Archive for the ‘economics’ Tag

Relying on “Experts”   Leave a comment

I have emerged from the writer’s cave once more. I hope you’ve enjoyed the various reblogged articles. Thank you for your patience and I should probably even be back on Twitter when this runs. Lela

 

For April Fools Day of 1957, the British Broadcasting Corporation broadcasted a short segment about a bumper spaghetti harvest in southern Switzerland. The “documentary” explained that the bumper crop was due to “an unusually mild winter and to the virtual disappearance of the spaghetti weevil.” The television audience “watched video footage of a Swiss family pulling pasta off spaghetti trees and placing it into baskets. The segment concluded with an enthusiastic “for those who love this dish, there’s nothing like real, home-grown spaghetti.”

Related imageThe BBC reports that “hundreds of people phoned the network wanting to know how they could grow their own spaghetti tree.”

Okay, did you know that the word “gullible” is not in the dictionary?

Apparently, 7% of the American public believe chocolate milk comes from brown cows. Yeah, some of us are really that ignorant.

But, wait ….

I know a little bit about a lot of things. Writers research and we’re curious. But I really wouldn’t know how to build a car or manufacture a toaster. So while ignorance can be alarming, is it really so surprising? Few Americans live on farms anymore and most urbanites have never gardened. Many of us use appliances and gadgets with no idea how they are constructed and work. Without the skills, knowledge, and efforts of others, most of us would quickly perish. None of us would enjoy our current standard of living.

Conversely, one of the advantages of living in a modern society is that we don’t need to know how to construct the things we take for granted. We don’t even need to understand how they work. This frees us up to be “experts” in other fields while enjoying the benefits of what others know.

In 2008, British artist Thomas Thwaites set out to make a toaster from scratch. After nine months of mining, smelting, and assembling raw materials, he succeeded in making a rudimentary but extremely expensive and single-use toaster. When he used it for the first time, it melted.

Matt Ridley (The Rational Optimist) summarized the lesson of Thwaites’s toaster:  

To Thwaites this illustrated his helplessness as a consumer so divorced from self-sufficiency. It also illustrates the magic of specialization and exchange: thousands of people, none of them motivated by the desire to do Thwaites a favor, have come together to make it possible for him to acquire a toaster for a trivial sum of money.

Our state of boundless ignorance leads directly to “the case for individual freedom,” Hayek argues in The Constitution of Liberty. Achieving “our ends” depends upon us recognizing that we are ignorant of much of what we need to flourish. Hayek writes:

It is because every individual knows so little and, in particular, because we rarely know which of us knows best that we trust the independent and competitive efforts of many to induce the emergence of what we shall want when we see it.

We live comfortably in a state of ignorance because, in a modern economy, others are free to cooperate and provide for our needs without necessarily even knowing we exist.

The possibility of men living together in peace and to their mutual advantage, without having to agree on common concrete aims and bound only by abstract rules of conduct, was perhaps the greatest discovery mankind ever made. (Hayek in Law, Legislation and Liberty, Volume 2)

 

Of course, nowadays, our ignorance is used as an argument insisting we need to be directed by the self-proclaimed wisest among us. Listen to the “experts” because they aren’t ignorant. Really? I’m willing to bet that any expert you look at is personally ignorant in some field in which you are expert. Expertise is usually in a narrow field and outside of that field, the “expert” is just an ordinary ignorant person. So why do we act as if their expertise in some narrow field makes them expert in all fields? Einstein was a great mathematician, but he once lost his ticket on a train and had no idea where he was going.

A part of the push toward technocracy has to do with our desire to control others through government force.

“Humiliating to human pride as it may be, freedom means the renun­ciation of direct control of in­dividual efforts,” Hayek explained. When we renounce controls, “a free society can make use of so much more knowledge than the mind of the wisest ruler could comprehend.”

I may be ignorant in many areas, but when I encounter a field where my ignorance will be a problem, I take it upon myself to become educated on the subject. That’s one reason that I feel free to offer my opinion on so many topics. I may not be “an expert” in that I lack a license and haven’t spent four years studying it in an accredited college, but I know enough on some subjects to know what works and what doesn’t. I can see, for example, that old-fashioned supply-and-demand economics makes more sense in reality than Keynesian voodoo. By and large, I am comfortable with making my own decisions, secure in the knowledge that I can educate myself, weigh the value of the advice derived from “experts” and take the hits if my analysis fails.

