The Philosopher's Stone

The 2012 Pelosi GTxi SS/RT Sport Edition

Quite possibly the best video I've seen in ages:

Chrysler to file for Bankruptcy

All I can say is thank god they're going this route rather than becoming a branch of Uncle Sam Motors.

US Preparing Chrysler for Bankruptcy

And it could come as soon as next week.

About bloody time.

An Interesting Graph of Job Gains and Losses

Slate today has an animated chart showing job losses and gains over roughly the past 2 years. I clicked through out of a kind of perverse curiosity, but found it to be far more informative than I expected. As the old saying goes, a picture is worth a thousand words, and this is no exception.

On the chart, blue areas represent net job growth and red areas represent net job losses. Watching those changes over time reveals (or to some, confirms) some very interesting patterns and trends.

The biggest thing is that this chart clearly shows a typical business cycle of gains and losses for most of 2007 and even the early part of 2008. Toward the end of 2008, however, jobs take a clear nosedive - and by November 2008, the job loss is clearly a nationwide problem.

I'm not sure it's meaningful, but I find it interesting that the worst job losses occurred after the government bailout programs were approved.

Why Does Health Care Cost So Damn Much?

Over on The Atlantic, Megan McArdle takes a stab at answering that question.

The post is particularly timely for me, as I was just discussing this very problem with my wife last night. As I see it, the problem with health care in this country isn't that people are uninsured or underinsured: it's that health care costs so much that you need insurance or you can't get the care you need - and the costs are going up at an insane rate.

Ms. McArdle takes a valiant stab at the problem, and I think she accounts for some of the extra costs. But I also think there's more to the story, because I just can't make the numbers add up in my head. Specifically, her article covers a lot of points about aggregate costs. But I still wonder why individual procedures often cost so much.

For example, why does getting an MRI cost so much? My wife recently had to have one done, and Blue Cross was kind enough to supply us with a "before insurance" cost of the procedure (read: they wanted us to know just how much money we'd cost them). The MRI examination was $17,000!

I understand that an MRI machine is an expensive piece of equipment. After looking it up, I understand that it's an even more expensive piece of equipment than I appreciated. Still, even at the 2 million dollar pricetag that Wikipedia gives as an upper end, this doesn't justify the price. Assume an MRI facility operating at full capacity: say, 4 MRI's a day to be generous (the one for my knee took approximately one hour). Allow 5 days a week of operation, and 4 weeks a year of vacation time and holidays (again, being generous: individual employee vacations could be scheduled in such a way to keep the facility operating regardless). By my estimates, that's $16.3 million per year in revenue.

Even when you include the cost of specialists (radiologists to study the results aren't cheap: their salaries are very high, as is the cost of their schooling), staff, overhead, etc, malpractice insurance, and even the fact that this MRI facility in particular was probably on the extreme end of costs for various reasons... somebody's making out like a bandit here.

And MRI's aren't alone. I've seen a lot of medical procedures done where I just can't figure out why they're so expensive. Like college tuition, it's just plain getting out of hand. All the while, of course, doctors and their staffs are griping that insurance companies won't cover their overly expensive bills.

I would love to spend an afternoon studying the books of a typical medical specialty partnership. Maybe these costs are justified and I'm just blind to it. Or maybe they really are outrageous, if we only knew. But the reality is that right now, I just can't make the numbers add up in any way that makes sense.

Dealing With Piracy

Dave Schuler in OTB today:

"I’m open to other suggestions. Propose your alternatives in the comments. Please limit your suggestions to things that can be done with forces that actually exist."

I think the last portion of that is silly. Nations raise forces specifically to deal with specific threats all the time. This has been done throughout history. A better approach is to limit the suggestions to things that can be done with forces that could plausibly be raised in the near future. Nonetheless, I don't think anything I've outlined here is unreasonable given the forces available to the international community.

