Posted by Marc Hodak on July 20, 2009 under Stupid laws | 
One of them is Jim Tedesco
No one can top a New York state legislator in achieving that delicate balance of self righteousness, populist money grubbing, and raw chutzpah:
Rich New Yorkers convicted of crimes would be forced — if [Republican Assemblyman Jim Tedisco’s] bill becomes law — to pay the state and federal governments for how much it costs to keep them in jail.
This is one of those ideas that sounded good when Jim was sitting on the toilet one morning, reading the paper about some illegally thrown bar mitzvah in a downtown prison. “Hmm. The rich have the money. Why do we taxpayers have to pay to house them in prison?” Naturally, he called his brainstorm the “Madoff bill” because everyone’s heard of Madoff who, as far as the law knows, doesn’t have a cent left.
A sliding scale would determine how much convicts would have to pay, based on their assets, under Tedisco’s bill. Those who are worth $200,000 or more would pay the entire tab, while those whose net worth is $40,000 or less would pay nothing.
Once he was done pushing that one out, certain things should have occurred to him:
– When someone is tried and convicted, legal penalties are pronounced at sentencing. You can’t extract extra penalties after sentencing.
– A person can only be sentenced for the crimes they committed. Since this proposed penalty would be based on the person’s assets not already attached under sentencing, which one would think would fully account for ill-gotten gains, then this idea amounts to a penalty for simply being “rich,” which last I checked wasn’t a punishable offense, even in New York.
Fortunately for the entertainment value of this proposal, Tedesco’s economic illiteracy is even greater than his legal illiteracy:
Convicts’ homes “or any equity found in it” would not be counted in determining their assets nor would their mortgage payments, tax bills or payments for child or spousal support, Tedisco said.
I love that “any equity found in it.” So you don’t have to bother looking under sofa cushions and in backs of closets to make sure you don’t miss any of that equity. And not counting mortgage payments, tax bills, or certain other payments as assets is a big help since they…uh, aren’t assets.
Of course, the thing I hate the most about this bill is the economics.
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Posted by Marc Hodak on July 18, 2009 under Futurama, Invisible trade-offs |
to be able to see a great-great-great grandchild.
I don’t know that even the best health care system will get that for me, but I firmly believe that at the current pace of treatment innovation–which is by no means guaranteed–the first immortals are now among us, being pushed around in their strollers.
Posted by Marc Hodak on July 16, 2009 under Executive compensation, Reporting on pay |
Last year, Jamie Dimon and Lloyd Blankfein had a bad, bad year. They took it on the chin, and paid themselves no bonuses. Their JPM and GS colleagues collected little or nothing compared to earlier years, in some cases giving up millions that they might have legitimately earned based on their business units’ good performance in a tough year. In return, GS and JPM got…pilloried with their lesser rivals in the press as paragons of greed.
This year, it looks like GS and JPM are doing much better thank you. They will be increasing their pay accordingly. Members of Congress, once again, are in a tizzy.
“Recently reported bonus pools do suggest that there may be a return to the old ways which caused such damage to our economy. It reinforces our determination to adopt a reasonable set of legislative goals,” [Barney] Frank said.
This first sentence actually contains two false statements. First, the bonus pools don’t suggest anything, other than the fact that these two firms were quite profitable in the first half of 2009. Second, no evidence has ever been offered that JPM or GS did any damage to our economy. Of all the financial institution that were too big to fail, these two were farthest from failing and, in the case of JPM, saved a TBTF bank or two.
By the way, Members of Congress, including those on the finance committees directly overseeing Fanny and Freddie, suffered no diminution in pay in 2008. In fact, Barney Frank is taking in record amounts, including from the financial firms he is supposedly overseeing.
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Posted by Marc Hodak on under Practical definitions |
Congress is fond of setting up oversight committees, and demanding that various agencies provide oversight to much of our economy. They are clearly contemplating definition 1 from Webster’s:
1 a: watchful and responsible care b: regulatory supervision <congressional oversight>
When one sees the actual, as opposed to the theoretical workings of our governments, state and local, it’s impossible not consider definition 2 as more appropriate:
2: an inadvertent omission or error
As the inestimable Henry Stern points out, oversight is one of the few words in the English language that also means its own opposite.
