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Archive for December, 2013


Real Health Care Reform

Please, please read John Cochrane’s editorial regarding health care reform. You might also be interested in my version of health care reform.


The Mystical Power of the Minimum Wage

President Obama would like to see the federal minimum wage to go to $9.00 per hour from $7.25. Representative Pelosi wants $10.10. Senator Warren has spoken of $22.00. What thoughts are behind this movement?

In real terms (that is, adjusted for inflation), the federal minimum wage would be $10.52 today if compared to the period of the highest real minimum wage. Similarly, if you compare the minimum wage to average production worker wage when the minimum wage was highest, then the minimum wage would be $10.01. Finally, if you made the minimum wage track the growth of productivity, then the minimum wage would be $22.00. But what is wrong with all this?

The gain in productivity since over the last 45 years has not been associated with the increase in the ability and skill levels of labor. As a result, increased compensation has had to be directed toward technology and management, the source of productivity gains. But why wouldn’t you want today’s minimum wage to reflect the highest minimum wage found in the past? Well, this might reflect the worst possible situation . . . not the best. That is, the highest minimum wage to date represents the greatest suppression of employment opportunities for the lowest skilled workers.

This brings us to the nearly universal thought among economists. The law of downward sloping demand indicates if you fix wages at a higher level than the market the consequence is that fewer workers are hired. It is unlikely that the government can suspend the law of demand, because it is a natural law . . . and not a governmental statute. So raising the minimum wage results in fewer people who are employed at the low end of skills. Now there may be a few more hired and few more paid more at a somewhat higher level of skill. Hence the reason unions are for higher minimum wages. However, few economists believe that higher minimum wages help the very people that they are intended to help, the workers with the lowest skills.

There appears to be a new/old thought starting to creep into the minds of some left-leaning economists. This idea is that the minimum wage should be considered as a macroeconomic policy . . . forget the microeconomics (the law of downward sloping demand). The idea is that if some workers are paid more then benefits accrue to the entire economy by way of a Keynesian multiplier effect. OMG. Filtering down from the left wing.

It is common for talking heads to observe that the minimum wage is not a living wage. That is, one cannot provide all necessities for a family with a single minimum wage. True enough. But this does not suggest what should be done. For example, is no wage at all superior to the current minimum wage or a market wage? Are workers at the low end of skills required to provide all necessities for a family? Well-to-do young people often live in college dorms with roommates. Shouldn’t poorer people also expect to live with roommates to lower the cost of housing? Even though I worked during college, I lived in a dump with roommates, cooked almost all my own food, and could not buy a new pair of shoes (or any clothing or furniture) during that period. In fact, I gave almost no thought to my own poverty during this period. Of course, my poverty was not sustainable. I could not afford to take care of all the needs of a family let alone myself into the future. My expectation was that when I hit the full time labor market after college I would be equipped to earn a living wage. In fact, I consciously designed my program in college to gain the skills to become employable at a reasonable wage. I am not suggesting that everyone should go to college. Instead, everyone should take the responsibility to live inexpensively while gaining the skills necessary to get a good paying job. On the job training is, in some ways, the very best training there is. Young people lacking skills should try to get any lawful job they can get regardless of whether or not the wage is a living wage. While they are in such a job, they should try to learn as much as possible about the work so as to make themselves indispensable to their employers. This is the solution to the problem of low wages.


Republican Health Care Reform

One of the more important features of Republican proposals for health care reform is providing access to health insurance across state lines. Why? They observe health care insurance costs vary across states. They conclude that if people could buy insurance across state lines then people would buy from low cost states.

Why is it that insurance costs vary across states? There are a couple of answers to this question. First, health care costs vary across states. This is primarily because the legal environment varies across states. This is because the state of tort reform varies across states. So malpractice insurance costs vary across states and defensive medicine varies across states. Second, every state has its own insurance regulations. Well, Obamacare steps on the toes of state insurance commissioners, so it is not impossible for Republicans to do it too.

The big question is how to price insurance sold across states given that states have different legal and regulatory systems. The answer to this big question is that you can’t have 70-30 or 80-20 type plans. That is, you cannot have plans that specify cost sharing or deductibles in terms of percentages. Instead, you can have lists of procedures and the absolute amount the insurance company will pay.

While buying and selling insurance across state lines is a part of my health care reform proposal, my purpose is to create natural groups and not primarily to play off of interstate cost differentials. I would hope that the Republicans could come up with something somewhat more comprehensive, like my proposal.


Future of Post Office Design

Picture a McDonalds or BurgerKing or many other fast food restaurants. There is a drive through facility. Upon entering the driver speaks into the mic giving his code to the attendant and any orders for boxes, stamps, or whatever is needed. Then the driver continues to the window where mail and purchases are handed out. Of course there would be a parking area to handle those who need to drop off or pick up packages. Inside is a “hot spot” as well as several computers where people can access their email.

Where would such an experiment begin? Well, rural delivery could be eliminated and the McDonalds model could be substituted. But it could spread to suburban areas and even to urban areas if the concept proves to be successful. One of the problems with the delivery of packages in urban areas is security. Packages tend to be stolen. This model has the potential of greatly improving security.

What would the back-end of the post office look like? There would have to be a warehouse where the mail is kept in, say, plastic tubs. These tubs would be automatically delivered to the attendant when requested.


Truly Affordable Health Care Service

Today, the doctor provided an examination along with the evaluation of a lump. In this regard, she performed a needle biopsy, put the cells on a slide and examined the slide under a microscope. She then reported the good news: the lump is just a fatty blob under the muscle. We were so relieved. But then we got the bill. The total was $69. I was thrilled with that. I think that our dog, Maggie, was thrilled too . . . well, she was thrilled to get out of there. The vet did a great job and was compensated fairly. So why is it that people can’t get this kind of service?