Ward’s 2016 Washington State, King County, and Seattle voter’s guide

Washington State’s November 2016 election ballot is chalk-full of important initiatives that require careful consideration.  I’ve given them that, and give you my recommendations below.  With one exception, this guide will NOT cover individual candidates, as I believe that territory is too divided along partisan lines.

5 minute voting guide

Seattle

WA State

  • STRONG YES on Measure 732 – Make polluters pay their fair share for putting our collective home, Earth, in jeopardy via a proven and effective carbon tax. 732 reduces taxes on non-polluting things to boot!
  • NO on Measure 1433 – $15 minimum wage for WA state: This one requires a lesson in microeconomics that is not easy to deliver in a couple sentences: High minimum wages cause the least-skilled & most vulnerable (poorer, younger, less-educated) workers to lose jobs. This isn’t just theory, it’s already happening in Seattle due to the jump to $11 per hour. I discuss this one more below.
  • YES on Measure 1464 – Campaign finance reform with restrictions on lobbying by former politicians. Also restricts donations from potential state contractors and others with sleazy, non-democratic interests.
  • YES on Measure 1491 – Reasonable tool to try to reduce firearms access for those in imminent danger  of hurting themselves or others, complete with constitutional protections based on existing legislation for restraining orders. Don’t worry, the state can’t simply walk into your house and take your guns on a whim, I promise.
  • STRONG NO on Measure 1501 – Don’t believe the title of this bill; it’s a misleading scare entirely bankrolled by a very strong union (the SEIU) to hide its public employees from public record to keep these employees for learning about their rights. Seriously. It’s ugly. The Seattle Times explains.
  • STRONG NO on Measure 735 – Does nothing regarding Citizens United/corporate influence in politics, but has some harmful suggestions such as removing non-profits from lobbying. The Seattle Times explains.
  • YES on the Advisory votes 14 and 15 – Doesn’t do anything binding. Recommends maintaining consistent, already-passed tax policies.
  • STRONG YES on Senate Joint Resolution No. 8210 – A governance ‘good house-keeping’ bill with no one opposed to it.

King County

  • YES on both Charter Amendments 1: make Prosecuting Attorney a nonpartisan office, and 2: update the 1950’s-era Charter language to make it gender-neutral: councilmember instead of councilman, etc. Turns out women serve in government too.

STRONG recommendations are based on how clear the evidence & likely outcomes of a decision are to me. They have nothing to do with how important the measure is.

Candidate Recommendation

I STRONGLY RECOMMEND Brady Walkinshaw for US Representative in District 7. He’s for 732, speaks intelligently and correctly on a wide range of issues, is whip-smart (Fulbright scholar, Princeton alum), has made big impacts in local government around improving the lot of the mentally ill, reducing our prison population, and improving the environment. He’s also 32, and would be the youngest member of congress, and might actually know how to use the internet.

Brady worked for the Bill and Melinda Gates Foundation for several years, which is know for its rigorous, evidence-based approach to uplifting people. He also seems humble, pragmatic, and especially willing and able to work with Republicans–both candidates in this district are Democrats– to get things done. I also had the pleasure of meeting Mr. Walkinshaw at a “town hall” event, and was extremely impressed.

More thoughts on the initiatives

YES YES A THOUSAND TIMES YES on 732 – carbon tax

Carbon taxes, along with ‘cap and trade’, are the smartest kind of global climate change legislation. A similar carbon tax has been working successfully already in British Columbia. This bill is also revenue-neutral, which means no extra taxes, and no budget cuts either (or at least very small ones either way, depending on how the math works out.) Businesses will now pay for their pollution costs, but they and their consumers (read: us!) will get a break on producing and buying pollution-free goods. Those on the left that oppose this are either fools or hypocrites, or both.

NO on 1443 – $15 minimum wage in Washington state

Don’t, through good intentions, close the door on the lowest-skilled folks in society by forcing their cost above what businesses would pay. High minimum wages cause the least-skilled & most vulnerable (poorer, younger, less-educated) workers to lose jobs because they can’t get jobs at the (lower-than-new-minimum) wages that employer’s would be willing to pay them. Thus, these folks lose, and employers hire a few less workers, who are more skilled, at the higher minimum wage. Employers might also automate a little more and do other things to reduce their labor needs.

This is happening in Seattle already, as explained here.

Help the working poor instead by improving their skills (education, job-training & vocational programs), providing cost-effective services (health & child care, which might also make poor children more socially mobile), and allowing the poor to keep more of what they make (income tax reductions for the poor & things like the Earned Income Tax Credit.)

Another overly-simplistic way of looking at this is that I’d rather pay 10 people $9/hour then 9 people at $10 per hour and have the least skilled guy be unemployed.

My background and biases

I have an MBA from the University of Washington, focusing on economics & finance, and two degrees in Physics. I’ve worked as a financial advisor, data analyst, and engineer. I’ve researched each measure thoroughly, spending about 12 hours total on the entire process, and have consulted several sources*.

What I believe in

Utilitarianism: I believe every individual’s well-being is of equal intrinsic value, be it a Washington voter, a felon, or an African living halfway across the world. The goal of policy should be to promote the greatest happiness across the greatest number of people**.