There is evidence that a declining percentage of Americans believes that uncoerced cooperation is the best way to satisfy our needs. “According to an April 2016 Harvard University pollsupport for capitalism is at a historic low.” The Harvard poll echoes a 2011 Pew Research Center survey, in which 46% of 18- to 29-year-olds had a positive view of capitalism, and 47% held a negative one. Many of these young people would prefer if the government controlled the economy at the level of individual interactions because they believe people other than themselves are just too ignorant to make their own decisions.

Being ignorant that spaghetti is produced by processing wheat is not inherently a problem, but ignorance of how markets work can become one. The cornucopia of food that predictably appears on supermarket shelves today is the product of a market process in which farmers, manufacturers, trucking companies and supermarkets spontaneously cooperate on our behalf. It’s been feeding us very well for many years. Government would only complicate the functional system. If Americans are ignorant of these invisible market processes, they may support socialism and policies that interfere with the freedom of others to cooperate and create. Just look at how the thriving Venezuela of yesterday became the impoverished, chaotic, socialist Venezuela of today.

Were we directed from Washington when to sow and when to reap, we should all want for bread. (Thomas Jefferson, Autobiography, reprinted in Basic Writings of Thomas Jefferson, 1944)

Not knowing how spaghetti or chocolate milk gets made won’t cause starvation, but socialistic inference in the market is causing it in some countries today and could cause it in the US if we don’t curtail our human arrogance and desire to control what others do.

Yes, Stephen Curry Really Is Worth $201 Million | Matthew Doarnberger   Leave a comment

Image result for image of steph curryThe aftermath of an entertainer, especially an athlete, receiving an enormous contract worth more than average Americans will see in their entire lifetimes often causes some pretty opinionated responses. Thus, it was no surprise that this was the case when Golden State Warrior’s point guard Stephen Curry received a new contract for five years totaling $201 million.

Source: Yes, Stephen Curry Really Is Worth $201 Million | Matthew Doarnberger

This is currently the richest deal in NBA history. To earn this type of payday, Curry has won two MVP’s and two NBA Championships over his past three seasons.

Beyond the Bare Necessities

As it turns out, the Charlotte Observer’s Scott Fowler is not so thrilled about Curry’s new deal. A recent article of his is entitled “Is Steph Curry really worth $201 million? Is anybody?” Fowler makes a number of statements in the piece disapproving of the contract. Let’s take a look at these claims in order to debunk the totality of his argument.

Let’s start with this: No human being on the planet needs to be making a guaranteed $201 million over five years, including Steph Curry.

Of course, “needs” is a relative term. If the true necessities of life can be reduced to food, water, clothing, and shelter, then anything outside of basic subsistence is something that an individual does not “need.”

Someone living an impoverished life would view Fowler’s comfortable, middle-class life the same way that he views the life lived by Curry.

Although I don’t profess to know how much Scott Fowler is paid by the Charlotte Observer for his services, I’m quite certain that he makes enough to afford things that he doesn’t necessarily “need” for his survival. Therefore, someone living an impoverished life in a third world nation would view his comfortable, middle-class life in America the same way that he views the life lived by Curry.

So if Fowler can legitimately criticize Curry’s contract on the grounds that it enables him to make much more than he “needs,” then it would also be legitimate for a third world resident to criticize the amount that Fowler is paid given that he is comparatively compensated as a sports journalist to a degree that also enables him to live far above an individual living at the subsistence level in an underdeveloped country.

Fortunately for Fowler, those who make so much less than he does do not have the means to go online and criticize him for his comparatively lavish salary.

Athletes Are the Ones Filling Stadiums

When some public school teachers are fortunate to make $40,000 a year, no athlete needs to average $40 million (which, at that rate, would fund 1,000 school teachers a year).

What Fowler has done here amounts to choosing a popular, presumably underpaid profession that garners sympathy from the public and highlights the massive gap between their salaries and the salary he is demonizing. A closer look at both teachers and star athletes in popular, American sports shows why this gap appropriately exists.If Curry receives a gargantuan contract for his abilities, that doesn’t mean that teachers have less as a result.

