The Only Republican in San Francisco

Is the “public option” really optional?

When discussing the possibility of a “public option” as part of the health care bill being negotiated, we see great example of the power of a label.

For the public option to be an option, it has to be optional. This means that if you don't want to participate, you don’t have to. Can that be the case?

The are two financial possibilities for the public option -- either it is financially self-sufficient, or it is not.

If it is financially self-sufficient, that means it is paid solely by those who receive the benefits. In which case, it's just like any private option; you don't pay Aetna or Kaiser anything unless you sign up.

If the public option is not self-sufficient, this means by definition that non-beneficiaries -- other taxpayers -- are paying into it. In that case, we create “participants” who receive no benefits.

It's hard to imagine that the public option can be anything but the latter.

To compete on price, they need to undercut the private competition. To support this lower price, a self-sufficient public option must be more efficient than the private versions while providing the same level of benefit.

To be more available, it must accept wider range of beneficiaries than the private companies. This means it must accept more sick people -- ie, those with pre-existing conditions.

There is no evidence of government being more efficient, especially in our existing gov’t health systems: Medicare and the VA hospitals.

And by accepting more sick people, obviously their patients will be skewed toward the most expensive.

The only solution to the above is a subsidy from outside the public plan. So really, you’ll be paying into it regardless of whether you benefit. There is nothing “optional” about it. So perhaps we should start being honest in our language.

It's not a safety net if you're broke

Today, Governor Schwarzenegger revealed shock-and-awe cuts for the California state budget:

The governor's proposal to whack an additional $5.5 billion from state programs stunned even longtime Capitol-watchers with its blunt force. Ending cash assistance for 1.3 million impoverished state residents, for example, would make California the only state with no welfare program.

"Every single first-world nation has a safety net program for children," said Will Lightbourne, Santa Clara County's social services director. "This would return us to the era of Dickens — you'd have to go back to the 19th century to find a comparable proposal."

I don't disagree. And yet California takes in more revenue (per capita) than 42 other states -- we don't lack income. We lack the ability not to spend money that doesn't exist.

The extraordinary new spending over the last 8 years -- about 3 times the rate of inflation -- was intended to improve quality of life, no? To provide a safety net, yes?

It's truly ironic, but not surprising. There is nothing charitable about overspending. In fact, it's a triumph of political ambition and narcissism. Our politicians get elected for these promises, their allies get funded by the pork, and they brag about their sense of charity. The citizens, by extension, do the same.

Buying your kids expensive Christmas gifts is pretty cruel if they are hungry in January. But California didn't just do that. We also bought expensive gifts for the hot secretary and our poker buddies.

Human rights are too expensive

Human rights take a back seat to financing the Democratic agenda, once again. Recall that Secretary of State Clinton's first trip in her new role was to China. The message: keep buying dollars and we'll ease up on the human rights talk.

My district Rep, Nancy Pelosi, in the above-linked story, continues that strategy.

Yay Cali

For rejecting the ballot measures today. I swear, I don't know anything about the electorate. Blowing away spend-and-borrow like these and yet supporting Obama. The former part is encouraging.

Megan McArdle figures a bailout is on the way.

Price controls: once more with feeling

The Senate rejected a cap on credit card interest rates today. The intention of the bill was to "protect consumers" from "price gouging".

Here's the thing: if you limit the price that a company can charge for a product or service, fewer companies will offer it. So if a credit card company can't charge a 30% rate to particular person, they will simply not offer them credit at all. This is progress?

This is not unlike the hollow complaints about check-cashing shops in poor neighborhoods. Outraged by the high fees? Fine, but if you eliminate those stores then the available options for poor people go from one to zero.

Guess what -- consenting adults use those stores because they choose to. The only way to justify their elimination is to believe that the gov't knows better what to do with their money. Which is to say, we declare them second class citizens.