Libertarian paternalism: I also believe that individuals themselves are usually the best judge of what will make them better off, and that ‘freedom’ (bounded by laws to protect others’ liberty) and markets (i..e: collective free choice) are the defaults that usually lead to the best outcomes.  That said, institutions can improve humanity’s collective lot further by shaping choices to help individuals in areas where we know humans do badly for themselves, including cases of addiction, mental illness, or more mundane mental problems like laziness or poor statistical reasoning (automatic 401k contributions are brilliant, for example.) Also, there is room for governments to engage in wealth redistribution or other measures that boost the total world’s well-being, after adding up the social costs & benefits.

I generally favor more choices for people as opposed to fewer. I also believe society should often reallocate its resources to the people who have the least in the world, being careful not to create bad incentives that decrease our prosperity net of distributive benefits. The simple fact is that the amounts given up by the well-off often does much more good when received by the worse-off. For example, $3,500 can save a life in Africa, but will barely get you a college quarter’s tuition in the United States.

Footnotes

*Credit for my conviction, or rather conversion, against high minimum wages goes to my microeconomics & finance Professor Edward Rice, who held a riveting lecture on Seattle’s $15 minimum wage law prior to that vote last year. He and the majority, but certainly not entirety, of economists and their studies on the subject finally convinced me that high minimum wage laws (defined as, say, > 50% of the poverty level), well-intentioned as they might be, actually hurt the working poor, and society as a whole.

**Technically, I would amend this to ‘the greatest well-being for the greatest number of sentient beings’, which would include animals that can suffer/feel pain. As Jeremy Bentham said, “the question is not, Can they reason? nor, Can they talk? but, Can they suffer?”

***A good explanation of how inefficient & costly rail, and unfortunately, other public transit systems are, can be found here, and light rail specifically here. My one criticism of this analysis is that the author doesn’t account for global climate change externalities (which he DOES incorporate others), but I suspect that would make little difference in the calculations and conclusions. All hail the carbon tax & flexible, cheaper bus system instead!

Ward’s 2012 Washington State, King County, and Seattle voter’s guide to the issues

Washington State’s November 2012 election ballot is chalk-full of important initiatives that you have a duty (that’s right) to vote intelligently on.  To help with that, I’m going to go over my recommendations below.  With one notable exception this year, this guide will NOT cover individual candidates, as I believe that territory is too fraught with political biases to be worthwhile to an unsympathetic reader.

Why should you give any credence to what I say?  Because I’ve researched each measure carefully, consulting several sources, am highly educated (two college diplomas and an MBA, with a solid background in economics, finance and even some philosophy), reasonably intelligent, and thoroughly rationale and critical.

My biases: I take it as given that each individual’s happiness is equally important (be it a Washington voter, felon, or Chinese guy), and that the goal of good policy should be to promote the greatest happiness across the greatest number of people.  (I.e.: I’m a died-in-the-wool Utilitarian after the fashion of Jeremy Bentham.)

These positions follow from the above philosophy:  I generally favor more choices for people as opposed to fewer (because people are usually made better off with more choice, except in certain cases.)  I believe society should often reallocate its resources to the people who have the least in the world (being careful not to create bad incentives that decrease our prosperity), as the amount given up by the well-off often does more good as an amount received by the worse-off.

As a simple example, Bill Gates wouldn’t miss $20 (and nor would most of us), but that same $20 can buy vaccines in Africa that could save a life.

Without further ado, here’s how you should vote (and why)!

State issues:

Ref 74 – Allow the gays to get marriedAPPROVE.  (Note that this bill preserves the right of religious organizations to refuse to perform, recognize, or accommodate any marriage ceremony, like that of a same-sex couple.)

502 – Legalize, regulate & tax marijuana – APPROVE.

Marijuana doesn’t appear to be particularly harmful.  Let’s let adults make adult decisions about what (at worst) mildly harmful substances they choose to ingest of their own free will.  Furthermore, policing marijuana has been largely a failure, and is extremely costly.  Instead, this bill will stop treating ADULT (21+) casual weed users as criminals, and turn weed use into a profitable source of state revenue for education, etc.

1240 – Public charter schools in WA state: APPROVE.  We need to explore more options in improving public education in WA state (and nationally), and allowing freer rein to nonprofit school administrators in a select group of 40 public charter schools seems like a very reasonable way to try some new things in education.

These charter schools are still publicly-funded & publicly-accountable schools (read the description of the bill before you go spouting off misleading WEA-influenced rhetoric willy nilly.)  They’re open to everyone, regardless of income (there’s no tuition, overflow applications will be handled by an impartial lottery), and they don’t ‘take money from public schools’ in the sense that they ARE public schools, run by a nonprofit org, and therefore get money from existing public school sources.  They are simply ALTERNATIVES to existing public schools.  They have to maintain the same hiring & educational standards as all other WA state schools.

Charter schools may not end up being the ‘answer’ to our less-than-stellar education system, but let’s please at least explore the possibility (and then measure & analyze the results), rather than being defeatist by opposing any new innovations in public education.  THINK OF THE CHILDREN! J

8221 & 8223: APPROVE each – Take a look at the 2012 Legislative voting: hardly anyone on either side of the political aisle opposed these bills of fiscal reasonableness, which is a good sign that we should pass them.