After all, the number of people willing to spend money on tickets to watch a teacher perform his/her job would not be enough to fill a sports stadium. In addition, there isn’t a market for televised teaching to the point that advertisers are willing to spend money to put commercials on during a televised teaching session.

Since the athletes are the ones that people are paying to see and advertisers are willing to spend money in order to advertise to those who watch via television, it makes sense that those athletes should be compensated for the revenue that they bring in. In fact, due to the NBA “max salary” format and the league’s salary cap, one could argue that the game’s best players are actually underpaid.

This criticism gets even more absurd when considering that the owner of NBA teams (in Curry’s case it’s Joe Lacob) is worth more than any of the team’s players. If NBA stars like Curry weren’t able to make this much money, then their wealthier owners would get to keep more of it.

In addition, money isn’t zero-sum. Simply because Curry receives a gargantuan contract for his abilities, that doesn’t mean that teachers or other professions have less as a result. In fact, given the amount of taxes that Curry will pay on his new salary, he will be sending more money to the local educational system (not that there is any connection whatsoever between spending on education and student performance).

Just Compensation

Lastly, let’s not succumb to the myth that the state can simply “take” from someone who makes an “unfair” salary and just give it to someone that society feels deserves it. We’ve seen this through anti-poverty programs where it takes the government many times more dollars to actually spend on those programs than what actually reaches the intended target.

NBA players are compensated for the audiences they attract and the value that they create.

So it then looks highly unlikely that this same government could seize a huge portion of Curry’s income and seamlessly distribute it among teachers (despite The Ringer’s Michael Baumann claiming that we would be better off if we did this). Sorry, but the track record of the state strongly suggests otherwise.

So don’t be upset at Curry, Lacob, the NBA or anyone else for this situation. NBA players are justly compensated for the audiences they attract and the value that they create. Teachers are not undervalued or underpaid as a result of large athlete contracts. The quicker we realize all of this, the quicker we can stop this misguided blame for society’s ills.

Reprinted from Libertarian Sports Fan.

Posted August 10, 2017 by aurorawatcherak in Common sense

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Everything You Need to Know about Government, in One Story | Daniel J. Mitchell   Leave a comment

Every so often, I run across a chart, cartoon, or story that captures the essence of an issue. And when that happens, I make it part of my “everything you need to know” series.

 

 

Source: Everything You Need to Know about Government, in One Story | Daniel J. Mitchell

I don’t actually think those columns tell us everything we need to know, of course, but they do show something very important. At least I hope.

And now, from our (normally) semi-rational northern neighbor, I have a new example.

This story from Toronto truly is a powerful example of the difference between government action and private action.

A Toronto man who spent $550 building a set of stairs in his community park says he has no regrets, despite the city’s insistence that he should have waited for a $65,000 city project to handle the problem. 
Retired mechanic Adi Astl says he took it upon himself to build the stairs after several neighbours fell down the steep path to a community garden in Tom Riley Park, in Etobicoke, Ont. Astl says his neighbours chipped in on the project, which only ended up costing $550 – a far cry from the $65,000-$150,000 price tag the city had estimated for the job. …Astl says he hired a homeless person to help him and built the eight steps in a matter of hours. …Astl says members of his gardening group have been thanking him for taking care of the project, especially after one of them broke her wrist falling down the slope last year.

There are actually two profound lessons to learn from this story.

Since I’m a fiscal wonk, the part that grabbed my attention was the $550 cost of private action compared to $65,000 for government. Or maybe $150,000. Heck, probably more considering government cost overruns.

Though we’re not actually talking about government action. God only knows how long it would have taken the bureaucracy to complete this task. So this is a story of inexpensive private action vs. costly government inaction.

But there’s another part of this story that also caught my eye. The bureaucracy is responding with spite.

The city is now threatening to tear down the stairs because they were not built to regulation standards…City bylaw officers have taped off the stairs while officials make a decision on what to do with it. …Mayor John Tory…says that still doesn’t justify allowing private citizens to bypass city bylaws to build public structures themselves. …“We just can’t have people decide to go out to Home Depot and build a staircase in a park because that’s what they would like to have.”