A thought experiment: if we decide that computer companies are "gouging consumers" by charging, say, $1500 for a laptop, and we make it illegal to charge any more than $1000 for a computer, what would happen? Well, Apple wouldn't exist for one thing. Knock it down to $500 for the sake of justice -- would we have more or fewer computers? 

How about declaring it illegal to charge more than $10,000 for a car? More than $5/lb for meat? Who would better off?

Jimmy Carter learned this with gas prices in 70's. Did anyone else?

Roundabout Keynesian, part 3

Greg Mankiw cites a phenomenon that I've mentioned before, that fear of future inflation might inspire people to spend today. He talks about it in much more practicable economic and historical terms than I did -- and here I thought I was on to something clever.

The thinking goes like this: it seems clear that the flood of created-from-thin-air dollars currently going into the economy must mean, at some point, those dollars will be worth a lot less. We've doubled the number of dollars but they are chasing the same amount of things.

So a forward-looking person will realize that the value of a dollar is at a high point right now. The dollars in your bank account will buy a lot less in 5 or 10 years. So if you convert those dollars into something more likely to hold its value, you are better off.

And that's stimulative. But it's not the same as improving the country's economic well-being. It's basically a threat by government that your money will be seized if don't spend it. And money spent involuntarily can't be empirically said to create new wealth.

Wealth is defined -- to me -- by voluntary exchange. A person that spends money for a good or service believes that they are better off as a result. Economic benefit is defined by citizens, subjectively, and that's a good thing.

When the government says "you're better off", it's very different than you saying "I'm better off". Which is more persuasive, to you?

A tax day question for my Representative

Dear Speaker Pelosi,

The Speaker of the House of Representatives is paid a salary of a bit over $200,000 [pdf]. The average American citizen's annual federal tax liability is approximately $7000, which means that there are 30 people whose entire yearly tax contribution goes toward paying your salary.

According to Roll Call and the Center for Responsive Politics, and based on your Financial Disclosure forms, your net worth is well into 8 figures. This puts you comfortably ahead of 95% of Americans. My question is...

Will you take the opportunity today — out of respect for Americans' difficult economic times, our President's call for a new era of responsibility, and our government's spending priorities — to announce that you will accept a salary of only $1 for the rest of your time in public service?

Kind regards,

Matt S
Your humble constituent
15 April 2009

Save the date

So I will be attending the Tax Day Tea Party protest here in SF April 15. Here are some details specific to California. Here is the Facebook group.

Here is an impressive map of protests around the country (click to view full size).

A sly mistress named "Projection"

How ironic. Three lefty bloggers all talk about the same story at the same time, using the same language, talking about the same people, embedding the same video, and linking back to one another -- and the story is about the right-wing echo chamber.

Matt Yglesias (whom I generally enjoy):

Ali Frick:

Steve Benen:

Here's a quick and helpful chart, click to enlarge:

Pitchforks and ignorance

It's amazing to me how quickly, when people are told to "get angry!", they ask "how high?".

Normally thoughtful people seem to believe that the recipients of retention bonuses at AIG should be punished. After all, they caused this mess! Grr!

But ignorance is bliss, or in this case, fury. The people who caused this mess left AIG a year ago. The people who are there are the ones brought in to clean it up.

You show up at a house. It's mostly smoldering cinders. There are firemen hosing it down. Do you demonize the firemen? Are you pissed that they are compensated for dangerous work?

Do you blame emergency room workers for all the injured people around them? If we cut their pay, do we expect the ER to operate better?

The whole episode of the House voting specifically to punish AIG, based purely on public outrage, is governance by angry mob -- led by Democrats, and supported by too many Republicans.

Nothing new under the sun

Via Instapundit, this post over at the Corner points out something I've noted in my mind for a while: those who advocate greater government involvement in industries such as finance and health care speak as if these are ideas which need to be tried. In fact, they've been tried for a long time in many diverse places. So we have lots of experimental evidence to point to.