Advisory 1 – MAINTAINED – Recommend to the legislature to maintain the closure of a business tax deduction (aka, a tax ‘loophole’!)  I’m all for eliminating deductions favoring silly things, even when popular (I’d LOVE to see the homeowner’s mortgage interest deduction go away, but it’ll never happen.)  In economic theory, such loopholes distort incentives, and are bad for economic efficiency (unless they’re correcting/promoting for negative/positive externalities, like taxes on gasoline, which are a good thing, and should be higher!)  Plus, WA need revenue, so let’s close this and collect some.

Advisory 2 – MAINTAINED – See above rationale.  This time we’re taxing a negative externality-causing thing, petroleum, and perhaps correcting for subsidizing of negative externalities).

BTW, neither of these advisory votes matter that much since they won’t change the law by themselves!

Seattle & King County

APPROVE both Prop 1 in King County (fingerprinting levy to aid law enforcement) and Prop 1 in Seattle to rebuild the crumbling Alaskan Way seawall.

2012 Bonus recommendation – Ward’s votin’ Republican in the Governor’s Race

WA State governor:  I normally don’t post any of my partisan (Dem vs Republican) recommendations, since I want to restrict this guide to a non-partisan review of issues, vs politicians, but I’m going to break this rule for this notable reason: for the first time in my (relatively short) electoral life, I’m voting for a Republican, Rob McKenna, for WA state governor.  (The Seattle Times also recommends Mr. McKenna, along with a few other Republicans, as well as Democrats, that I will be voting for in large part due to their recommendation rationales.)

In short, McKenna seems to be more thoughtful and have more detailed, practical plans on tackling tough issues like education & health care costs in WA state than his opponent, Democrat Jay Inslee.  Inslee seems mostly full of hot, nice-guy-that-you’d-have-a-drink-with political air, spouting vague platitudes which I generally agree with in principle, but that don’t seem to have any practical implementation behind them.

While I disagree with McKenna’s backing of Eyman’s initiative to prevent the legislature from passing taxes without a 2/3s majority (because I think it will hamstring our legislature’s ability to close loopholes & properly fund voter-approved measures, and puts us on a road to major fiscal problem similar to places like California that have tried such a thing), I think McKenna is the best choice for governor of the two.  He has the strongest plan & apparent commitment to fund higher education (he wants to increase state funding from 30% to 50% of the cost of tuition), and he also seems serious about introducing measures to reduce the cost of health care at the state level (by favoring Health Savings Accounts & increased competition in state health care plans.)

You can find a comparison of McKenna & Inslee on the issues here: http://seattletimes.com/html/localnews/2019488749_govissues21m.html

And also here, which includes a video of the first gubernatorial debate: http://www.diffen.com/difference/Jay_Inslee_vs_Rob_McKenna

UPDATE: Why We are Right to Rebuild Haiti or An Argument for Charity

UPDATE on 10/20/2010: Here’s a link to a good TED talk on how the vast majority (like, ~99% perhaps) of lives lost during the Haiti earthquake were due to poor building construction.  The speaker notes that what is required for better buildings isn’t more money beyond what’s already required to rebuild Haiti, but just more training for Haitian builders (at a minimal extra cost.)

I read a blog post called “If You Rebuild It, They Will Come” by a man named Paul Shirley.  In it, Mr. Shirley argues that we shouldn’t give/have given money to the Haiti relief effort due to the poor position they (he claims) put themselves in.  To me, even if the Haitian’s were entirely to blame for the damage the earthquake did to their country (I believe luck & history had a lot to do with it), such criticism is missing the point of an urgent relief effort.

Mr. Shirley’s criticism is a bit like giving a lecture to a badly injured speeding motorist, as he bleeds to death, on how he should have driven more carefully, rather than taking him to a hospital.  I’d prefer to take him to the hospital first, and give him the lecture later.  Mr. Shirley also seems to assume that the governmental and institutional failures of Haiti should be reasons to deny its citizens aid.  For starters, in no point in Haiti’s history do ordinary citizens appear to have be in a position to build up either the physical or intellectual capital necessary to privately look after their own needs beyond a subsistence living.  With regard to intellectual capital, schooling in the local Creole language did not even occur until 1922, less than 90 years ago.

(BTW: I’ve linked many of my sources, but if I state something unlinked/cited, it is from Wikipedia, the fount of all knowledge.)

Haitian civil unrest & violence

Mr. Shirley might argue that these citizens who are now victims of the quake are the very ones who caused the violence and civil unrest that’s been the source of so many problems throughout Haiti’s unstable history.  I suspect he would be wrong.  Let’s look at a parallel case in Afghanistan or Iraq.  You could blame the Taliban in Afghanistan for the poor conditions and civil rights abuses.  However, the Taliban are estimated to number in the tens of thousands in Afghanistan.  Let’s assume there are 100,000 of them.  The Afghanistan population totals about 28 million.  That means that only 0.36% of the population are Taliban, or 1 in 280.  You might counter by saying that yes, 279 out of 280 AREN’T Taliban insurgents, but since they outnumber them, why don’t they revolt and kick them out of the country if they don’t like the conditions caused by the Taliban?  I would suspect it’s the same reason I wouldn’t take up arms against the US government if it decided to become a totalitarian dictatorship tomorrow: I’d get slaughtered.  The Afghanistan people are poor, like the people in Haiti (who are even poorer.)  They lack education and military and financial strength.

