Pigou Club
Robert Waldmann
is joining The Pigou Club and hopes for at least some discussion in comments.
That is all.
Monday, November 09, 2009
The Changing Face of Health Care Fraud
Tom aka Rusty Rustbelt
The Changing Face of Health Care Fraud
Every President since Gerald Ford has campaigned against Medicare and Medicaid “waste, fraud and abuse.” Ditto many people campaigning for Congress.
The primary fraud prevention systems are aimed at providers, with the Office of Inspector General (DHHS – CMS) and the FBI taking the lead on large fraud cases. States are also very active in Medicaid fraud investigations. Providers spend vast sums every year to prevent fraud, usually in the form of compliance plan activity.
The leading presumption is fraud will be perpetrated by providers via double billing, upcoding, kickbacks, and etc., but the face of health care fraud is changing.
Exact numbers are hard to find, but by monitoring several sources it appears non-providers (some mobbed up and some immigrant groups) are combining ID theft and computer driven fraud to suck funds out of Medicare and Medicaid.
60 Minutes did a program recently on phony pharmacies and DME* shops in Miami, and one informant guessed there may be 2000 phony shops in the Miami area alone. Wow.
The key is to do a real credentialing process before issuing a provider ID number. Physicians jump many hurdles to get a number, despite piles of credentialing paperwork, but apparently phony suppliers can begin billing almost immediately.
The feds are still aiming at legitimate providers with the Revenue Audit Contractor (RAC) program. Likely the contractors will find some billing errors at every single provider, sweeping up crumbs while real criminals are abusing the treasury.
*Durable Medical Equipment
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Tom aka Rusty Rustbelt
Airlines, A La Carte Pricing, Deregulation and Executive Pay - A Hodge Podge
by cactus
Recently the ex-GF and I were traveling, and we ended up flying on United. I haven’t flown on United in recent years, as it hasn’t been a major carrier in a number of the places I’ve lived recently. Now maybe things have changed since the previous time I was in a plane (a month earlier, Delta Airlines) but it seems to me that United is taking a la carte pricing a bit further than other airlines.
When we went through automatic check-in, we were offered two different choices for upgraded leg-room. We were also charged $20 buck for checking one bag. It wasn’t overweight, it is just that now there is a charge for luggage.
It seems most people on that flight were aware of the $20 charge; overhead compartments were filled up completely, mostly with “carry-on” bags significantly larger than the one piece of luggage we had checked. As a result, a number of people had to check bags at the gate. Now here is the interesting thing… because so many people had to check bags at the gate, and those bags had to be available upon deplaning, none of us were allowed to exit the aircraft until after the bags that had been gate checked were brought up. Because so many people were trying to avoid a) waiting at the baggage carousel and b) paying twenty bucks for a piece of luggage, everyone had to wait longer. Perverse incentives lead to undesirable outcomes.
I don’t think the a la carte pricing is working so well in other ways either. See, on the flight back, I had the seat with the most leg room in the entire plane – I was sitting in the emergency row. And I wasn’t charged extra for it either. See, we had the opportunity to leave early, which means we flew standby. We were literally assigned the last two seats on the entire plane… and nobody who had the opportunity to do so had paid for the upgrade, so the emergency row was all that was available.
My guess is that the perennial problems of the airline industry are self-inflicted, and date back to the period when the industry was deregulated. Until deregulation occurred, prices were set by government fiat, and airlines could only differentiate themselves on quality. After deregulation, they began competing on price. Companies that had previously trained their passengers to believe that flying was a special occasion that merited wearing formal attire retrained their passengers to think about price alone. When you make your product or service into a commodity, prices drop to marginal cost and that means if you have the kind of fixed costs the airline industry does, profits have to go negative.
So… if you were an executive at an airline, what would you do to change the passenger mindset? What can you convince the
____________________________________________
by cactus
(Rdan here...leaving for Chicago this week, and Southwest has an option for $10/person to upgrade to the A line so to speak from B and C lines, which determines when you can board. There is no limit to who can purchase the upgrade to the A line, so there is no guarantee the A line won't include everyone if everyone upgrades, which is allowed to date. It presents an interesting pricing dilemma as well.)
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Sunday, November 08, 2009
One of These Things is Not Like the Others
I try to like the NYTimes Economics Reporting. I really do. Heck, any place that publishes Uwe Reinhardt can't be all bad.
But David Leonhardt, as he does often enough that I hesitate to read his work, again goes beyond the pale today, and clearly does so deliberately. The offending paragraph:
Twenty-two months after the start of the mid-1970s recession, real weekly pay was down 7 percent. For the early 1980s recession, the decline was 4 percent. Today, thanks to moderate pay growth and scant inflation, pay is 1 percent higher than when the Great Recession began in December 2007.
Let's (1) remember that wages are sticky and (2) look at this declaration.
Both of the previous recessions are cited as being about 16 months. The current one probably ran 18 for economists's purposes, and is in its 23rd month for the rest of us. But let's give him a pass on that.
Note, however, the careful phrasing at the end of the paragraph: "thanks to moderate pay growth and scant inflation." What does that mean? Well, let's look at the Annual inflation Rate (CPI) for the actual recessions under discussion:
Gosh; quite a difference! I wonder if Leonhardt is aware of it.
A finger exercise below the fold.
Just for fun, let's look at the wage changes over those periods. Now, unlike Leonhardt, I'm not going to use real wages. Let's see if we can figure out what the nominal change in wages is for each of those periods.*
1973-1975 Average Inflation Rate: 10.75. Real wage loss: 7% Wage increase in period: 3.75% (including the residual effects of wage and price controls)
1980-1982: Average Inflation Rate: 7.5% Real wage loss: 4% Wage increase in period: 3.5%
2007-present: Average Inflation Rate: 1.8% Real wage gain: 1% Wage increase in period: 2.8%
I don't know about anyone else, but I wouldn't be celebrating the wage "gains" of the current era. (And let's not even talk about actual wages received, since Barry Ritholz has that territory well-covered and then some).
*If you want to make the case that I should be using real wages, as Leonhardt does, please demonstrate (a) that all wages are renegotiated during a period of inflation, (b) that all parties are able to estimate inflation—even when at relatively unprecedented levels—accurately, and (c) that such negotiations were legally and commercially allowed during the period.
Saturday, November 07, 2009
Musical Interlude
Among the people who have been updating The Theory of Finance for the ObamaNation is Gregg Sommerville, whose job depends to some significant extent on people not believing the following riff:
More music below the fold.
The Bailout Rap
and the Subprime Mortgage Blues
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A scaled model of debt driven stimulus
by divorced one like Bush
Well, here is what I'm doing to support the US of A's economy. It's a lesson in the real model of economics. It is a scaled version of the concept of stimulus. I even did it by using financing just to make the model as close to real as possible. (OK, I had to finance it but...I used my credit union.) Yes, I'm driving up the debt, but I'm creating jobs and I'm build wealth.