The true cost of piracy is much higher than the monetary cost. It isn't simply the price tag that the developed world pays that matters. Piracy instills fear and lawlessness in the people forced to live under it. Furthermore, by allowing pirates (or other brigands) to disrupt our shipping, we give them a kind of power over us. For now, that power may be minuscule, but given time it will only grow.

While it may be expensive to deal with now, if we wait it will only become more expensive. Though I am skeptical of it actually happening (since when has government nipped a problem in the bud instead of waiting for it to become a crisis?), the correct approach to the Somali piracy problem is to deal with it now.

Piracy is a problem that is at one and the same time simple to deal with and yet difficult to deal with. Conceptually, the answer is rather simple, and revolves around a comment made by Admiral Richard Gurnon of the Massachusetts Maritime Academy in various forums:

"They're desperate people who have a business model that works for them.

You know, you buy lottery tickets and you lose most of the time, but you still buy them. You still might have a million-dollar winner."

The analysis is, on the surface, correct. The risks are low and the payoffs are potentially high, so recruits are coming out of the woodwork. The long term solution to Piracy is, as it always is, to alter the fundamental equations so that the "business model" fails.

The lottery ticket analogy is used by many to illustrate the difficulty in altering this model. But in reality, it points us exactly in the direction of our solution. Lottery tickets are cheap and there is no risk involved other than the initial cost of the ticket, so many of us buy them. But suppose for a moment we alter the rules of the lottery. In addition to your one-in-a-million (for the sake of clarity, I'm not bothering to look up actual lottery odds) chance of winning a huge sum of cash, you also have an exactly equal one-in-a-million chance of dying. All of a sudden, you're going to sell a lot less lottery tickets.

Those odds aren't enough to completely deter piracy, of course. But what if we keep raising the odds of dying? What if you keep that one-in-a-million chance of the huge payoff, but your odds of dying are now up to one in a thousand, or even one in a hundred? Now we're looking at a real deterrence - perhaps not enough to eliminate Piracy altogether, but enough to put a serious crimp on it.

At the same time, we need to be focused on that payday. If we reduce the size of the winnings from, say, a million dollars at the start down to $100,000 or even $10,000, we've again dramatically reduced the incentives of players to play the lottery. Combine both approaches together and the lottery becomes worthless: nobody will play.

The question becomes, how do we apply this model to current day Somali pirates?

With a multi-front effort, focused on several areas at once. These approaches need to be divided into two major areas: military and law enforcement. It is a huge mistake to think that either approach alone will solve this problem. Instead, both must work together in a coordinated front.

First, the military components - and there are several. The idea of using convoys has been brought up. This is a good start, and probably one of the easiest to implement right away. Ships who choose to should be allowed to join in scheduled convoys with military vessels. Ideally, this service would be provided by a multi-national naval force, and the costs could be offset by fees charged to the merchant vessels being protected. However, the costs should be kept low enough to avoid imposing any substantial burden on these companies: we want them to join convoys, when they can. For whatever portion of the mariner community that can be protected this way, we have an immediate security boost.

Simultaneously, we must step up naval patrols in the area. My suggestion is to put an aircraft carrier in the area to provide constant aerial surveillance and tracking of nearly every vessel in the vicinity, and also to put as large a patrol as possible (again, hopefully multinational) directly along the Somali coast. Unlike the convoys, the goal of this combined force is not to stop a pirate attack before it happens. As has been pointed out, there is far too much ocean for this. Instead, the goal of this force is to detect a pirate attack as it happens - and intercept the vessel before it reaches the coast.

Just as it did with Captain Phillips, this now puts the initiative back in our hands. If the vessel (and any hostages) are out at sea, they are isolated. They can't receive reinforcements. They can't remove any hostages from the vessel. They are trapped in a stalemate: we can't blow them out of the water or the hostages will die, but they can't kill the hostages or we'll blow them out of the water. The vast majority of the time, such a stalemate works in favor of law enforcement. All we have to do is run out the clock until they get desperate and surrender.