Similarly in Iraq, there are roughly 100,000 – 130,000 insurgents.  If we divide 130,000 by the population of 31 million we get 0.42%, or about 1 in 240 people.  My point here is that a relatively small amount of people with guns and resources can control a much large number of people without one or the other.  Thus, blaming the typical Haitian citizen for not kicking violent organized groups out of the country is unrealistic.

Poverty and lack of financial & intellectual capital

“By most economic measures, Haiti is the poorest country in the Americas. It had a nominal GDP of 7.018 billion USD in 2009, with a GDP per capita of 790 USD, about $2 per person per day.[1]

However, of that ‘wealth’, about half of it is in the hands of Haiti’s richest 1%.  Thus, GDP per capita for 99% of the country is actually $1 per day.

“About 80% of the population were estimated to be living in poverty in 2003.[1] Most Haitians live on $2 or less per day. [72] Haiti has 50% illiteracy,[73] and over 80% of college graduates from Haiti have emigrated, mostly to the United States.[74]

So of those folks that DO get access to education (very few), 4 out of 5 leave the country for greener pastures. (And who could blame them?  Mr. Shirley certainly wouldn’t, unless they stayed behind to contribute to their home country’s economy and got crushed in the earthquake; then he’d blame them.)

Government & Corruption

I’ve established why I believe it’s ridiculous to assume that Haiti’s private sector could’ve been expected to prepare for the earthquake, which would’ve been relatively unaffordable, but what about the government?  Surely there must have been some capital stored up to build earthquake-proof houses etc for the masses?  Unfortunately, that is also not true, in part due to looting of Haiti’s coffers by corrupt officials:  “It is estimated that [a former Haitian president, his wife] and three other people took $504 million from the Haitian public treasury between 1971 and 1986.”

“Similarly millions was stolen by [former president] Aristide.[80][81][82][83][84] During the Aristide era, drug trafficking emerged as a major industry. Beaudoin Ketant, a notorious international drug trafficker and close partner of Aristide, confessed that Aristide “turned the country into a narco-country. It’s a one-man show. You either pay (Aristide) or you die”.[85] The BBC describes pyramid schemes, in which Haitians lost hundreds of millions in 2002, as the “only real economic initiative” of the Aristide years.”

Okay, so officials have been corrupt and have stolen hundreds of millions from the government over the years, but what about all the foreign aid that Haiti has received?

Foreign aid makes up approximately 30–40% of the national government’s budget. The largest donor is the US, followed by Canada and the European Union.[87] From 1990 to 2003, Haiti received more than $4 billion in aid.”

$4 billion might sound like a large amount of money, and it is, until you divide it by population.  Let’s assume the aid was spread out evenly over 13 years and that the population was, on average, 7.6 million.  That equates to $308 million per year, or $40.50 per person per year, which is about 1 month’s wages for most people in Haiti.  Could you rebuild your house on a sturdy earthquake proof foundation for $40 bucks, or even 1 month’s salary?  Or how about relocating to what might be a safer place (regardless of whether you can earn a living there)?

“In 2005 Haiti’s total external debt reached an estimated US$1.3 billion, which corresponds to a debt per capita of US$169. In September 2009, Haiti met the conditions set out by the IMF and World Bank‘s Heavily Indebted Poor Countries program to qualify for cancellation of its external debt. [94]

So until recently, the government was carrying debt equal to 18.7% of its 2008 GDP. That’s not a very strong base from which to run a deficit with large-scale public infrastructure projects.  To put it into comparison, the US’s record-high government debt is around 8% of GDP, only 43% of that of Haiti’s in % of GDP terms.

Who should rebuild Haiti?

Mr. Shirley states “I don’t know whose responsibility it is [to rebuild Haiti], either.  What I do know is that it is not the responsibility of the outside world to provide help.  [Ward’s note: which is basically saying it’s either Haiti’s responsibility or no ones.]  It’s nice if we do, but it is not a requirement, especially when people choose to influence their own existences negatively, whether by having too many children when they can’t afford them or by failing to recognize that living in a concrete bunker might not be the best way to protect one’s family, whether an earthquake happens or not.”

On the subject of family sizes in Haiti, for one thing, birth control is likely very inaccessible.  (If Mr. Shirley would then urge Haitians simply to not have sex, he would be severely overestimating the will power of all but a special class of human beings.)  Secondly, it may actually be in the economic self interest of Haitians to have large families (to say nothing of emotional self interests.)  Two thirds of Haitians support themselves by subsistence agriculture.  On a farm, more children equals free labor, so it may be rational for individual families to continue have larger families, despite their poverty.

Logically I can’t dispute whether or not better off people have a ‘requirement’ do help those much worse off.  Morally I disagree.  I believe those with way more money than they need to make them happy (the western world) has a strong moral imperative to better the conditions of those worse off.

How would you want the world to be if you were randomly placed in it?

