Monday, August 25, 2008

Liberal Views

On Social Security

Despite the harsh words, the real difference here is values. Libertarians value personal liberty and money and not much else. Liberals value those, but also social values. Libertarians see themselves as islands separate from society. Though they believe in markets, they see money as a zero sum game, taxation as impoverishment, and want the freedom to spend their money as they see fit. If it leads to large numbers of starving elderly, well they will just deny that it will, blame it on their foolishness, or if that is not enough, that that is what charity is for. Liberals see themselves in the middle of society and see money as a social artifact. They see their neighbor's wealth as enriching their own and their neighbor's poverty as impoverishing their own. For them freedom is good, but not an absolute good. Freedom to starve as no freedom worth defending. The conflict is irreconcilable logically, but only through a change of heart. It may be resolved in time though as society becomes wealthier and can provide the basics to everyone at minimal cost and we start to focus on our potentials rather than whether our neighbor's meal is food off our table.

Healthcare Reform

From DeLong on Waldmann's Healthcare Reform a most informative comment:

Wow. Where to begin.
1.) The assertion that high tech/high cost intervention is responsible for improvement in coronary disease mortality is at least questionable and probably wrong. The US actually trails most other developed nations in the effectiveness of care for coronary disease, and almost all of them use much more conservative care based on medicines and rehab and much less coronary bypass (the US performs 75% of the bypasses done in the world) and angioplasty. The big changes in coronary disease mortality are better ascribed to the development of new classes of drugs (especially beta blockers) than to interventional techniques. A recent US study showed that angioplasty actually resulted in worse outcomes than medical treatment in most patients.
2.) The regional differences in health care costs people like to talk about are based on two things: lower utilization of high tech/high cost techniques and the government policy of paying providers much less for care in some parts of the country than others. The index study on this compared Minneapolis and Miami. Miami happens to be the highest reimbursement area in the country. Minneapolis is in the low range for reimbursement among large metro areas. The government (HCFA) justifies these differences – often as much as 80% -- in reimbursement based on cost of living, but in reality political considerations are very important (if you are a congressman from South Florida and wish to continue your employment, you had better be very interested in Medicare reimbursement issues regardless of what party you belong to, whereas a congressman from Minnesota may be much more interested in farm policy.)
3.) The notion that health care costs are lower for people with good health habits is true only in the short term. Investigation by the Dutch national health system showed that non-smokers, people of more ideal weight, and people with healthy exercise patterns actually cost the system more in the long run. The reason is that they live longer. All people absorb large amounts of health care expense when they go through the process of health collapse and dying, and all people – especially old people – absorb health care expense in both a regular (normal year to year care) and irregular (more acute care) basis over time. People with less healthy habits enter the crisis stage of health care at a younger age. The baby boomer population of the US is now in an age range (45-65) where there is sharply increased morbidity and mortality among people with poor health habits. The more healthy boomers will experience the same sort of spike when they reach their 70’s, 80’s, and 90’s, and in the meantime will receive cataract surgeries, hip replacements, hysterectomies, prostate surgeries, treatment for low grade skin cancers, etc. etc. In the words of Bruce Springsteen, “everyone dies, and that’s a fact.” The only health care systems that benefit financially in the long term from insuring more healthy patients are systems, like our private insurance programs and HMO’s, which can dump the cost of caring for older people on other systems – Medicare. So while better health habits benefit the patients themselves and are to be strongly encouraged, they will actually increase costs to the entire national medical system in the long run. The notion that better health habits will reduce overall health costs is not correct.
4.) Prospective payment systems – paying providers a lump sum based on numbers and possibly types of enrolled patients – do not save money and do not improve health outcomes. America’s thirty year flirtation with HMO’s has shown that beyond a reasonable doubt. Most systems throughout the world have found that fee for service payments work best. While fee for service does contain some perverse incentive to provide extra unnecessary service in order to increase profits, that tendency can be controlled by use of practice standards enforced by central payers in single payer and social insurance systems. The perverse incentives in prospective payment systems are to deny necessary service in order to increase profits and to select patients less likely to require services while rejecting patients who need them. This has proven much more difficult to control since it involves much more subtle forms of behavior. It is much easier to tell a provider that they will not be paid for lumber spine MRI in a patient who does not meet certain criteria than it is to figure out that providers are not offering MRI to people who actually need it or are avoiding covering people with history of back pain.
5.) THE MOST IMPORTANT POINT: I am always amazed at the discussions by American economists, political scientists, health care providers, health care theorists, and politicians about health care and the question of what will work. This discussion is similar to someone debating how to manage infectious diseases but pretending that they have never heard of antibiotics or that antibiotics are a strange and questionable development. The answers to how to make health care work are on the shelf. They have been discovered by everyone else in the developed world. They have been shown to work well in general and specifically to work much better than our system both economically and medically. We are at the bottom or near the bottom in terms of health care performance in the developed world and at the top in terms of health care costs by a wide margin. To deliberately pretend that there is a question as to what would work better than our system is to literally bury our heads in the sand. Conservative politicians of all stripes, and the insurance companies, pharmaceutical companies, HMO’s, medical equipment providers and others who realize huge profits from our current mess of a system (at the expense of both patients and the economy) are only too glad to encourage this behavior, but it is disappointing when people who should know better play along.

