Category Archives: Economics

Health insurance, over, under or miss Regulated? HI Monograph

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The Hoover Institute’s Defining Ideas often has thoughtful, rational topic pieces, like this great one: The Car Insurance Model, by Scott W. Atlas that discusses Health Insurance. All I can say is read it, it essentially lays out an argument that health insurance state regulated is miss regulated and even monopolistic in many areas and before we try the monstrous over regulation layer on top we should look to insure at the county wide level. The state regulators should be the ombudsmen for the people not the lapdog rent providers of the insurance industry they seem these days. He also advocates high deductible insurance and Health Savings Accounts.

Now he does argue against forcing insurers to insure everyone at the same rate for the same coverage. Here I am a lot less certain, maybe because I am overweight, and no longer young, once smoked, etc. I agree that age and perhaps gender should be factors but the more specific you get the less useful insurance becomes (at the extremes {which a totally unregulated totally privacy devoid world of the near future might enable} the only coverage you could get would be for random acts of god…’so sorry to hear about that lightning bolt hitting you, good thing you’re not a cowboy or golfer, we don’t cover lightning strikes on cowboys or golfers without a special rider from Lloyds.’)

But that’s a niggle, basically the argument is the system as is, is broken but fixable with rational, simple changes, let’s start there before layering in more Regulation and gov’t oversight.

This explains it all! Really! It does!

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As e connected as I am I still enjoy sitting down in the morning and reading the Indy Star in its print form.  I have to admit I sometimes spend more time reading the funnies than anything else, but I do scan the first section (and the first and last page of Metro) But I do often read articles and this OpAn (opinion/analytical) piece from the Washington Post caught my attention.  I think Ezra Klein’s caught on to the problem,

There is a simple reason health care in the United States costs more than it does anywhere else: The prices are higher.

Really! It is almost that damned simple.  This graphic or the table version in the Star is infuriating and eye opening. 

Of course it’s not an explanation in and of itself and one could take Mr. Klein’s piece as a pointless frontal attack on the health care industry but the point is much more subtle. As I have discussed broadly before the issue is that things cost as much as they do because the way the current system creates vast inequality almost on purpose through weak and or distorted pricing signals.

A Gifted Man is a great TV show….how is that relevant? In it Michael Holt a brilliant neurosurgeon finds himself ‘gifted’ with the ghost of his wife, a socially conscious doctor who he had divorced (apparently amicably) years before.  While Michael runs Holt Neuro, an extreme high end clinic for the wealthy and powerful, Anna is running a Free Clinic, Clinca Sanando, in a poor section of the city (NewYork though its portrayed as almost any city.)  Anna has been killed in a hit and run, and her ghost goads him into helping the free clinic which is on the edge of folding.  (I could go on, its good TV but won’t.)

The thing is A Gifted Man points out without grinding ones nose in it the huge disparity in health care between the rich and the poor.  It also make the point that one can do good even superior general medicine in very spartan conditions if you have a dedicated and reasonably competent crew.  You can do even more if you back that up with truly superb facilities for those who need it, but those facilities are very expensive and somehow need to be supported by the clients. 

Now the the article points out the cost of medicine in many countries with more socialized medicine and I grew up in England then in middle class America where the conditions in the Doctors office were more reminiscent of the Clinica than Holt, today, I’m middle upper middle economic tranche and all the offices are much more like Holt than the Clinica, but why? Partially because I bitch if I have to wait for an appointment, and partly because I never see the cost until after the fact (except for dental work beyond the basics…becuase many more people lack dental coverage than lack general health insurance.)  In most ways the reason I go to my general practitioner is because he (or his office) keeps track of my overall health and is a central repository of my health records and I value that.  I’d value it even more if I could see it as a cost rather than an overhead hidden in the other post facto numbers I get….in no other part of my life do I have such uncertainty about the cost and yes perhaps because its hidden I’m not as reticent about going, because I know that in the end I can afford it, but many others are not as lucky and the uncertainty is discouraging, and then there are the folks with no coverage, who get bills many times what I pay…in some part because the Medical Establishment figures that in the end with many of those folks will end up paying pennies on the dollar, if you multiply the dollar by some large factor then the ME is more likely to at least cover costs one way or another.

 I do not ever feel that Micheal Holt does not deserve Holt Neuro or that the folks at the Clinica should have unfettered access to Holt Neuro.  I do not (most of the time) begrudge the well off hospitals their cathedral like front lobbies.  I do feel that the system is seriously distorting the messaging power of pricing and under suppressing the power of pricing the Medical Establishment hold because we are all frail humans who if not now then one day will have health issues to deal with.

