“To economists, efficiency is a relationship between ends and means. When we call a situation inefficient, we are claiming that we could achieve the desired ends with less means, or that the means employed could produce more of the ends desired. “Less” and “more” in this context necessarily refer to less and more value. Thus, economic efficiency is measured not by the relationship between the physical quantities of ends and means, but by the relationship between the value of the ends and the value of the means.”

I’ve been meaning to respond to the many posts and articles that strongly assert that rising health care costs are best dealt with by more collectivization. The model for this collective effort is usually Medicare, and enthusiasts for the Blue model can usually conjure up data and anecdotal assertions that fit the bill as needed. Examples are trotted out that imply/signal efficiency like “great reports” etc.

Sadly, idealized signals are no substitutes for reality — and I recently came a concrete example of inputs vs outputs that went way beyond mere signaling or tortured data.

Imagine you are checking into the hospital for surgery and are evaluating the payment options. You ask the administrator what your choices are regarding paying cash or using your Medicare coverage. Which of the following two scenarios makes more sense to you:

1) The Collectivist Scenario:
You: “How much will it cost if I pay you with cash vs Medicare?”
Administrator: “Luckily you have Medicare coverage. Due to their negotiating clout and reduced administrative overhead, the regular cash cost of $11,000 is only $3,400, and with your 80% coverage, you only pay $680.00.”

2) The Market Scenario:
You: “How much will it cost if I pay you with cash vs Medicare?”
Administrator: “You paying now will greatly simplify things. Sparing us from the administrative hassle of the Medicare paperwork and the long wait to be reimbursed has value. A cash payment now would be $3,400. Otherwise, we will bill Medicare for an effective rate of $11,000 and you will pay the 20% of $2,200.”

Whatever your idealogical predilections, #2 is the reality of what I faced recently when I checked a relative into the hospital — and it’s not an anomaly. Play with Google a bit, and you’ll find a nearly inexhaustible set of accounts similar to mine. Help your hospital avoid the “efficiency” of Medicare and they will eagerly reward you. That’s IF they even accept medicare. As the NY Times reports, finding doctors who accept Medicare can be a challenge. As I learned, “reimbursement rates are too low and paperwork too much of a hassle.”

Efficiency? Let’s ponder. I think it’s safe to say price as a proxy for inputs is more than an accepted approach.

In terms of my personal inputs and outputs, Medicare is significantly more efficient than paying cash. I allocate 54% more cash inputs to garner the same output. Cash is only 65% as efficient as Medicare.

In terms of overall efficiency, things swing dramatically the other way. Cash inputs vs output now show the market route as being 3.23 times as efficient as the collectivist option.

Consider the societal impact for the pool of non-beneficiaries. Quite literally the difference is infinite. Zero payment vs $8,800. Given the incentive to save $1,200, most would be more than willing to impose a $8,800 cost upon that group of non-beneficiaries.

Welcome to Public Choice Theory.

Today’s episode featured a mildly bullying interchange between Krugman and Carly Fiorina where he either completely misunderstood her point or purposely attempted to put misleading words in her mouth. In this process, he inadvertently validates the notion that our corporate tax rates are too high, and that the Laffer Curve is alive and well.

The topic of conversation was why U.S. corporations are moving their operations overseas. Check out this (edited) clip below:

Fiorina says our business tax rates are the highest in the world which is true (in the case of corporate rates):

Krugman aggressively attempts to “refute” her point by oddly changing the subject to tax receipts(??). While he is accurate in his assessment that receipts are comparatively low, (at least as a percentage of GDP) this completely validates Fiorina’s main point about how businesses will aggressively pursue avoidance strategies (which include moving overseas!).

