Ouch. This would appear to handily refute the non-intuitive argument Krugman made (and bloggers parrot) about the imagined efficiency of Medicare and Medicaid.
The official in charge of Medicare and Medicaid for the last 17 months says that 20 percent to 30 percent of health spending is “waste” that yields no benefit to patients, and that some of the needless spending is a result of onerous, archaic regulations enforced by his agency.
“…The government, unlike many private health insurance plans, is working in the daylight. That’s a strength.”
The official, Dr. Donald M. Berwick, listed five reasons for what he described as the “extremely high level of waste.” They are overtreatment of patients, the failure to coordinate care, the administrative complexity of the health care system, burdensome rules and fraud.
If his estimate is right, Medicare and Medicaid could save $150 billion to $250 billion a year by eliminating waste, which he defines as “activities that don’t have any value.”
(emphasis mine)
Some of us thought these efficiency arguments seemed fishy all along. A line I used to hear frequently from my professors was “intuitively, we know that…” One of the things we intuitively knew was that incentives matter (greatly). When you don’t have incentives for efficiency, you won’t get it. Market-based entities that can literally vanish from existence if they aren’t competitive have that incentive. Government agencies do not. Neither do banks that are “too big to fail.”
“Correspondingly, a large literature finds that when state-owned companies are privatized, efficiency improves dramatically, and a smaller company is required to produce the same level of output. Mueller (2003) lists 71 studies that compared the performance of state-owned companies: in only 5 of these studies did state-owned companies outperform their counterparts in terms of efficiency.”
MIT. 66 out of 71 studies. Ex post facto analysis. Common sense. Personal experience (I have worked in both government and private offices.) I call this case closed.
Robert Reich laments that workers can no longer purchase the goods they manufacture.
“For most of the last century, the basic bargain at the heart of the American economy was that employers paid their workers enough to buy what American employers were selling.”
Seems to me like the iPad is a poster child for this issue. Sadly, those Foxconn workers are not making the kind of money that provides an iPad compatible lifestyle.
Given this, I wondered what would happen if we just did the right thing and:
1) Repatriated manufacturing from China back to the USA
2) Paid the people who built them a fair wage
How would this work out? Luckily someone has already done most of the math. If we paid Americans the current $32.53 an hour wage (Average U.S. manufacturing/mining/construction compensation) for producing an iPad, Apple would need to charge $1,144.02 in order to keep their margins the same.
Problem is, Reich apparently doesn’t like the current prevailing wage. Wonder what an iPad would cost if we bumped that hourly up to a reasonable rate? Maybe $2,000?
Hey, works for me. All ya gotta do is make sure that sales don’t drop due to the price increase, and that all potential competitors worldwide agree not to be unscrupulous and take their manufacturing overseas as well. Could be a problem is somebody else comes up with a decent tablet that undercuts them significantly.
PS: This post made me nostalgic for the good old days. I remember when my dad worked at Boeing way back when. Still have those happy memories of picking up that shiny new 737 back in ’67 when it came out. Loved flying that classic around the block. Good times. Too bad those days are now likely lost forever thanks to the greed of Airbus.
We’ve been grappling for weeks with the issue of securing a domain name for our latest venture. After discovering Domize (and many other cool tools) on Steve Blank’s blog, I had two stellar candidates within an hour of playing.
One of the neat features of Domize is that it not only reveals what’s taken/not, but also many names up for bid or auction. One of the domain names we really liked was taken, but could be purchased from the owner for $350.00. Almost bought it, but another open one was better.
Kudos to Amazon. Their latest tablet was announced with a realistic price point. Unlike all(?) of the other competitors hoping to take on the iPad, they realized a basic truth that applies almost (but not quite) universally: If you are up against an entrenched competitor with a higher perceived value proposition you must charge less to compete.
Amazon’s refreshing reality-based strategy stands in sharp contrast to other notable suicidal and arrogant marketing plays: Microsoft’s Zune launch (same pricing as the iPod) and HP’s tablet (same price as the iPad).
I’ve been flummoxed trying to understand how any Fortune 500 company that wants to take on Apple can’t find in their gigantic Harvard and Stanford grad pool someone who took Econ 101 or doesn’t have some staffer who’s seen a demand curve. At least talk to an old-timer on staff who remembers how well the “costs less” strategy worked in the Windows/Mac battle of the 80’s and 90’s. I remember all too well how it seemed everyone I knew in 1989 really wanted a Mac — but went PC because they were half the price. Thanks to those fat, addictive profits per unit, Apple almost “margined” themselves right out of business.
I think it’s a combination of hubris, “We’re amazingco! We have millions of happy customers! Check out our shiny, big campus!” Along with the common addicted-to-margins syndrome. Especially bizarre to think margins are better than volume when you are trying to launch/expand a new platform and developer base.
I understand that it’s tougher now — that these days Apple’s pricing makes it difficult to undercut them and still turn a profit, fine — then don’t turn a profit. Given how beloved the iPad is, Apple’s amazing logistics, and the huge developer base they have, this is the reality you newbies face entering the market:
* Profit on each unit sold
* Significant/satisfactory quantities sold
* iPad spec parity
Pick two. You only get two.
Pricing matters. especially now in a tough economy.
