I brought this up in my Managerial Economics class yesterday while we were discussing the Stackelberg model of duopoly, and was mentioning that a big public announcement of a new factory or purchase contract is one way for a firm to commit to a high level of output even in the fact of competition. Making commitments public is a great way of ensuring that you’ll actually follow through with them. If you don’t, nobody will believe you and it’s much harder to get anything done in the future.

It reminded me of an episode of 20/20 that ABC did a few years back about game theory. As part of the story, they took a half dozen significantly overweight people that had been trying to lose weight for years and never seemed to be able to do it, and told them they would help them lose weight. Why would the results be different this time? The participants all signed a contract, agreeing to let ABC take pictures of them in their bathing suits (bikinis for women, speedos for men) at the start of the weight loss challenge and, if they did not meet their weight loss target, ABC would show those pictures on the broadcast.

By making these people credibly commit to taking their weight loss seriously, game theorists expected that they would actually be successful. And they were basically correct. All but one of the people met their weight loss target, and they all said that the threat of public humiliation was a significant factor. So ABC showed the picture of the woman who failed, right? Wrong. After creating a whole piece about the importance of credible commitment, ABC chickened out and did not show the bikini picture of the woman who did not lose weight because they didn’t want to embarrass her. I don’t think it’s any coincidence that ABC hasn’t done anything like that again. After all, who would believe them?

[On a related note, my girlfriend points me to www.flaab.com, where people make public statements combining both monetary loss and humiliation that are supposed to ensure they achieve their weight loss goals. I doubt the monetary pledges are legally binding, and I'm not sure that the shame of a small online community of strangers is enough to be effective, but I guess it might work for some people.]

I am sick of politicians lying to us. They break promises all the time. Guantanamo’s still open, six months after we were promised it would be closed. People earning less than $250K have seen their taxes increase, when President Obama promised they would not. Republicans say they’re for states rights, until there’s an issue they don’t like and then the federal government must intervene (Terry Schiavo, anyone?). The excuse is “it’s just politics.” It’s not a lie, it’s a “misstatement” or a “factual inaccuracy” or they were “taken out of context.” If “it’s just politics” means you get to lie to your constitutents and not follow through on your promises, that’s not an excuse for politicians — it’s an indictment of our political system.

So I propose something new. Politicians should figure out exactly what their most important issues are and take a public stand. Not just a “political” stand where you say one thing and can back out of it. Have a press conference and sign a pledge that says: “I agree to do X while in Congress, and if I don’t do it, I agree to …”

You can fill in the blank on your own, but I have a few ideas. How about stating that you will not run for office when your term is up? Or how about putting a significant portion of your wealth in an escrow account and agreeing that should you violate the specific pledge you have taken, that money will be donated to charity?

Very few politicians have any credibility left. They keep making promises, then breaking them, and we keep re-electing them. Now that I think about it, we as voters don’t have much credibility either. You can change that: vote out anybody who has ever lied to you. Then maybe the voters will gain some credibility and politicians will be forced to actually tell the truth.

As we recover from this recession, the transition to clean energy has the potential to grow our economy and create millions of jobs -– but only if we accelerate that transition

I’ve heard this before, and I’ve heard the Republicans counter with the idea that it will ruin our economy. They cite the example of Spain, which Obama praised for their “green jobs,” where estimates are that 2 jobs were lost for every 1 green job created. And it got me thinking in big picture terms about this insane focus on jobs, jobs, jobs. If jobs are all that matter, then we should just take every employed person and make them work fewer hours so that the unemployed people are needed. But is that really good for our economy?

The advancements in real GDP per person (one measure of standard of living, as it is a measure of how much “stuff” someone can buy in a year) that we have had in the last century have come about through two things: technology and ingenuity. Technology inspires new products that create their own new industries, and also allows firms to do more with less. Ingenuity provides the fuel for constant change, new products and new ways of doing things.

One of the first posts I ever wrote here was about looking at progress by examining how long it takes one to work to buy a product. If products become cheaper, you have to work fewer hours to afford them, so you can either enjoy more leisure time or use your leftover income to buy more things. Since both of these are good things, we should want products to become cheaper.

Technology and ingenuity are driven by the goal of doing more with less, and for most firms that means fewer workers, not more. If you can find a new way of doing things, or a new machine you can use, and it allows you to fire people, as a profit-maximizing firm you are supposed to do that. Employment increases when this technological advance reduces costs, allowing you to lower prices, and in turn increasing the quantity of the product that consumers want to purchase. (From an intermediate micro approach, when the cost of capital falls, there is a substitution effect and an output effect. The substitution effect is that you use more capital and less labor. The output effect is that at lower cost, you can now produce more output. Whether employment increases or decreases depends in part on elasticity of demand and how responsive consumers are to the price cuts.) Similarly, when consumers try to find the best deal, it forces firms to cut costs and be efficient — and in this way the “invisible hand” of the market gives rise to an efficient result. Just focusing on consumer greed misses the point. Likewise, chastising firms for cutting jobs in one business ignores the end result that we get more efficiency and eventually those workers find jobs in new industries.

But doing more with less is not what President Obama is talking about at all. He wants to do less with more. He wants us producing less energy and using more workers to do it.

He said that he wants to make green energy the most profitable form of energy — but he wants to do this by taxing all other forms of energy. On the campaign trail, he said that under his program “electricity rates would necessarily skyrocket.” These two things are inconsistent with job growth in the economy.

It would be one thing if green energy were cheaper than other forms of energy, and by using this cheaper form of energy we could have even more energy than before, and this increased the amount of energy people used and this in turn created more green jobs. But that’s not going to happen. He wants us to produce LESS energy, not more. And he wants to increase the price of energy, not decrease it.

I don’t understand how requiring more people to produce the same amount of energy is a good thing. If you want to focus on the environmental impact, and fewer oil spills, in your push for cleaner energy production, that’s fine and I will cede that point. (It’s a difference of priorities, not economics.) But he’s also trying to make the claim for this move towards clean energy by claiming that it will create green jobs. And that simply ignores the facts that this increases energy costs to consumers, and this will cost us in other industries, as consumers have less disposable income — similar to what happens when gas prices increase.

The focus should be on output, not jobs. When a new textbook comes out and they add hundreds of new pages but don’t really say anything new, that’s not a good thing; that’s a waste of my students’ time. Increasing the inputs required without notably increasing the output is what we call inefficiency. This is what Obama wants to do — use more labor to produce our nation’s energy. Never before have I heard that using more labor to do a job is a good thing. By his logic, it’s a better result when I spend a lot of time working on a task instead of when I’m really good at it and get it done in half the time. I wonder what the economic advisors to this President are thinking.

This same kind of argument is at play in the California Senate campaign. The main argument I hear all the time from Democrats about Carly Fiorina, former CEO of Hewlett-Packard, is that she outsourced 30,000 jobs on her watch. Post dot-com bubble, HP was in a precarious position. She found that she could save the company by outsourcing some jobs and cutting those costs, and eventually the company doubled in size. On net, the company actually increased total American jobs because it was healthier and could expand in other areas. Focusing on a few specific jobs that were lost ignores the big picture, where total jobs increased.

Similarly, President Obama focuses on a few million green jobs that will be created by a cap-and-trade bill. But he downplays the facts that costs per kilowatt-hour will increase, and he ignores the simple principle that when we produce more output with less labor, it grows the economy and eventually spurs employment in other areas.

McKay: We have said exactly what we mean: We’re going to pay all legitimate claims.
Cantwell: So harm to the fishing industry, both short term and long term, you’re going to pay?
McKay: We’re going to pay all legitimate claims.
Cantwell: If it’s an impact on business lost from tourism, you’re going to pay.
McKay: We’re going to pay all legitimate claims.
Cantwell: To the state and local governments for lost tax revenue, you’re going to pay.
McKay: Question mark.

What happened was an accident. The investigation will determine whether it was due to negligence or not, but if we are to believe that the evil greedy oil companies are in fact as evil and greedy as some politicians and pundits say they are, then clearly there was no intent to release millions of barrels of oil that could have been sold instead for a handsome profit.

Cantwell’s initial questioning is on the mark. Presuming that it should not be the government’s job to pay unemployment insurance claims for people who lost their jobs because of the oil spill (which I agree with), Cantwell wants to make sure that BP is going to compensate those who were affected by the oil spill. McKay’s refrain of “We’re going to pay all legitimate claims” gets boring quickly, but he really has no choice. He can’t say they’ll pay every single possible claim or BP will see more fraudulent claims than Medicare. There has to be a legitimate legal process by which people make a claim for damages and provide evidence of their injury. It’s the last part of her questioning that strikes me as odd and I don’t know what to make of it. Here it is again:

Cantwell: To the state and local governments for lost tax revenue, you’re going to pay.
McKay: Question mark.

