However, in the long-term, they did the wrong something.

In the long-term, Europe has created a worse moral-hazard than the bank bailouts in the United States caused with its financial bailouts: a clear signal has been sent that politicians can bargain their way to political power by writing blank checks to public unions and other rent-seeking interests, and there will be no day of reckoning. Worse, the signal has been sent that, if you are a responsible, Prussian government that controls wage inflation, you will be forced to pay for the spend-thrift irresponsibility of your over-mortgaged southern neighbors. The lesson is clear: savers are suckers.

Europe should have looked at how the United States handles bad local governments…let them go bankrupt. By letting bad local governments go under, local governments in the United States can get out from under the bad decisions of previous governments and restart under firmer footing. Indeed, as Alabama has shown in recent years at the county-level, the threat of a bankruptcy by a local government is usually enough to bring creditors to debt restructuring, saving the county from needing to file.

By contrast, Greece’s government now lacks the power to force its creditors, particularly its government unions, to renegotiate its debts, since Germany and France stand ready with an open checkbook to bail them out.

The responsible course of action would be to let Greece default, or partially default, while protecting the somewhat more tenable positions of Portugal and Italy. Germany could have credibly said, “Greece lied; Portugal did not; we will protect honest governments.” Given the fungibility of the term, “honest government”, this would have been a position that would have made an example out of Greece while preventing a, “spread of the debt contagion”.

Europe has traded the long-term future of the Euro for short-term financial stability, and punted a much-greater day of reckoning some five to ten years down the road. Proponents will (mis)quote Keynes and say, “In the long-run, we are all dead.” I once heard Prof. Garrison quote another economist, “Keynes is dead, and we are stuck in his long-run.”

Let us assume the following policy goals:

• Everyone has coverage
• Lowering costs

Now, given those goals, let us design a system with the following additional goals in mind:

• Preserve the information embedded in market prices, as much as possible
• Have the fewest perverse incentives possible
• Make all costs explicit instead of hidden
• Make the system sustainable politically

In order to do this, I propose we create a health-care “baseline” for people that are uninsurable at their risk-level and income-level, and then have everyone else purchase health care.  This is what I propose:

1. Pass a law requiring everyone have some form of health coverage that meets some minimal standard – I would favor a formula that takes a several baskets of common diseases and say that the total cost of treating each of these baskets cannot exceed some dollar amount ($15K with ongoing CPI adjusters), but what the standard is a “less important” issue that can be debated forever.
2. Eliminate all of the government incentives (tax or otherwise) that encourages employers to provide health insurance for employees as a “benefit” – if employers still provide insurance for employees, than it is because of a market judgment, not a political one.  Regulation that needs to be eliminated includes:
   • Eliminate laws prohibiting employers from passing higher costs for health-related issues to employees – if you choose to smoke or be overweight, the employer should be able to charge you more (or pay you less) for your health insurance.
3. Set up a government-run health insurance scheme as an insurer of last resort, that has a premium of 10% of a participant’s income, plus an extra 5% per dependent.
   • People that have private insurance don’t pay the premium.
   • This insurer has all of the things you expect from a government health insurance scheme: long lines, bureaucratic gate-keepers, group of gray-beards deciding what to cover, etc.
   • Subsidize the government-run health-care system explicitly from general revenues.
   • Allow the government to regulate the personal lives of people on the system as it wants to (make them pay extra for smoking, or coerce them to stop; forbid them from eating a fast food, stop them from using recreational drugs, etc.), but only allow these regulations on people in the federal system.
4. Fold Medicaid into the new federal program, consolidating state and federal bureaucracy into the new system.
   • Relieve the states of that burden.
5. Fold Medicare into the new federal program.
   • Eliminate the Medicare payroll tax.
   • Allow those that are 65 or older to still purchase private insurance if that is less expensive than the 10% tax.
   • Allow those that are 65 or older, with no dependents, to opt-out of insurance altogether (by signing some form at the court house), and let them spend their money (or pass it on) as they wish instead of spending it on health care. The kicker is, they make an explicit choice, and we don’t care if they die early because of no access to health care.
6. Fold the VA hospital system into the new program, giving veterans without war injuries a defined monthly monetary health benefit (say $100 for retirees) that they can spend on private insurance, or deduct from their public plan premiums.
   • For veterans with war injuries, you can leave the VA hospitals open, give them some additional defined benefit, give them a reduced-cost or no-cost public plan, pay for private or army treatment, or have some other scheme to have them treated at public expense.
7. Force the states to pay for any of their regulatory tomfoolery that affects the cost of the public program.
   • For example, if the State of California passes a regulation forbidding insurance companies from treating HIV as a pre-existing condition, raising the cost of private insurance, causing people to choose the public program over private insurance, the additional cost will be paid by the state to the Federal Government.
   • Alternatively, if California chooses instead to subsidize people with HIV that purchase private insurance, and that reduces the burden of the Federal program, then the Federal Government would make a transfer payment to the State of California.