I purchased locally to assure my bank supplied money (debt) is multiplied as much as possible. When this garage is done, I will have created over a dozen or more jobs directly and who knows how many as the debt money goes from the first exchange of hands (me to who ever) to the second exchange (whoever to whoever's whoever). Notice, that this is all happening via a producer economy not a financial economy. Any rescuing of banks is taking place by moving money into the hands of people first.
I'm even adapting to these hard economic times. I'm looking else where to earn a living. Actually, I'm looking to reduce my expenses by improving the effectiveness of my time. The practice (yes, health care has taken a hit) and the flower shop are slow so I will be honing my mechanic skills and fixing my vehicles my self. 
Alas, there is a down side. The wealthy rent collector will no longer be collecting the rent.
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Political economy of lobbying
Rdan
David Zetland at Aguanomics had some fun with a lecture and thought exercise.
02 November 2009
The Political Economy of Lobbying
Last week, I taught my students about different auction techniques. After I auctioned four books under different rules, I auctioned $1.00 for $3.75.
Now before you say "WTF?" (or perhaps I am too late!), let me explain.
First, it was an all-pay auction, which requires that all bidders pay their highest bid to the auctioneer, even if they do not "win."
Second, watch this video of the auction (4 minutes! drama! laughter!): (rdan...use this link)
Third, what happened? There were four bidders. Mr. A bid $0.25; Ms. B bid $0.50; Ms. C bid $0.75; Mr. D bid $1.00. Then Ms. B raised her bid to $1.25 before Mr. D won the auction with a $1.50 bid. Mr. D got $1.00, and I got $3.75 ($2.75 net).
Nice money maker, that all-in-auction :), which is why you should see five, below.
Fourth, why did this happen? Consider this:
1.If you bid $0.25 for $1.00, you stand to make $0.75.
2.If someone raises you (to $0.50), you lose that $0.25.
3.If you bid $0.75, then you still make (net) $0.25.
This set of incentives ("on the margin") makes it rational to keep raising the stakes given that you have bid because winning always has a higher payoff than losing. The "right strategy" is, of course to not bid at all. (As Joshua, the computer, says in Wargames: "Strange game. The only winning move is not to play.")
Fifth, all-pay auctions reproduce the dynamics of political lobbying in which the politician is auctioning the wording to some law, and lobbyists from both (many?) sides are contributing money, perks and attention to get their version of the law. All of the lobbyists pay, but only the politician wins.
Oh, and we lose as well. A politician who represented "the People" would write a law that maximized the positive change in social welfare, regardless of lobbying.
Bottom Line: Politicians benefit from lobbying; lobbyists compete to receive our money and rights; and citizens suffer. [I could soften this language to "some politicians" or "sometimes," but I these are structural institutionalized flaws.]
Friday, November 06, 2009
Storing Energy Bleg
Robert Waldmann
I am eager to learn from this blog again. A problem with solar and wind generation of electricity is the sun isn't always shining and the wind isn't always blowing and it is costly to store energy. I don't see why energy can't be stored using hydroelectric dams. They store huge amounts of energy in lakes. So what's the problem. More thoughts after the jump.
OK problem number one is that the hydroelectric plants are where they are not where we want electricity. This means that a national power grid which doesn't waste energy would be needed. I think that means very high tension direct current.
Such capacity would also be needed to use wind power much at all as the windy states are sparsely populated. I assume the problem is solvable and that the cost is not prohibitive.
A second problem is that the peak capacity of hydroelectric power plants would have to be increased. If they build up water during the day and release it at night, then they have to be able to convert the large flow to electricity. Dynamos would have to be added in some way. Now I Imagine that this can't be all that costly. I think of a huge siphon or a tunnel or a channel. Am I demonstrating my ignorance of engineering.
Opting Out and Individual Affordability Credits: a reply to DOLB
by Bruce Webb
Divorced One and I are having what I think is a useful exchange that started with my post on Eligibility and Enrollment which he followed up with More on the Public Option. If you haven't read that please do as this piece won't make much sense otherwise.
DOLB and I now agree that employees can opt-out of employer paid coverage and enroll in the Public Option. The key to entry to the PO is to not be ENROLLED in an employer plan. Now clearly there are ways to decline or drop employer paid coverage today. For example if you are retired military and covered under Tri-Care you don't need to accept coverage, or if you get married to someone with a family plan you can drop coverage, at worst you would have to wait until the annual Open Enrollment period. There is nothing in ether current law or this proposed legislation that binds you to the employer plan. On the other hand the system is set up as 'opt-out' rather than 'opt-in', if you accept a job with employer coverage and for whatever reason (perhaps you are a Christian Scientist) refuse to sign up for a plan option the employer is authorized to auto-enroll you in the lowest cost plan. But you can, if you choose take positive steps to opt-out of such coverage. So why does CBO project that so few people will choose to opt-out of employer coverage and into the Public Option? Well you would have to ask them, generally CBO doesn't discuss its specific methodology, but the answer seems to be that on their calculations such a choice would not be financially advantageous to the worker. This was explained in a response of a congressional staffer to DOLBs email question:
Any individual (but not any employer) can participate in the Exchange and therefore could sign up for the public option. BUT, to do so, they would have to dis-enroll in their qualifying coverage and meet the other requirements necessary to participate in the Exchange. However, there is zero incentive for anyone to do this since they’d be responsible for 100% of the cost of the care they chose in the Exchange. If they stuck with their employer sponsored or other qualifying care, the vast majority of the cost of coverage is picked up by someone other than the individual. That’s why so few people are projected to enter into the public option. Additionally, access to the Exchange, and the public option, IS restricted for employers. Only the smallest businesses can use it at first, and later slightly larger businesses. The Secretary can then choose to open it up to all employers if she feels the Exchange has the capacity to handle that. The goal is to do so.Under Sec 411(3) Employers whose employees opt-out of coverage and enroll in an exchange plan, including the PO, have to pay a fee, but according to the congressional staffer the money does not explicitly follow the employee. So where does it go? What does it pay for? And there seems to be only one answer, one discussed below the fold.
The flat fee paid by employers for each opt-out employee goes into the general pot that funds individual affordability credits for Exchange Eligible employees which in this case includes the opt-outs. The rules governing affordability credits are laid out in Title III Subtitle C based on Income Determinations set out in Sec 345. Under the bill if you make more than 400% of Federal Poverty Level you are not eligible for affordability credits. Which means that any opt-out in this category would indeed be stuck with 100% of the cost of an Exchange Plan. But people earning between 150% and 400% of FPL would be eligible for affordability credits on a sliding scale. The question would be whether there are any circumstances under which the value of those credits exceed the value of the employer contribution to the employer plan. CBO seems to be calculating that in most cases the answer is no, the premium limits on those employer plans established in the bill being enough to maintain a rough parity between out of pocket costs between and individual plan under the Exchange and an employer group plan with enough advantage to the latter to keep employees from jumping ship. And maybe they have the balance right.
