Category: economics

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economics

This is how things get costly

I have two ways to get to work. I could either drive or take public transportation. A round trip drive will cost me about $4 vs $6 round trip for public transportation. Naturally, I’d drive at that price, it doesn’t make much sense to do it any other way.

But now I’ll be getting a $100 subsidy towards public transportation. That changes things a bit. If I drive every day (assuming a 20 day work month) I would pay $80 a month in commuting costs. $100 would buy me 16 days of public transportation. If I used the subsidy for 16 days and drove the remaining 4, I would only spend $16 a month in commuting costs.

See what just happened? The total cost of my commute actually went up from $80 to $112 even though my out of pocket expenses went down from $80 to $16. Someone is still paying the whole cost and that cost went up. Also keep in mind that $16 is what it “costs” me to take public transportation, but that isn’t an accurate figure for the total cost of using public transport. Subways, busses, etc. are all heavily subsidized with tax dollars. So the total cost has gone up by a lot more, but the exact figure is hidden.

Imagine if everyone did this, as a whole, we would be paying more for commuting than we need to. Whenever someone else pays for our stuff, consuming more and more expensive services is the logical thing to do. The key is that the extra costs do get paid for, they are just hidden in things like taxes, diminished wages, or increased premiums. If you want to keep expenses low as a whole, it is important for the consumer to bear the brunt of the costs.

This is a general concept that has all sorts of applications. Thank goodness straight subsidies aren’t all that common in our day to day life. Splitting bills evenly, health insurance, and even cash for clunkers all share some similarities with the subsidy model. When we craft policies, we need to watch out for things that make it rational to consume more and with more expense. We all end up paying when we screw that up.

Categories
economics medical

Just for the record, I do think things are screwed up

I have posted many times before on how screwed up the medical industry is. Insurance companies are sheltered from competition, providers can’t tell you how much anything costs, and there is an enormous amount of confusion about costs in medicine. it should be much more straightforward. If people are unaware what things cost, how will we ever get prices lower? If we don’t get prices lower, how will we ever expand availability in a way that doesn’t kill us?

So what are my ideas for correcting things? I would like to start with stripping away the layers that protect the insurance companies. Make them compete on a national level. I would like to see providers be more transparent on the costs of procedures. I would like to see more competition for care in the same way you see competition among dentists, corrective eye surgery, and plastic surgery.

All of these things could be done without additional tax burdens. Who knows, maybe they wouldn’t be enough for the people that are so eager to reform, but they would certainly make a difference. I want the lawmakers to go after the low hanging fruit before trying incredibly expensive and large programs. Shouldn’t that be the way things work on a normal basis? What’s wrong with doing the easy thing first?

Categories
economics freedom

Money isn’t the problem, people are

This is something else that came up with my kidney post. it’s from a friend of mine and I think it’s a fairly common outlook.

I guess in my ideal world, Isaac, we stop our worship to the god Money, who rules over us now, and puts himself between people and life, fun, love, education, food, nature, etc, etc, etc. It seems as people make more money, and create new and better avenues to money, they also create bigger needs for regulation and protection to control the greed produced in its wake.

Wow, where to start? How about this, the greed doesn’t come from the money. People have unlimited desires, we always want more. Of course in order to satisfy all of those wants, this world would need to be unlimited as would our lifespans. This is a limited world. We are limited.

When economists say that there’s no such thing as a free lunch (TNSTASAFL), they aren’t really taking about money. What they mean is that something has to be given up. There is labor, and time spent on lunch. Now, we could incur that cost ourselves, or we could get someone else to incur it for us. Of course, if they do that for us, they expect something in return.

Ultimately, we are all engaging in barter. I exchange my labor for someone else’s labor. Some people make sandwiches, some people sell cameras, other people do other things. But barter is really unwieldily. If I sell cameras and I want a sandwich, I would have to find someone that makes sandwiches AND wants a camera. So instead of doing direct barter, we use money instead. We exchange out labor for money and then exchange the money instead of labor directly.

Peoples’ desires for more is always what is at the root of what people blame on money. Those desires would still be around even if money were to disappear tomorrow. Of course, a world without that unit of exchange would suck. We should all be thankful for the existence of money, it makes life much easier. People’s desires, or if you prefer, greed, has always been around and always will be. What we have to do is learn how to deal with other people’s and our own and stop blaming other things for what we see as wrong in the world.

As far as the government being the best thing in order to protect us from greed, I’ll just say this; the government is made up of people too. They aren’t special people, they aren’t above anyone else. They too, are subject to the same types of desires and greed as anyone else. The difference is that the people in government are able to wield quite a bit more power than the average person. Entrusting other people with that kind of power is asking for trouble, and boy have we ever gotten it. At best, I would say that the government’s efforts have not helped at all with the issue of greed. Of course they have done that at great cost, and I really do think that they’ve made things worse anyway. Inevitably, when government “protects” us from something, they give more power to some corporation or at least give them more money. Keeping a level playing field is best accomplished without government interference and it allows us the maximum amount of freedom to determine our response to other’s greed.