The proposed system is not perfect, but it preserves most of the pricing signals for medicine.  However, it would destroy incentives to reduce costs for “catastrophic care”, since the patient never bears those costs directly (but at least the insurance companies have some incentives to lower costs).

This letter is a response to the Tampa-Orlando high-speed rail project, which you can read about here.

The Tampa-Orlando Train Will Not Work – Even for Me

I live in South Tampa, and my girlfriend is in school at UCF.  Almost every weekend, one of us makes the one hundred five mile drive on Friday afternoon, to return Saturday night or Sunday morning.  Even if there was high-speed rail, neither of us would use it for the trip, because the rail cannot be priced low enough for either of us to ride it.

The cost of driving one way from my place to her place is roughly $100, taking the IRS’s fifty cents a mile (high for my car), adding two hours of my time valued at $20/hour, finishing with the tolls on SR417 and SR408.

The closest termination point in Tampa is downtown for me, and the Orlando Airport for her.  I live eight miles from the Amtrack station downtown, which means that trip is $4 plus fifteen minutes of my time ($5).  UCF is twenty-three miles from the airport ($11.50) plus thirty minutes ($10), plus tolls ($2.50).  But remember, someone must drop me off at the train station in Tampa, and my girlfriend must pick me up from the station at the airport, so those two trips must be made both ways, giving a total of $66.

For the train to be worth it for me, the journey would have to be Star Trek transporter instant, and cost less than $34, with no waiting time on either end.  If you assume that the waiting time and travel time together is two hours, then the public must pay me six dollars to take the train instead of driving.

All of that assumes that I have no value for the flexibility that driving gives me, being able to leave and arrive when I want instead of when the train schedule dictates.  It also assumes I have no value for having a car in Orlando, or have any value for the extra cargo-capacity of my car.

If the two cities in question are New York and Boston, or London and Paris, then the train makes sense.  However, you will have to point a gun to my head for me pay for a train between Tampa and UCF instead of driving, which is exactly what the government is doing to build the thing.  Once the thing is built, and no one rides it, what’s next?  Higher car taxes and massive tolls on I-4 to force us to ride it?… high taxes to build public transportation in Orlando and Tampa to make the train usable?… or simply high ongoing taxes to pay for a train no one rides?

Even if the high-speed rail is built with Federal dollars, and even if it brings jobs to the state, it would be much better to take the money and pay construction workers to tear down half of Westshore and rebuild it, exactly as it is now.  At least then, our tax dollars would not be perpetually drained to pay the ongoing maintenance on a train no one rides.  Or, if you must do something useful with the money, widen I-75 to eight lanes from Naples to the Georgia border.

It is what it is. I am releasing it (not the web site, just the chart) under the terms of the this Creative Commons license. There are probably a thousand of these on the web, with instructions on how to make more modifications. However, there probably aren’t many done in OpenOffice.org that are simple to use, and released under a copy-left license that allows commercial use, so here is mine. I hope it saves you some time.

I only tried it out in OpenOffice.org 3.1, but it will probably work in any 3.x. You can try to open it in that other office suite that people buy but can’t see source code for, but I don’t know if all of the graphing stuff will translate exactly. The Excel 2007 sp2 version should open the document, and a plug-in for other versions of Microsoft Office 2003/2007 can be installed as an add-on.

The last data sheet (titled notes) contains a list of notes for use, and I commented the data page.