But there is a silver lining. With infinite mercy, the government isn’t going to throw Mr. Astl in jail or make him pay a fine. At least not yet.

Astl has not been charged with any sort of violation.

Gee, how nice and thoughtful.

One woman has drawn the appropriate conclusion from this episode.

Area resident Dana Beamon told CTV Toronto she’s happy to have the stairs there, whether or not they are up to city standards. “We have far too much bureaucracy,” she said. “We don’t have enough self-initiative in our city, so I’m impressed.”

Which is the lesson I think everybody should take away. Private initiative works much faster and much cheaper than government.

P.S. Let’s also call this an example of super-federalism, or super-decentralization. Imagine how expensive it would have been for the national government in Ottawa to build the stairs? Or how long it would have taken? Probably millions of dollars and a couple of years.

Now imagine how costly and time-consuming it would have been if the Ontario provincial government was in charge? Perhaps not as bad, but still very expensive and time-consuming.

And we already know the cost (and inaction) of the city government. Reminds me of the $1 million bus stop in Arlington, VA.

But when actual users of the park take responsibility (both in terms of action and money), the stairs were built quickly and efficiently.

In other words, let’s have decentralization. But the most radical federalism is when private action replaces government.

 Reprinted from International Liberty

Editors Note: Since this article was originally published, the local government tore down Astl’s $500 stairs, citing “safety standards,” and plans to replace it with a $10,000 set.

Is Income Inequality Real? | Antony Davies   Leave a comment

Income inequality has been in the news more and more, and it doesn’t look good. It’s aggravating to see people making more money than you, and we’re told all the time that income inequality is on the rise. But is it? And even if it is, is it actually a bad thing? This week on Words and Numbers, Antony Davies and James R. Harrigan talk about how income inequality plays out in the real world.

Source: Is Income Inequality Real? | Antony Davies

 

For more on this, see:

And for research, see:

Posted August 4, 2017 by aurorawatcherak in economics, Uncategorized

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Can the Jones Act, Save Alaska   1 comment

Protectionism does damage to the economy. How do I know? I live in Alaska, where the Jones Act has been protecting the American Merchant Marine for nearly a century. I pay 30% more for my groceries than you do anywhere else in the United States. I paid $3.89 a gallon for gasoline yesterday. The rest of the country paid, on average $2.46. Some of our high prices are due to higher shipping costs (we are, afterall, 2000 miles from the mainland), but hidden in those costs is the cost of the Jones Act.

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For almost 100 years, the act has created monopolies for domestic shipping interests, undermined the U.S. shipping industry, and done long-term damage to local economies in Hawaii, Alaska and Puerto Rico. Like nearly all protectionist efforts, the law has, over time, undermined the very thing it was designed to support: national security during times of war through an unparalleled shipbuilding industry and U.S. Merchant Marine.

Under terms of the law, sea trade between any U.S. ports is required to be carried on U.S.-built ships that are also U.S.-owned and flagged and populated by crew composed of at least 75% U.S. citizens. These manufacturing and labor restrictions took effect when the German U-boat submarine — not offshoring — was the biggest risk to U.S. commerce. But research by the George Mason University’s Mercatus Center shows the law has contributed to making the U.S. shipbuilding industry largely uncompetitive over the past 60 years.

As the Mercatus study notes, there were 2,926 large ships in the U.S. commercial fleet in 1960, making up 16.9% of the world fleet. By 2016, that number had fallen to 169 ships, only 0.4% of the world fleet. U.S.-flagged ships carried 25% of U.S. international trade in 1955; by 2015, the share had dropped to 1% of total exports.

In any other industry, this sort of economic decline would have set off alarms and drawn a major political response. In a 1999 study, the U.S. International Trade Commission estimated the Jones Act cost U.S. consumers $1.32 billion annually, its requirements being the equivalent of a 65% tariff on shipping services.