This is where the joint military/law enforcement nature of the response comes into play. Our announced official policy on piracy actions should be that our goal is to bring pirates to justice before a recognized court - either US or multi-national - and that captured pirates face life imprisonment - NOT the death penalty. However, at the same time, it should be policy that any pirates that kill hostages, or provide an immediate lethal threat to hostages, are subject to immediate military action - being shot on the spot, as was done in the Captain Phillips case.

Making this official public policy gives any hostage-taking pirates an incentive to choose surrender over killing hostages. Life in an American prison is probably actually pretty cushy compared to the life they know. Death is.. well, it's death. This becomes our bargaining tool in negotiations, when the need to occur.

Trained law enforcement must also interject itself into any negotiations, just as we do in domestic kidnappings or hostage situations. Again, the Captain Phillips case provides an excellent example of exactly how useful these personnel can be. They have a lot of experience at this kind of job. The ground rules may be a tad different. As an example, unlike most kidnappings, in most Somali piracy cases so far, the hostages are being freed upon receipt of payment. However, the fundamentals are the same, and the differences can be trained and learned. Coordinated negotiation gives us the chance to a) reduce overall payments (and hence reduce the "pot" available to our lottery players) and b) gather intelligence for future military or law enforcement actions.

At the same time, adding to the law enforcement side, we need to use all the tools at our disposal - including the tools we've recently enhanced to combat terrorism. The financial assets of pirates can be tracked and frozen exactly the same way as Al Qaeda's assets. And just as we've done against organized criminals within the US, we can trace those assets back to the source and identify "Pirate Lords" associated with them. These people can then become the targets of law enforcement actions - if they can be apprehended and extradited.

If not, we retain the option to employ the military solution again - either by capturing them for trial (as we have done before, and retain the capacity to do) or assaulting and killing them and their organizations (as we have also done before, and also retain the capacity to do.

It is important to note that NONE of these policies, on their own, will end this problem. The problem is too multi-faceted for that. Still, this isn't exactly rocket science. The individual policies here are rather clear - it's just going to require some time, patience, money, and probably a little bit of blood to deal with the problem.

In a perfect world, the US would take the lead on this action, joined by a large and willing international coalition. The war on terror has taught us that this perfect world may not exist. However, this case is a bit different. The international community has just as a strong an incentive as we do to end this - perhaps stronger, given that they've so far been hit harder. I think getting international cooperation on this is feasible, but we should be prepared to go it alone if we have to. Despite the fact that other nations are currently bearing the brunt of this, the US has compelling interests in putting a stop to it.

Edit: To be perfectly clear, I understand just fine the history of how we got here and the fact that Somali piracy exists because of the power vacuum in domestic Somali governance. I just think it's irrelvent to the solution. Cries of, "oh, it would go away if we had a functioning Somali government" are meaningless. Given the recent history of the nation it's quite clear that this isn't going to happen in the near term future (a la Dave Schuler's admonition, I consider this a "force we don't have" and also a "force we can't conceivably raise in the near future").

More Bailout Stupidity

OK, seriously - are we trying to bailout the banks, or are we trying to bailout the auto companies?

From the Wall Street Journal:

"The Treasury Department is pushing GM to offer its bondholders, who are owed $29 billion, a small portion of shares in the company. That's a sharp cut from a bond-exchange offer GM made two weeks ago, which included about $8.5 billion in cash and new debt in the company as well as 90% of GM's stock, said people familiar with the terms.

...

But the largest portion of the company's debt is held by banks that have received federal aid, including J.P. Morgan, Citigroup, Goldman Sachs and Morgan Stanley. Michigan Gov. Jennifer Granholm and one of the state's congressmen have suggested lenders that received funds under the Troubled Asset Relief Program should have to write off their debt to ensure the future of Chrysler."

[Emphasis mine]

We have banks that were in danger of failing, so we gave them government money. But now that same government wants to force them to take a major loss on debt in order to prop up another failing company.