My friend Steve cites a smart, educated, and experienced friend who has sadly been affected by the economic downturn and has now been laid off. She’s been offered a job at a pay scale that’s apparently inconsistent with the residential real estate industry work she’s had in the past (lower) and with hours that are also inconsistent (greater), given this, she has declined the position. Simply put, the offer didn’t hit her minimum compensation threshold.
She is frustrated that the “productive class” haven’t brought the decimated real estate industry back to 2007 levels and provided a job for her that’s consistent (or better I assume) with what she’s had in the past:
It makes my blood boil when the super wealthy call themselves “Job Creators” … I have ONE question for those people. WHERE THE FUCK ARE ALL THE JOBS YOU’RE SUPPOSED TO BE CREATING??
Finishing school commentary aside, Steve makes the case that her decision was likely based on a sense of injustice, not of incentives.
If Jane is one of those mythical “rational optimizers” that (right wing) economists love to talk about, she’ll say Yes to any offer. Some money is better than none, right?
But humans don’t do that. If the offer’s too low, they say FUCK THAT. They forego free money to enforce their sense of fairness.
While I do find the anachronistic devotion to the labor theory of value charming in a retro kind of way, I disagree with his analysis. First of all, Steve is fighting a straw man here. “Right wingers” don’t assume people lack a compensation threshold, or that leisure has zero value. His biggest error though is to assume (as he explicitly states) that the alternative to low pay is zero pay.
In this instance I might argue there’s more of a rational incentive-based decision process happening here. Especially if one or ore government assistance programs come into play. Given that on average WA state unemployment benefits provide a cash equivalent of $10 hourly (post tax), it’s easy to argue that working for $12.50 an hour (pre-tax) is just not rational. Especially if you’re not burdened by an irrational emotion-based “dignity of work” ethos.
Plus he ignores the single most relevant question: did someone else take the job? That simply must be answered with a “no” for his argument to be relevant. If this prospective employer found a taker for his offer the pay was appropriate (and maybe even high) by real-world market standards.
My reason for posting about this was a video I ran across today that I think aligns. It shows scores of people ostensibly pursuing employment yet rejecting opportunities to get hired. In many cases the job under consideration doesn’t provide the appropriate level of prestige that they seek from their peer group. Compensation is a big issue too, but mostly because it’s not high enough to match specific expense levels they want to address “pay off student loans” etc. There’s a hint of anger over inequity, but as you’ll see it’s mostly that they see themselves as having lots of other options. A few are here.
Just ran across this 2007 report from the Treasury Department. Combine it with this from the Red Cross and World Bank data, and we get a picture of how Americans migrate (from a global perspective) between modes of lowly relative prosperity to the heights of lavish comfort.
Key extracts below. (Emphasis mine)
There was considerable income mobility of individuals in the U.S. economy during the 1996 through 2005 period as over half of taxpayers moved to a different income quintile over this period.
Roughly half of taxpayers who began in the bottom income quintile in 1996 moved up to a higher income group by 2005.
Among those with the very highest incomes in 1996 – the top 1/100 of 1 percent – only 25 percent remained in this group in 2005. Moreover, the median real income of these taxpayers declined over this period.
The degree of mobility among income groups is unchanged from the prior decade (1987 through 1996). Economic growth resulted in rising incomes for most taxpayers over the period from 1996 to 2005. Median incomes of all taxpayers increased by 24 percent after adjusting for inflation.
The real incomes of two-thirds of all taxpayers increased over this period.
In addition, the median incomes of those initially in the lower income groups increased more than the median incomes of those initially in the higher income groups
Dan Mitchell of the Cato Institute has created a revealing flow chart that perfectly captures a rant I’ve been making verbally for 20 years. I should probably print it out and carry it around with me it comes up so often. After looking at this, one might wonder why anyone invests at all.
Among the econ and finance blogger set, there’s been a bit of a tempest in a teacup (IMHO) over an RFP asking vendors to supply the NY Federal Reserve with a bid for a comprehensive social media monitoring solution. Have not seen a similar uproar from the social media set.
As someone who for several years has been keeping up with latest developments in the monitoring space, this document seems to fall closely in line with what we see being demanded from big organizations of all stripes — in both public and private spheres. Big organizations just what to know what the buzz about them is, and engage when necessary.
I’d recommend this RFP as a good reference for our corporate partners to use when shopping their own needs.
Some key questions being asked:
What is the geographic scope of social media sites being tracked?
What languages are supported?
What sites and networks are the data gathered from?
Is it real-time?
Does it provide sentiment analysis? How is this managed?
Can it provide summary reports on specific topics? Can they be archived/saved?
Can summaries be drilled down into for granular analysis?
Is there a dashboard? Can it be customized>
Can it integrate with in-house platforms?
What is the price structure?
Archiving: How far back will it store?
How does it filter out unwanted items like spam, splogs and duplicate content?
Describe the search logic: Keyword, phrase, boolean, other
Can it exclude terms and/or sources?
How customizable is the core engine?
How is support and training handled?
Can it display traditional media alongside social media?
Does is inherently provide engagement features?
Can engagement be issued via our current social accounts?
What metrics are provided?
What types of alerts are available?
Can it weigh platform and user influence?
Can it offer best practices, key insights and actions/recommendations?
Is the data encrypted while in transit?
What variety of user access roles and access controls are supported?
Robert Reich 