Decision: Fiorina

Bottom line. High rates induce companies to move overseas, which results in lower receipts. Make rates way too high and you’ll see an obvious disconnect between the two numbers. Sounds like a classic manifestation of the Laffer Curve to me…

“What hit New York wasn’t some debris from an old satellite. There’s an asteroid the size of Montana heading toward Earth and if it hits us, the planet is over. But we’ve got one last-ditch plan. We need a team to land on the surface of the asteroid, drill a nuclear warhead one mile into its core, and get out before it explodes. And you’re just the liberal arts major we need to lead that team… I don’t need some pencilneck with four Ph.D’s, one-thousand hours of simulator time, and the ability to operate a robot crane in low-Earth orbit. I need someone with four years of broad-but-humanities-focused studies, three subsequent years in temp jobs, and the ability to reason across multiple areas of study. I need someone who can read The Bell Jar and make strong observations about its representations of mental health and the repression of women.”

I find it priceless even though I am an opinionated blogger possessing a liberal arts degree. I take some small comfort that mine may be the one that’s “just right”(??)

If you were a simple-minded/unsophisticated dolt, you’d probably think that mandating state law enforcement officers to cooperate with federal immigration authorities would be legal and appropriate. If that’s you (and apparently Justices Sotomayor, Scalia and Kennedy) you need to stop and really ponder the underlying complexities of Arizona S.B. 1070.

If you’re really smart, you’ve already internalized the “exceedingly delicate and complex” side to Verrilli’s argument (emphasis mine):

KENNEDY: So you’re saying the government has a legitimate interest in not enforcing its laws?

JUSTICE SOTOMAYOR: Can I get to a different question? I think even I or someone else cut you off when you said there were three reasons why — 2(B). Putting aside your argument that this — that a systematic cooperation is wrong — you can see it’s not selling very well — why don’t you try to come up with something else? Because I, frankly — as the chief has said to you, it’s not that it’s forcing you to change your enforcement priorities. You don’t have to take the person into custody. So what’s left of your argument?

Do you see the light yet? If not, you may just be lacking in gray matter. Or are perhaps just too conservative in your thinking.

You may also simplistically think a federal mandate to purchase health insurance within state lines might be unconstitutional. If you stop for a second, turn off Nascar and really THINK, you’ll understand that a limited federal government with enumerated powers, REALLY means the federal government is empowered to legislate whatever it wants. Also that the right of congress to “regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes.” Means congress is empowered to exert control over ALL commerce.

Also, it’s likely difficult for many to “get” that something can definitely be a tax and definitely not be a tax at the same time.

Regarding the limited and enumerated aspect, again, Verrilli’s words should convince you:

JUSTICE ALITO: “Could you just—before you move on, could you express your limiting principle as succinctly as you possibly can? Congress can force people to purchase a product where the failure to purchase the product has a substantial effect on interstate commerce—if what? If this is part of a larger regulatory scheme? Was that it? Was there anything more?”

“With respect to the—considering the Commerce Clause alone and not embedded in the comprehensive scheme, our position is that Congress can regulate the method of payment by imposing an insurance requirement in advance of the time in which the—the service is consumed when the class to which that requirement applies either is or virtually is most certain to be in that market when the timing of one’s entry into that market and what you will need when you enter that market is uncertain and when — when you will get the care in that market, whether you can afford to pay for it or not and shift costs to other market participants. So those—those are our views as to – those are the principles we are advocating for and it’s, in fact, the conjunction of the two of them here that makes this, we think, a strong case under the Commerce Clause.”

See??? It’s easy to understand once you embrace the complexity.

Still don’t get it? The best of Verrilli is here.

I was sent this piece written by Philosophy major Matthew Yglesias yesterday. In it he attempts to emulate thinking like an economist, and signals in a way that the untutored will likely find impressive. Phrases like “regressive”, “subsidy” and even an “at the margin” are sprinkled in liberally. (Strangely — and very conspicuously for this specific instance, he omits the well-worn favorite of progressive pseudo-economists, and the ever-present justification for market intervention: “externality”.)

Here is his core argument (emphasis mine:)
“…developers assume that there’s widespread demand for cable TV and modem hookups, so they provide them…right now, new construction projects are generally required to provide parking, in effect taxing households with a below-average quantity of vehicles in order to subsidize households with an above-average quantity…at the margin does Seattle need to subsidize extra parking?”

Those who have a distaste for cars, gratuitous mobility, or greenhouse gases will no doubt inherently embrace this line of thinking.