So where’s the outrage? Both the Interstate Highway System and cheaper aviation have made massive inroads into interstate commerce over the past century. Meanwhile, U.S. export and import businesses simply use cheaper foreign-flagged vessels. It also helps that U.S. airlines aren’t prevented from purchasing aircraft from Europe, Canada, or Brazil nor U.S. truckers from buying German or Japanese-made big rigs. While no one would propose banning airlines or truckers from relying on these foreign industries, this is precisely what the Jones Act does for the U.S. shipping industry.

Itermodal transportation options have exploded throughout the contiguous United States, while the seafaring industry’s decline has largely been hidden from view, except for the non-contiguous states of Hawaii and Alaska and insular territories like Puerto Rico. In Puerto Rico’s case, the Jones Act is the structural foundation behind much of its current economic woes. It’s estimated that the cost of all non-U.S. goods imported into the commonwealth are 15 to 20% higher than on the mainland, with three or four Jacksonville-based shipping companies handling all Jones Act-related transport to Puerto Rico. Thanks to these shipping costs, cars cost roughly $6,000 more in Puerto Rico than on the mainland, and food is roughly twice as expensive as in Florida.

It’s easy to find similar examples of major trade distortions between West Coast ports and Alaska and Hawaii. Cattle ranchers from the Big Island have to charter a weekly 747 cargo jet to get their cattle to the mainland because it’s cheaper than Jones Act shipping. In the 1970s, it was cheaper for a Japanese-owned pulp mill in Southeast Alaska to send its products to Japan and then back to Seattle — 8,000 miles round-trip — than to ship the 700 miles directly to Seattle. There is no wood pulp industry left in Alaska today. While some would like to say it was a victim of environmentalism, the last company to operate here says the real culprit was the Jones Act and its insane costs. In the 21st century, such irrational shipping decisions would bear the additional worries about the excess carbon emissions they produce.

Of course, this has been allowed to continue because Alaska, Hawaii and Puerto Rico have tiny little voices in Congress, so they can’t be heard over the bellicose slogan shouting of the Longshoreman’s Union. Coincidentally, the shale oil and gas revolution is bringing attention to the Jones Act in parts of the country with more political clout. The December 2015 lifting of the 40-year ban on crude-oil exports has boosted oil exports to more than 500,000 barrels a day out of Texas and Louisiana ports. Yet according to the Congressional Research Service, refineries along the U.S. East Coast on average import more than 500,000 barrels of crude a day from Nigeria, Angola, and Iraq, rather than from the U.S. Gulf Coast — thanks, once again, to costs imposed by the Jones Act. Shipping from Texas to Northeast refineries costs roughly $5–6 per barrel using domestic shipping, while shipping even further up the Eastern Seaboard to refineries in eastern Canada (using international tankers and crews) costs just $2 a barrel. For a standard tanker carrying 300,000 tons deadweight, this amounts to cost savings of about $1 million per shipment.

Labor costs are the most significant difference. A unionized U.S. sailor is 5.5 times more expensive than one on a foreign-flag vessel, and such vessels are usually populated with sailors from many nations, especially the Philippines and China. A separate 1915 U.S. statute, written when ships were run by steam boilers, adds to the cost by mandating larger crews to keep watch over the boilers 24 hours a day. The statute is still in effect, even though U.S. ships are now powered by much safer diesel motors or, increasingly, by natural gas turbines.

Jones Act defenders argue loudly that the Act must be preserved because “national security” is at stake. But few commercial ships are useable by a 21st century Navy. There have been thousands of foreign-flagged commercial vessels docked in US ports every year since 2001 without a single terrorist incident tied to them. How would traffic between U.S. ports by these ships somehow increase the terrorism threat?

The 97-year-old law is many decades past due for serious amendment and perhaps even complete repeal. The upcoming centennial, in 2020, presents an ideal opportunity to highlight the Jones Act’s mercantilist history — and to bid it a final un-fond farewell.

ACA Repeal Failed … So What?   Leave a comment

Related imageSo the Republican Senate failed to tweak the misnamed Affordable Care Act (ACA) and then they failed to repeal the individual mandate and most of us who are being damaged by this destructive law are frustrated, but let’s be honest – what Congress was proposing wasn’t going to fix Obamacare. It is a deeply flawed law at fundamental levels because it ignores economic realities and anything that affects 1/5th of the US economy must be grounded on firm economic principles. So we shouldn’t be surprised that it’s failing.

