid claims greater than $1 million per 100,000 commercial members rose from 0.07 in the year 2000 to 1.1 in 2005, and will increase to 2.4 (low trend) and possibly 3.6 (high trend) by 2010.

In addition, members with paid claims greater than $2 million, once virtually unheard of, are presenting with increasing frequency. The Evergreen Re study found that the rate of $2 million claims per million commercial members rose from 1.1 in 2006 to 1.7 in 2007, an increase of 55% in one year.  Frequency is projected to increase to 1.9 or higher (as high as 7.0, if we were to assume 11% annual trend) by 2010.

On the other hand, when you look at the major cost drivers, I'm not sure we should be trying too hard to control them:

The four largest sources of $1 million plus claims are premature babies/infants, organ transplants, cardiovascular disease, specialty drug therapies and cancer treatment.

For example, the number of organ transplants has doubled in the past 10 years.  There are more than 100,000 Americans on the organ transplant list and approximately 25,000 solid organ transplants are performed every year.  The average billed charges for a multiple organ transplant now approaches $775,000.  In addition, bone marrow transplants, now used to treat some 70 different diseases, increasingly cost more than $500,000.

In response, many health plans are turning to more sophisticated case management and risk transfer strategies, and more care specialty drug programs. The former can convert an unpredictable and potentially catastrophic risk to a flat monthly expense, allowing plans to budget for claims throughout the year.

Rising costs for specialty drugs are also contributing to catastrophic claims. Specialty drugs are used to treat serious or chronic medical conditions such as multiple sclerosis, hemophilia, hepatitis and rheumatoid arthritis. They're typically injectable and usually can be self-administered by a patient or family member.

The Blue Cross Blue Shield Association, Chicago, reports that total specialty drug costs will rise from $40 billion in 2005 to $90 billion in 2009. One major health plan, BCBS Massachusetts, reports that less than 1% of its members are taking specialty drugs, but they account for 20% of total pharmaceutical costs.

The administration of specialty drugs, although frequently associated with transplantation, is really a broader, separate issue. An effective specialty drug program--one that provides appropriate formulary inclusion and cost control for the plan--will typically address benefit plan design and pharmacy network management for a variety of conditions in addition to transplants, including cancer, Hepatitis C, rheumatoid arthritis, and multiple sclerosis. As health care delivery occurs locally, solutions must be customized to the specific needs of a plan and the populations it serves.

Okay, so technically that's five. Notice what's not on the list, because it's largely paid for by Medicare:  all the useless end-of-life interventions for elderly patients with very slim chances of regaining an active life. 

This is why our heroic interventions for preemies are so controversial among health care wonks.  They're insanely expensive.  But I just don't think that any system, public or private, is going to be able to cut back on this kind of care.  I'm familiar with the utilitarian arguments:  very premature babies (the ones who cost so much) are overwhelmingly likely to either die, or to have serious disabilities.  I've had a lot of serious conversations with people connected to the health care system in various ways, and most of them think the drive to save ever-more-premature babies is questionable at best.  But ultimately, I don't think that's a question that can be made by "society", at least not in America.  We will save preemies, and we will pay fantastic sums to do so.

Alternatively, the government might reinsure people.  If your out-of-pocket costs exceed, say, 20% of your income, the government picks up the rest of the tab, with a sliding scale for those under or near the poverty line.  Maybe make it 10% for those who have insurance.  It's progressive, maintains the incentive for a private insurance market, and has pretty minimal moral hazard problems--no one is going to shell out 20% of their annual income in order to qualify for a bonus knee surgery.

That, too, probably won't do much to contain cost inflation.  But so far, none of the other options on the table cut costs either--certainly not any of the options that are likely to pass the Senate.  So why not bring back subsidized reinsurance?  It's sufficiently different from the existing options that Democrats can claim they got a win, rather than a watered-down version of what they wanted.  It protects all Americans from the fear that an illness will bankrupt them.  And it just might work.  Perhaps I'm missing some compelling reason not to explore this option.  If so, I'm sure my readers will tell me what it is.

First Person Medical

Reader William H. Stoddard writes:

I'm not sure I'm in any of the four groups of uninsured people you identify. I'm 59 years old, self-employed, and uninsured . . . because I can't afford to pay for even catastrophic coverage. I have a touchy gall bladder; I haven't had an attack in several years, but it's a pre-existing condition, so it raises my premiums, which are painfully high anyway for a man my age. I've been self-employed since 2002, when my former corporate job was outsourced. Does that fit any of your categories?

If the House of Representatives proposal passes, I expect that my premiums will be right at the legal maximum of 12% where subsidies kick in . . . assuming that my income doesn't rise past the threshold where a single man is ineligible for help! It averages around $40K, so 12% is $400 a month. I know I can't afford to pay that; I used to pay that much for Blue Cross, and it left me under chronic financial stress. So I'm planning to pay the penalties; 2.5% is $1K a year, which will hurt me, but it won't completely wipe me out. On the other hand, I can't see how it's supposed to help me maintain my health.

But I'll tell you, I supported Obama over both McCain and Clinton partly because he opposed mandates. Now he hasn't said a word to stop them. I don't know if I could bring myself to vote for a Republican, but if the Democrats inflict this financial injury on me, they can forget about my ever voting for another Democrat. I didn't know if Obama was trustworthy; now I know.

The mandate may not kick in for him--at least, in the one example we actually have, Massachussetts, some people don't have to buy insurance because the formula says they can't afford it.  But there's no question that it's going to put financial stress on some of the people it covers.  I was on a panel with the fellow who runs the Massachussetts health exchange a few weeks ago, and even he said that the people who are affected by the mandate hate it.  Yet Massachussetts started off with a relatively low percentage of uninsured citizens.  When you look at a place like California, with both dramatic numbers of uninsured people, and dramatic numbers of immigrants who will require subsidy, the problems loom even larger.

So what do you do with the people in the gaps, like Mr. Stoddard?  The problem is, they're the people who need the insurance most.  People who are uninsured just because they're near the poverty line don't consume so much care.  It's the people with middle-class incomes and a chronic potential medical condition who need the care most, and are least likely to get it under whatever new system we end up with.

Those Who Walk Away

So I'm working on a piece on consumer borrowing, which will be out, on the Atlantic's somewhat lengthy production cycle, right around the new year.  For that content, you'll have to wait for the print edition.  But here's an observation that I'm not going to use:  a lot of people seem to think that they can walk away from their secured debt nearly for free.

I've been following various personal finance boards and shows for months now, and you're suddenly seeing a lot of people sort of casually saying they don't want to use a windfall to pay down the HELOC, because they might let it go in a short sale next year, and they'd rather have the cash.  Or people saying they're thinking of just letting the car be repo'd.

Most of these people--frequenters of personal finance boards and callers to Dave Ramsey or Suze Orman--are rapidly set straight by others.  If you have sizeable assets or stong income, the bank isn't going to let you do a short sale just because your house has lost value and you don't want to waste any more money on it.  The second mortgage holder you've decided to stop paying will probably block the sale.  If you let the house go into foreclosure while you still have assets, unless you live in a non-recourse state, the lender will come after you.  As will the lender that repo'd your car.  The borrowers always seem sort of shocked to find out that yes, lenders have legal recourse if you decide to stop paying them.

I wonder if they haven't gotten this notion from all the articles about jingle mail and desperate families trying to short-sell.  What seems to have sunk in is that you can stiff the bank.  Yes, you can, but often only if it's not worth suing you.

Personal finance writers are trying to walk a very fine line between telling people who are forced into short-sale or foreclosure that this is not the end of the world, and encouraging other people to think that it's not so bad.  I'm not sure they're succeeding.  I mean, yes, a lot of people live in non-recourse states, but even then, short sales are very different, and a foreclosure is a neutron bomb on your credit report that means, at the very least, that you will not be able to buy a house for five years or so.  And repos are never non-recourse except in bankruptcy. 

We spent the last twenty years giving people a bad idea of how much debt it was safe to take on.  Now we're giving them odd notions about the best way to get out of that debt.  Are we ever going to have a healthy relationship to credit?  Or is this just part of the American soul?

Housing Starts Rise, Again

You can watch the evolution of the housing markets in the news on housing starts and building permits.  Single-family building permits are actually rising, while multi-family tanked.  This seems to indicate that residential housing has bottomed, and families who feel relatively stable are prepared to build.  But investors--or their backers--aren't willing to bet on demand for either rentals or condos in the near term.

That backs up what we're seeing in the housing market here in DC as my mother goes looking for a house.   There's a huge glut of condos in the U Street corridor, where I live, because developers all thought they had found a sure get-rich-quick scheme.  They're competing each other's prices down to levels where the developers can't be making much money; the condo across the street from me seems as if it's about to be seized by the investors, having sold less than 20% of the units.  But multifamily is more idiosyncratic, and as the summer wore on, most of the houses on the market made some kind of deal.

But DC is, comparatively, a boom market.  In most places, inventories have shrunk somewhat, but there's still months and months of housing supply on the market. 

The real question is:  what happens next year?  People still have something of a bubble mentality.  They want to get in now, when things are cheap, because they expect that we'll return to the housing price inflation of the 1990s, if not the last decade.  But it's far from clear that this is so.  Rising house prices accompanied a number of secular trends, like falling interest rates and the growth of the subprime market, which have basically run their course.  Further growth in most areas is going to have to bear some relationship to the growth in incomes.

So I think that this year's buyers priced in some future gains.  But what happens when next year's buyers refuse to price in even higher future gains, and demand to buy at this year's price?  If the market gets the idea that no, the days of housing as an investment opportunity really are over . . . well, prices will stagnate, or even fall further.

Not that I think that would be a bad thing.  The mania to buy the biggest house you can, now, lest you be priced out of the market forever, isn't very sensible.  There are good reasons to want to own a home.  But they have to do with the ability to customize your home environment in a way that renters usually can't.  Investment dollars are better put into something that might actually enhance our national productivity.

Has Obama Jumped the Shark?

Ron Beasley declares Obama's presidency dead.  This seems just a tad premature.  Think back to this time in Bush's presidency:  all he had to show thus far was a small tax cut and the Chinese airplane fiasco.  Yes, his presidency didn't turn out so well.  But the reasons it didn't turn out so well were not foreshadowed in his inept yet wussy handling of the Chinese.  Progressives had grandiose fantasies about an Obama presidency that were destined never to be fulfilled.  But that doesn't mean he can't still be a pretty successful president, even a good president.

Your Daily Omnibus Health Care Post

So now, after long debate, it seems like the solution may be health care co-ops.  Perhaps I'm missing something, but it seems like we've undergone a lot of stress to invent . . . Blue Cross/Blue Shield.

Interesting questions remain.  Will the health-care co-ops be exempt from the tangle of state regulations that have resulted in near-monopolies in many areas?  I presume that Democrats still want guaranteed issue and an individual mandate, but aren't these the parts that are actually going to anger constituents?  In Massachussetts, more people seem to think they've been hurt by the plan than helped by it.  Meanwhile, the costs are skyrocketing, and control has so far been elusive.

The core problem is this.  You have four groups of uninsured people:

1. Immigrants, who probably aren't going to get insured anyway.  This is presumably why Massachussetts spending on the uninsured has only fallen by 40%, even though the number of uninsured people has plunged about 80%.
2. Young healthy people who don't need much health care
3. Working poor sick people
4. Affluent people who are uninsurable because of some pre-existing condition

Advocates of reform believe that the number of people in Groups 3 and 4 who are not receiving needed care is large. The idea of a mandate, combined with guaranteed issue, is to force Group 2 into the insurance pool.  This is supposed to pay for the care of the people in Groups 3, 4, and (arguably) 1.  But the people in Group 2 don't have that much money; most of them are working marginal jobs, which is why they don't have insurance.  They're also Obama voters who think that health care reform will give them cheap health insurance, not force them to shell out $500 from a meager paycheck to cover someone else's high-risk pregnancy.

That means we have to dip into the pockets of Group 5:  people with insurance.  Either they have to pay higher premiums, or they have to pay higher taxes, or they have to get less stuff.  This makes them anxious.  Unfortunately, most of them are satisfied with their insurance, so the only thing that you can offer them is the relief from the fear that they'll lose their job and their insurance coverage.  That's not nothing.  Options are valuable.  So is peace of mind. But is it worth hundreds of dollars a month to the average family? 

There's a further problem if you have guaranteed issue:  unless the tax penalties for failing to carry insurance are draconian, the dominant strategy is to drop your insurance, then buy insurance if and when something bad happens.

I actually agree with the progressives that health reform will be a disaster unless you can find some way to control costs.  But the senior lobby freaks out when you suggest it.  So far the only that Massachussetts has actually managed to pass has been shaving benefits for immigrants.  That doesn't bode well.

Your Freaks Are Dumber Than My Freaks

Clive Crook notes:

The gap between the right of the Republican party, which is providing the angriest critics of the reforms, and the left of the Democratic party, which thinks the proposals too timid, is unbridgeable. These groups do not merely disagree. They despise each other. Their differences are only secondarily about policy. They hold each other's values in contempt.

These snarling extremes are nonetheless somewhat alike. They have an equal and opposite penchant for conspiracy theories. Almost a third of Republicans, according to a recent poll, believe the unsupported story that Mr Obama was not born in the US (in which case he would be disqualified from serving as president). But remember that more than a third of Democrats subscribe to the even more outlandish theory that the Bush administration knew about the attacks of September 2001 in advance.

Car Culture

Informal survey indicates that there is an inverse relationship between the median price of a used car, and the median price of a used bike.  Looking at the list, I strongly suspect it has something to do with the weather.  You couldn't pay me enough to bike commute in Phoenix during July.

What's Happening at the FDIC?

We've seen fewer bank failures than we had during the S&L crisis.  But as this piece from the Wall Street Journal notes, the failures are worse.  Three of the five banks that failed on Friday had to tap the FDIC fund to cover more than 50% of their assets.

This highlights the depth of the market crisis.  But it also raises questions about what was going on at the Fed.  How did it let things get this bad?

Regulators also have been blamed for not taking quick enough action and for allowing zombie banks to limp along. Inspectors general at the Treasury Department and FDIC, which serve as watchdogs, have issued more than a dozen reports that conclude regulators dithered while banks they oversaw plowed ahead with rapid and unsteady growth.

"When you get these failing banks, they are much more like a fresh-caught fish than a fine wine. They don't get better with age and the losses keep piling up." said Bert Ely, a longtime banking-industry consultant.

Integrity Bank, of Alpharetta, Ga., was permitted to keep luring deposits paying unusually high interest rates for more than two years after examiners noted deficiencies in its loan underwriting, according to the FDIC's inspector general. Integrity failed last year, costing the FDIC $295 million.