(I have to say that I love McKay’s answer here. Instead of saying “I don’t know” or “We’ll have to see about that,” he says “Question mark.” The only thing I would have liked more is if, in response to a question about whether BP will pay all legitimate claims, he would have said, “True dat.”)

Now, there are two different things that Cantwell could mean by “tax revenue” and, without knowing her intent, I don’t know whether she’s simply ignorant or a tyrant.

Scenario 1: Cantwell is talking about the lost tax revenue on tourism and fishing.

If this is what she meant, the answer is simple: Cantwell is simply uninformed about the tax implications of legal cases and settlements. Since 1996, a legal settlement or court award is considered ordinary taxable income unless it is a personal injury claim, which this is not. Damages for interference with business operations are taxable income. Any payments by BP to businesses affected by the oil spill would be treated as taxable income and state and local governments would get their money that way. (If this were not the case, two companies could both avoid taxes by simply taking turns suing each other and settling out of court.) Senator Cantwell need not worry about the government getting its money…although she might want to look up the law before grilling people to avoid looking so ignorant.

Scenario 2: Cantwell is talking about the lost tax revenue on oil production income.

This one is much more ominous. Oil companies have made a tidy profit in the last few years. Politicians like Hillary Clinton wanted to “take” those profits (20 seconds in) and use them for causes they deem worthy. Representative Maxine Waters would take those profits and “socialize” them. (Her statement is at 1:15 in and I don’t know what’s scarier: that she wants the oil industry to be run by a government that can’t balance a budget, or that it takes her 10 seconds to find the words for government takeover; I think it’s also a bit of a Freudian slip when she says “socialize” instead of the appropriate word, “nationalize.”) One could interpret Cantwell’s statement as in implication that the government is entitled to those profits whether BP actually makes them or not, as I initially did when I heard her words.

If this is what Cantwell meant, it’s a harbinger of bad things to come. Almost as bad as Obama saying that things just work better when we “spread the wealth around.” Unfortunately, in the creeping expansion of government that has happened in the last two years, this kind of thing is all too familiar. The government feels entitled to your money. With the current federal budget deficit and many states in deficit, they need your money. Only if you’re “rich” of course; the poor shouldn’t have to pay any taxes at all and should just get free government. Except if they smoke. That’s bad, and since we’re going to pay for everyone’s health care, we have to punish those evil smokers, even the poor ones. Or if they choose not to buy a federal HHS Director-approved health insurance policy and instead choose to buy a catastrophic plan and save the rest of their money to pay for their own regular medical care. Then we have to tax them because, even though that strategy might save them money and not adversely affect anyone, they aren’t doing what the geniuses in Washington feel is best.

This week, the Minnesota legislature voted to raise income taxes. (Again, don’t worry — it’s only those rich people. I’m starting to wonder what we would do if we didn’t have them around.) City governments are raising property taxes, fines and fees. Pennsylvania issues a commercial threatening people who have not paid taxes that they will be hunted down and found. Some local governments are actually charging you if you have an automobile accident and the police have to come to the scene.

There is a pattern here.

Gone are the days of limited government and individual responsibility. You are not allowed to determine how much salt you can put in food. (If you’re a fan of gluttony, watch Man vs. Food now while you can; in a few years, most of the featured meals will be illegal and the show will be gone.) The President says that “at some point, you’ve made enough money” even if you’ve made it legally. And now, depending on how Cantwell’s statement is interpreted, the government may be entitled to the fruits of your labor whether you actually produce or not. From each according to his ability, indeed.

What’s yours is not yours. The government simply allows you to have some of it.

At least for now.

I’ve been trying to let more political things slide so it doesn’t make me crazy, but today’s roundtable on ABC’s This Week was so chock full of insanity that I had to post.

First, Al Sharpton is asked what the state of Arizona is supposed to do about their illegal immigration problem. Rev. Sharpton does not answer that question at all, putting it back on the federal government saying “the federal government is supposed to make immigration policy.” (Shame on Jake Tapper for not following up and asking him to actually answer the question about what states should do when the federal government does not do their job.)

Sharpton is no fan of the bill and is organizing a protest on Wednesday. He says it is not about protecting illegal immigrants; it is about protecting legal Hispanics who might be racially profiled. There is validity to his point if you believe that police will not follow the law. (Technically, the law doesn’t do that; but the executive order that Governor Jan Brewer signed the day she signed the law specifically prohibits racial profiling.)

[Aside: We can differ about the extent to which this would be done. Those who have a problem with this bill, mostly liberals, seem to believe that police just love racially profiling and will do it whenever they have the chance; then they say it's unfair that they get a bad rap about their stance on law and order. And it's wrong to presume that someone with brown skin is an illegal alien, but apparently it's totally justifiable to just presume cops are racist. The presumption of innocence works both ways.]

Sharpton’s evidence that the law goes too far in impinging on citizens’ rights? “The recognition of that is the state of Arizona’s legislature just refined what they said over the weekend. They conceded that we’re right and they had to refine it.” Sharpton’s argument is this: the law is bad, and we know it is bad because they had to fix it.

Never mind the fact that the bad parts of the bill WERE FIXED BY THE LEGISLATURE. Sharpton’s mad about parts of the bill that were fixed just days later, and he’s holding a protest over a bill that has been refined and improved. At this point, my brain is starting to hurt just a little bit making sense of this.

George Will tries to make an argument that, when you go to a courthouse, you have to show ID, so why is it unreasonable to ask people for ID, especially when federal immigration law requires all legal immigrants to carry their immigration papers on them at all times, and has done so for over a half century? Sharpton has a very good response to him: EVERYONE at the courthouse has to show ID, not just people that might look like illegal immigrants. I actually agree with Sharpton on this. One solution is to simply ask everyone for ID any time they come in contact with police officers, or any time they use government services. It would seem that the standard Sharpton wants is that everyone has to be asked for ID then, right?

Wrong. When asked about the Democrats’ new bill that would require everyone to show a national ID card for employment purposes, Sharpton doesn’t like that either, saying, “I would have some very serious questions with some aspects of the Democratic bill but I’m going to see what ultimately ends up being the Democratic bill and I’m sure a lot of us in the civil rights community will question parts of it.”

Let me get this straight. Sharpton doesn’t like when people are selectively required to show ID, but now apparently doesn’t like when people are all required to show ID. Not sure what Sharpton actually wants to do about immigration? Neither is George Will, who then asks him, “What enforcement of immigration laws do you support?” Sharpton never answers this question. Neither Jake Tapper nor George Will can get Al Sharpton to say what either states or the federal government can do to enforce immigration laws.

Rev. Sharpton has no solutions, but he throws a darn good rally. And did you catch the double standard he applied there?

In talking about the Republican bill, he ignores the fact that the legislature has amended the bill to improve and refine it; improvements don’t matter, it’s a bad bill and we’ll pass judgment based on the initial bill. In fact, we’ll throw a protest to show our displeasure with the initial bill, even though there have been changes.

But in talking about the Democratic bill, he doesn’t want to pass judgment on the bill until it is improved and refined. Wouldn’t want to jump to any conclusions.

If that wasn’t bad enough, I have two words for you: Bill Maher. I watch his show on HBO every week. I don’t want to be accused by people of only listening to what people who believe what I believe have to say. It’s often frustrating, but it’s definitely educational. He usually has one Republican (if that) and two Democrats, along with himself. When John Bolton mad a statement about protecting our country from terrorism, about 4 people in his audience applauded. Bolten responded, “You let in Republicans?” If you’ve ever watched the show, it’s clear that Maher is a liberal, as is his audience, and his show clearly slants left. He used to be a libertarian but now it would be a stretch to call him that, because he wants more government intervention in almost everything (except for drugs, of course; we all know Bill likes him some weed). He says outlandish things and then uses the excuse that he is a comedian to not be held accountable for them, much like Al Franken does. It was the first time I can remember ABC putting a comedian on a political roundtable and it was to their detriment.

He starts off by playing the “Republicans and conservatives are racists” angle here: “But government intrusion, you know, government power, is something that really bothers conservatives unless it’s directed toward people who aren’t white. It does seem like there’s some of that going on there.”

Tapper counters Maher’s statement with statements by Republican officials condemning the Arizona law. George Will says, “Mr. Maher just said, if I heard him right, that conservatives basically are racists and they like government intrusion only against people who aren’t white.”