There is a very simple thought experiment that I find helpful in defending the ideal that those with a lot should help those with a little.  Imagine that you were given a chance before birth to allocate all the resources in the world to various countries, regions, and peoples of the world.  You can do this however you want.  The catch is that afterwards, you will be randomly placed into that world population of about 6.5 billion.  Given income distribution in our world (as of the year 2000), you would have a 45% chance of living off less than $3/day (including a 23% chance of living off less than $2/day, the level that Haiti is at.)  2 out of 3 times you would be living off less than $14/day.  You would only have a 13% (1 in 8 ) chance of being relatively affluent & making at least $11,500 per year (1997 data), which is well below the poverty line for a family in the United States.  (The US median income per family is about $55,000 per year, making us extremely wealthy by worldwide standards.)

We live in a world where the richest 10% of the population owns 85% of its assets, and the poorest 50% owns 1%.  Would you choose to distribute resources as they are today, knowing that you’re most likely to live your life in incredible poverty (by US standards)?  Or would you choose to move things around a bit, giving yourself a chance to live comfortably no matter where you happen to be born?

Two times the wealth doesn’t equal two times the happiness

I would choose the latter, and I suspect many other people would as well for the following reason.  Pretend someone offers to let you flip a coin for your entire net worth.  If the coin lands heads, you double your wealth.  If it’s tails, you are utterly wiped out and have nothing: no house, no savings, no clothes/cars/iPhone etc.  Would you take the gamble?  I suspect 98% of Americans would not.  The reason?  Having twice as much wealth doesn’t bring us twice as much happiness.  The more money we make, the less valuable each dollar is to us.  Economists refer to this trait as being ‘risk averse.’  Losing what we already have hurts more than gaining an equivalent amount, so we pay for security in the form of insurance or diversified mutual funds.

Of course, in terms of the ‘where would you be born’ thought experiment, the results of birth misfortune are much more dire than simply losing your current wealth.   Not only do you have a 7/8 chance of making less than $11,500, you will likely lose your paths of opportunity to a better life: education, health, human rights, and physical security.

Incentives

One issue I haven’t addressed is the proper incentive system for people, not just “ideal” wealth distribution.  If someone does something harmful to themselves, you want to discourage them from doing so again.  I’ve already explained why I believe the vast majority of impoverished Haitian’s are NOT very responsible for their fate, thus, it makes little sense to punish them by withholding aid.

Where possible to do so effectively, the US & private donors should definitely make an attempt to reform Haiti’s government and provide citizens with better opportunities to help themselves.  That being said, we can do a lot in the mean time.

Conclusion

In closing, I urge thinking people to avoid assigning blame to people in trouble simply because they have had the misfortune to be born in a different part of the world.  This is an easy trap to fall into because it absolves the blamer of all responsibility to help.  It is also easy to forget how incredibly privileged we are in western Europe & the United States.

Fortunately, judging from the roughly $1 billion in private donations from the American charities to Haiti, the vast majority of people are ignoring Mr. Shirley’s callous and faulty reasoning and donating however they can to help the Haiti relief effort.  If you haven’t already, I urge you to do the same.

“Of all vulgar modes of escaping from the consideration of the effect of social and moral influences on the human mind, the most vulgar is that of attributing the diversities of conduct and character to inherent natural differences.”

– John Stuart Mill

How to improve the health care system and what I learned from Michael Moore’s “Sicko”

I recently watched Michael Moore’s ‘Sicko,’ a “documentary” (and propaganda piece) on the health care system in the United States.  Moore also contrast our system with various government-run programs around the world.  While Mr. Moore’s opinions and footage are clearly biased in favor of a government-run system, I believe he does raise some valid points.  I’ll enumerate some of them below, adding my own thoughts.   Please remember that I am certainly not an expert in this area, and that these are merely my moderately-informed opinions.  Feel free to dissent, agree and argue by posting comments.

(Note to readers: I do feel a little uncomfortable posting politicized articles on this blog next to objective financial advice.  However, I do think there’s some value in asking readers of this blog to consider some of these very important issues from time to time, even if they disagree with every word I say below.  I’ve tried to keep my opinion pieces 1) separate by clearly labeling them as political, 2) as even-handed as possible, given my personal feelings and biases, and 3) without financial advice that relies on my political opinions.  Let me know in the comments if you like seeing a political article like this every once in a while, or if you think it’s inappropriate given the other content on my site.)

1) Doctors under a government-run insurance plan do not have to worry about getting paid by private insurers and can focus solely on providing health care. One could argue that a government-run plan would be more complicated than a private one.  That may be true, but I would think even one highly complicated government insurance option would be much less complicated that the combined thousands of private plans.

2) The profit motive of private insurance and health care companies (including for-profit hospitals and drug companies) is not necessarily in the best interests of patients. Moore interviews people whose job it is to find loopholes that allow insurance companies to avoid paying claims to those who become sick.  Also, there have been studies that show doctors are much more likely to prescribe particular drugs to patients when lobbied by drug salespeople regardless of whether the patient needs the drug or not:  “[r]esearch clearly shows that doctors who report relying more on promotion tend to prescribe less appropriately, prescribe more often and adopt new drugs more quickly.”