It's easy to lay blame in hindsight.  But a bank doesn't just suddenly and for no apparent reason lose half its assets.  Clearly, these banks have been trading while insolvent for quite some time, hoping against hope that everything would somehow turn around.  Meanwhile, they poured more of their investor and depositor's assets into pursuing a Hail Mary pass.  That's the sort of behavior that I expect from desperate bank presidents, but the very reason that we have bank regulators is to crack down on that sort of thing.  Either they don't have enough power, or they were asleep at the switch.

Department of Surprising Findings

Global warming started with farming. Somehow, it always comes back to agricultural policy. 

Food For Thought

Herbert Stein's What I Think is one of my favorite books on economics.  It's so . . . humble.  Stein, who was head of the CEA under Nixon, doesn't pretend to have all the answers.  Regarding many of the most contentious issues of the day, he basically says, "It probably doesn't matter all that much."  To others, "Why are you so sure you're right?"  Words to live by, left or right.

So when I'm utterly fed up with all the screaming, I often dip into the book at random.  I usually come away comforted.  Here's what I found the other day:  his description of the decision under Nixon to implement wage and price controls:

Even now, I am amazed to think of how little we looked ahead during that exciting weekend at Camp David when we (the president, really) made those big decisions.  We were going to freeze wages and prices for ninety days.  What would happen after the ninety days?  I don't remember any discussion of that.  We all assumed that the comprehensive freeze would not last beyond the ninety days.  Some people, at least, assumed that we would then fall back to what used to be called "some kind of incomes policy," meaning moral suasion addressed to hte larges unions and businesses.  But that idea was not explicitly raised.

As it turned out, we were in the price-and-wage-control business, although with diminishing coverage and rigidity, not for ninety days but for nearly a thousand.  we were in the business of controlling energy prices for much longer.  Would the Nixon team have embarked on the controls in August 1971 if we had foreseen that?  I don't know, but i is surely a real question.  Was it foreseeable?  Perhaps it was not a certain outcome, but it was surely a possible outcome.  Probably the whole idea of the controls was so alien to us that we could not imagine that we would be living with them for very long.  About two months later, when George Shultz and I gave Mr. Nixon the suggested plan for phase two of the controls, to follow the ninety-day freeze, the president said, "If this baby gets too strong we can strangle it in its cradle."  But we could not strangle it in its cradle.

We had created a system upon which tens of millions of people depended, and we could get out of it only gradually.  Some time in the fall of 1971, when I was working on the plans for what would follow the freeze, a Canadian economist concerned with price controls in his country sent me these lines from Macbeth:  "I am in blood stept so far that, should I wade no more, returning were as tedious as to go o'er."  The lines were all too apt.

Some people at Camp David had a theory of what we were doing with the ninety-day freeze.  The theory was that the inflation then under way (about 4 percent a year as measured by the consumer price index) was propelled by expectations of inflation and not by underlying demand and supply conditions.  The ninety-day freeze would knock those expectations in the head by demonstrating that prices and wages would not rise rapidly forever and the economy would then subside into price stability.  It was a rather flaky theory, and we were not prepared for the strong possibility that it was wrong . . .

I describe the incidents of that weekend in August 1971 because they are a dramatic example of not looking ahead, but they are by no means unique.  Looking ahead means something more than sketching out the most comfortable, or even the most probable, future scenario.  It means recognizing that even the most probable forecast is uncertain and preparing for the eventuality that the forecast turns out to be incorrect.  Defined in this way, failure to look ahead is extremely common in government policy making. (I refer to government in this connection only because I have had more experience with it, not because I know that things are any better in the private sector.)

The Bay of Pigs venture and various injections of troops into Vietnam are probably good examples of failure to look ahead.  The decision to launch Medicare is another important case.  When the Johnson administration made that decision, it had estimates of its future cost.  But those estimates were highly uncertain.  There was no preparation in the public mind or in policy for action to be taken if the costs grossly exceeded the estimates, as they did.  Thirty years later, we are still struggling with that problem.  Ronald Reagan's decision in 1980 to make a big tax cut the centerpiece of his election campaign is another example.  There were in his camp several theories about what would happen after the tax cut was enacted, but there was no agreed theory and no plan for what to do if none of the theories turned out to be correct, as was the case.

Looking back at these failures to look forward raises questions about what is going on today*.  . . . Perhaps there are good answers to these questions.  I hope so.

*  The late 1990s.

Is What's Good for Pharma Good for America?

Last week, I expended a lot of words trying to explain my objection to the centrally administered universal health care system that he, and most liberals, would like to see us evolve towards.  In particular I was responding to Matt Steinglass, one of my favorite liberal bloggers.  He in turn responds:

I feel that we are really getting somewhere in this discussion. I have two basic questions here. The first is this: if Megan thinks the Dutch system is fine apart from the price controls on drugs, why don't we adopt the Dutch system but not the price controls on drugs? If Megan's problem with the House insurance reform bill is not the actual House insurance reform bill, but the prospect that it will ultimately lead to price controls on drugs, why doesn't she back the House insurance reform bill and insist that it not adopt price controls on drugs?

The second question I have is this: if the House health insurance reform bill is so bad for drug innovation and research by pharmaceuticals companies, why are the pharmaceuticals companies buying $12 million in ads promoting the House health insurance reform bill?

I think these two questions get at the heart of our misunderstanding--and some of the fundamental differences between liberals and libertarians.  

The answer to the first question is simple:  we can't.  The political logic of pharmaceutical price controls is nearly overwhelming.  You have a product that has a very low marginal cost and a very high fixed cost, which means that you can force them to provide it cheaply and eat the fixed costs if you have enough market power.  You've got program that is rapidly turning into the sucking chest wound of the US budget.  And you've got a big line item supplied by companies that are unpopular--unlike the other major players in the system, like doctors, nurses, assorted health care workers, and the local hospital.  This is why most of Europe has turned to some form of price controls.

To put it another way, let me quote from Milton Friedman's Free to Choose, in which he details an exchange he had with a scientist about the various dysfunctions of the FDA:

What would you think of someone who said, "I would like to have a cat provided it barked?" Yet your statement that you favor an FDA provided it behaves as you believe desirable is precisely equivalent. The biological laws that specify the characteristics of cats are no more rigid than the political laws that specify the behavior of governmental agencies once they are established. The way the FDA now behaves, and the adverse consequences, are not an accident, not a result of some easily corrected human mistake, but a consequence of its constitution in precisely the same way that a meow is related to the constitution of a cat. As a natural scientist, you recognize that you cannot assign characteristics at will to chemical and biological entities, cannot demand that cats bark or water burn. Why do you suppose the situation is different in the social sciences?

This is slightly exaggerated.  But in this case, I think it holds:  price controls are a feature of national health insurance schemes, just as log-rolling is a feature of democracy.  We might hold out for a while.  But eventually, we'd have a combination of populists in office and a budget problem, and the pharma profits would go.

As for the second question, this is where I realize that liberals often really just do not grok what libertarians are about.  For them, this is a battle between people who like health care companies, and want to defend them, and people who like the government.  But I don't care about the pharmaceutical companies qua pharmaceutical companies.  The pharmaceutical companies are interested in what is good for pharmaceutical companies.  I am interest in what is good for society.

I am not under the delusion that those are necessarily the same thing.  "What's good for General Motors is good for America" was a Great Society slogan, not a libertarian, or even a conservative one.  Right now, pharmaceutical companies spend a great deal of effort on innovation because they have to in order to survive.  But if survival means ditching the R&D labs and churning out low-cost copies of things they've already invented, then I'm pretty sure that's what they'll do.  To paraphrase Adam Smith, it is not to the benevolence of pharma that I look, but to its self interest.  In the current system, that self interest means inventing new drugs. 

In other words, I'm not in favor of business.  I'm in favor of competition.

Government intervention in markets tends to dampen competition, which is something that executives like; I'm sure that's one reason that they're getting with the program.  Too, administration has made it clear that they intend to do this deal with pharma or without them; they're trying to negotiate a surrender on the most favorable possible terms.  But while I'm sure this is good for Obama, and I think it may even be good for pharma, I don't think this will be good for us.  Companies cut deals with government all the time, and they rarely, in my opinion, redound to the benefit of the American people. 

The benefits of competition are, incidentally, why I don't think that the defense model of innovation works very well in the pharmaceutical or medical technology industries. To start with, military procurement is a massive jobs program.  Congressmen rarely take much action on behalf of their unemployed chemists.

But more importantly, military spending is competitive--even now, we're mostly doing this because we want to maintain our military primacy.  Pharmaceutical technology is just not competitive that way.  Nations don't really compete on their health care systems, and anyway, if we develop a drug, it will be patented abroad, and everyone will get it.  Also, we're not all that worried that the French health care system will come over here and kill us.

I'm not sure the cognitive gap between liberals and libertarians can be bridged.  At the very least, as long as they think of us as defending corporate interests, rather than defending a system that most often aligns corporate interests with ours, everything we say will continue to seem vaguely puzzling.

Boycotting Whole Foods

I have to say, I basically agree with Radley Balko here:

Whole Foods is everything leftists talk about when they talk about "corporate responsibility."

And yet lefties want to boycott the company because CEO John Mackey wrote an op-ed that suggests alternatives to single payer health care? It wasn't even a nasty or mean-spirited op-ed. Mackey didn't spread misinformation about death panels, call anyone names, or use ad hominem attacks. He put forth actual ideas and policy proposals, many of them tested and proven during his own experience running a large company. Is this really the state of debate on the left, now? "Agree with us, or we'll crush you?"

These people don't want a dicussion. They don't want to hear ideas. They want you to shut up and do what they say, or they're going to punish you.

The CEO of Whole Foods is not allowed to have a different opinion from you on a national domestic policy issue?  Rilly?

Not that I'm exactly sweating for the fortunes of Whole Foods.  Quick:  name the last time a consumer boycott achieved a result of any signifigance.  (Getting American Airlines to stop using animals in its ads doesn't count.)  I have to go all the way back to the Montgomery Bus Boycott.

Here's why boycotts don't work:  the vast majority of customers don't care.  And yes, that includes the vast majority of Whole Foods customers, a surprising number of whom drive SUVs and even--I swear!--occasionally vote Republican.  Now consider the demographic that cares enough about health care to actually boycott a company over it.  Most of them are a) wonks or b) political activists.  The latter group is disproportionately young and does not spend a great deal of money on groceries.  The former group is tiny.

You may get a large number of people who say they'll boycott Whole Foods.  But then when they're out of extra-virgin olive oil and the Safeway doesn't have organic, and the nearest Trader Joes is a twenty-five minute drive away through traffic--they'll shop at Whole Foods.  Three weeks later, they'll have managed to forget that they ever intended to stop shopping at Whole Foods.  The stores are successful because they dominate their market niche, putting together a collection of things in one store that you would ordinarily have to go to several stores for.  Shopping in mulitple places is a big pain in the butt.

Remember the boycott of the French?  Lasted about four weeks, until everyone figured out that this meant foregoing Dannon yogurt and Mephisto sandals, and spending hours looking for a decent American brie.  Effect on French foreign policy:  dubious.  Perhaps negative.

Then there's the problem of counter-boycotts.  Radley is one.  I myself do not particularly care for Whole Foods--I find them overpriced, and their prepared food isn't very good.  But as long as the progressive boycott lasts . . . well, Mr. Mackey, you've got another customer.  I doubt I'm the only conservative or libertarians who will make the same pledge.

Flight Change

In the last week or two, Peter and I have both gotten emails moving back the departure times of the second leg of an air trip.  These were for two different trips, on different airlines, booked through different web travel agents.

I've never heard of this before.  Has anyone else had it happen?  And if so, when did it start?  It doesn't really matter--I'm just curious.

Health Care: A Lesson in Practical Philosophy

John Holbo writes a long post asking me to clarify whether I'm against national health care as a matter of principle, or against national health care as a matter of pragmatics.  To some extent, this is a meaningless question.  Whatever practical objections I have must be judged on some principle.  There's a fairly difficult philisophical question involved in whether we should permit a system that serves some current people badly in tangible ways, merely because it will probably save the lives of other unknown people in some unspecified way in the future. 

I suspect that Holbo, and many of my interlocutors, are made intensely uncomfortable by the idea that their root assumption--that they are on the side of reducing human suffering and lengthening lifespans--might be wrong.  There are a bunch of ways you can deal with this disturbing possibility.  You can scream at me.  You can posit a highly speculative world in which government and academia suddenly, and for no apparent reason, get a lot better a inventing devices and mass-market drugs than they have so far proven.  You can claim, falsely, that government and academia already do all the work producing useful drugs.  You can assume that slashing pharma profits 80% will have no impact on their behavior, or at least, only change the behavior you want to change. 

Or you can bite the bullet and say, we should save lives now at the expense of lives later.  There's philisophic justification for that choice. But that opens up a whole can of worms about things like global warming.  It helps if you phrase it aggressively:  "How dare you suggest that someone should suffer now when we can treat them, so that someone who's not even born yet can live?" and don't think much about the equally inflammatory alternative formulation:  "How dare you suggest that billions and billions of people suffer and die for the sake of a few uninsured Americans right now?"  Geometric progressions are a bitch.  So is figuring out the right discount rate for the lives of future world citizens, as William Nordhaus and Nicholas Stern can attest.

As far as I can tell what Holbo means is, am I basing this on an ideological belief that he considers illegitimate, or at least fairly trivial, like respect for property rights.  I suspect that what he is looking for out of this exchange is a reason to can dismiss my objections as so much rationalization of my unreasonable priors.  It would be nice if our opponents were always wrong for the wrong reasons, weren't it?

I have no doubt that I place a much, much higher value on property rights than does John Holbo.  But I am not one of those libertarians who takes the sanctity and inviolability of property rights as their most important first principle.  Property rights exist only in the context of society, and not only are they far more contingent and flexible than I think many libertarians acknowledge, I believe they have to be.  Property rights are an evolved institution that happens to work better than the alternatives for enhancing human welfare*.

My libertarianism is somewhere between 80-90% what Holbo calls practical objections.  I think government programs, and regulations, usually cause more harm than good, and always have costs to liberty and "practical" considerations like national wealth.  In some cases I think those costs are justified, as when there are massive free-rider problems or negative externalities--defense, environmental protections,  crime, auto insurance, and arguably in rich cultures, mandated health insurance and forced retirement savings.  In some cases, I don't think there are free-rider problems, but I'm nonetheless okay with creating government programs, because I can't think of another way to do something I consider morally necessary, while accepting ahead of time that they will be wasteful, inefficient, and nowhere near as good as their creators promise: care for children and the disabled, unemployment assistance.  I also believe that, whatever its drawbacks, government enforcement of transparency has far greater benefits than costs.  I'm broadly willing to use a negative income tax to top off the incomes of those whose labor is not sufficiently productive to support themselves in minimally decent style. My most "principled" libertarian stands are against paternalistic tinkering with the habits of the poor on the government dime, either from left or right, and a categorical unwillingness to give much of anything to able-bodied adults who won't work.