One example: the idea that greater regulation would have prevented our current crisis. Yet the source of the crisis -- mortgages -- is one of the most heavily regulated parts of finance. Fannie Mae and Freddie Mac have been attempting to control prices for a long time. And yet the industry imploded. (One might consider the previous sentence without the "yet" and reconsider the causality.)

Many countries around the world have much more regulation, and were not spared. It's like saying that a crime involving an illegal gun is the result of lax gun laws. Hint: the gun was already illegal, as was the assault, and yet the tragedy happened. Making it "more illegal" makes us feel better but elides the cause.

The president has said that "solving" our health care "problem" is necessary for solving our economic problems. Most of the world has socialized medicine. So if countries with socialized medicine are in the same economic straits as we, and perhaps worse, how does it follow that it's a cure?

“The Swedish state is not prepared to own car factories”

Would that our own leaders could be so clear-headed. Second money quote:

“We are very disappointed in G.M., but we are not prepared to risk taxpayers’ money. This is not a game of Monopoly.”

Who isn't disappointed at G.M. failure? Bailouts don't mitigate the failure, however. They simply prolong it.

Would that I could be as sexy as Penn...

Drug legalization seems to be one issue that the adamant left and the adamant right can agree on.

I don't have any personal interest in using illegal drugs. I don't even get exercised about the idea that a person is being deprived if they aren't allowed to legally use drugs.

What I do get exercised about is the idea that we put people in jail for such things. And that we pay enormous sums of money to do so. And that the "war of drugs" empowers government and invites corruption. And perhaps most of all, that drug prohibition empowers thugs and ends lives (think Al Capone).

I don't disagree that drugs are often damaging. Their illegality simply adds a layer of damage on top of that.

So I'm watching John Adams...

...the miniseries from HBO, which I got on the Netflix. And it's great. (Just occured to me that John's wild-eyed revolutionary cousin "Sam" is, um, Samuel Adams.)

It turns out that John Tyler, our 10th president, born in 1790, has two living grandsons. Not great-great-anything. Grandsons. Can this be? I am trying to imagine.

For perspective: my grandmother was born in 1904, had children relatively late in life, and passed several years ago at age 92.

$1 billion an hour -- hell, I'd work for half of that

Since Obama was inaugurated, Congress has voted to spend around $1,000,000,000 per hour. Let's have some fun with the math.

There are around 300,000,000 people in this country. Let's say that every man, woman, child, infant, and octogenarian works an 8 hour day.

Congress is allocating $24,000,000,000 of new spending per day. That means Obama and Congress are taking around $80/day or $10/hour from working people.

(That's if every single human in the country worked. Due to age and other considerations, only around half do. So that's $20/hour of effective taxation for those that actually work.)

Since inauguration day, you've been sending $10-20/hour of your earnings to government. Feel like you're walking up a down escalator?

Now. Add to that a $3,600,000,000,000 proposed budget for 2010. That scales back the rate of spending to only around $10,000,000,000 per day, which works out to around $33/day per person, or $4/hour if we include the baby and the geezer.

Among actual working people, $8 of every hour you work goes to Mr. Obama and Ms. Pelosi.

Obama and entrepreneurship

I am an engineer in Silicon Valley, and am starting a start-up. I am doing it because a) it's challenging and fun, and b) I might make a good chunk of money someday.

Lately, I have been very disheartened by Obama's spending plans. He (and Congress) are taking massive amounts of money out the innovation economy and re-routing it through government, where it will largely be funneled to politically-connected organizations or destroyed outright.

From my biased perspective, I see this as money that would otherwise be used to fund our next generation of companies.

I feel this on a personal level. I see a future where fortunes are seized from successful people, and I see myself as one of those people. Right now I am in financial free-fall, by choice, with the hope of a future payoff that makes it worthwhile. The idea that future success will be taken away makes me wonder if it's worth it -- and I don't imagine I am the only one.