This is patently stupid. What was all that bailout money for if we're just going to push the banks even further into risky financial territory?

(via Megan McArdle this morning)

Green Products Worth the Tradeoff?

In the rare case where I actually followed a blog conversation from its original start to its current conclusion, Kevin Drum discusses a new law about dishwasher detergent going into effect in Washington:

"So here's the deal.  Phosphates really are a danger, creating runoff that kills fish and plants.  And Spokane has a uniquely bad problem with phosphates.  And apparently it's entirely possible to create phosphate-free detergents.  The industry just didn't feel like doing it.

But now their hands are being forced.  And guess what?  It turns out they can do it after all.  Imagine that."

Mr. Drum, I think, makes a fair point that sometimes alternative products do exists and can be used, and that sometimes market forces will not push us to use them.

Megan McArdle responds that there's usually a simple reason market forces don't push us to these green products: they suck.

"Er, industry also knew how to make low-flow toilets, which is why every toilet in my recently renovated rental house clogs at least once a week.  They knew how to make more energy efficient dryers, which is why even on high, I have to run every load through the dryer in said house twice.  And they knew how to make inexpensive compact flourescent bulbs, which is why my head hurts from the glare emitting from my bedroom lamp.    They also knew how to make asthma inhalers without CFCs, which is why I am hoarding old albuterol inhalers that, unlike the new ones, a) significantly improve my breathing and b) do not make me gag.  Etc."

Other than the asthma inhalers, I'm familiar with all of these issues (my dryer works in one pass, but I do have to set it to the maximum run time). Compact fluorescent bulbs are the ones that bug me the most. I tried switching all the lights in my old house over to them, and just couldn't stand the light quality. At a time when I was already having depression issues for other reasons, they just had to go so that I could get help wherever I could. I actually replaced all of my CFLs with fuller-than-normal spectrum incandescents, and I don't regret it at all. I also note that I didn't actually save all that much on my utility bills with the CFLs.

On the other hand, there are green products that have caught on pretty well in their own right via market forces. Given a choice between two equally workable products, one being environmentally friendly and the other not, consumers will choose the environmentally friendly one if they know about it. Indeed, it's become a marketing point, allowing manufacturers to charge a price premium. The reason for this should be pretty clear: nobody wants to live in a trash heap.

James Joyner weighs in this morning with his own addendum:

"She concedes — as do I — that these tradeoffs may in fact be worthwhile if the “good” existing product is truly dangerous to our habitat.  But it’s important to at least weigh the costs and benefits and not treat the “green” alternatives as a cost-free exchange."

Yet how do we decide that the tradeoffs are worth it? Sometimes this works via the marketing pressures I just described, but most of the time we have to deal with the negative externalities (ie, environmental damage) of products via social or political processes.

Until yesterday, I wasn't even aware that phosphates in dishwasher detergent caused environmental issues. I'm inclined to be unsympathetic - my dishwasher already produces horrible results, almost never getting my glasses clean and often leaving them with a sediment buildup that wasn't there before I washed them. However, if the problem's really that bad... maybe we do need to change our detergent.

Sadly, the real problem is that I don't know, and worse, it's pretty likely that neither do the members of the Spokane or Washington legislatures. Regardless of the actual merits of the case, it's very likely that these laws are being passed as a quick emotional response to the issues. "It's for the environment" is quickly becoming a catch all that justifies nearly any action, no matter how economically absurd or, you know, effective it actually is.

To my point, I note that his post that kicked this all off, Mr. Drum provides absolutely no suporting evidence for his assertion that phosphates are a real environmental issue, no evidence that this problem is particularly bad in Spokane. The original LA Times story that he links to provides only minimal and indirect evidence for this claim, stating that:

"The Spokane River is considered one of the nation's most endangered, threatened by mining pollution, sewage treatment plant outfalls and heavy drawdowns of river water that tend to concentrate pollutants."