In principle, if it did everything the creators promise, would I support universal health care and generous national pensions?  No.  But that's because I don't think they add a lot of value.  I would support an incomes policy for seniors who can't work, and subsidies for seniors who can't afford health insurance.  I might sign on to some sort of reinsurance for excessive health costs.  I might sign onto a proposal I made years ago, whereby the government covers all healthcare expenses that exceed 15% of your income.  I expect that this would be very expensive, but also probably worth it.

Obviously, there's a lot of principle and practical packed in there.  John Holbo, I imagine, gets a great deal of value of knowing that we're all in this together, getting the same thing at the same time.  Unlike left or right, libertarians don't see great value in feeling like a cell.  I part company with my libertarian brethren in many ways (and I'm sure that lots of them are even now once again disclaiming my libertarianism, on the grounds that I am willing to steal from other people in order to feed the poor).  But I agree with them on that.  Likewise, I think that taking someone's money is a real violation of property rights that shouldn't be done unless you're achieving major good.  I think keeping people alive is a major good.  I don't think keeping people equal merits the case--though I also recognize that this is not a pure principle, as a society's "decent minimum" rises along with its wealth.

I'll close by returning to the practical question.  If my objection is just "practical", he says, then why don't I include the good that could be done by a national health care program if it worked?  Well, I have.  I've acknowledged that at least some people would have to be better off under such a system (and others worse off, and I can't begin to calculate which group is larger) But as I said at the beginning, geometric progressions are a bitch.  If the innovation spurred by the private sector could save 1% of the people who currently die each year, the number of people we'd be killing along with the private sector would necessarily be hugely larger than the number of people we'd save by implementing such insurance, since the most grotesquely exaggerated estimates released by interest groups pin the latter figure at around 0.8% of deaths in America (a much smaller number than the number who are estimated to be killed by access to the system--nosocomial infections and treatment side effects).  That's even before you consider the people in other countries who would be saved by these advances. When I talk about the utilitarian calculus of weighing the good of current uninsured against the good to people who are currently, and in the future, untreatable without further innovation.

Now, obviously, there's a possibility that I'm wrong.  But how high a probability of that would I need to change my mind?   

It's got to be pretty high.  There are 45 million uninsured people in Americans.  But there are 300 million people who are going to die of something we can't cure.  The uninsured also benefit from health care innovation--many of them will be insured by the time they need care.  The number of chronically uninsured American citizens with serious health problems is not large; chronic uninsurance is concentrated among immigrants and young adults.  When you factor in the anti-immigration political pressure that national health systems create, the case becomes even more murky.  Those immigrants, no matter how sick, would probably not be better off back in Chiapas.

I would probably need a better than 50% chance that I'm wrong.  And I sort of definitionally don't think it's that high.  I'm extrapolating from government behavior that's already happened in the other countries with single payer.  From our own government's behavior in other utilities.  And from the progressive advocates of a health care plan, most of whom lionize international drug pricing, and spend a significant amount of time complaining that they can't use Medicare's clout to force down pharmaceutical prices.  I'm frankly a little stunned that they've all suddenly started demanding to know why I'm worried that the government's going to start slapping price controls on drugs.

So let me turn it around on John Holbo, et. al.  Put aside your ideological committments, and seriously consider the possibility that I might be right.   What P(less innovation) would it take for you to abandon the quest for single payer?  How many billions of lives would you be willing to gamble on your speculation about alternative innovation mechanisms?  I submit that as a practical matter, it shouldn't take a very large possibility that you're wrong to make you at least pause a moment, and reconsider.

Imagine, arguendo, that I am right, and the US is basically providing most of the incentive for innovation.  Imagine further that Nixon had succeeded in passing a national health care plan.  Would more, or fewer, people be suffering and dying today?

So let me offer another hypothetical.  If liberals can build an alternative to the profit model that's at least as productive, in dollars spent, as the private sector, and looks reasonably likely to scale, I'll probably cave.  (I reserve the right to worry about rationing, but I find that worry less pressing.)  At the very least, my worries about the issue will move it to the back burner for me.  But the thing is, you have to do it first.  Use prizes, non-profits, the research agency Dean Baker's proposed, or any combination of the above.  You just have to do it first.  Right now, it's just too much of a gamble.

*  No one is allowed to talk about how much more wonderful hunter gatherer life is unless they are speaking to an anthropologist from the doorway of their thatch hut

Is Pharma a Victim of Its Own Hype?

Derek Lowe suggests that they are:

Consider the public face that our industry projects. Look at the press releases and the advertisements - what's the impression that you get? That there is a defined process for discovering drugs, for one thing, and what's more, that we are the master of it. Now, I know that we don't always send out that message. There are attempts to tell people about how many compounds have to be made, how many projects end up failing. But for the most part, we don't press-release that stuff.

No, the press releases are for the investors, and for them, we want to project that we're productive, confident, resourceful. . .in short, that we've got things under control. The last thing Wall Street wants to hear about is that you don't always know which drug targets are the right ones to work on, that you're not quite sure of the best way to prosecute them, and that (despite continuing efforts) these conditions look to obtain for quite a while to come.

And this attitude is one of the things that seeps out into the general public consciousness. That, I think, is why you get people who are convinced that we could cure a lot of these diseases, but that we just don't - you know, for all sorts of evil and profitable reasons. They've bought into our hype. If we haven't cured the common cold, that must be because we make a lot more money selling people stuff for it, not because antiviral drug development is flippin' difficult. (Especially for something like the common cold, but that's another story).

Now, to some extent, there is a defined process for discovering drugs - well, several defined processes. It's just that it doesn't work all that well, not on the absolute scale. No one could look at clinical failure rates of around 90% and say that we've got everything covered.

Mental Health Break

In honor of the return of Mad Men:

The Grassroots are Green, and They Fold

As soon as I saw this item, I knew who had originated it; I can smell the sulphurous stench of a PIRG come-on three thousand miles away.

It seems that, despite all the media attention lavished on e-mail appeals to his supporters, not everyone pushing for President Obama's embattled healthcare reform plan these warm August days is an idealistic volunteer in it for the sake of helping move the country forward and gaining medical attention for millions of uninsured Americans.

The website's large-type headline announces: "Work to Pass Obama's Healthcare Plan and Get Paid to Do it! $10-15 hr!"

It's a web ad on Craigslist: "You can work for change. Join motivated staff around the country working to make change happen. You can make great friends and money along the way. Earn $400-$600 a week."

So both sides appear to have paid lobbyists in this colossal summertime struggle for public opinion and control of the multi-billions flowing into the nation's burdened healthcare system.

And yup, it's the Fund for the Public Interest, the artist formerly known as the canvassing operation for the PIRGs.

Have I mentioned recently that I hate PIRG?  Well, I hate PIRG with the kind of blackhearted distilled rage that normally characterizes the breakup of a thirty year marriage.  They, and their whole canvassing operation, are a vile beast that subsists on dishonor, greed, and the rapidly disintegrating idealism of impressionable young people.

But the LA Times piece makes it sound like the Obama administration, or some other wing of the Democratic party, is hiring these volunteers.  It is, I suppose, possible, but it's not the most likely supposition.  PIRGs love national health care.  So do most of the other groups they work with.  Given that their canvassing operation is the fundraising arm of half the left-wing groups in this country, they're the obvious people to hire if you want to take your message to the streets.  I'm sure there are loads of perfectly legitimate groups out there with money to spare and a heartfelt desire to push national health care reform for its own sake.

It would be interesting to know who is paying them.  It would be  even more interesting to know what these volunteers will be saying to their victims targets over the next month.  But perhaps the most interesting question is:  why now?  Canvasses are mostly summer operations for several good reasons:  weather, and a ready supply of students with time on their hands.  I suppose weather's not a real issue in LA, and there are probably a fair number of unemployed college grads wandering around who would be happy to make $15 an hour.  But with school starting, there will be a lot fewer homeowners with time to listen.

Surprising Findings

The protests at the Town Hall meeting are not doing PR damage to the opponents of Obamacare; rather the opposite:




I confess, I would never have guessed that.  And the fraction of independents who say that their sympathy is increased or unchanged is 73%, slightly higher than the overall average.  While I share the protester's aims, I personally think that shouting down Congressman is both a violation of our civic duties, and terrible tactics.  But apparently the rest of the country isn't so worried by it.

Update:  The Obama White House seems to have tapped into whatever lake of Crazy Juice the Birthers are drinking from.  White House spokesman Bill Burton apparently claimed that right-wingers are showing up at health care events dressed up as Hitler. 

What Does It Mean To Have a Private Health Care System

Well, I'm still a bit under the weather, but at least I'm up to clear broth with rice noodles.  Meanwhile, there's been a lot of blogging about my healthcare blogging. 

I'll start by responding to Matt Steinglass, who I greatly respect. 

Megan's arguments is predicated on the contention that reform will lead to the effective disappearance of private health care, and complete government dominance of both the health insurance and health care markets. That's what she means by the "camel's nose". The problem is this: countries that have the Bismarck model of universal coverage through regulated private health insurance do not move to single-payer government-controlled systems. Germany started the first Bismarck-style system 126 years ago. It still has it. France, the Netherlands, Switzerland--they all started with regulated private insurance backed by a public plan for the needy, and they all still have regulated private insurance backed by a public plan for the needy. Except for the Netherlands. They used to have a public plan for the needy, but in 2006 they scrapped it and moved to an all-private health insurance system, with subsidies for those who can't afford private coverage. What they have, roughly and leaving some bits out for simplicity's sake, is what the US would have if it passed the current House bill, then eliminated Medicare and Medicaid, and funded the system by handing out subsidies or vouchers so everyone can afford coverage. The direction that Megan envisions things "naturally" going is precisely the opposite of the way they actually went in the Netherlands over the past 20+ years.

I don't think Matt understands what worries me about national health care, or else he doesn't actually understand how the system in the Netherlands works underneath his interaction with an insurance company.  It isn't the cost.  It isn't the taxes.  It isn't the redistribution.  It isn't even the mandate, which is borderline plausible to me in the way that mandatory auto insurance is, and forced retirement savings might be:  the moral hazard is huge, because your neighbors won't let you die.

My objection is primarily, as I've said numerous times, that the government will destroy innovation.  It will do this by deciding what constitutes an acceptable standard of care, and refusing to fund treatment above that.  It will also start controlling prices.

Now, at this point in the discussion, some interlocutor starts chanting what I've come to think of as "the mantra": othercountriesspendlessandhavelongerlifespans.  Then they ask me how I can ignore the overwhelming evidence that national health care is superior to our terrible system.  Now, what's odd about this is that all of those countries do precisely what I am concerned about:  slap price controls on the inputs, particularly pharmaceuticals.  Their overwhelming evidence indicates that I am 100% correct that a government run system in the US will  destroy the last really profitable market for drugs and medical technology, and thereby cause the rate of medical innovation to slow to a crawl.

To which Matt rejoinders that all the Dutch insurance companies are private.  Indeed they are, but they're essentially tightly regulated utilities.  There's no market discovery of drug prices; instead, the prices are set by looking at an average of the rates paid by government systems in nearby countries.  The government decides what is reimburseable.  It further defines the basic health package that everyone gets, though as I understand it most people also purchase top-off insurance.  The supplemental insurance functions more like an actual insurance market.  As I understand it, there's considerable pressure to stop that.  And the markets are in peripheral services that mostly aren't reimbursed by health insurance here, either, like eyeglasses and dental. 

The things that make markets innovate--profit potential--have been mostly squeezed out of the system.  The things that hasten market discover--prices--have also been increasingly relegated to central authority.  Having something like that in the United States would produce exactly the outcome I'm worried about.  So if Matt is right, and this is where the slippery slope ends up, my nightmare will have been realized.

Perhaps this is soothing to some other conservative--one who's worried more about waits at doctor's offices, or government operation of the healthcare system.  But that's not me.  I'm fundamentally worried about a utilitarian calculus.  As long as I think that single-payer will fundamentally depress innovation, I'll remain opposed.

And I do so think.  Profits are the pull on the overwhelming majority of the innovation that actually results in a new drug or piece of equipment--not a good target, not an intriguing idea, but something you can actually use on a patient.  By pointing to the Netherlands as our possible future, Matt concedes that we'll end up removing those profits from the system.  Which I believe anyway, because how can we credibly expect politicians to hand fat profits to pharmaceutical companies now on the grounds that it will help voters twenty years from now maybe get access to new drugs?

Critics of our system say that it is horribly wasteful and inefficient.  I quite agree.  But innovation is horribly wasteful and inefficient.  It's quite common for drug researchers at mean-old profit-oriented pharma to go their entire lives without working on a drug that actually makes it past Phase III trials and into patients.  Those kinds of crazy bets are exactly the kind of thing that the centralized, rational, efficient systems that progressives like to build (or at least, dream of building) have the hardest time allowing.  And when such systems do make start spending big, they don't tend to get made where the biggest market is--i.e. the most patients with the strongest demand.  Instead the decisions are political:  which disease has the best organized interest group to lobby the government?

Those are just inherent qualities of a government system.  They're the qualities of the systems that progressives lionize in government--the reason that othercountriesspendless.  I acknowledge that it can work very well as long as there are some irrational, decentralized, uncontrolled countries in the mix figuring out how to deliver the technology you'll eventually use, for the same reason that a really surprisingly large number of children can forego vaccination without risking disease.  But at this point, the US is the only country left providing a hefty incentive for inventing new treatments.  If we stop, the whole world suffers, and we along with it.  So for all the many bad points about our system, for now, I'd like to stick with it.

John Edwards Back in the Spotlight

Just as the Atlantic paints a movingly sympathetic portrait of Elizabeth Edwards, and a scathing indictment of Rielle Hunter, news outlets are reporting there may be evidence that yes, Hunter's daughter was fathered by John Edwards.

I have to say, I refused to follow the scandal--to the extent that I didn't even know Rielle Hunter's name until I read the Flanagan piece.  But I finished both pieces really thoroughly disgusted by John Edwards.  Neither piece pays much attention to him--a lapse I find fairly inexplicable in Flanagan's case.  Whatever Hunter's sins, John Edwards was the one in charge of taking care of Elizabeth Edwards.  She clearly deserved much better than she got.

Private Sector Welfare

Perhaps surprisingly, I'm pretty skeptical of a lot of the efforts to outsource social services.  "Competition" for providing a lot of welfare services is kind of meaningless, and the feedback mechanism is pretty weak.  Trash collection is easy to monitor--is there garbage on the streets?--an in consequence, privatization goes well.  But the people experiencing any decline in the quality of social services are usually poor people who mostly don't vote.  So the competition is merely to find a bidder who can cut services to the barest bone.  For some conservatives, obviously, this is a feature rather than a bug.  But when children or the developmentally disabled are involved, I don't think price should be our primary consideration in deciding how to provide services.