I hope it helps.

indifference-curve-demonstrator.ods

PS: I would consider the charts produced by this system to be “output”, independent of the Data page. As far as I’m concerned, you can use the “charts alone” as freely as you want to – I think these are yours. If you are really worried the CC people might not agree, drop me an email (or fill out a comment here) and I will (subject to the definition of output) send you a copy-right assignment form. If the publisher makes you code your own, find a new publisher – I don’t know how to make my intent clearer.

If you make improvements, I’d appreciate a shout-back here, but that is not required in the license.

PPS: the big icon is part of the Oxygen Theme, and it is also CC-SAv3 licensed. See what happens when we share?

On the surface, the Fairness Doctrine seems like a good idea: if you present a controversial issue, you need to present a fair treatment of the issue and present both sides of the debate. If the public hears both sides of the issue, goes the logic of the doctrine, they can form a better opinion. Furthermore, the argument continues, the fairness doctrine prevents media owners (or managers) from advocating their own political agendas at the cost of public debate.

However, like most public policy, the unintended consequences of the Fairness Doctrine undermine its intended purpose and cause perverse effects that are more harmful than the problem the doctrine was instituted to fix. The two major ways the Fairness Doctrine stifles free speech are 1) opportunity cost and 2) chill of potential prosecution.

Opportunity cost is simply what you give up in order to pursue a given activity. For example, the opportunity cost of me writing this blog is me playing World of Warcraft – the activity I forgo in order to explain the Fairness Doctrine.

In the case of radio shows, there is only so much time in a given radio show (or in a given day if you say the show could just expand to add additional commentary). In order to present a “fair presentation” of an issue (say, the Iraq invasion), a radio host can must cut in half the ten minutes he wanted to spend explaining what a bad idea it was, and give five minutes to a “pro-war” expert. The extra five minutes he might have spent clarifying his point are now quashed.

Furthermore, radio outlets are businesses – there to make money. A radio host once might simply shoot his mouth off for ten minutes about the stupidity of the invasion. Now he must expend the resources to find a “counter point expert” for his show (and pay said expert), resulting in a drier, less appealing (less money making) show. If the alternative is to mouth off about the stupidity of Lindsay Lohan’s latest escapade, needing no additional expert and creating a more appealing ten minutes of commentary, which is he going to choose (at least at the margin)?

Now, look at the station manager’s point of view. If his radio jockey “pushes the envelope” on this, he may have to pay the very real costs of dealing with the FCC. He is much more likely to tell his radio jockeys to “stay away from politics”, and he will choose non-political programming over political programming at the margin. Thus political speech the would have happened absent regulation is quashed.

The function of radio today is not so much to hold public debate; the function of radio is to spark it. The major effect of the Fairness Doctrine is to stifle public debate about issues, since fewer issues can be addressed due to time restraints, fewer people want to listen, and the threat of potential litigation causes risk-averse broadcasters (who are trying to make money) to avoid controversy (at least at the margin).

PS: I did a quick search, and the Cato Institute has a similar article that is likely clearer than mine.

All of the other instructors I have talked to have told me not to obsess about student ratings, but I view my class as my product like a small business owner views his product, and you are the customer. I care about customer experience and satisfaction, so I obsess a little about reviews, and, short of inflating grades, take poor ones as constructive criticism and try to do better in the future.

I am sorry you had a bad experience in my class. Economics is a very tough subject, and it was always my intention to try to make my class engaging and relevant (hence, tangents). You have to work hard at economics, and most students don’t realize how tough the subject is, and consequently don’t study enough for tests. I tried to combat this problem, assigning problem sets filled with discussion problems, [i]making[/i] you think about economics and use economics to look at the world around you. It apparently worked, because the class did very well on the “standardized” questions on the final exam.

I didn’t say I wanted to teach Macroeconomics; I said that economists have improperly bifurcated economics between macro and micro, confusing in both subjects, especially among young students (but among professors to). I said this in the introduction to the lecture on the one-person economy over time, normally not taught until Macro (or worse, Macro II).

It is my continued belief that it is better to introduce “trade-offs between time periods” [i]before[/i] talking about two person trade. It is easiest to understand two-person trade if you already understand inter-time trade, and it is harder to understand inter-time trade once two-person trade has been explained to you. More importantly, the inter-time trade model makes the more complicated micro models much less abstract, because you are aware of the issues we are now assuming away. It gives you less of the feeling that these models, especially those of the firm, are completely devoid of any real-world application, motivating the student to learn the models (or at least not de-motivating them), making them easier to understand.