So when the staffer said that opt-out employees are stuck with 100% of the cost I think it was not quite right, if you are an Exchange Eligible Individual you are eligible for sustainability credits which reduce your cost. But per CBO not enough to actively induce large-scale opting out. Meaning that while everyone is theoretically ELIGIBLE for the Exchange, relatively few people will choose to ENROLL.
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How to Explain Moral Hazard
It took me many years to understand the phrase "moral hazard." It's a fundamental tenet of economics, usually used to explain that, since consumers are untrustworthy, businesses need to charge them more.*
It was finally cleared up for me in the midst of a presentation last year about how it's a "moral hazard" issue that divorce rates go up as more women work outside of the house/family business. So I asked the presenter, "You mean it's a moral hazard issue that women who have an independent income can now get out of an abusive relationship?"
Fortunately, one of the best Labor Economists in the world was in the room. He just looked up and said, "Or guys start leaving their wives because the wife can go to work now."
Aha! The light dawns: moral hazard is, indeed, about power relationships: it allows arseholes to be even greater arseholes. (One step further, and you start spouting Ayn Rand.)
Preceding is preamble to correcting an error made by a worker in today's Phialdelphia Daily News (h/t Dr. Black, of course):
Yesterday, Local 234 President Willie Brown said that the wage package was acceptable but that he was worried about the underfunded pension fund, funded only 52 percent. He said he believed that SEPTA had not contributed to it for 10 to 12 years....
"We could wake up and our pension could be completely gone," [Brown] said. "We don't want to end up like AIG," referring to the international insurance giant who got $173 billion since last fall in a U.S. government bailout.
Mr. Brown should not worry about that. AIG's creditors (e.g., The Great Vampire Squid) were paid in full, because Tim Geithner and Larry Summers want a veto-proof Republican majority by 2012, if not 2010.**
Pensioners, otoh, are subject to "moral hazard." Believing their contracts were viable, reasonable, and negotiated by people who were working in the best interest of the firm—that is, people who were not writing a check with their mouth that their pockets couldn't cash—clearly causes them not to do enough to save. Because they don't understand that mismanagement of their pension is their fault, and that the Pension Benefit Guaranty Corporation will only ensure that their pensions will be paid "up to certain limits," no matter how much extra Roger Smith or Michael Eisner or Jack Welch took from the company for performing almost as well as the rest of the stock market.
So, let us say to Mr. Brown and the rest of the workers who depend on their pensions being funded: Don't worry about being treated the way AIG was. You're going to be dealt with as a "moral hazard" problem for believing that the contract you negotiated will be enforced.
Why, if those workers were at all sensible, they would have taken the money upfront the way those Captains of Industry did, instead of gotten a false sense of security ("moral hazard") from contractual negotiations about future payments.
As noted by Dr. Black, while management claims that they are fulfilling their legal obligations, management's pension fund is almost 25% better funded than the workers fund (53% v 65%).
This is, of course, A Good Thing. After all, we wouldn't want workers to believe that what they think of as Contractual Obligations is anything other than a case of "moral hazard."
UPDATE: I see, via David Wessel's Twitter feed, that Ricardo Caballero puts forth standard Economics Reasoning:
His idea is likely to give heartburn to many economists and policy makers, who worry about “moral hazard” — the idea that if financial institutions know they’ll be saved in an emergency, they’ll take even greater risks that will inevitably lead to greater disasters.
Don’t fret, says Mr. Caballero: “this moral hazard perspective is the equivalent of discouraging the placement of defibrillators in public places because of the concern that, upon seeing them, people would have a sudden urge to consume cheeseburgers.”
After all, we just have to acknowledge that "moral hazard" exemptions are the rule, not the exception, for mismanaged businesses. After all, paying out more in bonuses than you make in a year is a Perfectly Reasonable Business Strategy.
*Seriously. The standard example is that people "don't tell the whole truth" on health insurance applications, so companies need to charge them more. The logical extension of this is that people who tell the whole truth are leaving money on the table, since no insurance company would ever take an ex poste action against people who omit or forget that sprained ankle from thirty years ago. For an alternate view, see Malcolm Gladwell.
**There may be an alternate explanation, but this one requires the fewest outlandish assumptions.
Employment Report
By Spencer,
The unemployment rate jumped to 10.2%. Except for the peak rate of 10.8% after the 1982 recession this is the highest in the post WW II era.
The overall tenor of the report was very similar to the past three months reports and sent the message that the economy is no longer collapsing as it was earlier this year, but it is still in a recession. The encouraging news in the report was that temporary employment improved and that manufacturing hours worked and averge work week improved. This implies that the recession may be over in the manufacturing sector, but not in the service sector.
Because service employment is about 112.5 million versus 11.7 million in manufacturing the improvement in manufacturing was swamped by the continued fall in services. Consequently, aggregate hours worked fell 0.2%. This is similar to the numbers in yesterday's productivity report and implies that fourth quarter productivity will also be strong with all that implies for
weak employment.
Average hourly earnings did improve, as both average hourly earnings and average weekly earnings rose by 0.3%. But with oil up about $10 last month this is unlikely to generate an improvement in real wages or income. On the encouraging side, maybe the past years actual decline in nominal personal income growth may be ending.
One man's past experience with technological change and employment
lifted from comments by run 75441
These are comments that I found interesting describing change to manufacturing processes over tha last few decades. It made for a foil next to Martin ford's projections and our understanding of past events. It is not a post but I learned a few things.
"The key example is stamps for bashing metal which shape metal into one form." from Robert's post on
.....made me smile.
No one buys a stamping press that will make only one part. Stamping companies do buy stamping tooling (that die going into the stamping press) for a particular part. It is very possible to dedicate a stamping press to one part given the capacity of the machine and the volume of the part; however, different tooling can still be inserted into the stamping press dependent upon the machine's bed. There is flexibility to buying a stamping press and it can be used for various parts, even in Henry Ford's days. There is also flexibility to the stamping tooling by buying progressive dies which will do multiple operations in one press.