Those of you who have sat through a few econ classes and have pondered scores of case studies over several years will no doubt immediately see numerous holes in his logic. Let’s walk through a few of them:

Parking, Cable and Their Supply Curves: Huge Differences in Incentives for Developers to Provide Them

Inserting cables into walls as they are being constructed impose negligible marginal costs to the builder and absolutely zero opportunity cost (cables in walls don’t displace housing units) — SO DEVELOPERS “PROVIDE THEM”. (Economists universally visualize supply curves in conjunction with demand curves BTW.) Things aren’t made widely available just because people “demand” them.

More parking spaces absolutely means fewer sellable apartments and/or smaller/less profitable ones. Huge difference.

Result? Builders are far more averse to displace apartments with parking than they are to stick cables in walls. Naturally they will maximize dwelling units, and minimize parking.

Parking is a Congestible Public Good, Cable TV is a Private Good

Unlike parking, functional cable TV connections don’t universally sprout out from the street for miles around. Since on-street (and other) parking options exist developers will inherently prefer to free ride on that capacity in order to maximize their revenues. This means fewer than desired parking spaces and hello tragedy of the commons. (Irony alert here — I’m referring to an externality problem…) The logical solution is to ensure developers don’t impinge on existing public capacity, and minimums are the easiest way to do that.

Arnold Kling (Econ PhD — sadly, no Philosophy credentials) deals with this here:

“Ah, but there’s the issue, don’t you see? How do you deal with the Coasian bargaining issues? Suppose somebody wants to put a big apartment building in my neighborhood, without providing parking, creating major inconvenience for those of us who no longer will have street parking available. How do we arrange for the developer to compensate us, or for us to pay the developer to provide us with parking?”

People Still Universally Drive Cars (and Need to Park Them)

Unicorns and rainbows aside, Seattle dwellers have not abandoned their automobiles for streetcars and fixies. If you are a Seattleite renting an apartment, you have a car and need to park it somewhere. Yglesias asserts that 16 percent of households don’t have cars — I don’t believe it. Given the still-ubiquitous nature of cars and the incentive for developers to not provide adequate supply, mandated minimums are appropriate.

Parking is Fungible

A “below-average quantity of vehicles” problem? Did you rent an apartment that includes a parking spot? Are you that one guy without a car? Are you a victim? No. See a doctor, and if he can’t cure you of your freedom/mobility-aversion, rent the space out to someone else. Problem solved.

“Extra” Parking?

“Extra”? Mandates provide parking “extra” parking above what’s needed? Based on the evidence above, try “enhancing supply in an attempt to better align to a proper market equilibrium” instead.

Have any readers tried to park in Seattle recently? Does it seem like there is “extra” parking or a ton of untapped capacity due to these regressive governmental mandates? Anyone? Bueller? I didn’t think so…

LA Times: Supreme Court greets healthcare mandate with skepticism

Chicago Sun Times: Justices’ queries could signal trouble for health-care law

CBS News: Supreme Court majority skeptical on health care law

Washington Post: Supreme Court expresses doubts on key constitutional issue in health-care law

While unconstrained thinkers like Nancy Pelosi find the notion of a constitutional challenge laughable, the concept of the commerce clause having limits seems logical to this person of constrained vision.

A few evenings ago I mentioned to some friends one other reason I felt Pelosi was off-base, and that Obamacare might be in trouble: Incentives. Imagine that you are a Supreme Court justice. Does it seem rational (given how the constitution is written) that you would take a position that would result in a significant reduction in your ability to direct future outcomes? Why would you rule that the commerce clause has no limits? Seems to me that would just mean you would rule yourself into irrelevance.

You don’t need to be a professor of constitutional law at Harvard to predict that Obamacare and the SCOTUS might be on a collision course. In fact, it may be best if you’re not so academically immersed.

As Charlie Munger says:

“Never, ever, think about something else when you should be thinking about the power of incentives.”

Related: Sowell refers to judges and incentives here.

“Any observed statistical regularity will tend to collapse once pressure is placed upon it for control purposes.”

Something to consider whenever you hear the word “targeting”.