We also shouldn’t be surprised that the GOP can’t fix it because they fear a backlash from the public who are being brainwashed to believe they need to prepay approximately 16,000 a year for medical care.

That is how US medical “insurance” works. It is not health insurance as insurance normally works. I have car, house and life insurance. These policies are much less expensive than medical “insurance”. I pay less per month for all three of these policies than I do for my portion of my employer-provided medical insurance. Why do I have those insurances? I mean, my car insurance doesn’t pay to repair my car or put new tires on it. My life insurance is only going to pay out if I die. My house insurance will pay me something if I have a fire or a tree falls on the roof, but it won’t replace the shingles if they wear out and the money for the new kitchen flooring must come out of my pocket. So why do I have these insurances since they don’t act like medical “insurance”? I have them to mitigate my financial liability in the event of a catastrophic event. If I die, if my house catches on fire, if some idiot slides into me at an intersection … but not for everyday expenses.

This is substantially different from how medical “insurance” works under the ACA. It covers day-to-day medical expenses. You can even get reimbursed for some over-the-counter medications. It’s not, truly, insurance. It’s prepayment of a portion of future medical care. I pay about $5000 a year for my portion of my employer-provided medical prepayment, but I have friends who are paying more than $16,000 a year for the same service and I know some people who would be paying nearly $30,000 a year (through the ACA exchanges) but they’ve opted not to participate in the stupidity any longer. Some people would say they are the reason the ACA is failing.

Let’s give them a round of applause!

 

In the Alaska Dispatch News this week, commenters were saying the ACA was required because the insurance and medical care systems were on the verge of collapse in 2009 and without the ACA, none of us would have medical care now. Let’s not get confused here — medical insurance is NOT medical care. I have medical insurance and the cost of it makes it difficult for me to afford medical care. I have never used more than $5000 in a year for medical care. If I had that money, plus the pay raise that would be possible if my employer weren’t paying $20,000 for their portion of my insurance, I would have a huge savings account at the end of 10 years instead of being unable to pay for medical care.

So, I got shouted down on the Dispatch and here’s my response.

Health care was hardly an unfettered, dynamic source of free-market driven innovation before President Obama decided to turn it into a socialistic system. Really! Take a look at history.

 

Repeal of the ACA would make an impressive headline and give the GOP something to crow about, but the short and long-term political consequences of repeal for Republicans would have been worse than doing nothing. After all the promises the ACA made of a medical care nirvana, we would have returned to the less-than-stellar system that existed before the ACA came into effect. The folks who are being crushed by trying to pay for unaffordable health insurance would be relieved not to be going bankrupt, but the problems with US medical care that existed in 2010 will still exist.

The ACA was a foolish legislation that ignored economic reality and it is already failing because of that. Go back to my articles from Economics in One Lesson by Henry Hazlett. Government policies fail because they focus on a temporary benefit for a narrow slice of the population instead of focusing on the long-term consequences of the broad swath of the country. Obamacare gives some Americans a lot for a little, with a lot taken from others in return for very little. Of course, it’s failing.

What evidence do I offer that it is failing? The rapid exit of insurance companies from the ACA exchanges indicates that the system is failing. The 300% increase in premiums in Alaska is further evidence. The 200% increase in premiums in several other states is another sign. The huge deductibles most of us now have on our insurance policies should wake us up. Some of us are woke up, but more of us are still brainwashed to believe this is medical “insurance” when it isn’t.

 

None of the politicians or those who support them are discussing how there is no right to any good or service of any kind. That means there is no right to health care, which didn’t really exist as we know it before the 20th century. In the 19th century, people routinely died of injuries and illnesses. A broken hip was a death sentence. If you got cancer, you were going to die. A sizeable percentage of women died in childbirth. Death was the norm before the 20th century.

Legislation didn’t change that. Trial and error by medical providers experimenting on their patients led to healing advances such that a market was created. In the late 19th and early 20th centuries, consumers began to seek medical care. Doctors were affordable. Churches operated hospitals. Fraternal organizations offered memberships to direct primary care clinics so that even laborers could afford medical care. Politicians then discovered medical care and decided it needed to be regulated.