Establish portable health savings accounts and require published pricing for standard procedures based on standard practice codes (and all procedures should have such codes and a cost you can find if you look or enquire.)  Don’t take away the tax advantages of the coverage companies provide, but extend it to everyone who buys their own insurance.  Reduce that tax advantage over a couple of decades.  Allow insurance companies to negotiate costs but they have to do so based on standard codes and publish some metric of what they are paying, make it illegal to charge different customers different prices for the same procedure (and don’t allow rebadging, the procedure codes have to be the same for all customers.)   Make it illegal for companies to charge different people different insurance rates, insurance takes into account your age and that’s it, different insurance companies can sell different sets of coverage and different age windows but that’s it.   Make the market place fair and flat.  An actuaries job is to make sure the insurance company collects enough money to cover its costs and make a reasonable profit! But again they have to publish their rates and compete for customers and if the marketplace is open and fair the prices will drop to the minium that covers costs and reasonable profits.

A Couple of Positives| Down with Ethanol! | Up with Capitalism!!!

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Corn...worst source of ethanol ever

Corn...worst source of ethanol ever

So the Atlantic says that the Tea Party has ended the ethanol subsidy.  As if! The only thing that has ended is the Tax Credit, the rules about the % of ethanol in gas are still there and probably more important overall.  The basic problem of ethanol being a terrible source of ethanol is not solved.  Apparently we have started shipping some ethanol overseas, I’d like to know how that happened, I suspect other subsidies. 

One problem with subsidy systems like that set up for Ethanol is that they become terrifically difficult to remove.  An entrenched special interest is created and they have a lot more pull than is generated by the general by very dispersed understanding that it’s a waste of money, the guys who know it’s a waste aren’t losing enough individually to make it worth while fighting the long war to overturn the subsidy.  So to a degree the Tea Party may have done good, concentrating the anti vote enough to do something, hopefully they can move on to other subsidies.

<<<Nuf Said on That Topic>>>

A link to Blomberg from the Atlantic lead to this article A Crisis of Leadership, Not a Crisis of Capitalism by Clive Crook :

With the world’s rich economies struggling and the leaders of the European Union intent on making things worse, the gravity of the economic crisis still confronting the West is hard to exaggerate. Nonetheless, it can be done.

According to what I read, we face not just the worst recession since the 1930s, but a challenge to the West’s entire economic order. The Great Recession exposes the poverty of orthodox economics. It constitutes an ideological crisis. It shows that capitalism itself is “fundamentally” flawed. If all this were true, I’d be a lot more worried about the coming year than I am — which is saying something.

A new year’s corrective is in order. Reports of the death of capitalism are greatly exaggerated.

What’s surprising is just how wrong those reports have been. Perhaps, as I write, the revolutionaries are organizing in secret, but I see no signs of a popular uprising.

This can be interpreted as negative, but is it? And are there other factors?

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Plant Power alone sucks up $$$

From Technology Can We Build Tomorrow’s Breakthroughs? I think the answer is a resounding yes though I agree there is reason to be cautious.

Charts discussing manufacturing in the US
Does this represent net loss or just change?

As I have discussed before there is at least reasonable evidence that manufacturing in the US is on the upswing and while the charts paint a disappointing picture one has to be a bit careful about what is being measured. If mass production were giving way to boutique build +value add, might one miss it because we are importing what are essentially the bricks and mortar (which we by the way mostly designed or own a big part of) and the customization and final build (with their higher margins and more creative content) is done here?

There is an interesting section in here dealing with the founder of A123 and then with a couple of solar cell manufacturers.  And the author makes some very telling points.  I think they should be emphasized:

  1. Unless there is a very fundamental change in a product, improving process technology to produce a that product will not start out producing a cheaper product and unless you can get over the hump of higher cost and lower sales the guy with the bog standard product and highly refined standard process will eat you alive.
  2. Controlling one (however important) process or input material does not mean you control the market, a sudden change in market dynamics, possibly one you created, can suddenly pull the prop out from under you and if you only have one prop you are finished.
  3. Getting from prototype to production is horribly expensive especially in a mass market (which are almost by definition price sensitive and commoditzed ones) A first article will cost you K, getting that product in front of customers is likely to cost you 2 time K and getting into production 5 times to 10 times as much again, sometimes many times more. 
    1. Why you Ask? Because you can do a lot of research for say $1M, that’s enough to support three or four researchers for a year.  But once you have to show it to a customer you have to be able to replicate the work and make either a full scale device and or prove you can do so repetitively or have a process that scales from desktop to garage at least and that usually takes 2 or 3 years or 2 or 3 times as much effort and expense.  The when you go to production you now have to build a factory staff it, train the staff, fill out all the paperwork, pay the lawyers to make sure you’re not doing anything illegal etc, etc.  And you then have to make enough of your product to put on the shelf and most of the time you have to price it at well below cost because the first batches and the smaller batches are much, much, MUCH more expensive than the run of the lot will be later and you cannot charge 10x the expected price.  Selling the first  ???  units at an average of 1/?? their actual cost can eat up a huge amount of money.