There has also been an evolution from manual machines and automatics to NC and CNC machines over the years. Let’s talk about throughput first though. Everyone is familiar with Henry Ford's assembly line were the vehicle in some form of assembly moves down the line. At each station, another part is added until the end when the car is complete. This type of assembly is still being used. What most people didn't see was the departments of machines (annealing, stamping, grinding, deburring, welding, turret lathes, automatics, drill presses, etc.) dedicated by function and not by flow of parts to supporting that assembly line These departments were not dedicated to the flow of a part through the plant the same as one might see in the assembly of a car. Each of the departments could be located in the corners of the building creating distances of transportation, requiring multiples of forklifts and labor to move parts from one operation to another, to stock eventually, and then from stock to final assembly (not including the multiple amounts of part inspections).
Magnify this by economic order quantities determined by Demand (months or weeks), Machine Setup (manuals and automatics setups were frequently measured in shifts), etc. It was used to determine a hopefully optimum inventory manufacturing lot based upon constants such as purchasing cost, carrying cost, fixed lead times, demand; which all of them at one time never were constant. The supply chain from customer order, to 100% of the Lot order, and going out the door could be months long . . . i.e. a casting having a 12 week lead time, through, 8 weeks long, etc. There was also a constant battle between Manufacturing, who wished to optimize setup, and typically Materials hoping to optimize inventory (unless they were into build it to be safe mode).
You have a factory setup by machine function rather than throughput and the functions scattered through the plant. Is it is any wonder why, there was a huge requirement for Labor to move parts, to operate each of the machines by function, have excessive transit distances, and manufacturing times plus lead times??? A part processing spaghetti farm. Using Pareto analysis of the flow of parts through a factory from the routing of operations to make a part, it is, and was entirely possible to achieve a much more efficient layout of a factory by eliminating machine departments by function, layout the shop floor by major part flows from receiving to shipping, and in the end reduce internal transit time and labor required, improve throughput and delivery, and reduce EOQ for a part until manufacturing whined about "setups." All of this could be achieved without buying one CNC machine. It is the process of manufacturing that can make a huge difference.
So what did the CNC and or NC machine do for manufacturing? It combined operations such as drill, threading, boring, and lathe. No longer did a company need a drill press, lathe, etc functionality except for alternative runs, because all of those operations were resident to one machine. With tooling for each function resident to the machine; setups were reduced, and again there was a reduction of setup, machine, and forklift operators. It also cut down on the size of the plant needed as all of the operations were resident to one machine instead of taking up valuable floor space. The only thing it didn't impact was inventory as people like that “feelie-feelie” type of safety in it rather than rely upon capacity and speed of throughput.
I am going to disagree a little with your take on implementing new product or new parts. I would suggest it happened consecutively with the running of old product. While it is true that brown field analysis and change over of the shop floor might be disruptive, it was typically planned for and the necessary inventory laid aside to handle demand. In turn the plant people were used to move machinery around. In the end, the changes were implemented on weekends, holidays, Christmas shutdown, Summer shutdowns, etc.
Is it capital equipment or is it a process called kanban impacting throughput? Kanban doesn't have an outlay for its implementation other than to change the way we think about making parts and product, one part or product at a time, in the smallest increment of inventory possible, and correctly each time. It doesn't even require computerization (internally) to implement as it is a pull type system rather than a push or build to forecasted demand system. In each operation, the inventory, wait time, operation time, and transit time is minimized. Is the success of Toyota based upon CNC equipment or is it in the process of manufacture itself? You give way to much credit to computerization of machines. There is something else a brewing and I liked Spencer's explanation.
There was a time when one spent a lot of time as an apprentice to operate a lathe or to be a tool and dye maker. You are right; this is a vanishing "skilled" capability. Instead we rely upon computer cad cam to image parts and then apply the correct operations needed to shape the part in a Mazak or Cincinnati Milacron CNC. It does not occur quite a quick as you state does; but, it certainly is another consolidation point of various operations.
I consulted at a company called Miami Industries (taken over) in the glorious town of Piqua. I lived in MadCity WI and spent much of my time consulting in Ohio. They were meeting much of their customer order lead times when demanded of them; but, they had difficulties doing so. The process was simple (as I recall): slit and cut flat stock (came in rolls), draw over mandrill and weld, burnish outside to eliminate welding burr, cut to size, bend to shape, plate or coat. The company wanted to know how to improve delivery.
At 30-someting and looking like doogie-howser, I got no respect and always had an older consultant with me (colonel sanders this time). I went on the plant tour and listen to their spiel. They ran monthly lot sizes (20 day, 5 days/week) and wanted to improve deliver to weekly from whatever it was . . .
I looked at the VP of Manufacturing and said; with a 20 day manufacturing lot size, you are averaging 10 day deliveries on any order. "Oh no, we can get then out in 5 days if needed." Yes, but the average is 10 days. Given the size of the Manufacturing Lots planned from the customer orders accumulated, the company having an average throughput of 10 days made sense. If they wanted to improve delivery, than cut the lot sizes to 10 days from 20 days which would increase the turns of the orders on the shop floor. It would be a start towards a much quicker throughput, less inventory on the floor and in stock on either end, and improved delivery.
"We can't do that because of the setup." Change your setup by making it more efficient with tooling resident to the machine, handles instead of nuts and wrenches, and look at the costs of inventory as opposed to setup, etc. The excuses for not doing something were endless and this change did not involve one new piece of capital equipment. I have another word for them; but for now I will settle for . . . "whims." Oliver Wight used to call them “cement heads.”
The whole issue revolved around lot sizing. I set out to prove how silly they were and that my average of 10 days was spot-on. They had a shop floor system that collected data on each operation. I was able to look at each Mandrel and ascertain the amount of time for a lot to clear it, the setup times involved, the start of the next operation and total time, and transit times between operations. 75% was sit around time waiting for the operation, 8% was transit time, 10% was setup time and the balance was actual operational time making parts. Oh, an average lead time varied from 9.3 to 10.1 days for an order. Not only was my quoted average correct; but, there was adequate cost savings to be had in inventory reduction to also justify the change. I was hated . . . the life of a throughput analyst! Don’t chase technology for technology sake.
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Could Advancing Job Automation Technology Cause Structural Unemployment?
Rdan
Martin Ford offers one man's look into the future of a world in the USA of the results of continued increasing productivity, increasing income inequality, declining wage compensation, and consumption supported by debt.
Robert touched on the issue recently, and Sandwichman has developed a range of thoughts on labor at Econospeak. One post cannot handle the complexities, but here is a start to the conversation.
Could Advancing Job Automation Technology Cause Structural Unemployment?
The unemployment situation is looking increasingly dismal. Is it possible that there's something going on that no one wants to acknowledge?
There can be little doubt that computers, robotic technologies and other forms of job automation have been getting far more capable and that as this trend continues, more workers are certain to be displaced in the relatively near future. Most economists dismiss any concern that this might lead to long-term structural unemployment. At the risk of being labeled a "neo-Luddite," I'd like to explore this issue a little further.