Posted by Marc Hodak on July 14, 2009 under Invisible trade-offs, Reporting on pay |
One of the more persistent fallacies about health care costs is that they make our businesses less competitive. The reasoning goes that our companies must bear health care costs directly, while their European counterparts don’t. If the government took over those health care costs by providing universal coverage, the costs to business would drop correspondingly and, presto, they become more competitive.
As any good economist knows, this reasoning is incomplete. To the extent that health care costs drop for companies, taxes to cover those health care costs now borne by the government will go up. Since those taxes will be paid by workers–mostly the same workers now getting coverage from their companies–the costs of health care will have simply shifted from the companies to the workers. But this would not represent the likely equilibrium.
Companies would have to compensate their workers the same regardless of whether health care coverage was part of the compensation package or not. (This may not be obvious on first blush, but it’s true–trust me.) And since workers are bearing a higher personal cost via their taxes, they would require higher compensation to cover those costs, which they could demand in a competitive market for talent (again, what companies don’t provide in one kind of benefit, they will need to replace with another or with cash). Of course, the people forced to exchange cash for company health care coverage aren’t exactly the same people getting their taxes raised in exchange for government health care coverage, which would create a new kind of equilibrium–this all gets sorted out by the market in its own, unpredictable way.
This view of total company costs being a wash regardless of whether companies or the government are providing the coverage is well accepted by economists of every stripe, from Bush’s former CEA Chairman Gregory Mankiw to Obama’s current CEA Chairwoman Christine Romer (who called this argument “schlocky”).
Yet, the Wall Street Journal publishes an entire article based on this fallacy.
At some businesses, in fact, health care is the highest expense after salaries—with devastating consequences. Owners must skimp on vital investments like marketing and research. Some can’t hire the people they want because top candidates demand premium coverage. Or they end up understaffed because of the high cost of insurance—and lose potential clients as a result.
Clearly this Wall Street Journal writer doesn’t read the Wall Street Journal.
Posted by Marc Hodak on July 7, 2009 under Collectivist instinct |
In a WSJ editorial, Gordon Brown and Nicholas Sarkozy go after people who make significant bets on the future of oil prices. I know that definition applies equally well to oil companies, airlines, bulk shippers, commodity traders, etc., but the dynamic duo are choosing to apply that label only to “speculators” (i.e., those evil traders/hedge funds).
And what is their complaint?
“For two years the price of oil has been dangerously volatile, seemingly defying the accepted rules of economics.”
and
“Those who rely on oil and have no substitutes readily available have been the victims of extreme price fluctuations beyond their control — and apparently beyond reason.”
If we get rid of the adjectives, redundancies, and weasel words, we get:
“For two years the price of oil has been dangerously volatile, seemingly defying the accepted rules of economics as often happens in uncertain economies.”
and
“Those who rely on oil and have no substitutes readily available have been the victims of experienced extreme price fluctuations beyond their control — and apparently beyond reason.”
The difference is that absent the adjectives, redundancies, and weasel words like “seemingly” and “apparently,” the clarion loses its force.
The combination of selective labeling of one group of traders as “speculators” based solely on the type of firm that employs them, and using language to blame natural occurences on conspiracies is typical of the cargo cults from which civilization evolved. Such misuse of language should not be acceptable in civilized societies, except that our comfort has far outstripped our collective ability to understand its true source.
Posted by Marc Hodak on July 5, 2009 under Movie reviews |
Pixar’s secret to their dominance over other movie studios: their films tell a good story. Other studios offer great acting, as does Pixar. Other films have great cinematography and graphics, often good enough to match Pixar’s spectacular animation. But Pixar’s movies have to appeal to the imagination of kids, and they do so by telling imaginative stories.
As with other Pixar films, Up begins with a novel back story (think retired superheroes, as in the Incredibles, or the desolation of Earth via hypercommercialism, as in Wall*E), before getting to the real story. Up begins with 10-year old Carl worshiping an adventurer named Charles Muntz who adorns the silver screen in the film’s alt-1930s. Little Carl then meets little Ellie, who quickly pulls him into her vivacious, adventurer’s fantasy life, and then into an adult life, highlighted by a shared dream of going to Paradise Falls, South America, as well as the more mundane dream of raising a family together. In 15 minutes, we see Carl and Ellie’s whole life which, alas, ends with neither children nor exotic travel.
