Ryan Gosling’s Shorts



bigshottrailerThe new film “The Big Short”–based on the book by Michael Lewis–achieves what I would’ve thought impossible: it makes an American audience root for speculators hoping to make millions betting against the U.S. economy. Ryan Gosling, Christian Bale, Brad Pitt, and Steve Carell are the Hollywood stars portraying the real-life people who had realized U.S. housing was in a bubble, and that the mortgage-backed securities based on them were much riskier than most people realized.

To be sure, the movie gives the impression that the commercial lenders, Wall Street investment banks, and ratings agencies (Moody’s, S&P, Fitch) were infested by rogues who needed stricter government regulation. In that respect, I disagree with the message; I think it was sins of government commission that blew up the housing bubble. In particular, the Fed’s easy credit fueled the boom while various federal programs steered funds into housing.

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Economics and Resolutions



resolutionsJohn Maynard Keynes, perhaps the most influential 20th century economist, once wrote that economics “is a method rather than a doctrine, an apparatus of the mind, a technique of thinking which helps its possessor to draw correct conclusions.” In other words, economics offers principles to help us make fewer mistakes.

Given that many make New Year’s resolutions in an effort to improve their lives, it is worth considering some economics principles that provide to aid that effort.

Economics does not provide everything necessary for wise choices. It does not provide the required facts or judgments. In fact, pervasive uncertainty means it does not generally tell us the “right” choice, since different options will turn out to be best in different circumstances. Rather, its principles typically teach about mistakes to avoid.

Economics can be defined as the study of the consequences of scarcity—what we desire (including for others we care about) will always exceed what we can produce.

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Douglass C. North (November 5, 1920 – November 23, 2015)



northI met Douglass C. North exactly forty-eight years ago, during the final week of 1967, when the American Economic Association was holding its annual meetings in Washington, D.C., and I went to Doug’s room at the Shoreham Hotel to be interviewed for a faculty opening at the University of Washington, where he was chairman of the department of economics. I still recall that meeting. I knocked on the door, Doug opened it, grasped my extended hand, and nearly dragged me into the room with the words, “You’re Bob Higgs, and we’re very interested in hiring you.” Needless to say, this reception was not the sort that a nervous, 23-year-old job candidate expected as he trudged from room to room to recite what his dissertation research was about and to answer all sorts of questions posed by faculty members from the hiring institutions. But Doug did not do business in the usual way, and his capacity for venturing beyond the usual modes in conducting faculty affairs—as when he offered me the job over breakfast the next morning—or in thinking about economic history played important parts in the great success that he enjoyed during his long professional life.

Others (see here and here) have presented the main outlines of Doug’s career—degrees earned, positions held, books and articles published, professional honors attained—and I will not duplicate those particulars here, but rather offer a few remarks about a man who not only hired me for my first professional job, but mentored me (sometimes making me quite angry in the process), assisted my professional development, and worked closely with me and several other economic historians during the fifteen years that I spent as a faculty member at the University of Washington, where at that time one of the world’s preeminent graduate programs in economic history enjoyed its golden age. (Doug and I both left the UW in 1983.) I plan to write about Doug at greater length for a future issue of The Independent Review.

When I met Doug, I already knew a fair amount about his work in American economic history, where he had established himself as a leader in the Cliometric Revolution, a development that began in the late 1950s in which economic historians trained as economists largely replaced those trained as historians, at least in departments of economics where economic history continued to be offered in courses and as a field of specialization for graduate students. Doug’s leadership in this movement was not without irony, however, because the hallmarks of cliometrics—use of explicit, often formally specified neoclassical economic theory and econometric testing—were not much in evidence in Doug’s own writing, which continued to be more literary and old-fashioned in its exposition, albeit often focused on the programmatic desirability of applying economic theory and of developing new theoretical frameworks that went beyond the standard neoclassical stipulations. In this way, Doug was always more an exhorter than an exemplar, more one who wrote about what economic historians should do, rather than one who simply conducted substantive research that put the new approaches on display and thereby demonstrated their power to explain historical events more effectively.

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Third-Party Bureaucracies Can’t Discipline Healthcare Prices



drcalcOne of the least substantiated notions behind the modern American doctrine that people should allow insurers or governments to control our health spending is that these third parties can negotiate fees with hospitals and physicians that are better than those which would prevail if patients controlled these dollars ourselves.