I think I can make a fairly strong argument that a very large percentage of jobs are, on some level, essentially routine and repetitive in nature. In other words, the job can be broken down into a discrete set of tasks that tend to get repeated on a regular basis. It seems likely that, as both hardware and software continue to advance, a large fraction of these job types are ultimately going to be susceptible to machine or software automation.
I'm not talking about far fetched science fiction-level technology here: this is really a simple extrapolation of the expert systems and specialized algorithms that can currently land jet airplanes, trade autonomously on Wall Street, or beat nearly any human being at a game of chess. As technology progresses, I think there is little doubt that these systems will begin to match or exceed the capability of human workers in many routine job categories--and this includes a lot of workers with college degrees or other significant training. Many workers will also be increasingly threatened by the continuing trend toward self-service technologies that push tasks onto consumers.________________________________________
One of the most extreme historical examples of technologically induced job losses is, of course, the mechanization of agriculture. In the late 1800s, about three quarters of workers in the U.S. were employed in agriculture. Today, the number is around 2-3%. Advancing technology irreversibly eliminated millions of jobs.
Obviously, when agriculture mechanized, we did not end up with long-term structural unemployment. Workers were absorbed by other industries, and average wages and overall prosperity increased dramatically. The historical experience with agriculture is, in fact, an excellent illustration of the so-called "Luddite fallacy." This is the idea--and I think it is generally accepted by economists--that technological progress will never lead to massive, long-term unemployment.
The reasoning behind the Luddite fallacy goes roughly like this: As labor-saving technologies improve, some workers lose their jobs in the short run, but production also becomes more efficient. That leads to lower prices for the goods and services produced, and that, in turn, leaves consumers with more money to spend on other things. When they do so, demand increases across nearly all industries--and that means more jobs. That seems to be exactly what happened with agriculture: food prices fell as efficiency increased, and then consumers went out and spent their extra money elsewhere, driving increased employment in the manufacturing and service sectors.
The question we have to ask is whether or not that same scenario is likely to play out again. The problem is that this time we are not talking about a single industry being automated: these technologies are going to penetrate across the board. When agriculture mechanized, there were clearly other labor intensive sectors capable of absorbing the workers. There's little evidence to suggest that's going to be the case this time around.
It seems to me that, as automation penetrates nearly everywhere, there must come a "tipping point," beyond which the overall economy is simply not labor intensive enough to continue absorbing workers who lose their jobs due to automation (or globalization). Beyond this point, businesses will be able to ramp up production primarily by employing machines and software--and structural unemployment then becomes inevitable.
If we reach that point, then I think we also have a serious problem with consumer demand. If automation is relentless, then the basic mechanism that gets purchasing power into the hands of consumers begins to break down. As a thought experiment, imagine a fully automated economy. Virtually no one would have a job (or an income); machines would do everything. So where would consumption come from? If we're still considering a market (rather than a planned) economy, why would production continue if there weren't any viable consumers to purchase the output? Long before we reached that extreme point of full automation, it seems pretty clear that mass-market business models would become unsustainable.
One of the things that concerns me the most about this scenario is the potential influence of consumer psychology. If at some point in the future consumers look out the window and see a landscape where jobs are relentlessly getting automated away, and if it appears that getting additional education or training provides little protection, there's likely to be a significant negative impact on consumer sentiment and discretionary spending. If we someday get into a reinforcing cycle driven by fear of automation, a very dark scenario could ensue. It's difficult to see how traditional policies like stimulus spending or tax cuts would be effective because they wouldn't address consumers' concerns about long-term income continuity.
Most economists will likely object to my arguments here as speculative and lacking in objective data. I think that if you look at issues like stagnating or declining wages for average workers, growing income inequality, increasing productivity, and consumption supported by debt rather than income, you can certainly find evidence that generally suggests we might be approaching that "tipping point" where structural unemployment is going to become a problem. However, it seems unlikely that an econometric analysis of past data is going offer clear support for this theory--and if it ever does, it will be very late in the game.
I wonder about the wisdom of the extreme emphasis on quantitative data analysis that seems to characterize economics. Should we really steer the ship exclusively by focusing our telescope on the wake? There might be an iceberg ahead.
Martin Ford is the author of The Lights in the Tunnel: Automation, Accelerating Technology and the Economy of the Future.
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Thursday, November 05, 2009
More on the Public Option in the current house bill HR 3962
by Divorced one like Bush
Bruce Webb put up a post titled "Health Care Exchange: Eligibility vs. Enrollment". I have gained some clarification on the subject and have shared it with Bruce. I have asked him to comment also.
There is a concern as to whether access to the Public Option (PO) was limited. Bruce's reading of the bill was that everyone has access to the PO based on section 411(3) which reads:
3) CONTRIBUTION IN LIEU OF COVERAGE.—
Beginning with Y2, if an employee declines such offer but otherwise obtains coverage in an Exchange- participating health benefits plan (other than by reason of being covered by family coverage as a spouse or dependent of the primary insured), the employer shall make a timely contribution to the Health Insurance Exchange with respect to each such employee in accordance with section 413.
Thus, the PO is not as restricted as people thought and in the future the possibility is that it could grow and be what people are saying it would be; a force for controlling costs, especially regarding insurance premiums. Sounds good, no?
My reading was that section 411(3) was tied in some way to whether your employer was "exchange eligible" or not. There are provisions that would allow all employers in the future to be exchange eligible but it is dependent on a report or two being produced and then the "commissioner" acting on the report or congress acting on the report. To me, this leaves too much political wiggle room.
I think we both assumed that exchange eligible or not, if the employee chose the PO, the employer would have to pay for the choice by paying into the exchange, the result being that the cost to the employee would be the same regardless of what decision said employee makes.
Well, Bruce was correct. Everyone has the option to choose the PO. Though there is a financial barrier. A big financial barrier that in my opinion makes this bill crap. I'll post my thoughts more on this later.
I contacted my congress person's office. They put me in touch with their legislative person. I asked this person (via email) which of us were correct.
Turns out, as noted, Bruce is correct that everyone has the option for the PO. However, if you make this choice in lieu of accepting one of the employer provided options you, my friend are on your own. You are on your own and will have to accept the total cost of the PO plan because the payment your employer makes into the exchange does not follow you.
The reason given for such a set up in the house bill is that there is concern that the employers would push their employees into the exchange. The legislative person noted that HR 3962 specifically is attempting to discourage this.