I understand that social service agencies also lack many of these institutional checks.  But in practice, a lot of the outsourcing efforts have had a ton of problems.  Jason Deparle outlines one such case, in Wisconsin, in his fantastic book American Dream, which is a must read for anyone who wants to have an opinion on welfare policy in this country.  The Wall Street Journal details another, in Indiana.  If we are going to have social services--and clearly, we are--I think they should probably be classed, along with defense, as a true public good.  Though I'm willing to be persuaded by evidence of successful privatizations.

Apologies for the light posting

I developed what seems like food poisoning a few hours after dinner last night.  Needless to say, while the acute symptoms have now mostly passed, I haven't had much sleep, and I'm a little out of it after eating nothing but sugar-free jello this afternoon.  I'll try to have posts up later.

Surprising Findings

According to a new survey from Indiana University and the University of Utah finds that a huge majority of Americans think that women should change their last names when they marry.  And they're not sure we should stop at moral suasion:

Laura Hamilton, a sociology researcher at Indiana University and one of the study authors, says that while gender-neutral terms such as "chairperson" have become commonplace, the same logic hasn't carried over to name change.

"One of the most interesting things is that a lot of people assume that because language in general is gender-neutral, that name change would also be one of those things in which attitudes would be shifting towards being much more liberal," she says.

But she says some studies have found that younger women are as likely or more likely to change their name when they marry as their baby boom counterparts. "It's not a straight age trend."

Respondents who said that women should change their names tended to view it as important for establishing a marital and family identity, she says, while those who thought women should keep their own names focused on the importance of a woman establishing a professional or individual identity.

Hamilton says that about half of respondents went so far as to say that the government should mandate women to change their names when they marry . . .

I can't help but wonder if they got some sort of a screwed up sample.  Government naming rules?  When did I move to Germany?

As a practical matter, I suspect that name changing will endure, because hyphenation is not a stable equilibrium, and it's really quite useful for everyone in the family to have the same last name.  But it's hardly a moral obligation, and in fact, some of the connotations around it are quite odious.  So I'm awfully glad that the government doesn't mandate such a ridiculous thing, because if they did, I'd have to refuse to change my name in outraged protest.

Did Big Government Save Us From a Second Great Depression?

Paul Krugman says yes.  I think he might be right, though counterfactuals are tricky.  Most countries that have financial crises don't end up mired in a decade-long depression, even with remarkably crappy policy.

The question remains, what kind of Big Government?  It wasn't the stimulus, which has barely started.  Rather, we did three things differently than we did in 1932:

1. We didn't follow a contractionary monetary policy
2. We shoveled gigantic wads of cash into the banking system without much regard for who it was going to, or what they might spend it on
3. We maintained a high level of spending that kept aggregate demand from contracting as powerfully as it did in 1932.

Only the last, I think, can be seen as a vindication of "Big Government" in the sense that Krugman means.  It's also totally unsustainable, and it will be interesting to see what happens to the economy as the government is forced to pull back on the stimulus over the next year or so by either raising taxes, or cutting back on spending.  State and local governments are already in huge trouble.  The federal government can't just keep topping up their shortfalls. Nor can it simply keep ratcheting up its role as borrower of last resort in order to counterbalance the fact that the American personal savings rate still needs to rise so we can work down that mountain of debt we've accumulated, and, I don't know, maybe actually invest something in the future. 

I'm not sure what we just went through validates any reasonable philosophy of government, except "give officials room to make ad-hoc decisions, and hope they don't do too badly."

The Logic of Government

Cash for Clunkers, in a nutshell:

"What we ended up with," said one senior Obama administration official, who would not speak on the record because he was being critical of his own administration's environmental bona fides, "is a program in which you trade in old clunkers for new clunkers."

Life After Warren

Last May, as you may all remember, I went to the Berkshire Hathaway annual meeting.  My musings on the experience, and the future of value investing, are here.

The friend who showed me around sent some further thoughts this morning, which I thought were worth sharing:

This link (http://www.rationalwalk.com/?p=201) is a post considering Berkshire's insurance businesses. It notes that from 1999 to 2008 they have generally made an underwriting profit. Meaning Buffett has written policies conservatively enough to receive the float for free. Even if the result had been a 1% per year LOSS, that would be very cheap money. So he certainly benefits from leverage.

Buffett's record is pretty incredible (in one way or another it can be tracked back over 50 years and works out to around 20% per year). Its length is what makes the returns so amazing. I don't know of anyone else who has a track record of as many decades. But there are a few guys who are worth mentioning and following. These are some value-focused managers who are not Buffett yet who have good long-term (10+ to 30+ year) track records:


(1) Sequoia Fund - From July 15, 1970 to 6/30/2009 average annual total returns of 13.98% vs. 9.98% for the S&P 500. - Sequoia was started by Bill Ruane, a friend of Buffett's, and it is where Buffett recommended that investors in his private partnership put their money when he shut down the partnership to run Berkshire (if they didn't want to just hold Berkshire stock). This fund has about $2 billion under management.

(2) First Eagle Global Fund - From January 1, 1979 tp 7/31/2009 average annual total return of 14.33% vs. 9.45% for the MSCI World Index. This fund has about $16 billion under management.

(3) Fairholme Fund - From December 29, 1999 to 7/31/2009 average annual total return of 12.54% vs. negative 2.29% for the S&P 500. This fund has about $6 billion under management.

(4) Baupost Group - From February 1, 1983 to 12/31/2008 average annual total return of 16.5% net of fees and incentives, vs. 10.1% for the S&P 500.  This is a hedge fund, unlike the others, which are mutual funds, and it manages almost $17 billion.

If Baupost is still investing in 25 years I wouldn't be surprised if their record deserved to be classed with Buffett's by then.

Slapping the Camel's Nose

When I wrote the other week about why I am opposed to national health care, a number of people angrily demanded to know why I was writing about something that "no one is proposing".  Now, this is clearly a lunatic statement.  I was writing about something that many people were proposing.  I just wasn't writing about the nebulous bills currently wending their way through various committees.

I hadn't intended to.  I was writing about my deeper opposition to the entire project of providing, paying for, or otherwise guaranteeing health care.  Since for most people on the left, this is akin to declaring that I would like to take up killing orphans in my spare time, I outlined why I think that this is morally correct even if you take the liberal set of initial values, and don't place any moral weight on taxation or other coercive action by the state.  I have voiced my various practical objections to the particular options on the table at various moments.  But the main thing is that I don't want to give the government a greater role in health care markets.  Nay, not even if all the other countries . . . well, all the cool countries, anyway . . . are doing it.  To the liberals proclaiming that, unlike those of us in the conservative or libertarian camps, they are practical people just seeking the best way to make us all better off, I say:  I think your utilitarian calculus is badly wrong.

Now, I felt this was relevant, because in fact, no one I know who is interested in national health care views these bills as the final iteration of American Healthcare 3.0.  Everyone agrees that these bills are very bad, fix few-to-none of the underlying problems with the American healthcare system (cost inflation, the tax break for employer-provided insurance, etc.)  But we have to do this because we can't just do nothing, now.  So we'll do this now, add a whacking great new line-item to the budget, and then fix it later.  The implied fix is things like cost controls on pharmaceuticals, comparative effectiveness treatment to decide which treatments "work" (and by extension, which ones shouldn't be provided), and an ever-expanding role for government treatment mandates.  The goal of everyone, to a first approximation, on the "pro" side of these health care reforms is a European-style system where the government basically runs the whole show.  Maybe they contract out the billing services to insurance companies, which you may choose between (though you can't choose covered services, etc).  Maybe there's a safety valve in the form of a private system that the very affluent can buy into.  But for 95% of the population, the government dictates what treatments are covered, and usually, how much should be paid for them.

I mean, pardon me if I've been totally fooled by all the people saying yes, these bills suck, but they're better than nothing, and they'll open the way for all sorts of government awesomeness later.  But assuming that they aren't funning me, why on earth would I confine my discussion to what's on the table right now?

I think most of the people demanding that I discuss nothing but current legislation understand this very well.  That's because they feel exactly the same way about pro-lifers advocating for bans on partial-birth abortion, various sorts of counseling, waiting periods, and parental consent.

The fact is, leaving aside partial-birth/late-term abortion (I will not here dive into the debates over whether the health of the mother includes mental health, or whether late-term abortions are or are not performed upon women who simply decided they'd rather not have a baby), these restrictions do not strike very many people as unreasonable.  They recognize that outside of the pro-choice movement, most Americans think that having an abortion is a Really Big Deal, and gently discouraging it by asking women to think the thing through is not crazy. 

Nor is demanding that teenagers have an abortion for some reason other than, "I don't want my parents to know I was having sex."  I'm sure that had I gotten pregnant in high school, I would have had an abortion on my own rather than telling my parents--and not because my Upper West Side liberal parents would have horrifically abused me.  I also think that that would have been the wrong decision in many ways, but most basically, because abortion is not something you do because you'd rather not have a difficult discussion. Yet a lot of teenaged decisions are predicated on preserving as much privacy as possible from their parents, rather than, say, what will ultimately give them the happiest, most fulfilling future life.  The whole reason we don't let most teenagers live on their own is that we recognize that they're not ready to make a lot of major decisions.

Now, the pro-choice side generally does debate the provisions on their own terms, and comes up with horror stories about women who are horribly inconvenienced by waiting periods, teenagers whose parents beat them up because they're pregnant, etc.  But these are not arguments against reasonable laws; they're arguments for finding ways around them, like a judicial override for teenagers who really believe that telling their parents would put them in danger, funds to help women who cannot afford to travel back and forth while they wait, or teleconferencing.  That's why pro-choicers so often lose those debates.

And while some pro-choicers are hard-core libertarians who resent the slightest intrusion by the state, how many of them would really get excited about these provisions if they didn't perceive them as battles in a longer war?  They think that these are just the first step on a slippery slope--a way for the pro-lifers to get the camel's nose under the tent.  And since the pro-lifers seem to view it exactly the same way, I think they are absolutely right to believe this.

So it makes sense, in the context of a debate over waiting periods, to discuss your broader philosophical opposition to inserting the heavy hand of the state between the woman and her doctor.  Pro-lifers can say that it's not on the table, but that's just so much flim-flammery.  It's always on the table.  Likewise, in the health care debate, single payer.  So there's never a wrong time to bring it up.

At the heart of it, in most of these debates, both sides are saying "I don't want to go here because once I do, I'm afraid I'll end up there."  They don't trust the other side, and usually, they're right not to.  In this case, I think that the political logic of an expensive new health care plan will push us faster and further towards price controls on key inputs, and somewhat hamfisted "one-size-fits-all" standard-of-care recommendations.  I am reinforced in this belief by the fact that many of the people pushing health care reform are also enthusiastic proponents of . . . price controls on key inputs, and national standard-of-care recommendations.  I don't trust them when they ask me to focus on just this bill right here.

They shouldn't trust me either.  Except they should, because I'm being right out front about this.  I don't want this bill, and I don't want any other bill that increases the number of people for whom the government pays for care. I may point out why you shouldn't want this bill, and I will try to be intellectually honest about it--i.e. focus on things the bill actually is likely to do, rather than "death panels".  But I wouldn't like it any more if it was more like something you want.  In fact, I'd probably like it less.

Rationing By Any Other Name

Robert Wright notes that "we already ration health care; we just let the market do the rationing."  This is a true point made by the proponents of health care reform.  But I'm not sure why it's supposed to be so interesting.  You could make this statement about any good:

"We already ration food; we just let the market do the rationing."
"We already ration gasoline; we just let the market do the rationing."
"We already ration cigarettes; we just let the market do the rationing."

And indeed, this was an argument that was made in favor of socialism.  (No, okay, I'm not calling you socialists!)  And yet, most of us realize that there are huge differences between price rationing and government rationing, and that the latter is usually much worse for everyone.  This is one of the things that most puzzles me about the health care debate:  statements that would strike almost anyone as stupid in the context of any other good suddenly become dazzling insights when they're applied to hip replacements and otitis media.

The rationing is, first of all, simply worse on a practical level:  goods rationed by fiat rather than price have a tendency to disappear, decline in quality, etc.  Government tends to prefer queues to prices.  This makes most people worse off, since their time is worth much more than the price they would pay for the good.  Providers of fiat-rationed goods have little incentive to innovate, or even produce adequate supplies.  If other sectors are not controlled, the highest quality providers have a tendency to exit.  If other sectors are controlled, well, you're a socialist, and I just agreed not to call you a socialist, because you're not a socialist.

But there is also a real difference between having something rationed by a process and having it rationed by a person.  That is, in fact, why progressives are so fond of rules.  They don't want to tell grandma to take morphine instead of getting a pacemaker.  It's much nicer if you create a mathematical formula that makes some doctor tell grandma to take morphine instead of getting a pacemaker.  Then the doctor can disclaim responsibility too, because after all, no one really has any agency here--we're all just in the grips of an impersonal force.

But this won't do.  If you design a formula to deny granny a pacemaker, knowing that this is the intent of the formula, then you've killed granny just as surely as if you'd ordered the doctor to do it directly. That's the intuition behind the conservative resistance to switching from price rationing to fiat rationing.  Using the government's coercive power to decide the price of something, or who ought to get it, is qualitatively different from the same outcome arising out of voluntary actions in the marketplace.  Even if you don't share the value judgement, it's not irrational, except in the sense that all human decisions have an element of intuition and emotion baked into them.

Exercise in Futility

Why excercise won't make you lose weight.  Believe it or not, this is not surprising new science; experts have been saying this for years.  The conflation of health and obesity has lead us to confuse the goals.  We're told to exercise because it will make us thin, which it won't.  But it will make us healthy.  Unfortunately, health is a distinctly secondary goal for most people at the gym.

Forever Unequal

I am astonished, and not a little disgusted, with how much bankers seem to be planning to pay themselves this year.  Unsurprisingly, so are the left bloggers.  Kevin Drum writes:

There's something to this, and since the share of national income hoovered up by the super-rich is about three times higher today than it was 30 years ago, I don't have a big problem with taxing that income at a higher rate.  But there's a limit to how effective that can be.  For a whole bunch of reasons, marginal tax rates higher than 50% or so are pretty unlikely, and effective tax rates at that level are probably impossible.  After all, those Wall Street guys are pretty good at tax planning, too.

Overall, there's not much question that Wall Street bankers are going to continue to be paid astronomical sums as long as the firms they run are making astronomical profits.  And that's the key problem.

Actually, we don't know how much income the super-rich hoovered up compared to the rest of us.  We won't know for a while, because the latest tables available are from 2006 and 2007.  What we do know is that financial crises like the one we just went through tend to be disproportionately destructive to high incomes, reducing inequality.  So actually, the share of national income going to the very wealthy has probably dropped. 