It started small … with the American Medical Association complaining that doctors who were not part of the primary care clinic system were at a competitive disadvantage to those that were AND, convincing some politicians that doctors in general needed to be regulated by a wise, overseeing organization. Selflessly, the AMA offered itself as the wise director of this ultra important service. Of course, they didn’t have a crystal ball — in 1910, they didn’t foresee the coming of antibiotics let alone the MRI. That’s the problem with regulating any industry. Nobody can see the future. And, so as the future slowly presented itself, the government regulators kept looking back at 1910 medicine and trying to hold that standard, requiring innovation to climb a high regulatory wall before it can come to the marketplace. It takes 12 years of post-secondary education to create a doctor. It costs millions of dollars to bring new medications and treatments to the public and nowadays it’s very hard to test them on animals or people. But the real problem kicked in the Nixon administrations with the certificate of need requirement. That is the regulation that requires medical providers to show if a new facility, addition, or treatment is really needed. That can take years and add millions of dollars to any project or treatment. That boosts the cost of everything medical and often there is a requirement involved that new facilities don’t undercut existing facilities, which does nothing to reduce costs. The high costs and barriers to medical school reduces the number of doctors available to see patients, which means the existing ones don’t have to be concerned about competition, so can charge whatever they want.

All that existed before the ACA became the law of the land. Instead of fixing those problems, Obamacare exacerbated them. The absolute worst way to solve any problem, particularly one involving goods and services created in the marketplace, is to try and legislate it, but that’s exactly what we’ve done with medical care in this country. We had a good “system”, but we have gradually turned it into a nightmare with over-regulation.

I don’t believe that the ACA delayed the comeuppance of the medical care markets in the US. I think it accelerated it. Now the ACA is failing. Forget what the GOP failed to do … I know a half dozen people who have stopped paying for medical insurance. They came to a place where the premiums were higher than their mortgage payment and decided to break the law. Some of them  have mitigated their financial risk by buying a major medical (catastrophic) policy and piling up savings. Others are still scrambling to figure it out, but I trust they’ll work it out. I’m not worried about them. They know what they need to do and they’ll get there soon enough. I expect a lot of people will be going that route in the near-future. I wish I could join them, but I’m stuck in an employer-provided system.

So, the ACA is failing and that will be unfortunate for the people who bought into the “free to you” rhetoric. It’ll probably work out well for the middle class who didn’t qualify for subsidies and were being crushed by premiums. I’m concerned that govenment will insist they have to make it work even when it can’t work. I’m less concerned with the GOP in Congress, but I think President Trump — who has said in the past that he prefers univeral, single-payer medical insurance — will be tempted to slow down the crash with regulatory tinkering. I hope he doesn’t do that because as soon as it fails is when a real and productive conversation about medical care (not insurance) can start.

I don’t have a crystal ball, but I’m going to use my writer’s imagination here.

The ACA fails and the medical insurance industry crash hard. People who have been prepaying $16,000 a year for a few thousand dollars of medical care will now be desperate to mitigate their fianncial risk in the event of a medical crisis. They will rush to the major medical/catastrophic insurance providers. They will take the additional $14,000 and either pile up savings or join a direct primary care network. They will now pay $3000 a year for medical insurance and medical care access which will allow them to pile up savings to pay out-of-pocket expenses or to invest that additional $10,000 a year in something that will actually provide productive value to their lives. Medical care will still be available. A lot of it will be expensive, but as people realize how much it costs to get an MRI, for example, they will begin to demand to know why and the costs will come down. What’s more, people will start taking care of themselves and taking responsibility for their own stupid behaviors. New insurance products will appear. If you’re an extreme athlete, you may be able to get an insurance policy to cover the potential consequences of your stupidity, for example. That would be an insurance policy that couch-potatoes don’t have to buy because they are not flinging themselves off cliffs with snowboards tied to their feet.

Because the American people have become such sheep, in need of the government to tell them what to do on the most basic things, I suspect things won’t work out this well, but I can hope.

Posted July 31, 2017 by aurorawatcherak in economics, Uncategorized

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Peril of Perfectionism   4 comments

Don’t let the perfect get in the way of the good. That’s an old saying that has never been truer than today.