This is the essential two responses by the legislative person:
Any individual (but not any employer) can participate in the Exchange and therefore could sign up for the public option. BUT, to do so, they would have to dis-enroll in their qualifying coverage and meet the other requirements necessary to participate in the Exchange. However, there is zero incentive for anyone to do this since they’d be responsible for 100% of the cost of the care they chose in the Exchange. If they stuck with their employer sponsored or other qualifying care, the vast majority of the cost of coverage is picked up by someone other than the individual. That’s why so few people are projected to enter into the public option. Additionally, access to the Exchange, and the public option, IS restricted for employers. Only the smallest businesses can use it at first, and later slightly larger businesses. The Secretary can then choose to open it up to all employers if she feels the Exchange has the capacity to handle that. The goal is to do so.
I then asked: 411(3) notes that the employer has to make a contribution to the exchange following the rules of section 413 if the employee chooses to get health care via such. How does this square with your statement that the employee would be 100% responsible for the cost of the exchange coverage? Is the employer contribution not tied to their employee's choice? That is, the employer is just simply being charged as a participate in the over all exchange pool to provide the exchange money and thus the payment is not an offset of the cost incurred by the employee to purchase coverage from the exchange?
There response:
Exactly—money does not follow the person in the House bill. The Senate Finance bill does attempt to have the money the money follow the person I believe, but that gets complicated and provides a potential incentive for employers to try and push employees into the Exchange, which is expressly discouraged in HR 3269.
This is a link to a section by section synopsis of the bill.
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Productivity Growth
By Spencer,
Third quarter nonfarm productivity rose at a 9.5% annual rate as output rose 4.0% and hours worked fell at a 5.0% rate. Historically, productivity has been a very good leading indicator of real GDP growth lagged two quarters.
Productivity is also highly cyclical and the first year of a recovery typically experiences the strongest productivity growth.
Compensation jumped to a 3.8% annual rate, but on a year over year basis it is only up 0.5%.
Consequently, the year over year change in unit labor cost was -5.2%, the largest drop in recent years. With productivity growth this strong and such weak compensation growth it is hard to see how anyone can be seriously concerned about a resurgence of inflation. Except for oil, even surging commodity prices would not have a significant impact on the overall price level since they account for such a small share of final prices. Moreover, since potential GDP is a function of productivity growth and labor force growth the argument that the very large GDP gap is overstated does not seem to hold much weight as long as productivity growth is so strong.
I also updated the chart on Labor's Share to show that this trend is actually accelerating.
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Finacial blogger impressions
Rdan
Steve Waldman at Interfluidity has written an impression of The financial blogger meeting with senior Treasury officials of last Monday. He also provides links to other main posts by those who attended. It is worth a visit.
CBO Scores Boehner Amendment to HR3962
by Bruce Webb
Last evening the CBO Director Blog announced the release of a score of the Boehner amendment: A Preliminary Analysis of a Substitute Amendment to H.R. 3962, the Affordable Health Care for America Act. The results are not impressive: (as always click to enlarge)
The amendment is scored at reducing the deficit by $68 billion over ten years. I can't get the breakdown to add up (see page 4) but most of the savings is in the form of malpractice reform at $54 billion with further savings from some administrative changes relating to electronic transfers and adoption of the Eschoo Biologics Amendment all of which offsets a whopping $8 billion net actually spent to expand coverage. So what do we get from spending an average of just around $800 million a year? Essentially nothing, CBO projects that the percentage of the legal non-elderly population without health insurance will stay right at 83%.
I suggest the words 'Epic fail' apply here. Heckuva job Johnnie!
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Update: Lifted from comments on last post. The GOP's Health Care Plan
By: Dirk van Dijk, CFA Dirk provides a nice analysis of the other provisions of the bill beyond the cost and coverage numbers.
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Bruce Webb, Dale Coberly, Arne Larson and the National Academy of Social Insurance
Rdan
The National Academy of Social Insurance report on options for Social Security is public and now available in pdf form. "The purpose of this report is to help analysts and policymakers consider options to bring Social Security into long-term balance in ways that also address concerns about benefit adequacy."
One cannot simply glance through such dense material and numbers, but I did find the following on page 14 (or actually page 20 of 44 pdf form). (the exact numbers have been changed from the proposal by NASI, but are faithful to the process):
From page 14:
Option #7c: Schedule a Very Gradual Contribution Rate Increase Over 20 Years. To avoid abrupt changes in Social Security contribution rates, this option would schedule very gradual increases in the Social Security contribution rate (one-twentieth of one percent per year over 20 years for employees and employers, each), beginning in 2015. By 2035, the Social Security rate would be 7.2 percent for both workers and employers. In 2015, the increase for an average earner making $53,085 then would be $26.50 a year, or about 50 cents a week. It would reduce the 75-year deficit by 1.39 percent of taxable payroll or by about 69 percent. Dale Coberly, a frequent commenter on Social Security, recommended a gradual tax increase of this sort (Coberly, Larson and Webb 2009).11
Footnote also on page 14 of the NASI report:
11 Dale Coberly is a student of Social Security policy and frequent commenter on Social Security via the blog Angry Bear. Angry Bear was named one of the top 25 independent economic blogs on the Internet by the Wall Street Journal and TimeCNN. Coberly, Arne Larson and Bruce Webb collaborated on a modified version of this option in their Northwest Plan. For details of the Northwest Plan, see “The Angry Bear Social Security Series” at http://bruceweb.blogspot.com/2008/08/angry-bear-social-security-series.html.
Like many contributors not in the spotlight the hours devoted to creating material to even be noticed, then evaluated, and then published is a testimony to hard work, due diligence, and a non-profit motive. The weekend hours and midnight oil burned by NASI personnel and contributors is rarely noticed by media, nor appreciated by recipients. Many of us talk about 'they'....well, meet three. Best to Bruce, Dale, and Arne.
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Wednesday, November 04, 2009
Boehner Amendment to HR3962: Open Thread
Common Sense Health Care Reform and Affordability Act
Haven't begun to read it. And somehow it is in a format that doesn't allow cutting and pasting the text. So I am just throwing this out to the floor for open discussion in comments.
Tuesday, November 03, 2009
Going to Washington as a financial blogger
Rdan
Yves Smith describes a meeting she attended at Treasury in D.C. Read at her place or the rest under the fold.
The Treasury invited a small group of bloggers for a “discussion” with senior officials on Monday. Initially, the meeting was to be background, which is a sort of journalistic “FYI but you can’t use it” but we were told at the meeting that we could discuss the meeting as long as remarks were not attributed to particular individuals.
None of us knew in advance how many attendees there would be; there were eight of us at a two-hour session, Interfluidity, Marginal Revolution, Kid Dynamite’s World, Across the Curve, Financial Armageddon, Accrued Interest, and Aleph (and of course, others may have been invited who had scheduling conflicts). There was a place card for Megan McArdle as well.