Posted by: Patrick Schoenfelder | July 27, 2008 at 07:39 AM

Reasons for Progressive Taxation

A nice synopsis from Independent via

It seems to me that the same pros and cons show up every time someone says “progressive taxes”. Here’s my list of “pros”, with numbers for easy reference.
Note that the items are not necessarily independent or consistent, and the list probably isn't complete – these are just arguments that I’ve heard that seem plausible.
I’ll let someone else take the “cons”.

Practical arguments
1) Can’t get blood from a turnip
2) Got to go where the money is
3) Some gov’t spending explicitly supports the poor. It’s silly to tax the poor or lower middle for this spending

Incentive arguments
4) High earners make more per hour, consequently higher tax rates on them leave more level incentive to work
5) It’s better to tax dumb luck than hard work (this may be identical to (4), or may be a “fairness” argument)

Utility arguments
6) High income/high wealth have more to protect, hence should/would pay more for protective services
7) Same as (6), but expanded to entire social structure
8.) Low income get more utility from marginal income, hence we increase total utility by shifting taxes to higher income

Social structure arguments
9 ) Prefer more uniform distribution of income/wealth – don’t like societies with extremes of rich and poor
10) Concentration of wealth gives excessive power to a few (this also supports wealth taxes)

Fairness argument
11) Our system generates large (unfair) differences in opportunity, progressive taxes somewhat offset this

Principles of Taxation

Someone must have a set of principles of taxation that would clear up much of the nonsense one hears when talking about taxation. Since I am not familiar with any though, I thought I would compose some.

First. Be clear on what you are taxing. Taxing revenues is a sales tax. Taxing revenues less expenses is an income tax. Taxing assets is a property or wealth tax. Defining revenues, expenses, assets and determining values is the hard part. Don't assume tax law gets it right. It rarely does.

Second. If you tax something you will have less of it, unless everything else is taxed more. Tax something less and you will have more of it. Differences in taxation are there to be exploited. Money flows to its least taxed form and taxes are avoided where ever possible. Don't tax business and most income will be become business income. Allow business but not personal deductions and personal deductions will migrate to business. Gaming the system is standard behavior.

Third. One can tax transactions but one can't prevent them from disappearing. People sometimes argue debt should not be deductible, but one can't prevent debt from disappearing through internal lending. Taxing sales can shift to leases and rentals. One must always consider unintended consequences.

Fourth. Taxation should be indifferent to the entity involved, but never are. Changing from an individual to a business often changes many things. This offers another means to game the system. 'Businesses don't pay taxes, people do' doesn't make much sense when people should just be considered businesses with their own revenue and expenses.

Fifth. Simplicity and fairness often conflict. Ease of collection and ease of evasion must always be considered. The narrower the base the higher the tax and more desirable avoidance and evasion.

Sixth. Nothing changes like taxation. Time offers another dimension for avoidance. The benefits of improvements must be weighed against the costs of doing so and how the system will adapt to them.

Consider each individual a business with revenues and expenses. They need food, clothing, shelter. They need utilities, communications, and transportation to work. They need education, and health care. The standard deduction is $5-10k. Does anyone think this comes close to covering basic expenses? I don't know anyone that could even rent for that. The real figure must be several times that. Yet, the income tax considers that income. Is the income tax really progressive, or do we labor under a false assumption?

Gambling, Speculation, and Investment

Mike Moffatt asked How do Investments, Gambles, Speculation, and Insurance Differ?

The only potential difference I can think of between gambling and speculation is that gambling often doesn’t change the odds but speculation always does, if only infinitesimally, by providing information to the market. One could restrict gambling to fixed odds but that would not be common, so I would say this transaction alone, a far out of the money option, is gambling and speculation. If combined with an offsetting position, say a real trade, it can then be insurance and a hedge, the difference is which a hedge can be profitable while insurance can only offset a loss. The differentiating factor between speculation and investing is investing provides an income flow while holding it. This may be restricted to interest and dividends or relaxed to earnings but in their absence is only a speculation. A liquidation value is more or less speculative. Depending on services provided or cash flow, real estate may be an investment or speculation.