Categories
economics freedom of choice

Victim of the minimum wage

As I was heading to my fathers, I ran into some construction. They had closed off one lane and so we had to take turns using the one remaining lane. Instead of the usual pair of flagmen with radios, they had an automatic gate system set up. One would open up and allow traffic through, then it would close. After a small bit of time, the gate at the other end would open up and repeat the process.

This is the first time I had ever seen this system. It is another example of how labor can be replaced by machines when the price of labor gets too high. I have no proof of this, but I suspect that the new minimum wage laws played a part in these machines becoming affordable. I’m sure there were all sorts of other costs involved too, like insurance, people not showing up on time, people not showing up, etc. but I’m also sure that paying a pair of people to stand around and direct traffic for $7.24 an hour was just a bit much for some employers.

I know that some of you are going to think that $7.24 an hour is too little, so why don’t we raise it to $75 an hour? Oh, that would be too much. So what is a good rate to pay someone that? What is a good rate to accept to do that job? The only honest answer is that we don’t know. I’m sure that there are some high school kids that would rather do that for $5 an hour instead of being unemployed and I’m also sure there are lots of people that wouldn’t bother to do that job at $10 an hour. We don’t know what circumstances people are in and what they are willing to do for any given amount of money. We also don’t know how many more people would be hired if companies could pay less per hour. The only sensible thing to do when unemployment is high is to allow people to accept or reject jobs on their own. No one in DC can set a wage without effects. What effect? Fewer high school kids being employed and fewer flag men. Aren’t we glad that congress is doing what it can for this economy?

Categories
economics

All of our money will leave!!!

This is a post I read on an audio forum and my response. He was essentially trying to say that inexpensive audio gear is pernicious…

Cheaper is better? Not if you are exporting your dollars for something of temporary value.

When we import stuff and exchange hard currency for it, we are exporting dollars in exchange for that stuff. The dollars leave our shores forever, at least in a large proportion. We as a country lose that net wealth.

To which I responded:

Ah, but you can’t listen to currency, nor can you eat it or clothe yourself with it. You’ve made the mistake of confusing money with wealth. Wealth is determined by what you can do or purchase, not by how many pieces of paper you have. You do understand that if we send money somewhere else and they do nothing with it, that would mean that they traded an amplifier for pieces of paper or electronic digits… What a deal! Unfortunately for us, they do indeed use that money, they expect something back. Currency is debt. Whoever holds it is entitled to goods or services. The Chinese surely cash in on those IOU’s. Here in the US, that has mostly taken the form of buying our debt but there has also been quite a bit of bond, stock, and other investment over here as well. Believe it or not, they have even imported some American stuff too. They have to do something with those dollars…

Currency trading aside, the key thing to remember is that anything that makes the stuff we buy less expensive increases our wealth. We are able to buy more (or do more, make more, etc) for the same amount of money. That is the definition of an increase in wealth. It could be caused by better machinery, technology, or less expensive labor, the result is the same. We get richer as costs go down. Focusing on money instead of wealth will lead to ideas like it is better to pay more for the things we want, or at least that less expensive things are somehow hurting us.

As always, Bastiat’s insights are still relevant. I highly recommend his essay The Balance of Trade.

The same arguments have been floating around for hundreds of years, they are just as wrong now as they were then.

Categories
economics politics

What? Why didn’t he think about this before?

I really can’t believe Obama said this…

“We can’t keep on just borrowing from China,” Obama said at a town-hall meeting in Rio Rancho, New Mexico, outside Albuquerque. “We have to pay interest on that debt, and that means we are mortgaging our children’s future with more and more debt.”

Umm, why didn’t you think of that before pushing through that so called stimulus and all of those bailouts? I would use a well known saying involving a pot and kettle, but I don’t want to be accused of being a racist. Where does he think all this debt came from? And more importantly, why didn’t he worry about this BEFORE taking on all of that debt? Unbelievable…

Categories
economics free market medical

Another rant on medical costs

I’m getting another blast of medical bill nuttiness. Where to start…

As you may know, my insurance company has been denying all claims. I’m not going to get into that here, the upshot is that I’m getting the bills. I have had some success with negotiating lower prices at some places, my neurologist’s included. A big part of this negotiation involves me whipping out a credit card and actually paying the bill. Getting paid right away is a big incentive, at least to some people…

I needed a spinal tap, so naturally I was worried about the price. I knew that I could work with the neurologist’s but they made it clear that they lab costs were out of their hands. OK, maybe if I contact the lab and work out something before the test, I can work a good price. Hoo boy. I called my neurologist’s office to find out what lab they are using. I then called the lab. They directed me to another number for billing questions and then they sent me back to the lab. At that time, I was only trying to get a price. It turns out that the person I needed to speak to had already left.

So I went and got my spinal tap the next day, and at the lab I told them that my insurance wasn’t going to cover it. I asked if they had a discount for prepayment. They said they used to, but they stopped doing that on April 1. They did say I could pay for a third and then fill out a form to see if Riverside medical would be willing to forgive the rest. Um, OK. Can’t you do something now, I would prefer to pay now. They would do that only if I paid the entire cost. They would not move an inch.