So I read with interest a new piece that attempts to quantify the disheartening effects of Obama's policies on entrepreneurs:

By my figuring, if you use Obama’s campaign proposals for long-run capital-gains, income, and FICA tax rates as a (probably conservative) guide to where rates may go, the prospective entrepreneur would have to increase her estimated odds of success at the moment of funding from 20 percent today to about 30 percent under the new tax regime in order to have the same financial incentive to start the company. That’s a huge difference; in fact, it’s about the same as the margin of difference between the odds of success for a new venture-backed company started by a first-time entrepreneur and the odds of success for a new venture-backed company started by a founder who has already done at least one successful start-up. Any venture capitalist can tell you how much likelier the second guy is to get funded than the first. 

Silicon Valley is a place where we only need 20% of companies to succeed to sustain an extraordinary culture of invention. If Obama's plans come to pass, the threshold will be closer to 30%. If we consider risk to be a cost, which it is, the effective cost of creating a Silicon Valley start-up increases by half.

So even putting my own emotional instincts aside, a person that does the math will realize that a lot of companies will now fall below the threshold of "fundable". In a high-risk, high-return industry such as ours, there is a tipping point between a good bet and a bad bet. Obama's spending plans send a lot of companies over that tipping point.

This is why I despair that in 20 years, we will wonder why we haven't lately created a Google or an Apple.

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An aside: what's happening at a national level is also playing out at the state level here in Cali. We have a $41 billion deficit despite the gov't taking in more money than any other state. I can only anticipate that California will have to raise taxes to more absurd levels in the future. My business won't be incorporated here.

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Update: Some good ideas from Reid Hoffman.

Romanticising poverty

Radley Balko over at reason does a fine job skewering the idea that poverty somehow brings people together.

Let's put this idea -- rooted in a Jesus-at-the-temple ethos against material wealth, and often embraced by people who have never been poor -- to a common-sense test.

The poorest parts of this country, or your city: how do they rate in terms of violence and social discord? How does that compare to the wealthiest parts?

How about the stability of family in those areas? In fact, marriage and income remain closely correlated.

When the return on investment for crime rises, such as in situations of economic frustration and hoplessness, do we expect it to rise or to fall?

I put this is the same bucket as those who seek to "protect" native cultures from the ravages of economic progress. As if people choose to live in mud huts when they have other options.

Obama to GOP governors: an offer they can't refuse

Now that the "stimulus" bill has passed, with big $$ earmarked for state governments, GOP governors are apparently torn as to whether to take the money. On the one hand, that money, like other pork, is a benefit to the recipients. Intelligent folks also realize that every one of those dollars comes from someone else, presumably in another state, and so the loss is equal elsewhere.

Herein lies the insidiousness of big public spending: once the money is spent, it is in the interest of citizens to clamor for their share from government. Such clamor begets more spending. Etc.

We know that such spending is, at best, a net-zero transfer. In reality, after accounting for waste, deadweight loss, lobbying and straight corruption, such spending makes us all poorer.

Republicans, in theory, feel strongly about this. Republicans are also, sadly, politicians.

If the stimulus money is going to be spent regardless, is it in the interest of a governor to refuse it? All they are doing is depriving their state of their share of a pool that their citizens have involuntarily paid into, as federal taxpayers. If you don't accept the money, your constituents will feel doubly-robbed.

Think of it this way: Your house, and your neighbors', have been looted and the booty has been thrown into the public square. Certainly, you are against such looting. But now your couch and TV are sitting in a pile that others are gladly helping themselves to. What to do?

This is Obama's (and Congress's) plan with the stimulus. You've paid in. Now the proceeds will be distributed. It's clearly in your interest to accept some of the loot. (Social Security is built on the same premise, and FDR stated as much.)

For GOP governors, like every other politician, their morality is now in direct conflict with their political interest. The stimulus turns citizens into beggars demanding their handout. And while the citizens might understand the source of their poverty, they have no choice but to become supporters of the spending.

The only solution is to prevent such spending in the first place. The greater the spending, the harder such political will becomes. A tall order indeed.