Maher clearly said the second part of that. While he didn’t specifically say that conservatives are racists, a) it is undoubtedly implied in his statement, and b) Will did qualify it with the word “basically.”

Katrina van den Heuvel apparently hasn’t been listening to anything that was said, as she says, “I didn’t hear that.” It seems some Democrats want to have it both ways: they want to say that Republicans are racist, so that minorities will vote Democrat, but when confronted they want to say that they didn’t just play the race card. It’s disingenuous and shameful.

To clarify what he said, Maher says this: “Let me defend myself. I would never say, and I have never said, because it’s not true, that Republicans, all Republicans, are racist. That would be silly and wrong. But nowadays, if you are racist, you’re probably a Republican.” Sounds an awful lot like: “Not all Muslims are terrorists, but all terrorists seem to be Muslims.” When people say that, they are called racist. Hopefully that same standard will be applied to Bill Maher. But I doubt it will because, after all, he’s just a comedian.

When Jake Tapper asks him at the end of the discussion, “Bill, what should be done to protect the border?” his response is, “I pass.” He and one or two others laugh. But this is not funny. You’re on a political talk show about serious issues and you pass judgment about those that make policy, even implying that they are racist, but when asked to come up with one policy suggestion, you have absolutely nothing to contribute. I’ve been looking for a reason to cancel my HBO subscription for a while. I think I’ve just found it.

This is the problem with “political dialogue,” if it can even be called that, in America these days. Both Sharpton and Maher want to condemn people who make policy decisions to confront real problems they face because these people made decisions that Sharpton and Maher think are wrong. But when asked what decisions they would make in the face of those problems, neither one of them even tries to answer the question. It’s shameful.

Matthew Dowd, another panelist on today’s program said, summarized it well: “To me, this conversation is another example of why people that tune in and people that think they’re going to get an answer from Washington, from Democrats or Republicans, on almost any issue, whether it’s protecting the environment, whether it’s stopping things on Wall Street, whether it’s immigration reform, whether it’s enforcement of any law. That is why they’re fed up.”

Until someone has an actual solution to something they claim is a problem, I’m not going to listen to what they have to say any more, and you probably shouldn’t either. As they say in economics, if you don’t like the model I’m using, it’s your duty to tell me how to fix my model or show me that another model will yield better results. You may not like how I do something, but unless you can show me what you would do instead and how it would solve the problem better, you’re not a political thinker. You’re just a critic.

President Obama said a while back that he didn’t take this job to bail out “fatcat bankers,” and seems to have had no problem assigning blame to them. But now it seems he’s reversed himself a bit. A Bloomberg article reporting that some CEOs of large banks took home over $10 million in bonuses includes this:

The president, speaking in an interview, said in response to a question that while $17 million is “an extraordinary amount of money” for Main Street, “there are some baseball players who are making more than that and don’t get to the World Series either, so I’m shocked by that as well.”

“I know both those guys; they are very savvy businessmen,” Obama said in the interview yesterday in the Oval Office with Bloomberg BusinessWeek, which will appear on newsstands Friday. “I, like most of the American people, don’t begrudge people success or wealth. That is part of the free- market system.”

I’m shocked that Obama is shocked that some athletes are paid well but don’t perform up to his expectations. (Does he really want to talk about people not meeting up to the expectations people have of them? Really?) Is he shocked when some athletes who are paid relatively little have a great year? His shock shows a complete lack of knowledge of contracts, which perhaps should be expected given the penchant he has for ignoring them and his faux outrage over the AIG bonuses. These bonuses were specifically allowed in the stimulus bill, and have come about over time largely because of the different way that regular compensation and bonus compensation have been treated by income tax laws. So people on Wall Street take lower pay and expect higher bonuses, whether they performed well or not. In fact, they shouldn’t even be called “bonuses” because that’s not really what they are. They are a different form of compensation designed to reduce tax exposure. Most of us don’t understand the complexity of it so when people get ”bonuses” even when their businesses did poorly, it seems shady. But that’s not what it is at all.

For example, let’s compare the salary structures of NBA and NFL players. NBA players have guaranteed contracts, so if a player blows out a knee and can’t play again, the team is on the hook for the entire contrat. NFL players don’t — and the NFL Players Association is trying to get that changed. But until it gets changed, how do NFL players hedge that risk? They get large signing bonuses. True, some of these players won’t be good in a year or two. Obama would look at that situation and either say that the team’s owner was stupid for giving that player the money, or that the player was greedy and didn’t deserve the money. The fact that all of them get these signing bonuses would slip right past him. The fact that they’re not really bonuses at all — just a different way of structuring compensation – would be lost on him.

Apparently, President Obama thinks that only if you make it to the World Series should you earn a lot of money. That only if effort and luck all coincide to translate into the ultimate pinnacle of success should you be paid a lot of money. His shock displays not only a lack of understanding of contracts and their limitations, but also a complete lack of knowledge about uncertainty. If contracts were rewritten for all athletes so that players were only paid large salaries if their teams were successful, what would happen? They’d get bigger signing bonuses instead that were guaranteed, and the amount of pay they received would be largely unaffected. Players on a team cannot determine the fate of the entire team unless it’s in a sport that only has 5 people playing (the NBA) and you’re so dominant that you can carry your entire team, like Magic, Larry, Michael and Kobe have shown they can do. Players understand this. Owners understand this. They would make some alternate arrangement to get around it. But the smartest president we’ve ever had either can’t understand it or can’t appreciate it.

I find it hard to believe that this is the same man who loves unions so much and admitted to running all his important decisions by Andy Stern of SEIU (who for a while was the most frequent visitor to the White House until that information was made public). The effect of a union is that your salary is largely pre-determined and does not depend whatsoever on how well you actually perform. My salary at SCSU for the rest of my life is determined entirely by the union’s negotiations, whether I’m the best teacher here or one of the worst. When MnSCU decided a few years ago that it wanted to hand out a dozen or so Professor of the Year awards (along with $5,000 prizes), to reward hard-working professors who put extra effort into helping their students, what was the reaction? The SCSU Faculty Association Senate voted it down almost unanimously because they didn’t like the idea that having some people singled out for their exceptional performance would imply that these professors are actually better than others. Parish the thought!

The only thing certain in this life is uncertainty. President Obama needs to understand this and accept it, not try to fight it. Fighting it leads to micromanagement, where his Pay Czar will have to determine whether a $17 million bonus was “properly earned” because of a CEO’s ”savvy” business decisions, or whether it was “corporate greed.” And where his Secretary of Health and Human Services will send letters to health insurance companies who raise rates because their healthiest customers drop their policies due to the recession, raising the average cost of the remaining customers. These companies will have to justify every action they make so that some government official can determine whether this is a “justifiable” business practice or just an unhealthy quest for that ultimate evil: profit. So instead of markets and stockholders deciding issues of prices and pay, all of this will be determined by one person or one small government committee, who will no doubt reward those who contribute to them and punish those who disagree with them. They’ll give contracts worth millions of dollars to their spouses and friends, all the while telling us that they’re making better decisions than we could make for ourselves.

I guess it should come as no surprise that the most “intellectual” president we have ever had, with a cabinet with the least amount of actual business experience, would think that he can know everything perfectly and determine how businesses should make decisions better than they can. I wish he were a little less confident in his ability to make decisions and left more of those decisions to the little people who have been making them for centuries. If President Obama wants to tie people’s salaries and bonuses to their performance, I say we start by tying the pay of the president and Congress to their approval ratings. For every point under 50%, you lose 2% of your pay. 0% approval = no pay. It would certainly help reduce our budget deficit.

The first lesson of economics is scarcity: There is never enough of anything to satisfy all those who want it. The first lesson of politics is to disregard the first lesson of economics.

I couldn’t help but think of that quote when I watched yesterday’s episode of 60 Minutes. California Governor Arnold Schwarzenegger was talking about the state’s water shortages. Partially because of drought and partially because of environmental restrictions because of the Delta Smelt, California’s farmers are having to leave large swaths of their land barren. Almond trees that took 20 years to grow are being mulched because there simply is not enough water to go around.

Schwarzenegger seems to think that the way to fix the problem is to borrow $11 billion  to renovate dams (to increase water storage capacity) and many more billions to build a new canal to route water around the delta, saving the Delta Smelt. Nevermind that the new canal would be a larger project than the Panama Canal. In Schwarzenegger’s words: “I love cranes.” I can just picture the governor now playing with Tonka trucks in his sandbox. 60 Minutes correspondent Leslie Stahl asked the governor about the trade-offs that need to be made here between water for drinking and water for farming.

Leslie Stahl: There are people who say the southern part of the state is thirsty. They say that some of these farms should just go out of business, that they take too much water and people need that water.