And then proceeding to give us a rundown of all the rules and technology being used to clean phosphate out of the river, with no mention of whether phosphate itself is the biggest problem. Somehow the mining pollution in the river seems kind of unrelated to my dishwasher, I'm just saying.

I'm not saying this law is a bad idea. I'm not saying it's a good one. I'm saying it's time to stop having these arguments on the basis of abstractions and misdirections, and time to get more specifics and details into debates like this. This style of debate is rampant throughout our entire spectrum of political discourse these days, and it's leading us to make stupid decisions.

Can we please make an effort to return our debates to the relevant facts?

No Good Deed Goes Unpunished

"I'm altering the terms of our agreement. Pray I don't alter them any further." -- Darth Vader, The Empire Strikes Back

Let's pretend for a moment that you're a big time executive. Your industry is getting hit by a bit of a crisis, but your particular company is actually in a decent - not great, but decent - position to weather the storm. However, the crisis hitting your industry is so bad that the government has decided to step in and help out. They worry, though, that if they identify the companies in the worst shape, due to the psychology and economics involved, that they'll actually cause those companies to fail rather than helping them. So they come to you, quietly, and ask you (and every other businessman in your field) to take a little bit of government money as well, so that nobody will know who's really in trouble.

As we said, your company is probably OK. However, if the rest of the industry goes down, it's going to have repercussions for your own company as well. And on top of that, hey, this is your chance to do something a little patriotic and help your country out. And maybe, just maybe, the government will owe you a favor after all of this and help will come around when you need it. I'm not talking corruption here, just karma. What goes around comes around, right?

So you agree to the plan and go along with it. After all, even though you don't really need it, you can find profitable things to do with that money.

Then a few months later, the public notices that some of the companies in the worst shape have been paying huge bonuses to the very people that got them into their current predicament. Outrage ensues, elected officials decide its time to cover their own butts, and they retroactively impose a lot of crazy conditions on accepting that money. "You took our money?" they ask. "Then you deal with our conditions." [note: this is a common occurrence when you start letting somebody else foot the bill, and a good reason to pay your own way]

But wait, you think. We didn't really need their money in the first place. And now they're telling us that we can't use it to reward the people who kept us in strong enough shape to actually weather this mess. Oh, and they're imposing other conditions that are mucking about with our business model. Forget this mess - I was trying to help, but now I think we'll just give the money back.

Sounds like a good plan, right? Until the President comes along and tells you that you're not allowed to. Like a devil's bargain, once you sign, they've got you for life.

If you haven't already figured it out, this hypothetical situation is exactly what's happening to at least one of our nation's banks.

What a wonderful mess our so-called leaders have gotten us into. Let's start with an ill-conceived bailout, pass emergency legislation for it without bothering to read it, get upset when the fine print comes back to haunt us (the legislation explicitly allowed the "bad companies" to pay the bonuses in question), pass even worse legislation to "fix it", and then flounder about when it turns out that the banks who were trying to help us decide, "no thanks, we don't want any part of this mess anymore."

I'm going to put this down here loudly:

There is no situation so bad that it can't be made worse by bad legislation.

And the corollary:

There is no legislation so bad that it can't be made worse by the Executive Branch.

Note those down and remember them well.

The So-Called "Fair Tax"

A comment I left over at OTB this morning prompted a very short response from Pete Burgess:

"mewquist, there is a viable tax reform idea, HR25, that would do everything you desire. Check it out."

I did check it out, and HR-25 is a version of the so-called "Fair Tax". I use scare quotes for a reason, because I believe this tax plan to be anything but fair. I also believe it to be completely politically untenable. Most of all, it doesn't solve a single one of what I see as the most important problems in our tax code. But a complete response as to why I believe all of these things requires a much more in-depth answer than a blog comment, and also would sidetrack the discussion in James' post.

To take all of my points above out of order...