Might provide a little balance to those who obsess single-mindedly over “Market Failure.”

Officers were told to arrest people who were doing little more than standing on the street, but they were also encouraged to disregard actual victims of serious crimes who wanted to file reports. Arresting bystanders made it look like the department was efficient, while artificially reducing the amount of serious crime made the commander look good.

Planned Parenthood of Houston and Southeast Texas officials filed thousands of false Medicaid claims worth more than $5 million, according to a federal whistleblower lawsuit.

The federal government sent the city of Detroit $11 million to, among other things, buy new clothes for job seekers. Instead of just giving out vouchers to use at private stores, the city’s Department of Human Services opened its own clothing boutique. You know where this is going. A program intended to help 400 people clothed only two, and spent $148,000 to do it.

After more than 100 crashes in 20 months, traffic engineers are rethinking the peculiar design of that twin-ring roundabout on Hillsborough Street in Raleigh. They know better than to blame all the drivers who keep banging into each other’s cars there, in front of the N.C. State University Bell Tower.

Mohair subsidy, which originated post WWII out of concern about the future availability of wool for military uniforms. Today, more than a half century later — when military uniforms are largely composed of synthetic material — the program still benefits goat herders in Texas, now under the friendly jurisdiction of the Agriculture Committee. The subsidy was seemingly killed in the mid-90s and again in 2001, but it was resuscitated each time by the loving care of special interests. And while it was defunded again last year, the underlying authorizing legislation remains on the books, ready to revive the subsidy at any moment.

There are separate windows for Amtrak and commuter lines everywhere I’ve been. Given that many journeys include both commuter and inter-city segments, this seems crazy. If you can’t have integrated ticketing (and actually, I don’t see why you can’t), at least you should be able to have a single agent help you.

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Prepping for my next trip on a plane, and hoped to download some lectures on YouTube to watch on my iPad while airborne. Normally I just do the old command + option + a Activity Window trick in Safari and it works like a charm. I get a FLV file (which I convert using an old copy of Quicktime Pro) and I’m good to go.

Problem is, it doesn’t work anymore. I suspect YouTube has “fixed” their site so the Safari download trick no longer does the job. Kind of like how Apple “fixed” Quicktime, so you can’t do any pro stuff anymore. (Someday I’ll do that “upgrades as downgrades” post…)

ANYWAY. After rejecting many programs that want me to pay $29.95, I downloaded a promising app called “iSkysoft Free Video Downloader” and sadly, it’s also broken. My guess is it relies on the same core process I was using before, and has not been updated.

Decided to go back to an old friend — DownloadHelper for Firefox. Worked like a charm. I’m totally back in business.

Normally I’d say one’s level of outrage over a “15 percent” tax rate on earned interest is inversely proportional to one’s knowledge of finance and/or taxation. Same thinking applies toward the notion that wages and income on savings demand equal treatment by the IRS (risk anyone?). A basic level of sophistication brings an understanding that the effective cap gains rate is much higher than the nominal rate — and is far from “15 percent.”

Greg Mankiw addresses this well here, and Krugman is forced to admit defeat but he feels obliged to snarl during the process while rambling in an unrelated vein about employee wages. The comments are revelatory. Normally he is universally cheered on by his readers, but even they are left scratching their heads.

Mankiw left out one pedestrian yet IMHO noteworthy point. That is that one is taxed on nominal gains, not on real gains. When one factors in inflation and looks at returns on T-Bills over the decade of 2000 to 2010 the effective rate of taxation is more like 25%.

What strikes me is that Krugman and his team shout about the injustice of “15 percent!” from the treetops even when they know that number needs serious adjustment in order to be compared to wage rates. Between corporate taxation and inflation we can be talking about an effective rate that’s at least twice that number. Why don’t they just be honest and say “35% is not enough!”??. Isn’t there a persuasive case to be made via honest analysis? Maybe not.

I have to say this obsession with the number 15 reinforces in my mind, the thinking of Don Boudreaux:

“Krugman spends the bulk of his time today, when writing for the general public, assuring the general public that its economically untutored instincts are correct.”