Gov. Schwarzenegger: Yes, you know, of course, I, I, I totally understand that. But I look at the whole picture again. I tell you, I want it all! I love our farms!

Leslie Stahl: Yes, but is that realistic?

Gov. Schwarzenegger: Yes, it is realistic. Anything is realistic! It doesn’t mean that because it’s a desert that we cannot go and bring water in here and start growing things. All we have to do is deliver water and then we can grow anything we want!

Leslie Stahl: So much for the idea that the state is entering an age of scarcity.

The tone in Stahl’s voice as she delivers that last line is dripping with sarcasm. Good for her pointing out the obvious.

I guess it’s perfectly reasonable for a man whose career was made starring in movies with computerized special effects can think that anything is possible. As Avatar has now shown, anything is possible in movies these days. I mean, if  they can make us believe that the bus in Speed could actually jump a 100-foot gap in a freeway (Mythbusters test: not even close) and convince us that Maggie Gyllenhaal is anywhere close to attractive enough to substitute for Katie Holmes in The Dark Knight without us noticing, then what can’t those guys at Industrial Light and Magic do? Maybe Schwarzenegger has been around Hollywood so much that he can’t distinguish reality from CG fantasy.

I would like to think that Schwarzenegger’s proximity to Hollywood is the cause of his behavior. But, sadly, almost all politicians do this very thing. Pointing out that we cannot do everything for everyone without borrowing from someone else or sacrificing something is considered anti-American, unpatriotic nay-saying. We’re the greatest country in the world and we can do everything! USA! USA!

Since we can’t handle the truth, politicians don’t tell it to us straight. Because we don’t want to make sacrifices, the government gives us their only solution: spending more money. Nevermind where that money comes from or the long-term costs of borrowing money or the effect on jobs from raising taxes. Why, I’m sure we’ll just get the rich people to pay for it anyway. God forbid we try letting the market work, allowing the tighter supplies of food and water to cause consumers to conserve resources more so that there is more water to go around to its most valued use. Just give the government more money and they’ll fix all your problems.

Listening to Schwarzenegger talk and the enthusiasm with which he wants to borrow and spend so much money, you would never know the state is almost $50 billion in debt with a $21 billion annual budget deficit and the worst credit rating of any state in the nation. And you would also never know he has a degree in Business and International Economics from the University of Wisconsin–Superior.

It looks like Sowell was right.

P.S. Whether Schwarzenegger realizes it or not, there is always a sacrifice. The cost of the previous over-spending is the MC Hammer-like credit rating the state now has and the higher interest payments that result from it; as well as the lost tax revenues from people who have fled the state because it has the highest sales and income tax rates of any state in the nation. You can’t avoid the first rule of economics no matter how hard you try.

P.P.S. (For Benjamin’s comment): One’s cute, the other…not so much.

The article brings up several great points. The federal government bailed out many of these banks through the TARP program when they suddenly found themselves with housing assets that weren’t worth nearly as much as they thought they were worth a year before. So to remain solvent, they borrowed the cash from the government. The government did not put many strings on what the banks could do with the money — and some of them responded by buying up other banks. The federal government even forced its way into a few banks, telling their CEOs that if they did not take some of the money they would be audited.

[If you wonder why I'm skeptical of federal government power, this is a prime example. What lessons do we learn from TARP? If you give people money without conditions, they'll take it and do things they think are most appropriate. If you put conditions on the money, they may not want to take it. Only the federal government thinks that their goal should be to design a way to force banks to take money with conditions on it so that they then have control over them and can make private companies do the government's bidding. Hmm...I wonder if that will happen with health care.]

I remember when President Bush and Congress were trying to justify passing TARP. They knew that a Wall Street bailout would be unpopular, so they told us that the world would basically collapse if we did not pass it, and they also told us to look on the bright side: if this works like other bailouts (Chrysler, for example), we’ll get all the money back with interest and John Q. Taxpayer could even make some money on the deal. Cha-ching! I mean, how can you not pass such an obvious money-maker for the people, right?

As it turns out, that seems to be exactly what’s happening. The banks have already paid back $71b of the $205b that was loaned out, plus another $7b in dividends. That’s supposed to be good news, right? Now taxpayers aren’t on the hook for these toxic assets any more. But it doesn’t seem like that’s what the people in charge of our financial institutions want. Obama and Geithner are not happy about this. They don’t want the banks to pay the money back because, once they do, the government no longer has any control over them. Although that may change if Congress passes the House’s Banking Reform Act — then they can decide that any private insitutition they deem too dangerous to fail can be taken over by the government. Yay for government! But until it passes (and it will, since any bill increasing Congressional power seems to pass pretty easily), Obama has very little power today to force these bankers to do anything. He wants them to start making more loans to small businesses, but the banks don’t want to loan the money. We know credit is tight these days, but has anybody stopped to ask why banks are not making these loans? After all, if loans were profitable, banks would make them and earn profits on them. So why aren’t banks making small business loans? Because these loans right now are not a great risk for the banks. (Remember when banks were the bad guys for taking on too much risk? It seems so long ago…) Back in February, the Small Business Administration’s (SBA) default rate on its loans soared to 12%. If it were your money on the line, would you make a loan if there were a 12% chance that you would lose the principle and get absolutely nothing in return? Didn’t think so. The last time we tried to get banks to make loans to people who had a high risk of default, it was called the Community Reinvestment Act and it helped lead to the subprime mortgage crisis that caused the current recession (or is it former recession? I’m not sure – if you ask Christina Romer and Larry Summers, whose offices are adjacent to each other in the West Wing, they’ll give you two completely different answers.)

(Update: This article explains that a study of business bankruptcies found that 50% of them were current with their lenders when they suddenly declared bankruptcy — the lenders never saw it coming. Yet another reason why lenders might be reluctant to loan to small businesses in today’s economic climate.)

As proof that the banks are not lending enough, you can look at statistics showing that the amount of lending has fallen. But we also know that individuals have become more conservative with their finances and do not want to borrow as much. The current saving rate is the highest it’s been in decades — a great sign that people are finally being financially responsible after so much excessive consumption. Obama says credit supply has fallen; bankers say credit demand has fallen. And as all my students in principles of microeconomics should know: if all you know is that the quantity of a good is down, you cannot determine whether demand or supply fell (or both) without knowing what happened to the price. Unfortunately, price data is difficult to come by. I spent a good deal of time searching for small business loan interest rates this morning and could find no historical data — let me know if you find any. For now, let’s just say that both are possible explanations. But even if supply has fallen, there is a perfectly rational explanation for it: small business loans in today’s climate are extremely risky.

Sure, it’s easy to put the blame on the “fatcat” bankers — everyone in Washington loves to do that. Politicians would have you believe that large salaries and bonuses for CEOs and bankers is the source of all problems, but they’re insignificant in the relation to the entire economy. All a bunch of sound and fury signifying nothing. But let’s deal with the facts. If I discovered that a company I owned stock in were loaning money out and getting none of it back 12% of the time, I would sell my stock in that company.

If you want banks to make more loans to small businesses, you need to bring some certainty back into the economy. Small businesses don’t know what will happen with cap and trade regulation and they don’t know how much a worker will cost them if health care reform passes — so they’re sitting on their hands while unemployment passes 10%. There are plenty of good workers out there to be hired, and firms would love to hire them, but without knowing the long-term cost of those workers, it’s not worth the risk. If you want the unemployment rate to fall, reduce small business income taxes and capital gains taxes, make it clear how much health care will cost or abandon the effort, and reduce business regulations. Then you’ll see small businesses succeed and banks extending more credit.

Or you can just blame the bankers.

Gadell made another point — I’m not sure I agree with him but I hope I do. He said that he thinks 90% of us agree on 80% of the issues. There are only 10% of us who are extreme, either left or right, and the rest of us basically think the same about most issues. It is a travesty that a nation where so many people fundamentally believe the same thing is divided so sharply along party lines. The political parties use small, divisive issues (abortion, gay marriage, illegal immigration) and buzzwords (socialism, unpatriotic, government takeover) to make it an “us vs. them” situation so they can get political contributions, further their own narrow agendas, and gain power.

Howard Dean recently said in a speech in France that the war between capitalism and socialism has already been fought and the outcome has been determined: we will have a mix of both; the only question is the extent to which we have one or the other. He elaborates on this, saying that capitalism is important because it appeals to part of human nature: the drive to be free, to be creative, and to make things. Socialism appeals to another part of human nature: to be part of a community and to support each other. (Some would argue that we don’t need the government do to that — that charities can do that — but I’ll accept his argument here.) So if we can get past this “capitalism vs. socialism” argument, get past thinking that it has to be all one or the other (when in reality it never will be), then perhaps we can start having a more logical discussion about the implications of sliding more to one side than the other.