Years of evidence show that these third parties have little idea what they are doing when they fix fees paid to providers. Atul Gawande, MD, has made a name for himself by popularizing research from Dartmouth University, which shows large, unexplained, variation in cost and outcomes for Medicare in different areas of the country. President Obama has used this research to impose further controls on how Medicare pays hospitals and doctors, in the hope that this will reduce costs to the lowest-common denominator.

Unfortunately, new research demonstrates we have no real idea why this unexplained variance exists. This research uses a new database of extremely rich data from a consortium of the nation’s largest private insurers. The database includes over one-quarter of people with employer-sponsored benefits. The findings:

  • There is huge variance in actual hospital prices paid by insurers – up to twelve times.
  • There is little connection between prices for individual procedures in an area and total cost per patient (suggesting there is substitution from high-priced to low-priced procedures within an area).
  • There is no correlation between total spending per privately insured patient and Medicare patient.

The last one is the real killer of the idea that the providers are responsible for driving cost up. If high Medicare costs were driven up in areas with especially greedy and cunning hospitals and doctors, we’d expect private insurers to pay more in those areas, too. On the other hand, some have insisted that where Medicare payments are too low, costs are shifted to private insurers to make up the total required revenue. If that were true, there would be a negative correlation between Medicare costs and private insurers’ costs among regions.

Good economic theory and business strategy indicates providers segment their markets and charge the profit-maximizing price in each segment. So, if prices and costs are a crazy quilt across the country, it must be due to idiosyncrasies among the payers, not the providers.

I don’t actually see the point of worrying too much about price or cost variation. If an orange costs much more in Alaska than Florida, we do not seek government intervention to equalize the prices. Similarly, the cost structure of delivering health care differs for many reasons. What worries me is that this line of research will lead to yet more government efforts to harmonize prices and quality across the country, instead of freeing patients to make their own decisions about how much to pay for health care.

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For the pivotal alternative to Obamacare, please see Independent Institute’s book, A Better Choice: Healthcare Solutions for America, by John C. Goodman.

French Doctors Lose Strike Against “Free” Health Care



CopayAfter a long and arduous fight, French politicians have approved a law abolishing patients’ upfront payments to physicians, which was a promise of President François Hollande’s Socialist Party.

Currently, patients usually pay about £23 ($25) when they see a general practitioner. However, some of this fee is reimbursed by the national health scheme or private supplemental insurance. I suppose the closest comparison to the United States would be Medicare and Medicare supplemental (Medigap) insurance.

The Socialist Party promised eliminating this co-pay would increase access to care. Remarkably, it is doctors who resisted:

...... hundreds of doctors took to the streets and went on strike over recent months to protest against it. They fear they will have to handle more paperwork to get paid by the public and private health insurance funds, with some doctors’ unions describing the reform as a “Sovietization” of medicine.

Perhaps these French doctors have a better understanding of health economics than their American colleagues. The American Medical Association, for example, supported the Affordable Care Act, which gave us a greatly expanded Medicaid program. Medicaid, a joint state-federal welfare program, offers coverage to low-income Americans. Those patients pay nothing directly. On the other hand, they have poor access to care because Medicaid fees are low.

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“Fleeced Navidad” Government Wastes Taxpayer Money Tracking Santa



santa“He’s sees you when you’re sleeping. He’s knows when you’re awake.”

Chances are you recognize these lines from the famous Christmas tune, “Santa Claus is Coming to Town.” We can debate about how it is that Santa knows all these things. Perhaps it’s the fact he’s magical? Is Santa omnipotent? Does he have a part-time job with the NSA? Perhaps we’ll never know.

This time of year, one always hears stories about how the holiday season has been corrupted by commercialism. People “waste” money every year buying gifts and other useless trinkets that many recipients will never use. They argue that such activities diminish or overshadow the true meaning of the season.

Readers of this blog will know that I’m a fan of all things voluntary. If people want to spend their hard-earned money buying their brother a tacky gift, who am I to judge? But I am sensitive to concerns about waste—government waste.

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What Is Driving Health Prices?



pharmacistThe recent arrest of Martin Shkreli, former CEO of Turing Pharmaceuticals, on charges of securities fraud, reminds us that high prescription drug prices are today’s whipping boy for the costs of health care. Hillary Clinton and other politicians have promised to impose federal controls on pharmaceutical prices.