The real story is how old man Carl decides to escape his retirement home destiny, and belatedly fulfill his promise to Ellie by flying their house to Paradise Falls using thousands of balloons. Carl is unexpectedly joined by the young, fabulously obese Wilderness Explorer, Russell. (There is nothing functional about Russell’s obesity in this story, which makes the device curious given Pixar’s target audience and PC morality.) At first blush, Russell echoes the youthful explorer spirit possessed by Carl about six decades years earlier, now rekindled. But Russell’s story turns out to a bit different.
Warning: Spoilers under the fold.
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Posted by Marc Hodak on July 3, 2009 under Economics, Invisible trade-offs |
And does a great job of it. He leads with a great punch:
– “The American people overwhelmingly favor reform.”
If you ask whether people would be happier if somebody else paid their medical bills, they generally say yes. But surveys on consumers’ satisfaction with their quality of care show overwhelming support for the continuation of the present arrangement. The best proof of this is the belated recognition by the proponents of health-care reform that they need to promise people that they can keep what they have now.
My own summary: I’m amazed at the number of otherwise intelligent people who favor reform on the theory that we can’t individually afford the skyrocketing costs of health care, but that we can afford it collectively, and that by increasing the degree to which I’m paying for your health care and you’re paying for mine, we’ll bring those overall costs under control.
Posted by Marc Hodak on July 2, 2009 under Executive compensation |
Here is a sample of what it looks like they are considering:
– A written description of risks posed by their compensation policies
– Disclosure of potential conflicts in compensation consulting
– Disclosure of the market value of stock options at the time they are granted, instead of over the time period over which they are vested
I will be preparing my comments to SEC request 34-60218 over the next couple of weeks, but my preliminary comments:
– A discussion of the risks posed by compensation policies sounds good, but this is new territory for everyone who hasn’t thought systematically about this. I’m afraid that the people requesting this have no idea what to look for, and the directors charged with providing such disclosure will have no idea what to say.
– Disclosure of compensation consulting conflicts is also a good idea, but it should not be in the form of simply disclosing what is paid to the consultants, as the unions and their congressmen are asking. What does $$$ paid tell investors? Too low? Too high? Too biased? If this is really about conflicts rather than just how much I get paid to advise companies, you can get a much better idea by having companies disclose the fees earned by a given consultant for providing compensation advice as a percentage of overall fees for providing consulting services to the company. It could just be a range, too, like > 50%, >100%, >1000%, or Towers Watson.
– The only beneficiaries to the proposed rule change for the way options are disclosed would be the press and union activists that are primarily behind this proposal. The press would get a bigger number to report in the “total” columns. (This figure is already being reported in another table; but someone is apparently too lazy to toggle down a few pages it. Yeah it’s a big, hairy disclosure, but don’t blame me.) This bigger number would make even less sense than the big number they get to report now. If we’re not going to go with an economic measure of granted equity value in the total column (which the current disclosure rules don’t allow), we should just let the companies disclose enough for people who know how to use calculators to figure it out themselves, using whatever methodology they can sell to the only people to whom this really should matter–the investors.
Posted by Marc Hodak on July 1, 2009 under Collectivist instinct, Regulation without regulators |
In this case, though, I appear to be in good company:
The standard competitive market model just doesn’t work for health care: adverse selection and moral hazard are so central to the enterprise that nobody, nobody expects free-market principles to be enough.
Whenever I see such nonsense, I have to keep reminding myself that the trade theories for which Krugman won his Nobel Prize were explanatory and predictive. Krugman did not win a prize for mechanism design; he could not have predicted E-bay.
The idea of people bidding for stuff they can’t really see from people that they’ve never met is fraught with asymmetrical information. Honest sellers could not hope to compete with liars selling competitive products. Honest bidders could not hope to compete with fraudulent bids that may not be honored. Such a market, failing as it does the test of a “standard competitive market model” could never exist.
Except that it does.
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