Nor do I think a huge financial sector is a given.  While the pay going to individual bankers will be high this year, the number of bankers has fallen precipitously.  Maybe that will turn around.  I see two possibilities:  one, like the Great Depression, the markets are going to be much, much more cautious about credit and bubbles.  That effect will last, if not as long as the fallout of the Great Depression, at least for a decade or so. 

The other possibility is that by helping us skirt utter ruin, Ben Bernanke, Hank Paulson, and Timothy Geithner have convinced people that nothing bad ever happens.  In a year or so, when GDP begins growing robustly, those people will go back to borrowing money they can't repay, and bankers will start making irresponsible decisions about credit--first tenatively, and then with the same frenzy that brought you the tech bubble and the housing boom. 

I think the former is more likely.  But I'm not counting the latter out.  Since I share Matt Yglesias' pessimism about financial regulation, this worries me.

The Politics of Cost Control

Is it fair to worry that the Democrats included an end-of-life counseling provision in the health care bill because they're planning to push Grannie off the ice floe as soon as they can get naional health care passed?  No, and yes.  No, because I don't believe that they want to bamboozle people into ending their lives before they should.  It's quite clear from what Obama has been saying that he thinks there is a great deal of unnecessary care, particularly late in peoples' lives, that makes them worse off, or at least, no better off.

But though the implication that the Democrats are heartless technocrats is thoroughly wrong, I think the worry underlying it is legitimate.  First of all, Obama has made a number of missteps that paint a worrying picture of what he thinks an "unnecessary procedure" is.  Or at least worrying for seniors and other important voting blocks.  It is actually entirely true that if you're focused on cutting costs, you would never install a pacemaker in a 99 year old woman.  The number of quality-adjusted-life-years you could expect to get out of that procedure is not high.  Meanwhile, she's very likely to die on the table, wasting thousands of dollars and the last days of her life.  If Obama is serious about bending the cost curve, he will create some sort of agency that will say no.  And it's no good saying, as you do to under-65's, that this rationing will only apply to bonus care for people who currently lack insurance.  Cutting costs means taking options away from seniors.  You may think that they would be better off without those options.  But they clearly don't.

The other reason I think the worries are legitimate is that as the government is on the hook for more medical costs, its incentives change.  The fact is, it wouldn't be hard to manipulate a significant number of sick people into forgoing a lot of expensive care.  The Obama administration's point, which is well taken, is that it's problematic to give doctors financial incentives to bias their advice towards treatment.  The problem is, it's also problematic to give them, or their employers, incentives to bias their advice towards undertreatment.  Every compensation scheme on the table does one or the other.  And I think Americans are inherently more comfortable with a bias towards proaction than inaction, even if the latter is cheaper and more restful.

Insurance companies already have those undertreatment incentives, but it's hard to act on them.  Right now, people know that their insurance companies would love to provide self-serving "end of life" counseling that would encourage sick people not to waste so much valuable money.  But they are limited by, first, competition--an insurance company that tried to do this too blatantly would suffer horrible publicity and ultimately lose business--and second, the threat of lawsuits and/or regulation.

People aren't trusting the free market as much as they're trusting various institutional arrangements, some within the market and some outside of it, to protect them from the perverse incentives of any insurance company.  Once the government has the perverse institutional incentives, the institutional checks are fewer, more ponderous, and worst of all, often create huge new problems.  The institutional checks we have accumulated have now so encrusted the government that it's ever-harder to make changes, or for that matter, to get anything done.  As my father is fond of pointing out, adding federal money to a project now adds an average of five years time-to-completion while the project managers jump through various procedural hoops.

Medicare basically free rides on this; Medicare reimbursements are tied to, and broadly reflect, the private reimbursement system.  (Yes, I know there are a lot of crazy exceptions--Medicare reimbursement policy is an enigma wrapped in a puzzle placed inside a labyrinth and shrink-wrapped with red tape.  But what Medicare pays for and what private insurance sector pays for are not, in toto, wildly different.)  If the public sector atrophies, the scope for manipulation broadens, because the information about what's available outside the public sector shrinks.  Nor is this just crazy speculation.  I actually think it's pretty reasonable when  conservatives worry that the Dutch attitudes towards euthanasia are influenced by the burden old people and severely disabled children put on the public purse.  I don't see how they could fail to be.     

So I don't think it's crazy that Rasmussen is reporting that 51% of people now trust their insurance companies more than the government to handle their health care.  In fact, I expect that number to go up.   This is not, as some libertarians would have it, because the free market is Teh Awesome, while the government is Teh Suck.  It's because the two institutions are, on this particular question, balancing each other.  In doing so, they are creating cost inflation.  But they're preventing something that many people legitimately believe is worse.

Markets in Everything

Is it cheating to get help with your online profile?

Highly verbal people with great writing skills tend to think so.  But I know a lot of great people who can't write at all, people who are worth dating.  (And a few of them, I have). 

But to me, that sounds like a perfectly fine business, as long as you are making people sound more like themselves, not less.  Professional writers need editors, so why not amateur daters?

Kick 'Em When They're Down

Traditionally, banks and other industries where security is at a premium have checked the credit of prospective employees.  (I got my credit checked when I passed the Foriegn Service Exam).  Someone with persistent money trouble is someone who may be tempted to sell out their employer, or steal from them.  A legitimate concern when there are state secrets or peoples' bank accounts involved.  Less worrying if the only secret you know is how to get the shake machine unstuck.

The practice has been expanding in recent years.  Bad credit can be a proxy for lack of conscientiousness or impulse control problems.  It's become especially common for semiskilled positions in offices and so forth. And now that the unemployment rate is higher, it seems that employers are using this tool more than ever. 

It's hard to argue that someone having his wages garnished and being hounded by debt collectors isn't more likely to steal.  Still.  Having bad credit can be a proxy for things other than inherent irresponsibility, like poverty, frequent moves, or a run of bad luck.  And of course, these days, it may simply be an indicator of stupid homebuying decisions, or losing your job in a particularly nasty recession.   Those are precisely the people we'd like to get into stable employment.  The Times article is inherently anecdotal, and thus suspicious, but it's not really very hard to imagine that employers inundated with resumes are glad to have one more means to shrink the queue--and are thus not very worried about separating the chronic check-kiter from the poor bastard who made the mistake of working in construction.

One could argue that a discriminating employer might do well by finding the people who hit a string of bad luck, and are therefore desperate for a good job.  I don't know if it would be true, but it would certainly be interesting to find out.

Jobless Figures: Good, Bad, or Indifferent?

Good, I'd say.  Sort of.  In a very weak way.

The unemployment rate dropped 200 basis points, from 9.6% to 9.4%.  That's great news.  Except that labor force participation also dropped 200 basis points, which is what's propping up those figures.  People basically gave up looking for work, and therefore aren't counted as unemployed.

Still, it is good news, of a sort.  Job loss is slowing, and a 12% eventual unemployment peal seems less likely than it did even a few months ago.

But we should keep in mind that this also reinforces a grim fact of modern unemployment--it's getting longer and harder than it used to be.  Prior to the 1990s, unemployment was mostly cyclical:  firms laid off workers because demand was low, then signed them back on again.  Now shifts are structural--industries are downsizing, jobs are being automated out of existence.  We're seeing huge numbers of people become marginally attached to the workforce, or leave entirely; long-term unemployment is spiking; and the number of people being forced into part time work is also very high.  This weak's job report is hopeful only in comparison to the real fears that we were looking at a second Great Depression.

Correction: Community Rating Turns Out to Be Even Worse Than I Thought

John Cole takes me to task for not knowing that health insurance premia have tripled in New York State.  Indeed, he's right--I should have checked.

But this is not the "gotcha" the left believes.  I erred so low because I was trying to be charitable to the cause of national health care.  You see, the reason that insurance premia are so high in New York State is that New York State enjoys community rating, guaranteed issue, and a very generous bevy of mandatory services.  The result is that the cost of insurance is very, very high.  What I failed to realize was just how radically out of line New York's rules had pushed its health care costs.  The average premium across the United States has increased about 25% since 2004.  In New York, the rate of inflation has apparently been about 16 times that.  I wasn't "aware" that insurance premiums have doubled and tripled over the last seven years, because for the country as a whole, this isn't true. 

So yes, John, the Atlantic's economics expert didn't realize just how much the kind of regulations Democrats are now pushing had managed to screw up New York's health insurance market.  In trying, while writing a blog post on the fly, to err on the side of charity towards my ideological opponents, I grossly misled my readers.  Massive state interference in the insurance market is clearly much, much worse than I--the eternal pessimist!--managed to imagine.  Thanks for calling that oversight to my attention.

The Price of Innovation

Dean Kamen has some lengthy thoughts on innovation that are well worth reading.  As the article notes, besides the Segway and the world's first stair-climbing wheelchair, "His innovations include the first wearable infusion pump, a portable kidney dialysis machine, a more flexible stent, one of the world's most advanced prosthetic arms, and many other devices used in the treatment of diabetes, heart disease, cancer and other conditions".  Kamen's core point is that innovation is expensive.  You can't stop rewarding innovators and expect to have as much of it.

There's often a sort of implicit dichotomy in discussing health care innovation: you have academics, and then you have greedy people.  Academics do a lot of important work.  Greedy people steal that work, and make a fortune that they don't deserve.

But there's no question that Dean Kamen knows how to produce real and important innovation--his inventions are, if not saving lives, dramatically improving their quality.  If he demands to get rich in return for doing this--very rich, filthy rich, obscenely, rolling around in piles of $100 bills rich--then this strikes me as a good bargain.  But I think for a lot of people it isn't.  The injustice of his demands for profit rankles more deeply than the miracle of his inventions can soothe.  If they have to risk some innovation in order to wring this profit out of the system, and distribute the goods he's already produced for us more widely, they're fine with that tradeoff.

I'm not.  And I don't think this is a gap we can bridge by discussing the thing.  We're doomed to keep getting angry at each other.

Ezra Klein might reply, with justice, that Dean Kamen is an interested party:  he would like to get paid as much as possible for his inventions.  But this does not, of course, mean that he is wrong.  More on why I think ignoring the businessmen in favor of the "experts" is such a bad idea later.

A Disease By Any Other Name Would Still Be Really Impairing

Why is restless leg syndrome always the poster child for people who hate pharma advertising?  Both my fiance and I clearly have it, and you know what?  It's really not very much fun not being able to sleep, nor are the cramp-like sensations that accompany the uncontrollable urge to kick your legs.

 While we're at it, hooray for the commercials which informed me of the existence of Ambien CR, because I have the sort of insomnia that frequently wakes me up at 4 am.  I had to browbeat a doctor--who said his patients were frequently groggy in the morning--into giving it to me.  Well, apparently my liver chews through Ambien like my dog goes through three pounds of prime dry-aged steak, because I feel great the morning after I've taken it.  I don't want to say Ambien CR is the best thing that ever happened to me.  But it's in the top twenty, maybe the top ten. 

If you've never had insomnia, it doesn't sound like a big problem.  I know, because I, always a champion sleeper, developed insomnia in my thirties--in my twenties, I used to make fun of a coworker who couldn't sleep.  But it turns out that not sleeping for weeks on end can really destroy your quality of life, which is why we're against doing it to prisoners at Guantanamo.

Here's something else that mystifies me:  the progressive derision for Viagra. Here's a group of people who are opposed to abstinence-only education on the grounds that it is simply not possible, or for that matter worthwhile, to persuade teenagers to keep it in their pants.   They go into convulsions every time a Catholic hospital refuses to dispense birth control, or pay for its employees to buy same.  So why the fixation on Viagra?  Sexual dysfunction may not be a disease, but it's still a problem.  Considering how vital most progressives seem to think healthy sexual functioning is to people in their prime reproductive years, you'd think they'd be happy that we can now help more people participate in this vital sphere of human life.  Instead, ED drugs are the poster children for Drugs Big Pharma Wasted A Ton of Money On Rather Than Developing Something Useful*. 

Well, we don't need birth control either--we could just decide to be celibate--but I don't hear so much complaining about the commercials for Seasonale or the HPV vaccine.

I take the point that we're "medicalizing" normal parts of the human condition.  But I'm not sure how useful that insight is.  Disease and early death is a normal part of the human condition, and thank God we've medicalized it!  I can live with a headache, so should I retire to a dark room rather than "medicalizing" my condition and taking an aspirin?

At the end of the day, whether or not these people have a medical condition, they still can't sleep or have sex.  Given that most of us are very fond of both, I'm not sure why we're writing off drugs to treat those problems as ephemeral frippery.

*  Actually, Viagra was a failed attempt to treat angina, which I think most of us recognize as a Certified Real Disease. 

Dialogue: Ellen Ruppel Shell on Beyond Price

Dialogue: Ellen Ruppel Shell on Our Obsession With Cheap

This week, I'll be having an email dialogue with Ellen Ruppel Shell, whose new book, "Cheap", argues that cheapness is often no bargain.

Dear Megan,

In the matter of history, I must beg to differ. The Triangle Fire was the seminal event in a series of workplace tragedies that forced fundamental reforms and government regulations. As David Von Drehle, author of Triangle The Fire That Changed America reports in his superb narrative history, before the fire, roughly one hundred workers died on the job every day. At the time, he writes, "workplace safety was scarcely regulated, and workers' compensation was considered newfangled or even socialist." The Triangle Fire and the outrage that followed changed everything. Here is the account from the US Department of Labor website: 

In 1911 a terrible factory fire in New York City made possible some of the culminating events in the era of progressive reforms in workers' safety and health. A special state commission conducted an investigation into working conditions, especially those affecting health, in a wide range of industries. It was the most massive effort any state had yet undertaken. The legislature adopted workmen's compensation and completely revised most of the state's occupational safety and health code along progressive lines. Furthermore, a young woman who played an active part in the investigations later applied some of its lessons on a national scale while Secretary of Labor.

Given this history, I find it puzzling when some seem to imply that indentured servitude is a necessary condition of the free market, and that to suggest otherwise is to be branded an "anti-globalist." I am a great fan of free trade! But free trade is not a force of nature--it is designed and controlled by humans. We can rationalize that millions upon millions of Chinese chose to work 70-80 hour weeks in dangerous factories to make our cheap goods. But this doesn't explain why the American Chamber of Commerce and the US-China Business Council lobby fiercely against labor reforms in China. It seems that "free trade" is a relative term: commercial interests must be "free" to scour the globe for cheap labor and resources, no matter the cost to environment or human dignity; but workers in those countries are not "free" to organize to demand a decent life for themselves. In countries where such freedoms do exist, and where rule of law applies, the price of labor goes up and the work goes elsewhere. Oh, you say, get rid of the sweatshops and the work goes too--isn't that bad for the Chinese? Well, I am not so pessimistic--not so down on my fellow Americans--to believe the only choice is between stultifying protectionism and unfettered exploitation. By insisting that multinationals pay more than lip service to the values they seem to expose, we would raise all boats--including the one we're sinking in.

