Friday, February 5, 2016

Flint, Michigan: An Example of Why Public Ownership of Water Is Dead in the Water

Back in 2014, the city of Flint, Michigan changed the source of its water from the treated Detroit Water and Sewage Department to the Flint River. Complications in switching water sources led to lead contamination and quite possibly the cause of an outbreak of Legionnaire's disease. On January 5, 2016, the Governor of Michigan declared a state of emergency, which eventually resulted in the involvement of FEMA and the Department of Homeland Security.

There is plenty of blame that could go around because the debacle is so convoluted. The City of Detroit was charging Flint with exorbitant water prices, which encouraged Flint to look for alternative sources of water. The City of Flint could be blamed for running their finances into the ground by spending too much its budget on pensions. Even as a cash-strapped city, it would have cost as little as $50,000 to add phosphorus into the water in order to avoid the lead contamination. Also, Flint government officials were informed ten months before everyone else found out, and they had clean water shipped to them during that all that time. In April 2015, even the EPA knew that there was more than a distinct possibility that switching over to the Flint River could cause pipe corrosion, thereby increasing exposure to lead. Yes, the better part of an entire year....the amount of time that government sat on the problem and did nothing while people were being exposed to contaminants! As Keith Creigh, who was the acting Director of the Michigan Department of Environmental Quality, put it, "In retrospect, all levels of government should have done more."

Regardless of where you would like to shift the blame, this was a government failure, plain and simple. This was a utility owned and operated by the government. Local government actors caused the events in motion, and the regulators neglected it until it was too late to stop it. A similar thing happened when the EPA polluted the Animas River this past summer by spilling 3 million tons of mine water waste into the river. Was the EPA held accountable for its actions? Was it even fined? Nope! This is one of the issues of providing government with the power over something as vital as water: when the government screws up, it is nigh impossible to hold the government for its actions.

If this were a private company that distributed thousands of bottles of tainted water, a litigious people would have sued the company into bankruptcy. The fact that the government gets a free pass when it blatantly endangers the environment and health of people within range is unacceptable. Especially with sovereign immunity, there is a lack of tort liability, which creates moral hazard. When you turn water into a "right" and de facto price the good at little to no cost, much like with public water utilities, it leads to overconsumption. I have discussed this with California's water situation and how government policy led to water shortage issues. Not only does turing water into a public good deplete such an important resource, but it also has adverse effects on ecosystems.

At the very least, such a fiasco should make us consider policy alternatives as to dealing with government ownership of water. One option could be to have some tort reform so that the government could actually be held accountable. Another option is to raise the state cap on private activity bonds, which would mitigate a lot of the equity issues. I am a fan of privatizing the water system in some form, either through strict privatization or through some sort of public-private partnership (PPP). Even realizing that privatization of water has its pros and cons, I personally don't have a prima facie issue with privatization, yet I know some do. I love the irony of privatization opponents such as Public Citizen trying to scare people by saying that privatization will undermine water quality, that there would be no accountability, or corruption would be rampant, yet these were the exact things that have plagued the Flint water crisis. Going back to financial issues, let's keep in mind that municipalities consider PPPs precisely because of the private sector's ability to better finance such projects.

I have generally found that when privatization is compared with government ownership, the former wins the day, much like my blog has attested over the years. I don't see why the fact that water is a necessity for survival should impede privatization. For one, food is also a necessary provision to ensure one's survival, yet you don't see people clamoring to turn food into a public good. Another fun fact is that 75 million Americans, or about a quarter of the nation's population, currently receive its water from a private source. Plus, private companies would be beholden to local and federal regulations for water treatment.

Since water privatization tends to result in public-private partnerships, I'm not shocked that there are mixed results. With something as important as water, I was surprised to find a lack of studies on the topic, but again, we deal with mixed results because of both the implementation and the type of public-private combination used for implementation. Some municipalities revert back to public ownership because it didn't work for them. On the other hand, it worked out in such countries as the United Kingdom, Colombia, and Senegal.