I got a similar run around with some of the other doctor’s offices I dealt with from Riverside Medical. When I call to the office, they say they do not handle the billing. When I call, they are not willing to lower the price at all even though they were willing to accept my insurance company’s much lower payment. It was common practice for my mother (an orthopedic surgeon) to charge a much lower rate, usually the medicare rate, when the patient didn’t have insurance. So what’s going on?

What my neurologist’s office and my mother’s previous office had in common is that they did their own billing. All of the other people I have dealt with have others do the billing. Why does that matter? It matters because when I deal with people at the other offices, they don’t care if I pay or not. It isn’t their job to collect, their job is to do the paperwork properly. As a matter of fact, they have been conditioned to not get involved in the money aspects of the business, it is uncomfortable and messy. They insulate themselves to the point that they have no idea what things cost.

The problem is that the prices that are charged are set with the idea that the insurance companies will pay a fraction of that. If you do not have insurance, you are stuck with a much larger bill than the insurance companies would get. This isn’t necessarily a problem, reasonable people can quickly come to an agreement based on what the insurance company or the government pays for any given procedure. The key is that the other side has to be interested in getting paid, they have to be willing to make a deal. The companies that do not handle their own billing and the billing companies that do it for them are not interested. They just want to do their job. If you pay, you go into one slot, if you don’t pay, you go into the other…

All of this has had the perverse effect of making it attractive for the medical claim to go into collections. You see, the collection agent is paid based on their ability to get money. They have every incentive to get money, so they have every incentive to wheel and deal on the price. They would be ecstatic to get half of the bill paid. They take their cut, and the rest goes to the medical company. It’s their own stupidity and the incentives set up by their structure that prevent them from getting that money in the first place.

Categories
economics freedom

Tea parties and taxes

Alright, I’ve had about as much as I can take. The reaction to the “tea parties” has been ridiculous for the most part. I am not going to defend the political opportunism that a lot of the people in those protests showed. I’m positive that there were a significant number of people there that just don’t like Obama and would take any opportunity to vent. I’m not going to deal with them because I never take that sort of thing seriously. I’m going to talk about what those protests were nominally about, taxes.

There are two parts to tax protests, the amount of the tax and the use of the tax. I’ll deal with the latter first because it’s easy. I think that the repulsion of what our tax money has been used for stretches across all partisan lines. People of all stripes were appalled by the uses of our money. Bailouts of fabulously wealthy people (and campaign contributors), wars, propping up of failed companies (detroit, I’m looking at you), etc. I was amused when I read about some signs at a counter demonstration that read, “End corporate welfare!” They should have been part of the demonstration, not against it! Going into debt is not necessarily a bad thing, it depends on what you are buying. The recent misuse of our tax dollars is shocking, it should piss everyone off, no matter what their political leanings.

Ok, the other thing I hear in reaction to the tea party protests is that the people are stupid because Obama has actually lowered taxes on the people protesting. Let’s get this straight, OBAMA HAS RAISED TAXES DRAMATICALLY! What? Obama has done exactly what he has (rightfully) accused dubya of doing, piling on debt and leaving it for the next administration. What Bush did was terrible, but Obama has taken it to the next level. Why is no one calling him on this? Debt is simply taxes deferred. All of the debt that is being wracked up needs to be paid. There are two ways for us to pay it off, more taxes, or inflation. Either way, we will be getting the shaft. Why more people are not protesting the tax rate on their children I’ll never understand. Debt is taxes deferred. It’s the perfect political ploy, deliver stuff and don’t be around when the bill comes due. When we are languishing with rampant inflation and/or higher taxes, Obama wil be long gone.

People need to look past political affiliations and concentrate on basic accounting. That’s the main idea with the protests. The press and people that are prone to political partisanship are painting this as a “Which side are you on” issue instead of “We need to pay attention to what’s going on with our money.” Why is this so difficult for people to understand?

Categories
economics

AIG and GM

GM was already a disaster, now we have the government coming in to prop it up. Great… Here’s what’s going to happen, and you won’t hear it in the news. Most of the board will be let go, with millions and millions of dollars as severance. Millions, approaching billions will be paid to GM dealerships, and you know who will get that money; it won’t be the salesmen or mechanics, I can tell you that!

Why is there no outrage over this? GM has been responsible for trillions worth of waste and lost shareholder equity. Why were people willing to string up people over at AIG but are willing to give these people a pass? At least AIG could have possibly made money on their business model, GM was well on its way to collapse before the economy went into the tank. The hypocrisy here is sickening to me. Why are my tax dollars going towards paying off GM’s overextended dealer network? Why are we paying for their incompetence? Where is the outrage?

Categories
economics

A perfect rebuttal to Keynesian economics… on South Park

This bit makes it pretty clear what the problems are with the typical keynesian approach to getting the economy back on track. As usual, they might offend in the process, but the point is very clear. Why can’t we have this sort of clarity from our news sources?