My hope is that some day soon, we will all wake up and realize that political parties are using us to further their own ends. They have to divide us, to get us to choose a side. They want you to think that people on the other side are either a) wrong, b) stupid, or c) just plain evil. Your neighbors, your co-workers, and your friends are likely a mix of conservative and liberal, Republican and Democrat. Do you think the people you love who disagree with you are mean-spirited, evil or stupid? I hope not. Don’t play their game. Sure, you have to choose one person come election time. But don’t fall prey to the “us vs. them” mindset. It will make you bitter and angry — I have found that the more I become interested in political issues, the more upset I become. That’s why I haven’t written much on this blog about politics lately. Instead, I’m trying to focus on the common bonds we all share instead.

United we stand, divided we fall. It’s unfortunate that the two major political parties can only survive by dividing us. Don’t let them.

Then something strange happened — the facts came out. Initially, George did a horrible job as a moderator. Facts were brought up that wiped out a Democrat’s argument, the Democrat chalked it up to simply a difference of opinion, and George just left it at that. Hopefully people are smart enough to see through this kind of dishonest debate.

Here’s a great two-fer example of this. When confronted with the fact that the Congressional Budget Office (CBO) said that both bills of the bills would actually increase health insurance premiums, despite the insistence of Democrats that the whole purpose of health care reform is to decrease costs for households, Rep. Debbie Wasserman-Schultz (D-FL) said this: “Well, there are differences of opinion as to whether or not the Congressional budget analysis is correct on the increase in premiums, but the important thing here is that I hope we can all agree that we have to get rid of the profit-driven, insurance company-drive health insurance system that we have, where it’s insurance company bureaucrats, Senator Coburn, that are getting in between patients and their doctors. To suggest that this bill will put government in between patients and their doctors is really disingenuous.”

Did you catch that? Nevermind the facts. Who cares what the CBO says? It’s just an opinion anyway. Now let’s change the issue to those evil insurance companies.

When the CBO scores a Democrat bill in their favor, they tout the CBO as the “gold standard” which must be respected and believed as the gospel truth. But when the CBO says something the Democrats don’t like, they say “well, there are differences of opinion on that.” I call shenanigans.

In response to her, Sen. Coburn goes on to cite the fact  that the percentage of claims denied by government-run Medicare (6.5%) is almost twice the national insurance company average of 3.5%. In response to the Republican concern that government will ration care, the typical Democrat argument is basically that rationing is going to exist under any health care system (100% true, by the way), but rationing already exists and it’s done by those evil insurance companies. Yet Coburn cites the fact that government rations more than insurance companies. I think that’s a pretty important fact to consider. (Note: see the comments on this post for more on the other side of this issue.)

Another great example happened when Rep. Marsha Blackburn (R-TN) actually read from the bill itself. She started by discussing the controversial announcement this week by the Preventive Services Task Force saying that women should not get mammograms until age 50, replacing the current guidelines which say they should start at age 40; and instead of getting them every year, they should get them every two years. Republicans have been skeptical of this, arguing that this is exactly the kind of government rationing they have been worried about.. They argue that not just a coincidence that as the Democrats are looking to expand the government’s role in health care, the federal government is releasing guidelines telling women to not get as much preventive care. The American Cancer Society rejected these new guidelines.

(Note: The PSTF also said that self-examination does more harm than good, as it gets women thinking they might have cancer when they don’t and then we waste money looking for it. You hear that, women? After decades of saying that you should check yourself for lumps because early detection is the key to beating breast cancer, now the government is saying to stop looking for cancer — because, you know, if you find it, you’ll need to be treated for it. And we wouldn’t want that to happen when the government is going to have to pay for it. Democrats always say we have a horrible health care system, but the one thing that they cannot dispute is that our rate of cancer detection and survival is higher than every other country in the world. If we go down this route towards government-run health care, expect those rates to fall in line with the rest of the world; i.e. more people will die from cancer just at the point where cancer rates in the U.S. are falling because we are so successful at beating it. But the government will save money, so yay for that! As Dr. Bernadine Healy, former Director of the National Institutes of Health, said about the new guidelines: “This will increase the number of women dying of breast cancer. Women in their forties have a very aggressive kind of breast cancer. They tend to progress fast. And to not screen women in that age group is astounding to me and it goes against the bulk of individuals who are actually caring for patients. You may save some money, but you’re not going to save lives.”)

OK, back to the show. Blackburn read verbatim from the bill. Citing titles, sections and pages, she explained how the bill renames the Preventive Services Task Force to the Clinical Preventive Services Task Force. Then she explained how the bill assigns the CPSTF the task of rating all preventive services with a grade of A, B, C, D, or I. At this point, Stephanopolous seemed shocked (shocked!) that the representative had actually read the bill, even perhaps a little annoyed by it. But Blackburn pressed on, explaining that the bill says that only services rated A or B actually must be paid for by health insurance. And the preventive cancer treatments between ages 40 and 50, which the PSTF just announced are unnecessary, were given a rating of C. So the fact is that if women want to continue to get screenings at age 40, they will not be paid for by insurance or the government. You can still argue that we might find more breast cancer in one respect: women over 50 without health insurance will now get free mammograms under their health insurance or government option. But you can’t deny the fact that women 40-50 will either get fewer mammograms or have to pay for them out of pocket. Or can you?

Wasserman-Schultz, who suffered from breast cancer herself just a while back, then accused Republians of playing politics with breast cancer. She flat out denied what Blackburn had just said. Her response to the assertion that the CPSTF’s guidelines would essentially become law: ”No, they would not be.”

At this point I give Stephanopolous some credit. He actually put the language of the bill right up on the screen so we could all see that what Blackburn had said was 100% true. Wasserman-Schultz’s answer: “This task force’s recommendations are simply recommendations. They aren’t controlling, they aren’t going to be binding.” Again, shenanigans. Sure, nobody is saying that a 40-year old woman can’t get a mammogram, but she’s going to have to pay for it herself because no insurance company, especially the government option, will pay for it. I don’t know how this woman can lie to the American public with a straight face, but she did. And to his credit, Stephanopolous called her out on it.

Health care reform (a.k.a. health insurance reform, because it sounds less controversial) is a difficult thing to do, no question about it. There are going to have to be some sacrifices made no matter what we do – if you want to cut costs, you have to improve efficiency or reduce services; it’s that simple. When politicians, of either side of the aisle, exaggerate claims, dismiss facts, or flat-out lie about what is in the bill, they need to be called out. I’m glad that George Stephanopolous finally did that today, and I hope he’ll continue to do it in the future.

The proposed law would require that when an employer tells a sick employee to stay home, they pay the employee for up to 5 days of sick leave. Currently there is no law forcing employers to offer any paid sick leave. But with H1N1 waking people up to the possibility of a pandemic, lawmakers are starting to reconsider this. The Center for Disease Control (CDC) has been advising employers to encourage their sick employees to stay home. My school did the same thing for faculty, staff and student. But faculty have paid sick leave and, worst case scenario, students get the day off. We don’t usually hear complaints from them about that.

For millions of people, especially hourly workers, staying home for the good of the firm means less money in their pockets, a difficult decision for people to make, especially in a soft economy. They don’t want to infect their co-workers, but they can hardly afford to stay home. The CDC is spinning this as a good thing for employers: if your sick employee stays home, she won’t infect her co-workers and the amount of sick time taken overall will decrease. Paying for sick leave encourages her to make a decision that is in the best interest of the firm. Overall productivity will stay high and the few days of paid sick leave the firm has to pay is small relative to the potential loss in profits from a firm-wide outbreak.

(A quick market-based analysis: if the CDC is correct, profit-maximizing firms would have been voluntarily doing this all along — especially evil corporations who only care about profits. If the CDC is correct, you don’t need to force firms to pay for sick leave. So if they’re not choosing to do this, they must have concluded that they would rather have less-than-full productivity out of a more sick work force than have some people stay home sick and have to pay them for it.)

One problem I have with the article: no mention of any statistics. The CDC seems to just assume that when an employee goes to work sick, she will infect other people and they will infect others. While that’s certainly possible in theory, there is also the other side of the argument: many employees work while sick and maintain their productivity and don’t infect anyone. It depends on individual behavior, how communicable the disease is, and how long it lasts. I’m not sure how you would gather statistics on this to do a cost-benefit analysis here, but it seems that nothing like this has been attempted. But Congress can’t afford to worry about that — they’ll pass a law anyway.