I also find it puzzling that some Americans are outraged when products produced on the cheap are shoddy--and even dangerous. When Thomas Train sets aimed at children ages three to five are sprayed with lead paint by Chinese migrant workers in Dongguan it makes front page news. But who among us worries about the workers--many of them teenagers--exposed daily to this neurotoxin shower? And why should these teenagers who work 70 hours a week with no days off and no face masks to protect them give a fig about our children?

But the main focus of CHEAP is not China, or the developing world. Rather, the book is a journey through the science, economics, psychology and social history of low price in America and its formidable impact on our culture. Naturally, until the Industrial Revolution and mass production, no consumer goods were cheap. And until the invention of the price tag in the late 1800s, discounts were not part of the retail landscape. I found it fascinating that Americans have not always been thrilled with "everyday low prices." At the turn of the last century, the Retail Merchants Association railed against discounters, who "reduced the value of labour, and destroyed the purchasing power of many classes, thereby affecting all classes." Shopkeepers who touted low prices were derided as scoundrels and "gutter merchants." President William McKinley was particularly outspoken on this point: "Cheap merchandize," he famously said, "means cheap men." And so it did. Retailing wizard Frank Woolworth's "innovation" was to hire only unskilled workers, mostly young women still living at home, and pay them next to nothing. "It may look hard to some of you for us to pay such small wage but..one thing is certain: we cannot afford to pay good wages and sell goods as we do now, and our clerks ought to know it."

Woolworth, of course, set a pattern that discounters follow today--one third of the working poor in the US come from the retail ranks. The downward pressure on wages is undeniable: despite the nation's astonishing productivity growth, median family income, adjusting for inflation, dropped by $1,175 between 2000 and 2007, while family spending on basics grew by $4,655. So yes, as Megan has helpfully pointed out, many of us are getting health care benefits from our employers. But this benefit is more than swamped by the ballooning cost of health care. Meanwhile, we pay less and less for consumer goods: compared with the early 1970s, 40 percent less on clothes, 20 percent less on food, more than 50 percent less on appliances, about 25 percent less on owning and maintaining a car. Thanks to our flat incomes and growing fixed expenses, many of us don't have the extra cash to pay for all these "great deals," but no matter--until the past couple of years we took the money out of our homes--with cheap, "no money down!" second mortgages. We all know where the story went from there.

Now of course, no one forces us to stock up on cheap stuff, so why do we do it--even when we suspect it's not in our best interest? Depending on what Megan has to say, I'll try to tackle that in the next post.

All best,

Ellen 

The Politics of Ick

Andrew on needle exchange:

This restriction might make sense if needle-exchange programs increased the number of addicts. But they don't. Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases at the National Institutes of Health, has comprehensively reviewed the scientific studies on needle exchange. "It does not," he says, "result in an increase in drug abuse, and it does decrease the incidence of HIV. . . . The idea that kids are going to walk out of school and start using drugs because clean needles are available is ridiculous." My experience in Washington was consistent with Fauci's view. Addicts who came for needles were generally in their 40s and 50s. The availability of clean needles no more caused their addiction than the provision of clean shot glasses would cause alcoholism," - Michael Gerson,

I am sure this is correct, and I (of course!) favor needle exchange, insofar as I can be said to favor anything that makes me squeamishly clutch my arms to my chest.  But does anyone think this will change the minds of the opponents of needle exchange?  Their objection is not, at its heart, a practical one.  Rather, they don't want to implicitly ratify shooting up by providing higher quality materials with which to do so. 

I wonder if this isn't the same class of objection that many of my interlocutors have about paying for kidneys.  A lot of people framed the idea as "rich people buying the poor's kidneys", even though the actual proposal on the table is for the government to pay a bounty to kidney donors in the name of anyone who happens to need one.  (Since my impression is that kidney failure disproportionately strikes the poor, the net effects are, I think progressive.)  But it is true that probably more people who sell kidneys will be in the bottom half of the income distribution.

And yet when I look at what progressives would usually regard as the objective outcomes--certainly if they were assessing a needle exchange--the net goods obviously outweigh the net bads.  For most people, kidney donation is not very risky.  They lose some small utility from surgical recovery, the ability to drink a lot of alcohol at once, and have a risk of losing the other kidney so small that it doesn't register in the mortality statistics for kidney donors.  (This may be because outside of trauma, a disease that is going to kill one kidney will probably kill both).  And if the program results in a lot more kidney donors, the risks attendant upon losing your one remaining kidney presumably fall sharply.

On the plus side, every kidney donated takes one person off dialysis and lengthens both their life expectancy, and their Quality Adjusted Life Year expectancy.  This is such an unmitigated win that libertarians have a hard time seeing how you could possibly desire to see the state step in and stop this transaction.

Well, even I would like to see very careful screening in such a program--today's donors are probably more thoughtful and committed about, say, giving up drinking, than you might find if we paid for kidneys.  But assuming we can do that, why still object?

Because it feels like ratifying the fact that the poor in America need money more than the wealthy.  It feels like creating injustice.

Interestingly, I note that we only feel this way because we already banned the practices we're discussing.  If it were legal to purchase syringes (and I can't tell you the libertarian indignation that filled my heart as I typed the word "if"), then allowing the distribution of clean needles to addicts would have very little expressive value.  Because you need a government waiver to do this, allowing it seems to put our stamp of approval on it.  "Go shoot up!  Just be safe!"  Whereas, to use Gerson's metaphor, no one feels like the government has put its stamp of approval on binge drinking merely because the bartender gives you a fresh glass every time you order a new drink.

Similarly, if we didn't already have this ban on compensation for kidney donation, the poor probably would be more likely to sell theirs.  Yet I'm not sure that it would then be obvious to many progressives that we should ban the practice to stop this disparity. In that world, the action--banning--would do obvious harm to actual people, the kidney patients who were already benefitting from donated kidneys.  Banning compensated kidney donation would not be a cheap expressive good.

These framing effects seem pretty powerful to me.  And it's another reason to legislate carefully--to err on the side of doing too little rather than doing too much.  Once we've enacted a law, undoing it has powerful expressive connotations.    The resistance to actively participating in something that we might very well tolerate can lead to some very bad outcomes for the people we're all presumably trying to help.

The Abolition of Medicare

Mark Kleiman suggests that Democrats start implying that Republicans want to abolish Medicare.  This is a rather common trope among Democrats.  But in this case, I don't think it will work.

But in this case, given that Barack Obama actually has proposed substantial changes to Medicare, including a commission in charge of restricting treatments (your belief that we should restrict those treatments is rather beside the point), this doesn't seem like a winning issue for the Democrats.  Well informed seniors--the sort who follow these debates--are aware that Medicare is unsustainable, and presumably the reason so many of them oppose health care change is that think that expanding coverage will simply hasten the day of reckoning.  Bringing up abolishing Medicare simply reminds them of this point.

To DJ or Not to DJ

Despite the ballooning wedding budget, Peter and I are pretty determined to use an iPod rather than a DJ.  It's not that I want to dis on DJs--I have no ideological opposition to them, or even to YMCA--but sticking people in a room, then feeding them, is already costing an astonishing fortune.

Having no particular dog in this fight, I had to laugh at this, which a friend sent me in re: the question of the dreaded iPod wedding.  The DJs and their clients sure do hate each other . . . and then there's this guy, who just hates everyone:

You guys are all retarded. Ipod weddings are ridiculous, wedding DJ's are washed up cheese balls, and bands are some washed up musicians singing at YOUR lame ass wedding because thats all they can get. Also, wedding djs are labeled as cheesy for some of the music they play, but guess what? They are playing that crap because it has probably been requested 10 times by your cheese ball relatives. They are only playing what people at your lame reception are requesting. Its not like they get into their car when they finish your reception and rock out to the YMCA and the Chicken Dance on the ride home. They probably hate playing it more than you hate hearing it. Getting married is an all around ridiculous idea. Get over yourselves.

Dialogue: Ellen Ruppel Shell on Our Obsession With Cheap

This week, I'll be having an email dialogue with Ellen Ruppel Shell, whose new book, "Cheap", argues that cheapness is often no bargain

Dear Ellen,

As always when it comes to cheap goods, we have ended up in an argument about labor.  This is not surprising.  One of the prize achievements of the left was creating something close to a labor cartel that could extract rents from other citizens--something I'm sure you'd categorize as workers organizing to demand their "fair share".  Globalization has indisputably upset the cartel. 

While you attribute a heavy role to the consumer in all of this, I don't see much in economic history to bear you out.  Consumer outrage over its fire safety violations did not put the Triangle Shirtwaist Factory out of business; the fire did.  The various changes that followed in labor practices did not come about because consumers were outraged by the way their clothes were made.  They were accomplished through the heavy hand of the state.

Whether or not you think these were a good idea (I'm a big fan of the fire code, not so much of special laws for women workers), they were not undertaken because Americans desired them in their role as consumers.  They happened because Americans were outraged in their role of voters at what had happened to fellow American citizens.  They used their power as voters to allay their outrage by changing work rules.  But in a modern economy, it is simply not possible to monitor the conditions under which all the goods we consume are made.  Perhaps some sort of auditing organization could be created, but then you have substantial interpretation questions--witness the endless wrangling over whether various nationalities of garment factories constitute "sweatshops".  But even if it existed, most consumers would ignore it.  Look at the paltry success of the Made in the USA labels--and they have a deep atavistic tribal instinct on their side! 

The anti-globalization left's problem with cheap foreign goods is precisely that we can't extend the power of our state over there, to enforce our labor rules.  This threatens the power of our labor cartel here.  To be sure, they argue, as you do, that foreign companies put pressure on local governments to counter the demands of the labor movement.  This is undoubtedly true.  And some of that pressure is self-serving demands from corrupt officials.  But western companies also do things like demand better roads, better ports, better public transportation, a more reliable electrical grid, and less corruption in government, because those things make their factories more productive. 

I am, in general, not a big fan of corporations messing with the government.  But often the "pressure" decried by anti-globalization activists consists of pointing out, entirely truthfully, that productivity in the area is very low, and they can't afford to pay much higher wages.  Competition between the Asian countries that make so many of our goods is brutal.  In theory, labor organizers shouldn't demand so much that their industries become uncompetitive.  In practice, however, as we've seen with Chrysler and GM, they can and do.

But even if we could somehow prevent Nike from ever interacting with, say, the Vietnamese government (impossible:  the government there runs just about everything important, from ports to electric plants), that wouldn't mean that wages in Vietnam would suddenly skyrocket.  Western tourists in Asia love to photograph the picturesque farmers in straw hats who sell vegetables out of little baskets on the side of the road, which they have carried there in quaint little shoulder yokes.  But when you stop to contemplate the level of productivity that is implied when walking miles and miles to sell a few dozen cucumbers is a good way to spend your workday, your heart breaks--and it becomes clear that western interference is not the main thing keeping wages in those countries low.  The reason wages in China, Vietnam, Cambodia, Thailand, and so on are so low is that there are millions of such people on the farm who would be happy to work in a garment factory or assembly plant. 

The only way to raise wages in factories is to forbid those people to compete with existing workers.  And it's very possible that the only effect of raising those wages would be to lose those jobs entirely--just as the American garment industry is disappearing in the face of competition.

Working in a garment factory is my own personal vision of hell.  But it is not a hell of maimed workers and brutal overseers; it's a hell of creepy corporate training centers where workers sing company songs, and long years of mindless boredom.  And given that the workers are not actually chained to their stations, my hell is apparently better than their alternatives.  And indeed, when you talk to people in the manufacturing sector in these countries, it becomes rapidly apparent that even the lowest skilled workers--even the people who say they were fired for organizing!--came to the factory to get away from something worse.

It would be nice for those workers if there weren't so much price competition.  On the other hand, if there weren't price competition, they wouldn't have those jobs at all.  And who the hell am I to tell China, where per-capita incomes are still a small fraction of ours, that they ought not to compete with the Cambodians, or us?

Well, I'm a consumer of their products, of course.  But if I don't buy their products--if a whole bunch of us don't buy Chinese products--will the world be a better place?  I don't think so.  Leave aside the utility I confess I do derive from a rather unconscionably large, and cheap, flat panel television.  If they weren't making pitiful wages building us cheap goods in factories that aren't nearly as  pleasant as American factories, they'd be doing something much worse.  I couldn't watch Blade Runner on Blu-Ray, and they couldn't send money back to their parents on the farm, save a dowry, or educate their siblings.  Sure, maybe the world would be even better if they made more money.  But what reason do we have to think that this is an actual feasible alternative?

What am I missing?

Cheers,

Megan

Book Banning

Some of my happiest memories as a child are of reading the old children's books I found at houses and in the libraries of my school and camp.  Musty smelling, filled with deco and nouveau style pictures of girls in strange costumes, they were a tangible link to the past.  Not merely because some child had held that book in 1920, but because to read the popular fiction of another era is to take at least a few halting steps into its foreign mental world.

So when I see old children's books--and by "old" I mean "pre-1960"--I often buy them.  I love having the companions of my childhood to hand.  I've always enjoyed the prospect of having more space to really take up collecting.

Apparently, I can forget about that.  Congress has apparently outlawed my hobby.  Nor is this merely ideological hysteria.  I just checked Amazon, and while there are still some old books for sale, it looks as if there are a lot fewer than there used to be.

Jobs Data Worse Than Expected

It's not all beer and skittles in economic indicator land:  ADP's employment report apparently reports a decline of nearly 370,000 jobs, about 40,000 more than expected.  Unemployment will continue to rise even as the economy recovers--at least if history is any guide.  But it is also tied to economic performance--people who lose their jobs don't buy much.  So unhappy surprises are still pretty worrying.

Just Say No to . . . Drug Companies?

Update:  Once published, I realized that the tone was a little snottier than I meant it to be.  So apologies to both Ezra and Dr. Avorn, assuming that they read this, for my over-the-top sarcasm.  I don't retract any of the arguments, but I wish I'd made them a little more temperately.

Speaking of Ezra Klein's obsession with experts, I'd like to suggest another class of experts he may not have considered:  people who run companies.  I know, I know--it feels too much like conceding to the kind of annoying right wing ideologues who think that the market is so perfect that if anything good is possible, a company will do it--indeed, will already have done it.  Believe it or not, those people annoy me too.

But while it is certainly true that companies don't know everything . . . that they are merely a part of the vibrant web of different institutions that makes up this America of ours . . . you do not have to be a lunatic free-marketer to acknowledge that companies might be good at a few things that other institutions don't do so well.  You just have to visit the former Soviet Union and ask around.