Environmental activists tend to be perfectionists. They want air quality to be completely free of all pollutants. That sounds like a worthy goal until you realize that it is unachievable.

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Seriously. If we want to have warm homes, be able to travel and make things for consumption, we have to burn fossil fuels to power things. Currently, renewables make up less than 10% of the energy available and that’s with massive government investment well above the return on the dollar. Fossil fuels may be replaced someday by nuclear electric powering hydrogen fuel cells, but we’re nowhere near that dream right now.

And, then there are the forest fires. I woke up to completely natural air quality contamination on Sunday morning, but that’s another topic for another day.

While some activists want to eliminate all fossil fuels use in the name of air quality, it is not possible without major disruption to our quality of life, jobs and economy. That’s the “perfect” getting in the way of the good.

The United States has made major environmental improvements over the last 40 years. That’s a net good for all Americans and we certainly don’t want to backslide now, but many environmentalists refuse to see the good that has already been done and to recognize that clearing the air completely is not possible.

Consider this example of positive change. Totem Ocean Trailer Express (TOTE) hauls more than 35% of all goods consumed in Alaska. That makes them a vital part of the Alaska economy. When they lost a barge in a storm last winter, our grocery store shelves looked pretty barren for the next month while they strove to replace the lost stock. If they failed to sail at all, Alaskans would go hungry.

In 2012, TOTE announced plans to convert its maritime fleet to operate on cleaner-burning liquefied natural gas (LNG). The fuel switch on its East Coast ships operating in the Caribbean is complete. Now, TOTE Alaska Maritime is focusing on the transition of its vessels operating between Tacoma and Anchorage.

In 2014, TOTE inked an agreement with Puget Sound Energy (PSE), Washington’s largest supplier of electricity and natural gas, to furnish LNG for its ships, but now its LNG conversion has hit a roadblock.

Activists are attempting to block construction of PSE’s $300 million LNG plant on Tacoma’s Tide Flats. If they succeed, they will put Washington’s ports at a competitive disadvantage with Los Angeles and Vancouver, B.C., ports which are currently adding LNG facilities.

“By switching from diesel to LNG, maritime vessels at the port will reduce their greenhouse gas emissions into Tacoma’s air by more than 30 percent and dangerous particulate (smoke) emissions by more than 90 percent,” Puget Sound Energy Vice President Andy Wappler pointed out in The News Tribune in Tacoma.

The Environmental Protection Agency calculated there are 23 million people with port-related jobs and seaports account for 26% of the U.S. economy. There are an additional 39 million Americans who live in proximity to ports.

LNG processing reduces greenhouses gases and eliminates other air contaminants. During conversion from natural gas to LNG, CO2 and other pollutants are removed. LNG is simply the same natural gas many Americans use in our homes and businesses, only purified and refrigerated to minus 260 degrees, where it turns into a liquid. It is not explosive or even particularly flammable in its liquid state.

When warmed, it’s the same fuel folks use in their stoves and furnaces, and requires the same safety precautions. LNG storage tanks are not pressurized, so cannot blow up if there is a breach.

The tank PSE plans to install in Tacoma is “designed to withstand a once-in-every-2,450-year earthquake (compared to our highway bridges, which are designed to a 1,000-year-earthquake standard),” Wappler contends.

PSE’s new facility doesn’t just benefit TOTE and other shippers. Wappler figures it will save its natural gas customers between $50 million and $100 million over 10 years compared to the cost of increasing pipeline capacity into the region.

There is one other environmental benefit. TOTE’s relationship with Alaskans for Litter Prevention and Recycling brings tons of recycled material to Tacoma for processing.

Grace Greene, TOTE’s Alaska general manager, told Alaska Business Monthly magazine there are other partners who contribute to the project, “but we’re probably one of the top three contributors, to the tune of more than $1 million every year.” Recycling has never really taken off in Alasaka because of the cost of shipping refuse to the Lower 48 for processing. TOTE is improving that situation and perhaps reducing the amount of trash Alaskan landfills collect.

As with everything humans do or build there are associated risks, but total risk avoidance is impossible. Why strive for the perfect and reject the good getting better?

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