Unforeseen Contingencies

Breaking news: I am on a team preparing to climb the highest peak in North America in May-June 2008. At 6,194 meters, Denali is... cold.

Needless to say, I am excited!

Тяжело в учении, легко в бою!

The previous post references the Unforeseen Contingencies hat. Well, here it is.


Contest!

The first reader who can identify it and contact us here at UC wins... umm, first prize.

I've never been a fan of royalty, but UC tips its hat to King Juan Carlos of Spain for his insightful advice to dictator Hugo Chavez, "Why don't you shut up?" Chavez, in turn, insists he has as much right to interrupt people as anyone does... so long as it's not Chavez being interrupted.

Here's hoping Chavez' dictatorship will be interrupted, permanently, and soon.

Name the crime that resulted in the death of an American worker and the ruin of his family.

Everyone knows that crime destroys the fabric of society. Violence, theft, fraud -- all of it makes us all less safe, and should be stopped. Right? Unforeseen Contingencies thinks so.

Well, earlier this year, in New Bedford MA the feds caught a band of outlaws who had clearly violated federal law. Their crime? Sneaking across the U.S. border so that they could work, contributing to the American economy and making us all better off. Horrors!

Oh, wait, this isn't a crime. After all, there’s no victim, none at all, only beneficiaries, So what's the crime?

The crime is the legal persecution of people who are working, minding their own business, and violating no one else’s rights. There are victims aplenty of this terrible law. In a terribly tragic footnote to the story, one of the workers is dead, and his wife and child now forced onto the American taxpayer, simply in order to save the child’s life.

What the hell is America doing? Why do we insist on destroying our own liberty and others’ lives, all for the benefit of reducing our own incomes. You can listen to the tragic story of this worker and his family here.

Human trafficking from Kyiv to Detroit; makes it to U.S. Congress...from the Detroit Free Press, although of course I got it via Ukraine.

A friend who does research on human trafficking suggests to me that this sort of crime would almost dry up with open borders and free immigration. I am not so sure that this is strictly true, but the recruiting of victims would surely become more difficult if legitimate employment agencies were able to enter the market for lower skilled cross border labor.

Free movement of people and free trade in labor are good things. And trying to shut down international labor markets doesn't eliminate the economic forces that tend to move human effort to where its valued most, it simply drives it underground, where the lack of transparency means it will tend to take darker forms.

To paraphrase Frederic Bastiat, "When free people don't cross borders, unfree ones will."

I want to express admiration for the Pakistanis protesting for freedom, rule of law, and democracy. It's telling that the dictator Musharraf, citing the dangers of Islamic extremism, has attacked the Supreme Court for trying to enforce the Constitution, lawyers, journalists, rights activists, and everyone else working for freedom. The dictator must go.

United Russia proposes a special status for Putin, that of"National Leader." Unforeseen Contingencies fully endorses this: Der Führer is exactly the right title for him.

Saakashvili should take warni...although the irony is that he's insisting, in the face of opposition, on holding elections as planned.

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12 November 2007 -- after listening the reports of Georgian spetsnaz raiding opposition news media, we at UC now officially add Mikheil Saakashvili to our list of dictators. Moving up the date of elections doesn't help his case.

The unraveling of the Near East and Indian subcontinent illustrates the impotence of misused power. The United States remains the world military and economic hyperpower, but is helpless to stop the unraveling of the situations in Iraq, in Iran, on the Turkish/Kurdish border, and Pakistan. The Bush administration has next to no leverage in any of these situations, having tossed away its soft power and entangled itself in an utterly unnecessary misadventure in Iraq.

• Pakistan: The U.S. is dependent on Musharraf and can neither pressure him nor cut him off from aid. And any continuing support for him simply discredits the United States there.

• Iran: At one point Iran was prepared to negotiate away its nuclear programs. But now Iran has power and influence in Iran and its nuclear facilities are dispersed and hidden.

• Turkey and Kurdistan: The prospects increase of two U.S. allies going to war with each other, in what has been the only real success story in Iraq to date.

• Iran: A hopeless mess.

A detached observer would find the spectacle of a lone hyperpower rendered helpless by its own ill-considered and arrogant actions to be interesting. For those of us who live on earth, it’s also tragic and frightening.

The next time you're chatting with one of the current crop of presidential hopefuls, and she or he starts in on the wonders of her/his health care plan, ask 'em to answer the following questions:

What is:

1. Actuarial fairness?
2. Moral hazard?
3. Adverse selection?
4. Baumol's cost disease?
5. Ultra-superior good (or income elasticity of demand greater than one)?
6. Soft budget constraint?
7. The knowledge problem?

If they can’t answer these, I bet they at least know what bullshit is.

These days it's fashionable for candidates hoping to become the Democratic and Republican nominees for U.S. President to have a health care plan, a grand scheme for overhauling an entire sector of the U.S. economy. They cite all sorts of problems with the current state of affairs, and say that they are in favor of having more and better health care for all, at lower prices. But they rarely if ever say why they believe government can or should be attempting this. I'd have thought that that given the demonstrable failures of central planning, they'd at least feel some small obligation to address this issue at the outset. Why would anyone suppose government is capable of restructuring an industry or a sector and making it run better? Regardless of real and imagined problems with the current system, why won’t government interference make things worse, rather than better? Why won’t the new central plan result in less health care, worse health care, and higher costs? The question is entirely sidestepped, and it is not difficult to see why.