Of course, I don't know that Ezra has not actually spoken to many people who run companies, and particularly not companies which don't support the current progressive agenda.  But that suspicion is the only way I can explain this very, very strange interview, in which Jerry Avorn, chief of the division of pharmacoepidemiology and pharmacoeconomics at Brigham and Women's Hospital, announces that companies don't do anything.  It's no mystery how Dr. Avorn formed this belief:  he pretty clearly has absolutely no idea what companies do.  But the fact that he mistakes his ignorance for a fact about the universe makes me wonder if pharmacoeconomics is what my college boyfriend's roommate used to do with a few grams of cocaine and a copy of Mankiw's Principles. 

For example, Avorn says:

My view is that the translation of an important scientific breakthrough -- let's say the discovery of tumor angiogenosis, which a lot of drugs were based on -- it's not implausible to say the translation of those basic science findings into a marketable product is something that could be done in university settings, and many university groups are moving towards doing their own licensing. It requires capital, but as you see with biotech start-ups, they can often get it.

So once you raise capital to form a biotech startup, you can often develop a drug, which proves that we don't need companies to develop drugs.  Huh?  Is Dr. Avorn under the impression that biotech startups are some sort of extension campus of the University?  They're drug companies.  They're just in the larval stage.

Ezra leaps in:

Some people have said to me that a lot of the pharmaceutical industry's really innovative work is coming not from inside large companies, but from the acquisition of start-ups.

Exactly. If you look at where their new drugs are coming from an awful lot is coming from buying a biotech company run by real start-ups

So if we just got rid of big pharma, the real innovators would . . .

Well, actually, they wouldn't do anything, because they wouldn't exist.  If we just got rid of big pharma, all the capital that the biotech startups raised in the previous question wouldn't be so easy to raise.  Venture capitalists have longer investment time horizons than retail investors or say, mutual fund managers, but those horizons are not indefinite.  They need to have a way to get their money back out.  That usually happens in one of two ways:  the company goes public, or it gets acquired.

Moreover, biotech firms often lack the assets they need to monetize their drugs:  things like the research capability to take a drug through trials, or even more commonly, the production, distribution, or marketing capacity to actually mass produce the thing and sell it.  These are boring divisions, usually led by people who didn't even go to a decent graduate school, which is why professors of pharmacoeconomics don't know a lot of district sales managers or operations chiefs socially.  But without them, the company goes broke.  If too many companies go broke, there's no new capital for those academics who want to found an exciting new biotech startup, and they have to go back to begging the government for money.

Once you've conceded that drug discovery needs capital, you've conceded that you need a pharmaceutical industry.  The rest, as Shaw said, is just haggling.  But Avorn sails on, apparently blissfully unaware that raising capital is something that is usually done by, er, capitalists.

Dr. Avorn seems  to think that companies are some sort of giant black box to him--the operations are impossible to see, so all you can do is measure inputs and outcomes on a pie chart.  If only there were whole big areas of social science, not to mention the pop business section at your local Barnes and Noble, devoted to describing how companies work for people who might like to know.  But alas, there are not, so medical doctors who want to spout off about pharmaceutical firms are forced to do so with no actual knowledge, nor even an educated guess, about how they might work:

Virtually every progressive recommendation about health policy for the last 20 or 30 years that the drug industry felt might harm its bottom line has been met by the threat that if they don't make as much money before, innovation will cease and there will be no cures for new diseases. It came up around Medicare drug pricing and generic drugs. It's not a surprise to see it come up around health-care reform.

There are a couple reasons that this is a specious argument. One is that according to their filings with the SEC, the drug companies only spend about 15 cents of every dollar on research and development. That's compared to more than 30 cents in administration and marketing and more than 20 cents on shareholder equity. As an investment in R&D, I think any venture capitalist would say a company spending 15 percent on research is not a robust innovation engine.

This makes about as much sense as saying that Dr. Jerry Avorn cannot be that smart because his brain only weighs about three pounds.  Presumably, you can't be really smart--really innovative--unless your brain is at least 30 percent of your body weight! 

This is obviously ludicrous--so why would Dr. Avorn say it about an R&D department?  Like your brain, the R&D department is part of a complex system that does a lot of important stuff.  You can argue that the R&D department is the most important part of a company, not least because it couldn't survive long without it.  I think the same thing about my brain--but I'd still be just as dead without my liver.  You certainly can't prove anything about my effectiveness as a journalist by pointing out that it weighs less than my bones.

So how big should a "brain" be?  Hard to say.  But let's look at some companies that are generally recognized as pretty innovative, and their R&D as a percentage of revenue:

Apple:  three cents out of every dollar

Google:  ten cents out of every dollar

Intel:  fifteen cents out of every dollar

Genzyme (innovative biotech startup!):  sixteen cents of every dollar

US Government:  three cents out of every dollar

I can assure Dr. Avorn that any venture capitalist would be happy to invest in these hidebound laggards who haven't had a new idea in centuries. The first few, anyway.

I'll tell you what else venture capitalists like:  they like to make money when they lock it up in a very risky venture for a long time.  That's that "shareholder's equity" line that Dr. Avorn thinks is a huge waste.

His most fundamental error is treating company size as static, and then acting as if the money is being divided among begging divisions.  If there were only some social science, some bookstore section, that could have explained the difference between a stock and a flow, an investment cost and an operating cost, a balance sheet and an income statement . . . but no, that is not the world we live in.  In this world, Jerry Avorn's world, a pharma industry that makes $1 million and spends $500,000 on R&D is not only better for all of us, but more innovative, than a firm that makes $100 million and spends $15 million on R&D.   

You could argue that since most of the drugs people take are wasted, we'd be better off with the former world than the latter.  But that isn't really the argument he's making, and it's pretty clear that he doesn't understand the industry well enough to make it if he wanted to.  Rather, he seems to view marketing expenses as . . . I don't know, an elaborate way for pharmaceutical executives to funnel money to their favorite college cheerleaders.  In reality, of course, marketing is presumed to increase total revenue by more than is spent on the marketing budget.  That means more money available for R&D.  It also means more capitalists are willing to invest in the inherently risky drug discovery process. 

Maybe we'd all be better off taking fewer brand-name drugs.  But we wouldn't have more innovation or more research if we eliminated the marketing budget, unless Dr. Avorn has evidence that a substantial part of that budget is wasted and doesn't result in higher drug sales.  That could well be the case--as I've said elsewhere, I'm under no illusion that what companies do is always optimal.  But Dr. Avorn has evidenced none of the basic business knowledge that would enable him to make that judgement.  I am completely unsurprised to find out that Dr. Jerry Avorn has completed no work in economics, and indeed, so far as I can tell, no work in anything except being a professor of medicine?  I'm sure he's a very good researcher on how patients use drugs.  But he's pretty clearly no sort of expert at all on how companies actually make them--or anything else gracing our store shelves.

A Rambling Response on Obesity

Last week, Ezra Klein accused me of not having talked to more than a handful of obesity experts.  Alas, had he done a little googling, he could easily have discovered that I was interviewing public health experts about obesity back when he was, by my count, finishing up Freshman comp.  I've paid quite a bit of attention to the subject over the years, and over the years I've changed my mind about it quite a bit, in part because some of the science has changed, and in part because I've looked at different science.  I don't agree with Paul Campos about everything, but I do agree with some of his core propositions:

• Study after study shows that most people are unable to lose more than a small percentage of their body weight and keep it off without major surgery
• There is evidence to show that this is physiologic rather than pyschological--it is nearly impossible for very heavy people to simply "eat less and exercise more" to a "normal" weight (given that 2/3 of the country is overweight or obese, normal weights, aren't.)
• The fact that this often operates through the appetite system does not mean it's "all in their heads" or a lack of willpower.  Appetite is a signal as powerful as thirst or pain. Most people can't ignore it.
  
• The largest environmental determinant of this trend is probably simply cheaper, tastier calories, which will be very hard to reverse
• Much of the panic about the obseity epidemic comes from lumping all weights together--everyone over a BMI of 30 becomes an obese people with high relative risks for various diseases, even though the whatever health risks exist among the lower overweight ranges are not anything like the dire health effects of morbid obesity
• At the moment, it's unclear whether there are any adverse health effects associated with overweight or even mild obesity, and to the extent that there are adverse effects, it is also unclear whether they are a result of the body fat, or a proxy for fitness levels and eating habits
• The emphasis on the visible proxy (obesity) is counterproductive in promoting healthier eating and exercise.  Health has simply been approximated as a euphemism used by those pursuing society's ever-more-unrealistic expectations about weight.  No matter what they say about being healthy, most people exercise to get thinner/more cut.  If they don't get thinner, they may give up.
• The emphasis on the visible proxy may actually encourage counterproductive behavior.  Upper class young women still smoke to stay thin (or go back when they gain post-quitting pounds); people take dangerous diet pills.  There is some evidence that weight cycling (yo-yo dieting) leads to higher mortality, either directly, or because it increases your likelihood of becoming morbidly obese.
  
• The difference in observable mortality between people fifteen pounds apart (which seems to be at the edge of sustainable weight loss) is not large enough to merit either the hysterical headlines about America's weight gain, or really even dieting unless you're already afflicted with diabetes and heart disease.

 I'm also convinced that obesity researchers often offer conclusions that are oddly at variance with the tone of their papers.  Take this paper on weight cycling, which summarizes much of the literature regarding weight cycling, acknowledging both papers that say it adversely impacts mortality, and papers arguing that those papers suck.  The paper says the evidence is equivocal, though it asserts that whatever effect weight cycling has on mortality probably comes because those who diet and regain end up gaining more weight than those who don't.

To me, that screams "do more research!"  But the researchers couldn't . . . quite . . . bring themselves . . .  to suggest that we might want to look into this further before continuing to recommend that people go on highly restrictive diets that they probably won't stick to.

More in general, the majority of epidemiologic studies on weight cycling and mortality have been carried out on either non-obese or only mildly obese subjects; the two studies that stratified sample by BMI showed that weight variability was more strongly related to mortality in lean than in obese subjects.^4,6 Therefore, weight cycling may not have significant effects in a sample of obese subjects, about half of whom were morbidly obese, like the sample in the present study.

In conclusion, the present study shows that when examining the various components of weight cycling separately, weight loss has no adverse effects on cardiovascular risk factors that are associated with weight regain. Thus, patients should not be discouraged from trying to lose weight as for claims from the lay press,²¹ but the importance of avoiding weight regain should be stressed.

So we shouldn't tell people to stop dieting--we should tell them to stop regaining the weight!  Why . . . it's so simple!  How could we have missed it?

If 99% of the time the actual result of the course of action you recommend is that people diet, and then regain a bunch of weight, you need to take this into account before issuing further such recommendations.  It doesn't seem like simply proclaiming that they shouldn't go and gain the weight back again is quite enough.

After all, people who have lost a bunch of weight are presumably aware of how they did it (and if not, they need to talk to an oncologist, not an obesity researcher).  They are thus presumably also aware of what will cause them to gain it back.  Nor are they usually uninterested in staying thin.  They've usually worked very, very hard to lose all that weight, and are really quite desperate not to gain it back again.  The idea that all that was missing was a doctor telling them that no, seriously, they should really keep that weight off--an incentive obviously far more powerful than, say, the horrific way that America treats fat people--has sailed beyond arrogant into fantasyland.

This really is a pattern that you see over and over again in obesity research.  It's as if researchers are terrified to say anything that might be viewed as giving people license to get fat.  The CDC researcher who sharply revised downward the estimates of deaths from obesity, finding that overweight was actually healthier, fell all over herself proclaiming that of course, this didn't account for quality of life.  Because we know that a woman who weighs 160 pounds couldn't possibly have a decent quality of life . . . ?

This is also a partial answer to those who ask "Well, would it hurt to try?"  Of course, in their minds, none of this trying has costs, or at least, not any interesting ones.  I mean, sure, maybe it's a huge infringement of property rights, but those are sucky and archaic anyway, and no one cares about them except right wing nut jobs who don't deserve to have anything they want.  And okay, maybe people want to live in the suburbs despite ample warnings from the television that driving is making them fat, but they must not really understand this, and at any rate, once we've made them all skinny they'll be so happy with their new flat-front capri pants that they won't even notice they have a 45 minute train commute and have to go grocery shopping every day.

Etc.

Would it hurt to have massively intervened in property rights, free markets, and personal liberty, and then find out that oops, it really was just cheap calories?  Shall we outlaw those too?  Millions of dollars for kale, but not one red cent for donuts? 

I know, I know . . . it's for the children!  I am very fond of children.  But I do not actually think that they are some sort of master race in whose name anything at all can be justified.  And if I did, I'd be a lot more worried about, oh, abortion, than McDonalds ads.

Two final points.  Everyone likes to focus on their favorite boogeymen.  To read a left-wing blog, you'd think that about 95% of the leading cause of obesity was agribusiness, chain restaurants, and automobiles.  To read a right-wing paper, it's all the infamous lack of self-control displayed by the poor. 

But in fact, most of the things effecting kids are side effects of other efforts a lot of people are rather fond of.  Processed foods and chain restaurants have exploded in the last two decades because Mom spends more time outside the home, generating more market income, and less time for home cooked meals.  Kids exercise less not because crime is higher, or even because we've become more suburban, but because they're no longer allowed to operate unsupervised until they're quite old, and Mom and Dad both work.  Schools don't have P/E because they're using the time to teach kids to read.  Maybe those were bad tradeoffs.  But they're not irrational tradeoffs, and switching them back is not costless. 

The other is that while I do buy some of the arguments about hyperpalatable food like Doritos (though I personally find Doritos eminently resistable most of the time), the fact that a really attractive food combination has been cooked up by food scientists does not mean that you get some kind of free pass to deny it to everyone.  Whether a dish was dreamed up by Mario Batali or the staff at the Cheesecake Factory, preventing people from having it "for their own good" still represents an actual hedonic loss, as well as an actual loss of freedom.  You may think they have some meta-self which will thank you later, but their current self has still had both its liberty and its joy restricted.  Invoking the demon food scientists of agribusiness does not actually relieve you of the obligation to prove that intervening in the liberty of both the customers and the company is morally pressing.

To be sure, even I, the pessimistic libertarian, do not see any actual means for the government to prevent food processors from making their food taste very good. (Thank God).  I just suspect that more than one of my interlocutors is casting around for just such a means. 

The government could raise the price of fat, salt, and sweeteners, processed food, and restaurant meals.  But I very much doubt that if our legislators actually enacted a food tax adequate to prevent obesity, they would get much thanks from anyone except the sort of people who ask each other, with wide eyes, if anyone else has noticed how disgustingly fat all the people are at the mall--and never eat at Cheesecake Factory.  So I think that this, too, is unlikely. 