I’m not the only one who thinks this – I chose the textbook I used in class, Economics for Real People, because Callahan organizes that book in the same way. (And you thought I did it just because the book was free.)

I am sorry about my handwriting. The more times I teach the class, the better my typed overhead notes will get and the less I will write on the board. I also don’t like white boards: I grew up on chalk, and I think it is much easier to write with. That’s not an excuse, just an explanation.

I stand by the course. The class did very well on the standardized questions the department put on my final. I hope the course prepared you for other economics courses you may need to take. I didn’t cover all of the topics normally “breezed over” in Micro, and I added some things that I thought would interest you. If you didn’t like that, I am sorry. I would offer you your money back if the University would let me, but if you take more economics courses, I hope you feel differently about mine (you might not – they will probably be easier than mine was because you took my class).

Note, this post is back-dated since the original forum is not available on-line. I significantly edited my remarks before posting them here.

All of the chapters are independent of each other like a collection of short stories with an introduction, so you can read the ones you are interested in and skip others. Personally, I think the Introduction, the first chapter titled, “What do Schoolteachers and Sumo Wrestlers Have in Common?”, and chapter 4, “Where Have All the Criminals Gone?” are his most interesting.

“Where Have All the Criminals Gone?” is an exploration of why crime in the United States peaked in 1989, and steadily declined thereafter. His explanation is that abortion was made legal in the United States in 1973, and so many disadvantaged children that would have become criminals when they turned 16 were never born. His argument is convincing, and worth reading.

In conclusion, Freakonomics is not a book that will change your life, but it is a fun read. I recommend checking it out from the library and reading the chapters you find interesting, but don’t bother buying it. That stupid orange cover doesn’t look good on the shelf anyway.

Look at a drug under patent. The company producing that drug has a monopoly for the drug, and prices the drug accordingly by setting the quantity where marginal cost equals the marginal revenue.

In the United States, however, the government has responded to political pressure about the high costs of prescription drugs by subsidizing drugs, usually by purchasing large amounts (through Medicaid) or, more recently, subsidizing insurance companies that provide prescription drugs under a Medicare program. This raises the demand for the patented (or orphaned) drug in question. The monopoly chooses to sell more of the drug at a higher price. People who are ineligible for the subsidized medicines are forced to pay a price for the drug that is higher than the price that they would pay if the government did not subsidize the drug.

Clearly, the Drug companies would welcome such purchasing subsidies, and clearly, if a person is not receiving subsidies, then the cost of the subsidy is not only the government outlays of the subsidy, but also the higher price paid by unsubsidized citizens.

Some students on campus have tight schedules between class and work. Others work very late nights and would pay dearly for twenty more minutes of sleep in the morning. These students (I am one of them) are willing to pay more for parking if it meant not searching for twenty minutes for parking.

However, the editorial board of the Oracle seems to be made of another type of student: the type with all the time in the world who prefers to spend money on beer (or whatever) rather than a convenient, available parking spot. (I am referring specifically to the February 6 editorial “University has an obligation to make parking affordable“) There is nothing wrong with those preferences, but those of us with tight schedules should be able to park more easily than those with all the time in the world.

The new parking proposal should make a parking spot a much easier find for time-strapped students. A higher parking fee will mean two things: (1) students who don’t value their time as much (when compared to money) will buy the cheaper, park-n-ride permits, freeing up spaces for those who are willing to pay the higher price because of their time constraints, and (2) more parking garages will be built with the increased revenue.

Until there is parking to spare, the price should be raised. In the short-run, those of us who place a high value on our time will buy the more expensive permits, and have a little more time in our schedules. In the long-run, even those students who prefer beer to time will benefit because parking services will have more money to build parking garages and run buses.

The best solution would be to sell premium parking for specific times near specific buildings (like the gold lots for staff) so that students who are time-crunched could buy expensive passes for their particular class. However, that solution is a little too economically savvy for any bureaucracy.

This article was originally published by the USF Oracle (albeit, in a well-edited and edited well form) as a letter to the editor, on October 6, 2004 titled “Don’t ban freshman cars, create priority spots“.