Next thing you know, we’ll be passing mandated flu shots. Actually, that would no doubt be stricken down as unconstitutional. (Actually, I’m not sure that word means anything any more.) Instead, the government will just impose fines or taxes on firms that do not offer free flu shots to their employees. And they’ll tell firms: it’s for your own good. And it might be. It very well may end up costing less for the firm to pay for all its employees’ flu shots than endure a loss of productivity as people take sick leave. But without any data or analysis behind it, I’m skeptical.

Unfortunately for them, the facts don’t support their claim. CBO Director Doug Elmendorf cited a study from the New England Journal of Medicine saying that in 80% of preventative care programs, the costs of treatment actually increase. A new article in the journal Circulation says that increased diagnosis and treatment of diabetes actually costs more than the alternative.

How can prevention of disease be more expensive than treatment? Two reasons. First, you have to test a whole lot of people before any of them show symptoms and many of them would not get the disease anyway, so that costs money. Second, because unfortunately it is cheaper to let someone go undiagnosed with diabetes and die prematurely than to spot it early and pay to treat them every year they live, especially when that treatment will make them live longer. As Stuart Varney essentially put it this morning: it’s cheaper to have someone drink a fifth of Jack Daniels and smoke a carton of cigarettes every day and die at 50 than it is to have them live long lives and have to spend money on them for 90 years. If you want to save on health care costs, encourage unhealthy behaviors and people die sooner, as health care costs rise significantly the older a person becomes.

That sounds absolutely horrible, right? Well that’s what happens when all you focus on is costs. When conservatives get up in arms over health care costs in this manner, they’re falling victim to the same distorted logic that liberals use when they say that our health care costs too much. Not all health care costs are bad — when we save lives with new pharmaceuticals and surgery techniques, and prevent disease with new methods of testing and diagnosis, that costs money. But aren’t those things good?

(Aside: We have a lower life expectancy in the U.S. than in many countries, but much of that is due to violent crime and automobile accidents, not health care — adjusting for that, we perform much better, and it’s likely due to our advances in medicine. If memory serves correctly, about 80% of Nobel prizes in medicine in the last 30 years have been given to Americans.)

When we make people live longer, that costs more money too. This is worsened by our Social Security system: since the program was created, life expectancy has increased by more than 10 years, yet we have only pushed back the age at which you can receive full benefits by 2 years. Old people keep living longer and they retire at the same age, so that increases the burden on everyone else. But despite this increase in costs, my questions remain: is the cost of health care the only thing that matters? What about the benefits?!

I remember a study I read about a few years ago which stated that the increase in life expectancy that has occurred in the last century has increased the overall benefits of the average person by over a million dollars. You live longer and have more health care costs, sure — but you have more time with your family, your quality of life increases, and we’re all better off as a result. Democrats say “we spend too much on health care” despite the fact that this spending ends up making us better off. (Here’s a study saying this very thing about the US, and another one saying the same thing for Japan.) And now Republicans are saying that spending more money on prevention is bad just because it costs more, ignoring the potentially beneficial effects on quality of life.

I think  Charles Krauthammer puts this in its proper context: prevention is not the magic bullet that some Democrats think it is, and it has its own costs – but it still can be a good thing, and worth paying if it means people live longer, healthier lives. A little more emphasis on the benefits of health care, not just the costs, would be a refreshing change — from both sides of the political spectrum.

P.S. I think there is an analogy here to the global warming climate change debate: some would argue that we should focus on prevention regardless of the cost, and impose taxes on carbon and other costly regulations, while others say we should focus on treatment — work to adapt to future climate change if and when it happens with economies that are stronger and better able to withstand fluctuations in climate.

I tell my students that the assumption of rational self-interest in economics is fundamental, as fundamental as the assumption of gravity is to physics. If we don’t assume that people behave according to some logical set of rules, then we can’t predict anything about what people would do in response to some change in the market or government policy. If I don’t assume that you buy the $.50 candy bar, then all the rules fly out the window and we can’t predict anything: offering people $4,500 to buy a new car could result in fewer cars being purchased. If gravity switched on and off at random, physicists would not be able to predict the way any object would move through the air. So if we have this assumption, we must apply it at all times or reasoned analysis is impossible.

If an engineer were designing a new rollercoaster and emphasized the role of gravity in causing the coaster to gain speed when going down an enormous hill, yet assumed away the existence of gravity so the coaster did not slow down when it comes up the next hill, people would debunk his new rollercoaster as a joke. Applying gravity selectively would be ridiculous, and the engineer would be fired (unless he were in a union). When someone looks at the situation and points out that the roller coaster does not magically just come up the other side at the same speed as when it hit the bottom, that’s called being intelligent and careful in one’s analysis. But in politics, we have a different word for the practice of calling out people when they selectively apply principles: fear-mongering.

I have issues with the way President Obama is talking about health care reform. He is selectively saying that incentives matter when it benefits his arguments, and pretending they don’t matter when they work against him.

However, I first want to thank President Obama for finally being able to accurately explain his Medicare reform proposals. In the past, he has said a few questionable things that made me wonder what he was really trying to do. He’s said that doctors have no incentive to counsel you in ways to prevent diabetes – they’ll just cut off your leg and get $30,000 for it. Not only is that not anywhere close to true (Medicare reimbursement is somewhere on the order of $700 for that), but it’s incredibly insulting to doctors. He’s said that instead of treating a sore throat with medication, they just pull kids’ tonsils because it makes them more money. Again, Obama’s message seems to be: doctors are greedy, evil people trying to collect as much Medicare money as possible. When you’re trying to reform our health care system, you probably want doctors on your side. I don’t see how impugning their ethics helps accomplish this.

In yesterday’s town hall in Montana, President Obama explained himself much better and dialed back the back-handed insults. He said that in the present Medicare system, doctors get reimbursed by Medicare based on the number of times they see a patient. So if a doctor happens to mess up, not fix a problem right away, or not use the most effective treatment, and the patient has to come back several more times, the doctor gets paid every time the patient comes back. That clearly incentivizes long treatments that are less effective. His proposed change is to pay based on the condition, so that if a doctor can fix someone’s problem in one session, they’ll save on costs and make more money. This is the way my pet insurance program works for Jake: they pay a certain amount per condition and the veterinarian does her best to keep costs down and keep treatments effective. This is a good thing, no?

Well, maybe. Here, President Obama correctly identifies that a change in incentives can change behavior. But that’s not the only incentive at play here. There may also be another effect: some doctors will stop accepting Medicare. If they are going to be punished more harshly for not getting it right the first time, some doctors will simply see this as more of a hassle than it is worth. If my veterinarian thinks that the reimbursement for treatment is insufficient, she can just choose not to honor my policy and I have to choose a different vet. (Jake barks at all of them so it doesn’t really matter to me.) Obama keeps saying, “If you like your doctor, you can keep your doctor,” but that’s not true if doctors decide Medicare’s rule-tightening is not profitable any more. But if you point that out, you’re fear-mongering. And maybe a little racist.

Now please don’t get me wrong. I think this rule change is actually a good thing. But anyone who says there is no potential downside to this is either ignorant or lying. (And if it’s such a great thing and going to save money for a system that even Obama admits is on a fiscally unsustainable path, why not adopt that reform and deal with the public option and all the other stuff later when you can work out the details?)

Obama also finally admitted yesterday that he can’t cover an additional 45 million people and not have costs increase. He says that 1/3 of the cost is paid for by the Medicare reform, 1/3 is paid for by decreasing reimbursements to insurance companies, and 1/3 will be paid by the wealthy. His preference is to lower the benefit from rich people claiming charitable deductions. He says that will get him $30 billion every year. (In a previous post, I took issue with his numbers. Back then, the administration was only trying to claim they could get $18 billion each year from changing the tax rate on charitable deductions, and I think I debunked that pretty well.) The House bill would instead impose an additional surcharge on people with high incomes.

**Update 8/16: I just read the transcript of what he said at the town hall in Montana. In it, he just refers to “itemized deductions.” In the past, he has been specific about just charitable contributions. It looks like he might be relaxing this language to include all deductions taken by rich people. If that were the case, it would include a lot more revenue sources (home mortgage deductions, work expenses, etc.) and I’m sure he could come up with this money. I think this highlights the problems that arise when he speaks in such generalities and doesn’t put forth a specific bill.**

Another area where Obama wants to selectively apply the power of incentives involves prices of prescription drugs. He proposed that we shorten the patent life on prescription drugs. He says that they’ll go generic sooner and this will help lower drug costs. And while that may be true, it will also lead to less innovation and development of new drugs. To pretend it won’t or to ignore that fact is disingenuous. But my pointing it out? Well, that’s fear-mongering.