However, prescription drugs have not been the fastest growing item in health care since the economy started to enter the Great Recession in 2007. That distinction belongs to health insurance (specifically, medical and hospital insurance, not workers’ compensation, income replacement, or long-term care). Table I shows price indices for various components of personal consumption expenditures, indexed such that 2007 equals 100.

“Net” medical and hospital insurance (that is, premiums less claims paid out to doctors, hospitals, and others), increased 27 percent over the period. Spending on actual health goods and services rose only 16 percent.

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Congress Set to Deficit-Fund Obamacare by Almost $40 Billion



uncle sam drI had always feared that Congress’s alternative to Obamacare was a deficit-funded Obamacare, and it looks like that is coming to pass. This is being done through the so-called “taxibus,” a legislative package that combines popular “tax extenders” (items like research and development tax credits that are legally temporary but practically permanent) with funding the federal government through September 2016.

The bill proposes a couple of years delay in three Obamacare taxes: the medical-device excise tax, the health insurance fee, and the excise tax on high-cost employer benefit plans.

All three taxes are bad. However, the bill just delays them without cutting any Obamacare spending.

The medical-device excise tax is a 2.3 percent levy on medical devices sold in the United States. A two-year moratorium will reduce tax revenue by almost $4 billion.

The health insurance fee is a similar charge on all employer-based health insurance. A one-year moratorium on this fee will reduce tax revenue by about $12 billion.

The excise tax on high-cost health plans is a little different. Delaying it by a couple of years will reduce tax revenue by about $20 billion. Yes, it is a bad tax. However, it is not quite as bad as the other two. Pre-Obamacare, firms could spend an unlimited amount on health benefits, which were never added to employees’ taxable income. This led to over-insurance, artificially high health spending, and higher income tax rates than otherwise. This excise tax, although poorly designed, recognizes the problem.

Of course, these taxes are discriminatory and harmful. However, they were included in the Affordable Care Act to make the numbers add up to a budget-neutral Obamacare. Reducing these taxes without reducing Obamacare spending – especially Obamacare’s dependency-inducing Medicaid expansion – does nothing to repeal Obamacare. It merely gives us deficit-funded Obamacare.

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For the pivotal alternative to Obamacare, please see Independent Institute’s book, A Better Choice: Healthcare Solutions for America, by John C. Goodman.

The Quality of American Education: Two Types of Evidence



MathEvery so often, articles like this one appear, which seem to show that the American education system is, to use the term in the article, mediocre. What the article shows is that regardless of socioeconomic status, American students score below most developed nations in mathematical ability.

The problem with statistics like these is that most people do not need a great deal of mathematical ability to be productive citizens, or to be educated citizens. Mathematical ability is important for scientists and engineers, but people can be productive in sales, marketing, plumbing, auto repair, and really, in most professions without a great deal of mathematical ability. Entrepreneurs, corporate CEOs, and even accounting and finance professionals do not need to be math wizards. Curiosity, creativity, and critical thinking are more important in most settings, even those where math skills are important.

Surely less than ten percent of all jobs require anything beyond just basic math skills, so a better statistic to examine (and one I never see reported) would be how the top ten percent in the US compare with the top ten percent elsewhere. That’s what really counts: the mathematical ability of those who are actually using higher math.

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Why Employer Benefit Costs Are Rising Slowly



Employee BenefitsAon Hewitt, a leading actuarial consulting firm, has reported extremely good news about the cost of employee benefits:

2015 Records Lowest U.S. Health Care Cost Increases in Nearly 20 years

– Rate of increase was 3.2%

– Average health care cost per employee topped $11,000

– Employees’ share of health care costs have increased more than 134% since 2005

After plan design changes and vendor negotiations, a recent analysis by Aon (NYSE: AON) shows the average health care rate increase for mid-size and large companies was 3.2 percent in 2015, marking the lowest rate increase since Aon began tracking the data in 1996. Aon projects average premium increases will jump to 4.1 percent in 2016.

Aon Hewitt’s 3.2 percent rate of growth includes only premiums. When employees’ out-of-pocket costs are included, the reason for the slow growth becomes apparent.

Table I shows total premium grew 21.6 percent over the six years, 2011 through 2016. However, the employee’s share of premium grew by 30.1 percent, versus just 19.2 percent for the employer. (Economically, both contributions are from the employee. The employer’s share is lost wages to the employee. Nevertheless, the employee’s share is transparent to him, whereas the employer’s share is disguised.)

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  • MyGovCost.org
  • FDAReview.org
  • OnPower.org
  • elindependent.org