First of all, Mr. Burgess was responding to my own comment that the tax code is due for another major round of simplification. The implication is that the Fair Tax would be simpler. I know far too much about human psychology to ever believe that. It might - might - start out simpler. It won't stay that way. Look at the history of our income tax code. It was very simple initially as well. I don't have to tell anybody what it's morphed into.

This isn't an inherent problem of income tax vs. sales tax. It's not an inherent problem of our system of government. It's not even an inherent problem in government. It's a problem that's inherent in out people interact with each other. As long as the tax code is influenced by multiple people (which means pretty much always throughout human history and future), people are going to start meddling with it. They're going to provide sterner taxes for things (or people) they don't like and give breaks for things (or people) they do like.

Look also at the sales taxes we already have at the state levels. They are most definitely not simple. They just appear that way to the average taxpayer because somebody else does all the paperwork for you. In the city of Huntsville, Alabama, where I have operated more than one extremely small business, the sales tax rate is 8%.

But wait... 4% of that is for the state. 3.5% is for the city. 0.5% is for the county. A small business has to file forms and payment separately for all three of these, and track them separately.

But wait... that's also not a fixed sales tax that applies equally to everything. Automobiles are taxed at a different rate. So are farm equipment, manufacturing machinery, vending, and amusement. Lodging tax is another rate. Until the mid 1990s, computer software was excempt from sales tax altogether because of a loophole. And let's not forget alcohol and tobacco, which have their own tax rates almost everywhere. Many states exempt food from sales tax to avoid being "regressive". Some states go even better and exempt groceries but not restaurants.

Adding another layer of federal tax forms on top of all this state paperwork is supposed to make it better? I don't think so. Give the feds time and they'll make all of this look like a joke. There is nothing inherently simpler about a sales tax, and over the long term it will do little or nothing to simplify our tax code.

Second, I believe the "fair tax" is unfair because it disproportionately shifts the tax burden to poorer or lower class citizens. Poorer people spend a greater percentage of their income and save less for the obvious reason that they need more of their income just to make ends meet. Therefore, a sales tax hits them proportionately harder.

I've seen versions of the "fair tax" that provide exemptions for those with less income, in the form of "tax exempt" ID cards and other proposals. See my first point. We've started complicating the tax code all over again, and defeated what I see as the entire purpose.

Third, if we're going to have a complicated tax code, it's better that it apply to the common voter. That provides a built in check on the system. If it gets too complicated, the voters revolt and it gets simplified again (this has happened at least twice in recent history under Presidents Kennedy and Reagan). If we implement a nationwide sales tax and shift the burden to business owners, the average voter will lose all reason to care about the complexity of the code. It's somebody else's problem.

The cynical part of me looks at this and sees a lot of big business support behind this plan and concludes that it's a ploy to make things even harder for their smaller competitors. Shifting to a fair tax is a minor nuisance for a large corporation - they already have armies of accountants on hand, they just need to retrain them. For a small business, especially a "micro-business", this is a real problem. Small businesses are already drowning in paperwork, and I can't bring myself to support anything that makes that worse.

Fourth, the fair tax will never pass in our current political environment. The forces that have made our tax code the beast that it is can be fought one by one with some degree of success. We can repeal a number of specific tax exemptions or burdens. But if we threaten them all at once, too many special interests are going to crop up and destroy the bill. This fact will pretty much remain true as long as special interests remain in politics, which is pretty much the same as saying "forever".

In theory, I'm a fan of a relatively flat tax that has a generous standard deduction, a small number of progressive tax rates, and absolutely no specific deductions. In reality, I acknowledge that this plan also will never pass. The best I think we can hope for is a new round of simplification every decade or two, and I believe it's time for another round.

I also use this opportunity to once again present the Russell Newquist Tax Plan:

All members of Congress shall prepare and file their own income taxes without the aid of any other person or any electronic or mechanical device.

Pass that plan and our tax code will simplify overnight. Alas, it's yet another pipe dream plan that will never get through our political system.