I’m not saying that the profit motive is bad in the health care industry (in fact, I think it’s often a wonderful way to align the incentives of many different people and businesses), but it has some undesirable effects.  Without the large profits that drug companies enjoy, there would be smaller incentives to pursue groundbreaking drugs that can work wonders for people ranging from cancer sufferers to those with high cholesterol.  I think many people make the faulty argument that because drugs are so cheap to manufacture, they shouldn’t be priced so high.  However, development of these drugs requires an enormous amount of research and development (R&D) expenditures, and most drugs developed never see the light of day.   Economist Gary Becker has suggested that countries that regulate the prices of drugs to low levels are able to ‘free ride’ off the American system.  What he means is that drugs that are developed in the US, where their makers can enjoy large profits, still benefit other nations that might have stifled similar drug development in their own country with price caps.

3) Moore’s ‘Sicko’ also states that we in the US suffer from poorer health as measured by infant mortality and longevity when compared to other industrialized nations. It is certainly true that we are an unhealthy nation, but others like Becker point out that this is mostly due to our terrible lifestyle, and not to the quality of our technical skill in healthcare.  Becker shows that survival rates for diseases like cancer are higher in the US, suggesting that our healthcare system is in fact very good (although very expensive.)  While it’s true that our poor health is often due to factors like overeating and smoking, I think it’s incorrect to think that our health care system can’t help fix these lifestyle factors.  When an ‘ounce of prevention is worth a pound of cure’, why should we be so focused on the quality of the cure and not prevention?

One potential benefit of a government-run health insurance option is that it would be a perfect place for an incentive system to be set up to promote healthier lifestyles.  One could penalize people who smoke or are at an unhealthy weight through higher premiums, or reward seniors who join a gym or excercise program.  This gets into dicey territory of how to determine what’s ‘bad’ and what’s ‘good’ for people.  One might point out that obese people and smokers actually costs less to treat during their lifetime because they die sooner.  Despite this, I personally feel that we as a country have a responsibility to encourage people to live healthy lives.  Libertarians would find this paternalistic, but I believe people are generally happier if they are healthier, and I would support the government taking modest measures to raise the health of its population.  Simple things like providing information (warning labels on cigarrettes, forcing restaurant chains to display calories) shouldn’t be too objectionable.  Penalties for drunk driving are another example (which should be increased; the penalties, I mean.)*  On a larger scale, we could eliminate farm subsidies for crops that make up too much of our diet, like the corn used to make corn syrup.

4) There is a general lack of information on the part of consumers. I’m a fairly sophisticated consumer when it comes to most items.  I have a mental price list for pretty much everything I buy, and am constantly weighing benefits of one product versus savings on a substitute.  Despite the fact that I pay much more attention to prices and value than most people, I am completely clueless as to what is reasonable to spend on a night in a hospital, a routine doctor’s office visit, x-rays, or a hip surgery.  Prices are not posted for all to see and compare between hospitals as they are for other products.   Insurance options are generally not set up to encourage patients to shop cost effectively.  Combine this with the many varieties of health insurance, all with pages of descriptions on what they do and don’t cover, copays, coinsurance rates, deductibles and lifetime maximums.  These factors make it very hard to know if what you’re paying for care is reasonable or outrageous.  A government insurance option or regulation that standardizes the way policies are displayed, or a rule forcing healthcare suppliers to clearly delineate their service prices in a fashion that’s easy to compare, would go a long way towards helping patients make better decisions for themselves.

5)  I also perceive a lack of competition between health care providers and insurers within localized areas. This could be partially fixed if the government would equalize the tax benefits of health care between individuals and businesses.  Currently, a business gets to deduct its health insurance premiums whereas a wage-earner with an individual plan generally cannot.  This provides a huge incentive for people to be insured through their employer, which creates problems of choice, since companies typically don’t offer many insurance options from competing providers.  Transportability, by which I mean the ability for a person to keep their insurance when switching (or losing) jobs, is also an issue when insurance is tied to employment.  Individuals do have some options to avoid paying taxes on their out-of-pocket health expenses, like Health Savings Accounts, but usually not their insurance premiums.

In addition, I would guess that businesses get to write off health benefits at the corporate tax level of 35%, whereas even if individuals could write off thier insurance premiums it would be at their federal income tax level, which would be much lower for the vast majority of people.  Because of this last issue, I would suspect it would be easiest for the government to eliminate the tax breaks that businesses get on health care, and simply let individuals deduct their personal insurance costs.**  I think that if the onus were put on individuals to buy their own health insurance, and if policy terms were more standardized, it could lead to a situation more like car insurance, where it’s very easy to compare policies and switch to get the best deals.

6) Lastly, I think the importance of personal security and risk aversion is overlooked by opponents of government health insurance. As Moore’s film shows, experiencing a traumatic health event without proper insurance (or finding out you didn’t have what you thought was proper insurance) can be catastrophic to individuals and families.  (You’ve probably heard the oft-quoted statistic that about half of the bankruptcies in the US are related to illness or health care expenses.)  People gladly pay more to avoid unsustainable losses; that’s what insurance is all about.  I think that covering the majority of the 40-50 million Americans without health insurance with at least catastrophic care, and forcing insurance companies to not drop patients when they get sick would help alleviate the hardship individuals would feel in the event of a serious illness.  Plus, catastrophic care combined with preventative visits could save money through early prevention and by lowering emergency room visits by those without insurance.