I was surprised that the powers that be would bother with financial bloggers, and I wondered at the decision rule behind the selection (besides wanting a mix, particularly from a political standpoint). This was also not an anonymous briefing of the sort that has come under criticism (but the anonymity request is still peculiar; is this a Team Obama fixation?) Given that the efforts have Administration has been made efforts to bring critics from the left into the fold, I was wary of attending (I’m not keen about the idea of being propagandized) and expected a higher control format (10-15 people, which would have limited the opportunity to interact).
It wasn’t obvious what the objective of the meeting was (aside the obvious idea that if they were nice to us we might reciprocate. Unfortunately, some of us are not housebroken). I will give them credit for having the session be almost entirely a Q&A, not much in the way of presentation. One official made some remarks about the state of financial institutions; later another said a few things about regulatory reform. The funniest moment was when, right after the spiel on regulatory reform, Steve Waldman said, “I’ve read your bill and I think it’s terrible.” They did offer to go over it with him. It will be interesting to see if that happens.
Four of us had a drink afterward and none of us felt that we learned anything (not that we expected to per se; if the ground rules are “not for attribution” in an official setting, we are certainly not going to be told anything new or juicy). But my feeling, and it seemed to be shared, was that we bloggers and the government officials kept talking past each other, in that one of us would ask a question, the reply would leave the questioner or someone in the audience unsatisfied, there might be a follow up question (either same person or someone interested), get another responsive-sounding but not really answer, and then another person would get the floor. The fact that the social convention of no individual hogging air time meant that no one could follow a particular line of inquiry very far.
My bottom line is that the people we met are very cognitively captured, assuming one can take their remarks at face value. Although they kept stressing all the things that had changed or they were planning to change, the polite pushback from pretty all the attendees was that what Treasury thought of as major progress was insufficient. It was instructive to observe that Tyler Cowen, who is on the other side of the ideological page from yours truly, had pretty much the same concerns as your humble blogger does.
It was also striking to see that the Treasury officials lacked a vision for a banking system for the 21st century that was materially different that the one we have now. The flip side is if they did, articulating that publicly might get them accused of doing Communist central planning, but I didn’t hear second level arguments that said they had considered the issue in a serious way, save not winding the clock back to much more on balance sheet intermediation, aka traditional banking, as opposed to “market based credit”. Nevertheless, at a McKinsey alumni meeting months ago, a partner who has been advising the Treasury and Fed told the group that the Administration wants to make being systemically important very costly to force firms to do what is necessary to get out of that category. That of course is structural reform, but we got no acknowledgment of that as an aim. And aside from raising capital requirements more for big firms than smaller ones, it is not clear how far Treasury could go down that path on its own (and strictly regulatory measures can be rolled back by a new Adminisitration).
Several of us raised questions about whether what their vision for the industry’s structure was and that the objective seemed to be to restore the financial system that got us in trouble in the first place. The answers instead focused on more stringent regulations, higher capital levels, and of course the derivatives regulation bill. I tried twice to engage them on how the bill has so many loopholes that it is not going to make any difference as far as the real problem is concerned (the out for customized derivatives, in the Administration proposal, gave the industry an easy and obvious way to evade the rules; the House pretty much gutted what was left) but I was not specific enough in saying what “loophole” constituted and was basically deflected (and was also told the derivatives on balance sheet would be subject to tougher capital requirements, and the industry was complaining that the bill would make things more costly for them. Ahem, it has become standard practice of all the powerful lobbies to make a great deal of noise about any change on principle, so the level of complaining is not a valid indicator of the efficacy of reform).
I also asked about the size of the financial services industry (as in one of the distortions that resulted from deregulation and rates being too low was that the financial sector had grown too large, which by implication means it needed to shrink. I was told it had shrunk and that the Fed was winding down its programs. Yes, but the expectation is that as the Fed winds down, the private markets will step into be breach, which means more credit private credit extension. There was no acknowledgment of the issue raised by Joseph Stiglitz, that if credit intermediaries are making too much money, the banking system tail is wagging the economic dog.
They also defended the stress tests as being serious, and again did not seem to win converts.
One area that we didn’t get into was the special resolution regime, which is receiving considerable pushback from Congress. Treasury has asked for open-ended authority to resolve large financial institutions, which is pretty much a blank check. That’s a breathtaking power grab by the Executive and should not be acceptable in a democracy. It wasn’t surprising that post the TARP that Congress would be completely unwilling to go there. Any decision to wind up a large bank is going to require Congressional authorization; the amounts at stake are too large for this not to be a political decision. The Resolution Trust Corporation working capital needs ($50 billion, if I recall correctly) were authorized by Congress, and Congress also became impatient and called for it to be wrapped up sooner than Treasury wanted (some studies have argued that the faster sales that resulted gave the taxpayer a lower return than the RTC would have gotten otherwise). And even if you could solve the political impasse (remember, Bear failed in ten days; think Congress could agree to a big backstop in that short a period of time?) I am not certain this change will be salutary in the absence of trading counterparties knowing exactly what would happen to them while an organization was being wound down. One of the things that makes securities firms decay quickly is that no one wants to have their accounts frozen, as happens now in a bankruptcy. You need considerable detail on mechanics, and it does not appear to have been disclosed yet (my buddies at the Roosevelt Institute conference on Monday said Rodgin Cohen, who was presenting and advocating the Administration plans, was also scarce on details).
But the other fact is that these guys are very smooth, very smart, and seemed quite sincere, which made it difficult to discern how much they really did believe and how much of what they said they had to say because they need to defend official policy and maintain confidence. Let’s face it, they get prodded and roughed up by big dogs with some frequency. There was nothing we asked that would be new. They’ve covered this ground with other people of more consequence and therefore have answers ready. We are a pretty unimportant audience (yes, they did bother making time for us, but let us not kid ourselves on how far down the food chain bloggers are) and we cannot argue from a position of advantaged information, so it was inevitable that we would not get beyond standard responses.
Home Buyer Tax Credit Extension
by Linda Beale
Part of the reason for our ongoing Great Recession is that we have had so many measures in the tax code to favor home ownership that (i) banks started to think of mortgage securitization business as money growing on trees and (ii) homeowners started to think of their homes as money-growing trees. The bubble burst when the whole house of cards almost came tumbling down--it was revealed that banks had lent money through sub-prime mortgages to people who couldn't afford to make the payments, that people were hoodwinked into getting subprime mortgages (at higher costs) that could have afforded a regular mortgage, that house prices could not just keeping climbing.
Nobody liked the way the "market correction" worked--foreclosures, evictions, job losses and home losses heaped on top of each other. Made especially bad when banks foreclosed on individuals for falling short on payments, refused to accept "short sales", and then ended up letting the houses deteriorate and selling them for much less in foreclosure sales. Made worse when we watched the bailout drama unfold, with investment banks and companies like AIG (investment banks' friendly insurer and credit default contract counterparty) saved with trillions of dollars of federal tax money on the line, while home foreclosures for ordinary people continued.