Ultimately, the answer to "what could it hurt"? is that all actions have costs, which you cannot assume away on the grounds that those costs don't interest you.  But they should interest you, because not least among those costs is the simple fact that the government cannot do everything well.  Making all sorts of changes in the name of obesity means not making others that might be more important, because we have limited political and bureaucratic bandwith.  Do you want obesity intervention, cap and trade, or health care reform?  You may not be able to have any of them.  But you probably can't have all three.  And if you did, you'd make it more likely that the government would screw all of them up.

Dialogue: Ellen Ruppel Shell on Our Obsession With Cheap

This week, I'll be having an email dialogue with Ellen Ruppel Shell, whose new book, "Cheap", argues that cheapness is often no bargain.

Dear Megan,

It seems we have several things in common--I, too, spent a college summer working in the Catskills--as a waitress in an Italian themed hotel where I served three meals a day to a very demanding clientele and shared a room (though admittedly not a bed) with eight other waitresses. The gig ended abruptly in scandal; one of my roommates was caught in flagrante delicto with the cook during working hours. In the spirit of fairness, the entire waitressing staff was fired without pay and sent home--I think the bus boys took over the serving duties until replacements were mustered.

These memories are light years away from the subject at hand--which seems to be Bagis clothes hangers and Kura loft beds and banana leaf Gullholmen chairs made by happy workers in China and Vietnam. IKEA does not play a large role in CHEAP but I was lucky enough to spend a few days there--one at corporate headquarters in the lovely and historic costal city of Helsingborg, Sweden, and a couple at the charming and remote town of Almhult, where the company was founded and where today stand its design headquarters, quality control center and--most impressively--the airplane hangar-like studio where the iconic IKEA catalogue is shot. (More copies distributed around the globe each year than the Bible!) Many of us think of IKEA as the world's largest furniture maker, but in fact, the company makes very little of anything. It's the world's largest furniture retailer, its much vaunted Swedish "style" hammered out by tens of thousands of workers mostly in the employ of other companies. China is the company's largest supplier, but IKEA has suppliers in fifty-two countries, including the United States, where to great fanfare it installed a factory in Danville, Virginia last year that builds coffee tables made quite literally of particle board and cardboard.

I chose to visit IKEA because it seems like the anti-Wal-Mart, a classy, progressive company where value and good values coexist. It flaunts what business scholars call "brand personality traits" to convey an image of youth, friendliness, and hipness which, along with its famous design, combine to make low price furnishings acceptable to a crowd that would never consider buying a night gown--let alone a night table-- at Wal-Mart. Target, H+M and a number of other low price purveyors work almost as hard to undermine the very sensible assumption that low price is a signal of low quality. But no company does it better than IKEA.

IKEA challenges its designers to create to a specific price point--say 50 cents for a mug, or $100 for a table and two chairs.  And every year, the price is to go lower. This "making the impossible possible" (a refrain I heard again and again in Almhult)--requires that IKEA cut corners, just like any other discounter. There's no miracle here--founding chairman Ingvar Kamprad--today one of the world's richest men living in tax exile in Switzerland--had a dream of applying what he described as "shrewd logistics to offer home furnishings at such low prices that the masses can afford to buy them." What this means of course is that the masses who make those furnishings are treated pretty much the way other makers of low price goods are treated. It also means that environmental considerations take a far back seat to price. So we can trace to IKEA the by now familiar reports of environmental degradation and labor abuses, things we've not only come to take for granted, but to rationalize. After all, workers in China and other low wage countries are better off laboring in factories under less than savory conditions than staying home and starving on the family farm, right? At least, that's what we are told, and told, and told again, even by well meaning thinkers like New York Times columnist Nicholas Kristof, who earlier this year penned a column entitled "Where Sweatshops are a Dream." The thinking goes like this: poorly paid, overworked and even abused workers in the developing world are on the first step of a path similar to the one that led Americans from the abuses of the Industrial Revolution to the glorious opportunities we enjoy today. But such arguments, while compelling, tend to oversimplify history. Workers rights in the US were forged in a crucible that was highly visible to consumers--many of whom were either workers themselves, or knew someone who was. It is this identification that led to public outrage and eventually to reforms. But the thousands of labor linked incidents killing and injuring workers in China, Cambodia, Vietnam and other low wage countries happen out of sight--and out of mind--of most American and European consumers. All we see is the price, and few of us stop to think about how it got so very, very low.

Part of the reason these prices are so low is that American interests work mightily to keep them that way, by scaling back protections for workers and sharply curtailing the role of unions in the developing world. That is, the workers in these countries want to fight back--and would--were American interests not so intent on keeping them in their place. Some of these workers return to their farms, but many others cannot make the fare. They're stuck--they work in factories not because they believe it will pull them up, but because they quite literally cannot get out. And if those workers try to improve their lot by demanding better conditions or overtime pay, the factories can and often do move go elsewhere--further and further beyond the reach of rule of law. This "race to the bottom" may serve workers temporarily, but over the long term, it leads to income disparity and--for many workers a cycle of hopeless entrapment and poverty.

Roughly 25 percent of the global workforce is now Chinese. Given such enormous firepower, China inevitably sets the norm for wages and working standards in the global supply chain. American corporate interests have chipped away at those standards and wages in order to maximize profits and influence, as well as to serve their shareholders. The chronic disregard for workers' rights in China's foreign-invested private sector threatens wages and working conditions around the globe, including the hard-won gains of American workers. This helps explain why incomes for 90 percent of Americans have remained essentially flat in the US since the 1970s. The environmental degradation also comes back to haunt us--Chinese made furniture--half of all furniture in the world is made there--has stoked a cut and consume cycle that is eating through the world's forests at an a rate unprecedented in human history. Deforestation accounts for over 18 percent of global carbon emissions--more than the entire global transport system or the global industrial manufacturing sector.

The weaker the rule of law, the fewer the protections, the more corrupt and abusive the system, the lower the price. And that's the system we're buying into when we buy into those "everyday low" prices, be they at Wal-Mart or IKEA. Megan, you said in an earlier post that there are worse things threatening America than the obesity epidemic. I agree, but I don't think that living with grandma's furniture--ugly as it might be--is one of them. The more we know about how and where and of what our consumer goods are made, the wiser our purchasing decisions will be, on both a personal and a political level. This is not to suggest that we should all rush out to buy weighty, expensive stuff--far from it! In fact, some very inexpensive and portable old standbys--like boards and cinder block book cases for wandering graduate students--might well be worth considering over the far more expensive--and only superficially more tasteful--IKEA option.

Thanks, Megan, for the opportunity....I look forward to responding to more of your thoughts on CHEAP.

Best,

Ellen

It's All In The Budget

Jonathan Zasloff's defense of using budget reconciliation for health care?

First, Ezra's assertion that the reconciliation rules ban health care reform is at best unproven and contrary to the plain language of the law. Those rules bar putting things in a reconciliation bill that have only an "incidental" effect on the budget. But, say, prohibiting discrimination against pre-existing conditions would have more than an incidental effect. Such a move, for example, could save billions from Medicaid, because it would allow people to get insurance in the private market who might otherwise have to go to Medicaid.

As far as I know, Medicaid eligibility is generally restricted to those who are pretty low income.  And the waiver-program premia are usually lower than any private entity would charge, even in Europe.  With community rating, the prices of private insurance will go up even further.  What the heck is Zasloff talking about?  How many people does he really think are quiting their jobs and deliberately impoverishing themselves in order to qualify for Medicaid, rather than earning an income which can support the $350 or so per person that gets charged for an HMO in a community-rated state like New York with generous mandatory benefits?  I'm sure that there are enough for an enterprising New York Times reporter to write a trend piece, but enough to make a noticeable dent in the budget?  The best ways to get Medicaid are to go on welfare, or disability.  Both of which imply insufficient income to buy insurance.  Or substantial fraud.

You Can't Inflate Your Way Out of Debt

It is a commonplace on the right that we're going to have enormous inflation, not because Ben Bernanke will make an error in the timing of withdrawing liquidity, but because the government is going to try to print its way out of all this debt.

Clusterstock notes that it doesn't quite work this way:

As this chart shows, instances of declining debt-to-GDP rarely coincide with periods of inflation. If it did If it did, we'd see more dots in the lower right-hand

The bad news for central bankers is that creating currency isn't like, say, diluting shareholders in a company. You're always rolling your debt, and the market's response to an inflationary strategy is (not surprisingly) higher interest rates. It's a treadmill, and it's extremely hard to get ahead.

Inflating your way out of debt works if you're planning to run a pretty sizeable budget surplus--big enough that you won't have to roll your debt over.  Otherwise, your debt starts to march upward even faster, as old notes come due, and you have to roll them at ruinous interest rates.  Hyperinflation might wipe out that debt, but also your tax base.

This applies, in reverse, to the notion that it was perfectly okay for the Bush and Obama administrations to borrow any amount of money, no matter how large, because the flight-to-safety was keeping interest rates low.  In a few years, the Treasury is going to have to roll over a huge chunk of that debt at newer, almost certainly higher, interest rates.

Glassman and Hackett Vindicated

The Dow finally surpassed 36,000 today, restoring faith not only in our economy, but in James Glassman and Kevin Hackett, whose Dow 36,000 became an icon of the tech bubble gone wrong.  To be sure, they were 12 years early.  But what's 12 years between friends?  

What's the Matter With IKEA: A Dialogue With Ellen Ruppel Shell

This week, I'll be having an email dialogue with Ellen Ruppel Shell, whose new book, "Cheap", argues that cheapness is often no bargain.

Dear Ellen,

You and I certainly share one thing in common:  we both hate IKEA furniture.  It is not much of an exaggeration to say that my current life's ambition is never again to spend four hours messing around with an allen wrench and seventeen feet of badly veneered particleboard.  I hate the way Ikea furniture looks, its tendency to fall apart, and most of all, the homogenezation of our national homes.  A visit to an Ikea warehouse brings home what progressives like, and libertarians hate, about Scandinavia:  it's the Kingdom of Lagom, where everyone has exactly the same, perfectly adequate, stuff.

As you point out in your book, Ikea furniture is not quite as adorably minimalist as its marketing implies.  Making a whole bunch of disposable furniture places certain stresses on natural resources, not all of which are renewable, or, arguably, even legal.

But despite my aesthetic, personal, and environmental aversion to Ikea furniture, I have to acknowledge that there is a lot to be said for really cheap, really disposable furniture.  Without it, household formation would be a lot more difficult, which is one of the reasons people used to live at home or in furnished rooms where the furniture was often uglier, flimsier, and even more uncomfortable than the most hideous Ikea creation.  I hate futons with a passion, but I'd rather sleep on one than the sagging iron bedstead that I had to share with a friend the summer I worked as a maid in a Catskills hotel.  Every night, we clung stuporously to the sides, but every night, we eventually lost our grip and plummeted together into the central furrow, waking ourselves up enough to crawl out and repeat the process.  This sounds very colorful now, and was already an anachronism when it happened, in the early 1990s.  But before super-cheap furniture, beds like this, and broken couches, and tables that shook and chairs that broke, were a standard feature of many households--especially low-income ones.

Disposable furniture also greatly enhances mobility.  Since I went to grad school in 1999, I've moved at least seven times.  My last two moves have required movers precisely because I have more "real" furniture--too much for me to shift by myself, or impose on friends.  Each time, the movers have cost me thousands.  Of course, as I've gotten older, I have less reason to move, and more reason to acquire substantial furniture.  But for people in school, or just starting their professional lives, keeping their permanent possessions down to a minimum makes it a lot easier to pick up and move to Paris for six months, or strike out for more hospitable labor markets.  Since many economists believe that labor mobility makes a substantial positive contribution to economic growth, this is worth considering as a benefit of the disposable lifestyle.  (I suppose one could argue it is also a cost to community formation . . . but America has long maintained a quite vibrant civic society in the face of unusually high labor mobility).

There's also the fact that disposable furniture lets us get rid of our decorating mistakes.  A flip through a book like James Lilek's Interior Desecrations provides a vivid reminder of just how much hideousness we might be living with, if we changed out our decor on the same schedule as, say, the Victorian middle class.  Grandmother's attic was a graveyard of furniture abominations with astonishing lasting power--I myself went off to my senior year of college with a Johnson-era dining set, upholstered in horrible brown printed vinyl fabric, including a chair skirt that some enterprising manufacturer had actually pleated for extra appallingness.  The world became a nobler place the day we finally tipped it into the landfill.   But had it not been for Ikea--and the broader trend towards cheaper, mass produced furniture--it would probably be gracing my dining room yet.  My mother endured a mid-Victorian oak pedestal dining table handed down from an aunt for almost forty years, hating it every day, but unable to bring herself to get rid of something with so much good wear left in it.

Of course, these days, you can sell your mistakes on Craigslist.  But unless it's a high-quality antique, used furniture fetches only a fraction of what was paid for it, even if it was expensive originally.  That's why people used to keep their furniture forever.  But it didn't mean they liked their frumpy, thirty-year-old furniture; they just lived with it.  And the resale value of used furniture may decline even further because people are increasingly worried about bedbugs--another horror of the "lasting furniture" era that we've largely forgotten about.   Bedbugs are on the rise in urban areas, at least in part because of changes in pesticide use, but also because of travel, and possibly because Craigslist has made it easier for bedbug-infested owners to sell their furniture.

So I'll close by saying that I think it's easy to romanticize a past in which goods were more durable.  Many of them weren't--we're under the illusion that furniture and homes were alwas just "built better" back then, because the houses and chairs we still have with us today are the ones solidly built enough not to collapse.  But some certainly were--and this had drawbacks as well as benefits.  Being surrounded by lovely furniture hand-crafted by dedicated artisans sounds lovely.  Living with Mom and Dad (or in a rooming house) until you're thirty, because you can't afford to set up house, not so much.

But you've thought a lot about these issues, so I know you'll have some ready answers for my objections.  I'm looking forward to them.

Best,

Megan

Dialogue: Ellen Ruppel Shell on Our Obsession With Cheap

This week, I'll be having an email dialogue with Ellen Ruppel Shell, whose new book, "Cheap", argues that cheapness is often no bargain.
 
Dear Megan,

It's great chatting with you about my new book, "Cheap: The High Cost of Discount Culture."

Today's International Herald Tribune does a fairly good job of sizing up the themes, but CHEAP builds the case that our Faustian pact with low price consumer goods has contributed to the worst recession in decades. I argue that the economics of cheap cramps innovation, contributes to the decline of once flourishing industries and deepens income disparity. I give evidence that marketers have created a false dichotomy between price and quality by squeezing out the middle ground and leading us to believe that quality of almost any kind must by definition be overpriced. And I suggest that by understanding this, and taking action, consumers can gain control over a system that has until now misled us into making choices that come back to haunt us--both personally and politically.

As an experienced economics reporter with a degree in business, I know you'll have plenty to say about all this--and I welcome your thoughts. Can't wait to get started.

All best, Ellen