The first comment after the article makes the point that established companies have in my way of thinking ‘normalized and processed’ innovation out of their main line business because of the costs.  It is easy to project cost and risk with incremental improvements.   The costs and risks of really new products/processes (disruptive ones) are much more uncertain, and few managers are allowed the latitude to innovate in big, risky ways. 

But this circles back around, does this in fact facilitate the creative destruction that the US industrial base has depended on.  Once large corporations run by bull-headed industrialists did the risky stuff.  When that generation was replaced by the MBA brigade they froze up.  Then the innovations erupted in a series of mid rankers with mavericks at their head or in a series of entrepreneurial start-ups who then took down many of the old guard.  Are we seeing the wake of another change of phase…

Anyway a good article but don’t take it as gloom and doom, its pretty evenly pro as well as con.

Manufacturing in the US

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US manufacturing has always been in a state of transition rather than straight decline, just like agriculture it has become brain rather than labor intensive though in both cases there is a need for a certain degree of physical toughness, or aptitude, as well. With the easy low cost labor sources ‘tapped out’ and US energy ‘issues’ reduced by the Natural Gas boom, US manufacturing is on a growth trajectory.

This is a very clear explanation of what went wrong with the US Housing market over a very long time.

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Big problems rarely appear from nowhere….this piece from the American Interest  jives with many other articles, puts it in a longer context.

Fannie, Freddie and the House of Cards

By Mary Martell

“Fannie Mae and Freddie Mac (collectively the two largest “GSEs”, or government-sponsored enterprises) have engaged in a broad range of residential mortgage activities for many years.1 The economic disaster of recent times has drawn considerable attention to Freddie and Fannie, which is not surprising considering the role that the mortgage sector of the U.S. banking system played in that debacle. Together the two institutions hold or pool about $5 trillion worth of mortgages, and so sketchy were their operations that in September 2008 the U.S. government had to bail them out and place them in conservatorship to keep the entire mortgage market from imploding. While the U.S. government has by now been made whole by TARP-assisted banks, it is not clear whether the billions of dollars provided to keep Fannie Mae and Freddie Mac afloat will ever be returned to the U.S. Treasury.”

Read the whole thing

Space the lost frontier? Losing other things…

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There was a flurry of space interest coinsidering with the shutdown of the Shuttle and the announcement of the Senatorial Launch System, then some good traffic on visiting asteroids etc. Now it seems to have fallen of the face of the earth.  It’s this kind of thing that drives me nuts, we live in such a press release driven world that there tends to be these booms and busts of interest and its all about as artificial as much of the rest of the so-called news.  I know that I can in fact keep up on what’s going on via various web sites and blogs, but I find it disturbing that the there is no concerted effort to keep space front and center in the american people’s attention. 

And no I am not saying NASA should be flogging its programs, but the rest of the space world should be, not only US but the world, there is interesting stuff going on around the world, from the first Chinese docking, to the flyby of the big rock tomorrow etc, etc, that there is never a paucity of things that could be used to keep people’s interest tickled.

I am a bit afraid that the likely coming downturn (recrash…zombie cat bounce…) is going to crush eSpace, maybe not, most are probably fairly well isolated but maybe not if things really go bust.

On another topic…….

Talking about busts I have a feeling that the administration and others may have absolutely no idea the devastation they are looking at if the military downturn turns into a bust due to one force or another.  A huge amount of the US industrial base depends on defense spending for some of its more profitable work.  Maybe (hopefully) not its base, but the stuff that really makes the books sing every once in a while.  I know the vendors who do work for the company I work for, while they may curse us quite frequently, also love us for the ‘quality’ of the work with contract out as well.  Us and dozens of other defense related companies. 

Generally the economic multiplier effect of a defense dollar is over ten, in space or aviation it can be nearly twenty, things like green tech are probably decent but sub ten, automotive is in the same range, but get to more basic stuff and its a few turns at best.  And if you start subtracting a lot of those 10 to 20 X multiplied dollars and either don’t spend them or spend them on more basic products, you are going to see a much more massive downturn than expected.

Hopefully the grownups all realize this and are planning for it…….Oh, yeah, there are no grown ups….there is only us.          Maybe we’re in trouble.