You can’t say that incentives matter and will make a huge cost savings when it works for you, and then pretend that companies won’t respond to those same incentives when they go in the opposite direction.

At this point, an Obama health care reform supporter might say: Dave, not only are a you a fear-mongerer (which would prove my point, btw), but you’re a shill for the health insurance companies and you want poor people to die. Yes, I’m admittedly an evil conservative and I want poor people and children and pets to die. Oh, and don’t forget old people. (I am also a firm believer in sarcasm.) Here’s what I am for, so you know I’m not just slamming everything Obama does:

1. I am for changing regulations that affect whether insurance companies can drop you.
2. I am for allowing people to purchase health insurance from companies in other states. Each state has its own set of rules and regulations that just prevent competition. We should eliminate those.
3. I am for making health insurance more portable: if you have insurance now and get sick, you’re covered — but if you lose your job, you may have a hard time getting new insurance because now you have a pre-existing condition. This is clearly not fair.
4. I am in favor of Obama’s proposed Medicare changes. (I am just not willing to pretend that nobody will have to change doctors.)
5. I am in favor of the government providing tax breaks and subsidies to the 15 million or so people who cannot afford health care. (You hear that 45 million people are without health insurance, but when you eliminate people that either a) are here illegally, b) qualify for goverment programs but simply haven’t signed up, and c) can afford health care but choose not to pay for it because they think they are too young to worry about it and would rather spend it on other things, that number drops to about 15 million.) I do not think we need to change our entire system for 5% of the population. Just help them pay for it.

One of the reforms President Obama wants is for individual people to be able to buy health care as part of a “community pool.” That way, you won’t be treated individually — you’ll pay the same health care premiums as your neighbors would. That sounds like a great thing because, if you have a pre-existing condition, you don’t get punished for it. But remember, this is the same president who praises Safeway for implementing some incentives for their employees to join health clubs; and Safeway’s health care costs have been flat for the last five years while everybody else’s is rising. So on the one hand, Obama is acknowledging that if we incentivize people to behave in a healthier way, this will have a positive impact on health care costs. And on the other hand, he says we should all pay the same costs regardless of our behavior when we’re in a community pool. Sorry, but that’s only going to decrease the incentive people have to take care of themselves, which will raise costs. Either you treat everyone the same and costs rise, or you incentivize people to do healthy things and unhealthy people pay more. You can’t have it both ways.

Which brings me to Ashton Kutcher. He was on Real Time with Bill Maher yesterday. I’m a little disappointed in myself for even considering what he has to say, because I have always thought that he was so full of himself that I should just ignore him. But his performance on that show proved that he is an intelligent, thoughtful man who is not only passionate about the issues, but educated about them. I want to hate him but I’m having a harder time doing so after this appearance. A devout Obama supporter, he said this:

“Why can’t we set up a system by which the guy who’s doing something to live a healthy lifestyle gets a tax break within the system, or companies that are promoting a healthy lifestyle get tax breaks. Why are we going: okay, base it just on how much people make? If you give gym memberships to the people that work for you, you should get a tax break for that. How about instead of promoting this health care plan that seems a lot more like a sick care plan, why don’t we promote wellness within the system? I don’t want to pay… I mean, frankly, I don’t want to pay for the guy who’s getting a triple bypass because he’s eating fast food all day and deep-fried Snickers bars. Like, i just, I don’t want to pay for him. I want him to pay for him, whether he’s wealthy or he’s not.”

He’s saying that rich people shouldn’t pay more for health care than poor people, and that our behavior should affect the prices we pay? Better watch out, Ashton: Nancy Pelosi will throw you out of the party for independent thought like that.

Fellow panelist Ross Douthit, a conservative, responded: “I agree with you, Ashton. But that’s the kind of thing, I think, that also can scare people though. If you come out and say, look, if you have led an unhealthy lifestyle we’re not going to cover your care when you hit 75 and so on, that’s where you get the sort of fears about death panels and so on.”

Congratulations, Ashton: you’re a conservative! He agrees with me that people should bear the costs of their own behavior. But that won’t happen if we go to this community pool option, unless the government is rationing health care somehow. Don’t worry: we are assured by President Obama that nobody is going to ration your health care. Actually, that’s not quite what he says. First he says that insurance companies are already rationing health care (which is true), so why is it so bad if government does it? Then he says government won’t ration anything. And costs won’t go up. I’m confused again.

Another Democrat, Geraldo Rivera, was on Fox and Friends on Thursday morning and was recalling the passing of his father-in-law. If I remember correctly (and I’m not sure I do, so if I’m wrong please forgive me), the man was only in his 50’s when he died. When presented with the option to try to fight his illness and spend a lot of money or die gracefully, he said that he had lived a good life and it was his time to go. Geraldo praised him for doing so because it saved money. According to Geraldo, in the name of the greater good, you should simply slip away and not fight.

End-of-life care is an extremely important and controversial issue. One quarter of all health care costs occur in the last year of someone’s life. Granted, some of those last years are for people in their 30’s and 40’s who develop an illness, we try to fight it, and we don’t succeed. I don’t think anybody’s saying that we shouldn’t do what we can for those people. But when you’re already 70 and get cancer, should we pay for your treatment when you only have a few years left anyway? If you’ve lived a healthy live and expect to live into your 80s, should we pay for it then? (This gets back to Douthit’s point.) Of course it makes sense to fight harder and be willing to spend more money on someone who has 30 years left to live than it does for someone who has only 3. That’s precisely why it’s so scary for some people who oppose this bill: because rationing care in this fashion makes so much sense that it’s damn near inevitable.

A doctor friend of mine once told me that there are three things people want in their health care: they want it to be fast, they want it to be good, and they want it to be cheap. Throw in another goal while you’re at it: they want everyone to have it. He told me that we can only have two of those three. You can have health care that is fast and good but not cheap (the U.S. model). You can have health care that is fast and cheap but not good (Cuba). Or you can have health care that is good and cheap but not fast (Canada). Trying to decrease costs and increase access is either going to decrease the speed with which you can get treatment or the quality of that treatment, plain and simple.

What this whole debate is highlighting for me is the sacrifices that have to be made any time we do ANYTHING. You can’t say that we’re not going to ration care and also say that we’re going to keep costs down. You can’t say that you’re not going to be penalized for pre-existing conditions or punished for the individual choices you make, and also provide incentives for people to take better care of themselves. You have to choose one or the other and be prepared to admit that there is a cost to your decision. The closest thing we’ve come to any admission that there is going to be any downside to health care reform is Obama finally admitting today that he can’t pay for it all without raising taxes. But on everything else, there is no downside.

Gravity ceases to exist when it would slow down the Obama Health Care train.

Nine days ago, when Sen. Arlen Specter (D-PA) and HHS Secretary Kathleen Sebelius went before a town hall in Pennsylvania, they were greeted with many questions about the health care bills before the House and Senate. Secretary Sebelius thought the questioners were a bit out of line because, as she said, “There isn’t even a bill yet.”

I think she meant that there is no bill that has passed both houses of Congress, but I’m not sure. When people have been attending these town halls and questioning parts of the bill, it’s usually H.R. 3200. Sen. Specter said there is no bill yet, so I assume he was referring to the fact that the Senate does not have one bill pending in the entire body.

Today at his town hall he was asked about whether any federal taxpayer money will be used for abortion under this new health care plan. He went on to say that the bill would provide two different plans: one for women who want the option to have an abortion and one for women who don’t.

“Well, first of all, we don’t have a bill in the Senate, as I said. And what we are looking toward is to have both options. That if you want to have a health care plan which does not have payment for abortions, you can have that one where you’ll not be charged for somebody who has an abortion. Now, if you want a different health care plan, an option where you can have payment for abortion that you pay for it, because there’d be a little bigger premium, you have the choice.”

It would be similar to what health insurance companies do now with pregnancy. They offer several different plans, some with very good pregnancy coverage and higher premiums and others with less pregnancy coverage and lower premiums. If you’re young and have no plans on getting pregnant, you save some money and get the one with little or no pregnancy coverage.

Currently, the Hyde amendment states that federal money cannot be used to fund abortions. I think this would skirt that amendment because people are paying premiums into the health care fund and then the health care fund is paying for the abortion. It’s not John Q. Public’s tax money — it’s the policyholder’s money. Just as Social Security payments are not made with federal tax money — they’re made with Social Security money. I have no problem with the public option covering abortions at all: whether you like it or not, abortion is legal in this great country of ours.