Conclusions

I think its important for both sides of the health care debate to realize the successes AND defects of our current system.  (For extra reading, Becker does some of this in his analysis of the Swiss health care system.)  My point here is not to illustrate that government-run insurance is better than private insurance (I think we should have both, assuming the government option can be done right.)  Rather, I want to stress the importance of improving the current system, which is not working for many Americans, notably those in the bottom income percentiles.  Standardization and flexibility in individual choice in policies can help consumers navigate the system and make better choices.   Making sure that all Americans, especially children, since they have no choice in the matter, have affordable health coverage is also important.  I believe we should take things a step further and find ways for our health care system to alter our lifestyles for the healthier.  I’m frankly dismayed that a nation as wealthy and resourceful as ours has continued to allow many of its citizens to exist in a condition so inferior to that of the rest of us.  Because I believe that the individual happiness gained from increased wealth diminishes rapidly at a certain point, it is shameful and stupid for us not to a have a more egalitarian society, especially with respect to basic services like health insurance.  It is my hope that Americans will one day view basic health care in the same way most view education or protection from violence today, as a benefit that should be extended to all, regardless of race, sexual orientation, gender, or income.

* There is an important distinction that economically-minded people like myself make when discussing government-imposed penalties and incentives.  1) Incentives designed to compensate for the damages a person or company does to bystanders.  These are known as ‘negative externalities’.  A common example is pollution which affects those who are not the cause of the problem.  2) Incentives designed to modify behavior towards some kind of (subjectively) preferable alternative, despite the fact that this behavior is only harming the individual that persists in it.  Strict Libertarians would argue that government should never step in under these situations, since that would be infringing on individual liberty.

The problem with this position is that it assumes people are always rationally doing what they want to, and that no one outside of that person has a better idea of what would make the self-inflicter better off.  This may make economic calculations easy, but it’s difficult to apply in real life.  Few people question that a child should be forced to do certain things that will make them better off in the long run, like attending school or avoiding sharp objects.  Yet once a person is an adult in the eyes of the law, this idea that others can sometimes look out for a person better than the person themself is thrown out the window by those who hold “liberty” as the ideal that trumps all others.  For example, an economist would say a drug addict shooting heroin into his veins and living in a dumpster is doing what’s ‘best’ for himself, given his desires and position.

However, I doubt that few people, including the addict himself, in his more-lucid moments, truly believe such a person wouldn’t be better off if he were able to kick the habit.  Moreover, we frequently hear people saying they don’t want to do something, and yet they do it anyway.  While this makes me react cynically and irritably toward such people, I still think we as a society have a responsibility to take their words at face value and try to help them.  This might be on the ‘local’ level of a family member forcing someone into rehab, or it might be on the government level of subsidizing rehab centers or criminalizing (to a reasonable extent) the use, or at least the sale, of drugs.

** Labor unions dislike this idea because it jeopardizes the benefits they can offer people.  However, it’s important to remember that health insurance is just one part of employees overall compensation package, so less benefits would be theoretically made up in higher salaries (minus the difference in tax subsidies that the business was enjoying.)  Plus, instead of subsidizing health insurance premiums at the corporate level, government could provide additional subsidies to individuals to make up any differences.

Do average Americans benefit from lower capital gains tax rates?

The answer, according to some well-reasoned arguments voiced by Fairmark.com‘s Kaye Thomas, is ‘not much.’  Here’s some interesting thoughts from Mr. Thomas’s article regarding taxable stock capital gains in the US.  (Bolding and italics mine):

“[I]t may be true that 100 million Americans own stock, but most stock held by middle class Americans is in IRA or 401k accounts, where the capital gains rate doesn’t apply. The tax rate matters for stock held outside these retirement accounts, and most of that stock is owned by extremely wealthy individuals. The bottom 60% of households own just 9%, while the top 10% of households own 70%. Over half of all capital gains go to households with income over $1 million. That’s roughly two-tenths of one percent of the population getting more than half the benefit of the cut in the tax rate.”

[…]

“Advocates of lower capital gains rates (and lower corporate tax rates, and other tax benefits for business) often cite the statistic that 100 million Americans own stock, implying that the middle class will receive an ample share of the benefit. Yet ownership of stock is highly concentrated in the hands of wealthy individuals, a small fraction of the population. The vast majority receive little direct benefit, or none at all. To borrow an analogy from John Kenneth Galbraith, the “100 million” argument is like justifying the cost of feeding more oats to the horses by pointing out that some will fall to the ground and be eaten by sparrows.”

Why I hate the US Postal Service

No, really.  I hate them.

No, really. I hate them.

A dollar to ‘verify my identity’?  For security purposes!?  All my financial institutions changed my address for free, and they seem pretty darn secure.  Give me a break.  Better yet, break up this tax-sucking monopoly that tries to pass for a public service outfit!

Now don’t get me wrong, there’s plenty of other things that those useless minions at my local post office do besides nickel and dime their customers under the guise of protection like 1) frown.  2) Put up friendly signs providing helpful guidance like ‘NO FREE TAPE” and 3) go on break when there’s a line of people out the freakin’ door waiting to mail packages!