I have been studying Hillary Clinton's "American Choices Health Plan," (ACHP) and intend to do the same with those of the other presidential candidates. The plan of Ms. Clinton (I guess it's OK to call her Hillary, she seems to prefer it) is a nice starting point. Rather than dissect it in its entirety, I'll make just a few observations.

First, the plan is entirely disingenuous: it's built on lies and promises the impossible. For example, point 1 on page 5 insists, in one sentence, that no one will be charged excessive premiums, and also that no one will be charged premiums based on risk factors. In other words, a high risk person and a low risk person will be charged the same premiums for the same coverage. Since Hillary also insists the program will be financially sound, the premiums will have to reflect the average risk factor; hence the low risk person will be charged a premium that is excessive for his level of risk, i.e. actuarially unfair. The ACHP is quite clear that individuals will not pay premiums based on identifiable risk; this is the reason for the pooling. With such pooling, a low risk person gets a bad deal and faces excessive premiums. Given the choice, low risk people would tend to refuse to participate, leaving only the high risk people in the pool. The actuarial unfairness is why the insurance must be mandatory. All the talk about "making individuals take personal responsibility" is simply a lie. It's necessary to prevent adverse selection. (Mitt is the champion at telling this lie; he proclaims it as a "conservative" principle.)

OK, Hillary now has everyone insured, but what about expenditures? Doesn't more "insurance" mean more medical spending? (It's impossible for me to avoid quotation marks here; if a perfectly healthy person and a person diagnosed with cancer walk into an "insurance" office, the "insurer" will be required to sell them the same coverage at the same rates. This is not insurance.) Well, expenditures can be controlled in several ways. First, risks can be lowered by preventive measures such as proper testing and screening, and changing lifestyle (eating, exercise, smoking, etc.) Hillary suggests these will be emphasized under her plan, but as her plan points out these are already available, yet people don’t use them. For them to work, they'll have to be mandatory. This is not stated in the ACHP, but John Edwards has stated it in his plan. The Hillary plan identifies obesity related diseases (hypertension, diabetes, etc.) as the most serious health problems, but obesity is primarily a behavioral issue. There's no discussion of how far mandatory screening and behavior modification will be taken, but if preventive measures are to work at all they must be used, and currently the primary reason they aren't is that people choose to not use them.

Expenses can also be controlled by reducing technological innovation. Hillary proposes a Best Practices Institute with a vaguely defined role in funding medical research and deciding what treatments work best. While she doesn't say so, the only way this can control costs is by limiting innovation, either outright or via control of funding. This well recognized, and it certainly would work. But it also means that less research and lower quality.

Also, expenses can be controlled by reducing the individual's consumption of health care. While Hillary doesn't directly mention this, access to health care will have to be strictly limited. Hillary coverage will not be based on risk factors, will not include deductibles, and will not be based on ability to pay. So what constraints will individuals have to keep them from greatly increasing their consumption of health care? The most likely answer is some sort of rationing scheme, such as Canadian and U.K. style waiting lists.

Finally, Hillary claims that a major source of savings will be a government administered insurance program, allegedly less expensive because of "greater administrative savings" (point 3 page 4). This is simply nonsense; it is well documented that the federal government does not have any advantage over private industry or state and local governments in streamlining administration. Every comparative study I have seen finds that the federal administration is extremely costly and unwieldy, compared to any real world alternative. There are systematic reasons for this: federal agencies face a soft budget constraint, and administrators who fail to exhaust their budgets find their appropriations cut. Raising administrative costs is one of the easiest ways they have of building budgets and power. On the other hand, private firms and state and local government agencies face harder budget constraints; firms, and even some state and local agencies, must make profits. This creates incentives to reduce, not maximize, administrative costs. But profits are highlighted by Hillary as a problem to be combated, not a solution

It’s really a dreadful "plan." It clearly is not supposed to work as presented. If it’s understood, it is the sort of thing that appeals to those who believe on principle that government should direct society, ordering it from top down. It really has nothing else to recommend it.

Unfortunately, it appears that Mitt, Sen. Obama, and Rudy are on similar pages. So far as I can tell, the Obama plan is identical to Hillary's, and Mitt's is quite similar, except for the "conservative" posturing (although Hillary does some of that, too). The best hope is Ron Paul, but he has no more chance of getting the nomination than I do. The Republican Party will never allow him, or anyone like him, to run, because they are at least as wedded to big and growing government as the Democrats. Hence... trouble ahead.

Footnote: All of the plans I've looked at seem largely plagiarised, er, borrowed w/o attribution from, the New America Foundation. The NAF proposal at least addresses adverse selection, moral hazard, and the like, and is upfront about the need to limit technology and new pharmaceuticals. Unlike Hillary, NAF favors lengthening and strengthening patent protection for drugs, since the new tougher standards for getting a drug approved will mean it will be even more costly to develop new drugs. And the NAF plan permits some use of risk factors in pricing, as a means to help enforce behavior modification.

The NAF proposal is a bad one, but at least the authors understand some economics.