Congress couldn't get the will to pass a bill to permit modification of home loans in bankruptcy--the one bill that would have done the most to save current homeowners from losing their homes and the social/economic disruption such a loss causes.
But somehow it managed, as part of the economic stimulus bill, to pass a tax cuts to encourage people to buy homes who hadn't owned one before. I thought that bill was problematic from the beginning. First, it was not an ineffective stimulus, in that it was not as effective as, and much more costly than, permitting mortgage loans to be modified (i.e., principal to be reduced) in bankruptcy. Second, it was not fair--those who'd bought homes earlier and were now struggling with underwater mortgages got no help, but someone who managed to put together a deal made possible by the many foreclosed properties would also get a boost from tax funding.
At least, I thought, it's temporary--so we won't be saddled with another one of those monster tax expenditures that gets built into the Code and pricing expectations and is well nigh impossible to repeal, like the home mortgage interest deduction and the home gain exclusion provisions that permanently distort investment decisions in favor of housing over many other valuable capital expenditures--such as college and post-graduate education.
Well, it looks like that was wrong. Congress is close to enacting an extension and expansion, trying to save the crisis caused in part by the housing bubble by creating incentives to invest in more housing. Today (Nov. 2), the Senate voted 85-2 to invoke cloture on H.R. 3548, the Worker, Homeownership, and Business Act. It will extend the deadline for the $8000 credit through the end of April 2010. But it will also provide a new credit to existing homeowners to help them buy a different house. See BNA Daily Tax RealTime (nov. 2, 2009 at 7:20pm). Presumably that's aimed at those who've relocated and have to sell and maybe have rented for a few years but are still unable to sell for full price. See this blog for more info, which also notes that the expansion will also raise income limits to $225,000 for married couples.
Egads! I can see why real estate professionals and people who will get the windfall would support this. But it is hard to believe that it makes sense to provide more tax breaks for housing, especially when it is only to a select group that just happens to be in a position to purchase this year, who are already likely to get pretty darned good deals anyway, and especially if it includes well-off couples who make almost a quarter million annually (the current credit phases out starting at $150,000 for couples)? Especially when this extension alone will cost us another $17 billion or so.
They're also extending and expanding the provision allowing carrybacks of business losses. Before, it was just open to small businesses. Now, there will be an NOL carryback for five years for all businesses, so long as they had losses in either 2008 or 2009.
The only good thing in this bill, as far as I can see, is the provision for extension of unemployment benefits.
The Rule of Capture and Legalized Theft
by cactus
The Rule of Capture and Legalized Theft
The rule of capture states that a resource belongs to the entity that, well, captured it, regardless of where that resource originated. In the US, it tends to apply to oil and natural gas development.
What the rule of capture implies is that if you and I are neighbors, and there’s an oil deposit underneath both our properties, if I stick a drill on my property, anything I suck out of there belongs to me. But oil (and natural gas and water) all move around, and when I extract stuff from under my property, it creates a vacuum, so that stuff that used to be under your property flows under mine. Put another way, when I extract oil or gas, some of what I’m extracting was originally under your property. Put yet another way, when I extract oil or gas, some of what I’m extracting was your property.
It gets worse... oil and gas producers typically engage in "fraccing" (hydraulic fracturing). That is, they pump a mixture of water, sand, and some noxious liquids under ground at high pressure to break the seams in which gas or oil are trapped in order to facilitate the flow of oil and gas. And that includes facilitating the flow of oil and gas from under your property to under theirs. If you're wondering how noxious the liquids that are used for this arem a story I was following earlier this year involves a herd of cows that collapsed and died after the cows drank some fluid that spilled from a drilling operation. I imagine it would take a lot more of that liquid to kill a cow than a fourth grader.
OK... now let's change the story a bit.... if I dig a deep and wide enough hole at the edge of our properties, stuff from your property will fall into mine. If the hole is deep and wide enough, and your house is sufficiently close to the property line, I may be able to get an awful lot of your worldly belongings to fall into a pit inside my property. Now, its pretty clear that if I pull such a stunt off, the law won't look kindly upon me.
The same is true if we're talking about gold deposits under ground. Assuming neither of us has sold our mineral rights, we both own whatever gold could be found under our properties. Of course, if I dug out all the gold under my property, and then proceeded to dig a big enough hole (underground) along the edge of our properties, I might just manage to get some of the gold under your property to end up under mine. But while I am no attorney, I suspect the law would not look kindly upon me if I did that.
So what is the difference? Before you think about it too much, or I provide my answer, let me hasten to add - this is not a "commons" issue. The commons are just that, the commons. They belong to everyone - that is not true of your house, or minerals underground in your land.
Now, my guess is the difference is that oil and gas flow more easily than, say, gold underground or a home above-ground. But all that means is that its harder to tell if oil or gas coming out of my pump originated under your property and hence was originally yours. As I see it, this rule countenances theft because it is difficult for anyone to spot the transition from when a specific activity doesn't involve taking someone else's property to when that same activity does involve seizing someone else's property. I think its a really bad reason to forcibly assign one person's property rights to another. I would have thought the shoe should be on the other foot, and the driller should be the one required to prove that a) they haven't taken oil or gas that was originally under someone else's property much less b) pumped noxious stuff under someone else's property at high pressure. Its not impossible to do... it just requires putting an impermeable barrier between the two properties that extends deeper than oil or gas deposit. Costly? Well, yes. But the alternative to doing so is essentially theft by omission which would never be tolerated as an excuse in any other milieu.
At least, I hope it won't be tolerated when applied to something other than oil and gas. In a world in which Goldman, Welfare, Queen & Sachs plays such a prominent role, I worry about what will happen when the folks on Wall Street learn about this and decide to start drilling around my 401-k.
Your thoughts?
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by cactus
Government Site to Check
Mish sends us to "Track the Money," recovery.gov's breakdown of where funds have been sent and spent.
He's not happy, but I suspect he's suffering the Jared Bernstein Problem: only looking at one side of the equation.
But—and this is the key "but"—the reason it is right to do that is that ARRA money has two-way flow. It supports jobs and production, both priming the pump and moving production forward. This works if (1) the cost is minimal and (2) the production will be saleable (avoid the "double-dip"). Which implies (1) domestic interest rates must remain near zero and either (2a) U.S. consumer demand for domestic goods must increase or (2b) the U.S. dollar must depreciate, making our goods more desired abroad.
All of the above is reasonable and conceivable, even if it does imply the stock market may be overvalued.
And if the recent reports are true, the biggest effect of the stimulus has been in stabilizing education, which reaps long-term benefits, as conservative economist Ed Glaeser noted last month.
But that's the stimulus. The bailout money, well, that's another question. And another post.
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