Keep in mind that these same folks lost about $5.1 billion (B)  in 2007, $3 B in 2008 and anticipate a deficit of roughly $6 B in 2009.  To read more criticism and why we should allow private companies and the magic of the internet overtake the post office, read this. Go here to REMOVE YOURSELF FROM JUNK MAIL LISTS that make up over half of USPS’s business (at rate subsidized by all us taxpayers!)

If you weren’t hopping mad already, below are some more awesome tidbits from Wikipedia that make me want to jam my hand in a blender running at ‘frappe’:

– “Congress has delegated to the Postal Service the power to decide whether others may compete with it” [Pop quiz to readers: if you were a giant, ineffecient, money-burning monopoly, would you rather have competition or not? Hmmm…]

– “FedEx and United Parcel Service (UPS) directly compete with USPS express mail and package delivery services, making nationwide deliveries of urgent letters and packages. Due to the postal monopoly, they are not allowed to deliver non-urgent letters and may not use U.S. Mail boxes at residential and commercial destinations. These services also deliver packages which are larger and heavier than what the USPS will accept, and unlike the USPS assign tracking numbers to every package.”  [So, Fedex and UPS accept packages that USPS won’t, and also assign *gasp* tracking numbers to every package so you’ll know where they are (what a novel idea; good thing USPS plans to implement that by 2013…)  Now remind me why these private companies aren’t allowed to deliver regular mail to our mail boxes as well??]

– “The USPIS has the power to enforce the USPS monopoly by conducting search and seizure raids on entities they suspect of sending non-urgent mail through overnight delivery competitors. For example: according to the American Enterprise Institute, a private think tank, the USPIS raided Equifax offices in 1993 to ascertain if the mail they were sending through Federal Express was truly “extremely urgent.” It was found that the mail was not, and Equifax was fined $30,000″ [WTF!?  So a company, of it’s own free will, chooses to use FedEx instead of USPS, presumably because it’s more reliable and/or cheaper, and it’s fined!  That’s like me buying groceries at the less-expensive store Safeway within walking distance of my apartment and getting fined by the expensive QFC a mile or two up the road!]

I HATE HATE HATE THE POST OFFICE!

Disturbing (but not altogether surprising) news about the financial bailout

No one seems to know where the $700 billion financial bailout went, what’s being done with it, and how much is still in the bank’s coffers to be used for who know’s what. Read about this below:

http://news.yahoo.com/s/ap/20081222/ap_on_go_ca_st_pe/meltdown_secrets

Now I can understand how normally, banks wouldn’t track dollars that came from one source versus dollars from another. However, in THIS case, the government fronted billions in taxpayer money (not private investment.) Therefore, I can’t imagine congress requiring anything less than full disclosure of how the money was going to be allocated and spent.

It appears that the rush to get money to the banks has succeeded in giving banks no incentives whatsoever to transparently disclose what’s being done with the money, or ‘where’ it’s at within each bank. If one made the assumption that these banks were all going to use this money for the best possible long-term usages for their firms, this lack of disclose might be okay. BUT, the fact that banks are in this mess due to poor financial decisions (and NOT “bad luck” due to the economic downturn, despite the fact that it exacerbated the situation), destroys that assumption.

While I do strongly believe that private firms generally perform better than government-owned ones (been to your local post office lately?), one thing that political trumpeters of the “free market” like to neglect are the conflicts of interest between firms and their management teams. Unfortunately, CEOs are often rewarded with compensation that focuses on the short term stock price (stock options and bonuses dependant on share price) rather than being aligned with the company’s long term future.

Warren Buffet, CEO of Berkshire Hathaway and arguably the greatest investor of all time, is a notable exception. His substantial net worth of many billions is almost completely investing in the company he leads. This long term ownership, combined with the fact that Buffett’s salary is a meager (for CEOs) $100,000 per year, with no fancy options deals, means that Buffett’s incentives are aligned with those of his long term shareholders.

Also, CEOs are generally paid more relative to the size of the company they control***. This creates the incentives to make fiscally irresponsible mergers just to “grow the empire.” And now, with the precedent being set of companies designated “too big to fail,” managements have even more incentives to grow the size of their firms. These incentives by themselves do not encourage firms to pursue social gains (either for consumers or shareholders) and therefore are undesireable.

Coming back to the financial bailout, it is very troubling that in an effort to quickly sustain failing companies within the financial services industry (without discussing whether that was the right thing to do or not), congress and the administration may have not addressed the threat of those firms failing in the future, throught poor use of the bailout money in the present. This lack of oversight may result in these same companies returning years later in similar predicaments. (Of course, that may have resulted anyway, even with oversight, calling into question the wisdom of the bailout, of which I’m not knowledeable enough to discuss.)

Hopefully failure of many of these companies down the road does not turn out to be the case. But, when one has no idea of what’s happening with the bailout money those firms received, how can we know one way or the other?

 

*** From nobel prize-winning economist Gary Becker (on the Becker-Posner-Blog.com): “For every 10 per cent increase in firm size, measured by the market value of assets, by sales, or by related variables, compensation increases by about 3 per cent. This “30 per cent” law held during the 1930’s, and has held for every succeeding decade, including right up to the present.”

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