**Update 8/13: ABC World News Tonight just ran a “fact check” segment on this issue. Their answer to the question about whether federal taxpayer money would be used to fund abortions was: “unclear.” They point out that women would be able to enroll in a plan that paid for abortion, but they also noted something I forgot when I wrote this post: lower income Americans would have some of their premiums subsidized by taxpayer money — so that’s taxpayer money going to pay the premiums of people who use it for abortion. On the other hand, they also point out that there are amendments floating around right now that would require people to pay for abortions entirely out of pocket, regardless of their plan — so that would eliminate the two-plan approach Specter was talking about here. It’s not settled yet. None of this is.**

So after that, I’m pretty sure I know that there are no bills in the Senate but they’re coming up with something. Then I hear Claire McCaskill (D-MO) at her town hall today saying there are actually two bills in the Senate but neither has cleared its committee yet. She says she read every word of both of them and there’s absolutely positively not one word in there about abortion. So Specter’s apparently just going out on a limb and saying that despite the two bills currently in Senate committees that say nothing about abortion, the Senate is ” looking toward” a plan that has both options. Is he being optimistic or deceptive? You make the call.

I’m tempted to believe that Specter is just pulling stuff out of his hindquarters. At the same town hall, he revealed that he was did not know that the government would tax employers 2.5% of their income if they did not offer their employees the public option. His ignorance of what is in the House legislation that is available on the internet is frightening. Granted, he’s not in the House, but I think he might want to be informed about these things. He has to know people are going to ask questions about it.

I’m not sure what these town halls are supposed to accomplish, but I think it depends on what the state of the legislation is — we all remember the Schoolhouse Rock video, right? Either there’s no bill in your branch of the Congress and you just listen to your constituents tell you what their concerns are about what should be in the bill that eventually passes; or there is a bill in your branch of Congress and you demonstrate that you are aware of what it entails and defend your position either for it or against it. It seems that a lot of politicians are trying to do both, saying “there is no bill” and also saying “don’t worry, that’s not in the bill” – and it’s not playing well at all.

I’m glad that Specter and McCaskill held their town halls today and listened to the people who showed up. Some representatives are chickening out and don’t want to listen to their constituents — which makes me wonder who exactly they are “representing” anyway. Message to politicians: we are reading the bills that are out there and finding things we don’t like about them. I know it’s an overused cliche, but the devil is in the details. Either you read the bills too and know what those details are or you look like an idiot.

On a slightly different note, I never hear any of the people who support this bill say one word about any possible downside to any of their constituents as a result of HR 3200 or any of the health care bills (there are five: three in the House, two in the Senate). If you ask them, it’s going to be great for everybody and bring costs down and increase coverage and even triple the unicorn population. Either they have no idea what’s in the bill, or they’re lying by omission. I would love to have just one representative who wants the bill to pass come out and say: here are the downsides to the bill and who will be negatively impacted, and here are the upsides to the bill and who will be positively impacted — and I’m deciding that the positives outweigh the negatives based on who my constitutents are and where they fall in terms of those groups. But they don’t do that. They pretend there are no negatives and hope we’re too stupid to ask questions. Until recently, that was usually what happened. Not any more.

P.S. After watching those two town halls, I watched Obama’s town hall. In the first two, at most 10% of the questions were positive. In Obama’s, he could only find one person who was skeptical. Yet the Obama administration says the audience was not hand-picked. I find that hard to believe. (Yes, I know Bush did it when he was President. But that doesn’t make it justifiable; since when have the Democrats thought George Bush was the standard-bearer for good behavior?)

Stephanopolous: And I know your allies, Governor Dean, have been saying that this is all just, you know, paid for, people recruited by lobbyists here in Washington. But you can’t create, you can’t force people to go out to a town meeting. You can’t manufacture that kind of anger, can you?

Dean: Well there uh, there actually is, um, there is a lot of orchestration. There’s the Brian McGuffey memo which actually tells people do what, do what they’re doing, which is sit in the front, jump up and interrupt.

Stephanopolous: He’s got like 23 friends on Facebook though.

There are two things about this that interest me. First is the idea that we are measuring people’s influence now by how many Facebook friends they have. I completely understand George’s point: if McGuffey posts something on Facebook about how to disrupt a town meeting and only 23 people are hearing him, how influential can he really be? I’m not sure whether that’s an ingenious new way to measure influence, or a sign of the apocalypse. But if that’s how we’re doing things these days, then please feel free to add me to your Facebook friends so I can enhance my credibility.

Second is the idea that Howard Dean is going on national television to talk about how these townhalls are contrived, and the proof that he cites of the artificial nature of this national movement is one guy who has 23 people listening to him? Republicans do themselves a disservice when they look at the Code Pink crazies or the 9/11 truthers and paint the entire Democratic party with the crazy brush. Likewise, Dean and other Democrats do themselves a similar disservice when they point to a few cases of people taking advantage of the changing climate against government intrusion into health care to push their agenda, and label all Republicans as zombie tools of the health care industry.

Coburn: Does a state legislature have the right, under the Constitution, to determine what is death? Have we statutorily defined, and we have, all 50 states and most of the territories, what is the definition of death. Do you think that’s within the realm of the Constitution, that states can do that?

Sotomayor: It depends on what they’re applying that definition to, and so there are situations in which they might and situations where that definition would or would not have applicability to the dispute before the court. All state action is looked at within the context of what the state is attempting to do and what liabilities it’s imposing.

Coburn: But you would not deny the fact that states do have the right to set up statutes that define, to give guidance to their citizens, what constitutes death.

Sotomayor: As I said, it depends on in what context they are attempting to do that.

Coburn: They’re doing it so they limit the liability of others with regard to that decision, which would inherently be the right of a state legislature as I read the Constitution. You may have a different response to that. Which brings me back to technology again. As recently as six months ago, we now record fetal heartbeats at fourteen days post-conception. We record fetal brainwaves at 39 days post-conception. And I don’t expect you to answer this, but I do expect you to pay attention to it as you contemplate these big issues, is we have this schizophrenic rule of the law where we have defined death as the absence of those but refuse to define life as the presence of those. And all of us are dependent at different levels on other people during all stages of our development from the very early in the womb, to outside of the womb, to the very late. And it concerns me that we are so inaccurate — inaccurate’s an improper term — inconsistent in our application of the logic.

Coburn’s argument is simple: if death means the absence of brainwaves and heartbeats, shouldn’t life mean the presence of brainwaves and heartbeats. This struck me because there are so many inconsistencies in the law, so many competing rights and principles. It is in all of this conflict that judges make decisions and settle what the prevailing rule will be. When laws are clear, a judge’s work is easy and even unnecessary. It is when two different laws are at odds with each other that real legal precedent is made, and where different judicial philosophies lead to different outcomes. I was also a Legal Studies major in college, so I find discussions like this fascinating.

And it’s not just the courts that are inconsistent in how they apply logic. I think we’re all guilty of it. I know I am. A few years back there was a story about a woman who delivered a baby in the hospital and when they were doing her blood tests, they found cocaine in her system. After she gave birth, the police took her into custody and placed her under arrest for child endangerment — apparently it’s illegal to do cocaine when you’re pregnant…or at least more illegal than just doing it on your own. I remember thinking that was the just thing to do — there has to be some punishment for a woman knowingly harming the baby inside her womb, possibly causing it to have developmental difficulties that will require taxpayer money. But I consider myself to be pro-choice. I would obviously rather a woman bring a child to term and let a loving family adopt it, but it’s her body and as long as she makes the decision early on and we’re not talking late-term or partial-birth abortion (when the fetus would be viable outside the womb anyway), I would not choose to take away a woman’s right to an abortion.

So consider those two positions and you get this: I have no problem with a woman killing a fetus, but if she just harms it by doing a little drugs instead of killing it completely, then there should be a punishment for her. It sounds perverse, I know, but it’s just another example of the competing principles we have that sometimes butt up against each other. There is also tension between the guarantee of equal protection for all people under the law regardless of race and gender and the sanctioning of affirmative action. There is tension between the first amendment’s right to say anything you want and the right to privacy of others — illustrated quite well by the jackasses who protest funerals of soldiers yelling god-awful things at the family of the deceased. It is hard to have a set of strong principles that don’t at some point conflict with each other.

I know these hearings have been boring at times. There’s no doubt about that. When you get to the fifth Republican senator asking yet again about the “wise Latina woman” comment or the tenth Democrat senator talking about how simply wonderful this woman is (I seriously think Feinstein wants to adopt her), you can’t help but want to just turn it off. But I keep watching anyway because you never know when a discussion like this is going to come up.