While water falls freely from the sky, it still needs to be collected, managed, process, and supplied through an expansive and expensive infrastructure of reservoirs and pipes, all of which cost considerable money. That is why water prices are going to increase relative to the current artificially low prices. Thinking that we can continue to provide water at little to no cost is going to rapidly deplete the most important resource we have. As of 2011, only 980 million people, or about 14 percent of the world population, had water provided privately. About 86 percent of water provided by the public sector, and yet 1.1 billion people still lack consistent access to fresh water. Considering the water shortages around the world, privatization has to be part of the discussion if we want any chance of conserving water in the long-run.

Monday, February 1, 2016

Why Women Can and Should Recite the Mourner's Kaddish

Not quite two weeks ago, British Chief Rabbi Ephraim Mirvis made a semi-shocking announcement: women should be allowed to say the Mourner's Kaddish (קדיש יתום). While I will be going into further detail momentarily, the Mourner's Kaddish is an Aramaic prayer recited at all prayer services (usually at the end) for those mourning the loss of a loved one. Traditionally speaking, one is generally obligated to say the Mourner's Kaddish for one's parents, spouse, children, and siblings. Another tradition surrounding the Mourner's Kaddish is that it is only recited by men. In popular culture, this is illustrated by the film Yentl, in which Barbara Streisand plays the protagonist of Yentl. When the character's father unexpectedly dies and everyone is at the funeral, they are trying to figure out who should recite the Mourner's Kaddish because Streisand's character was the only surviving close relative of the father. In great defiance to the establishment and to the horror of those around her, she grabs the prayer book and starts reciting the Mourner's Kaddish. While this movie does portray the role of the woman in European, Jewish life at the turn of the twentieth century, whether women can recite the Mourner's Kaddish is still problematic for many Orthodox communities. Even with such organizations such as the Jewish Orthodox Feminist Alliance (JOFA) that support women saying the Mourner's Kaddish, there are only a select number of Orthodox synagogues that allow for it.

The first question I would like to answer is whether a woman can be allowed to say the Mourner's Kaddish under the Jewish legal system (halacha). The first mentioning of the Kaddish in connection with mourning is an eighth-century text called the Masechet Sofrim (19:9). The oldest version of the Kaddish text is found in the siddur (prayer book) of R. Amram Gaon, circa 900 C.E. Interestingly enough, early medieval writers, including the illustrious Rambam (Maimonides), never mention the practice of reciting Kaddish. The fact that Rambam never mentioned it implies that the practice of reciting Kaddish is not a Biblically mandated (d'oraita) practice. The practice seems to have formally taken hold as a custom in thirteenth-century Germany. The fact that the practice of Kaddish takes on the status of minhag (custom) already gives us more leeway to permit a woman reciting the Kaddish.

The first responsum that deals with the topic of women reciting the Mourner's Kaddish, and the one that has most prominence, is that of R. Yair Chaim Bachrach in his work Chavot Ya'ir. In this work (#222), he brings up two primary reasons why a woman could be allowed to say the Mourner's Kaddish: 1) It would be a sanctification of G-d's name (Kiddush Hashem); 2) there is a bona fide quorum of ten present (minyan), so there is no fear of counting women in the minyan. R. Bachrach's ultimate reason for opposition is not halachic in nature, but was because that it would weaken Jewish customs as a whole, and that it would allow for people to subjectively create their own customs, which unto itself is a subjective reason that has different applicability for each community.

There are secondary reasons brought up for its prohibition. R. Shimon Frankfurter believed that "a woman's voice is lewdness." I already covered the topic of a woman's voice (קול אישה), and I can tell you that given the context of the Mourner's Kaddish, any concerns surrounding lewdness or licentiousness are totally unfounded because if one is sexually aroused or triggered by a woman's grieving, I can safely assert that the female mourner is not the one with the issue. R. Frankfurter also believe that it would violate the idea of kavod tzibur (congregational/public dignity), but even that concept is limited to reading from the Torah. Even with some of these concerns, we have to keep in mind that great rabbinic minds such as R. Moshe Feinstein, R. Yosef Eliyahu Henkin, R. Yosef Soltoveitchik, R. Yosef Dov Soltoveitchik all permitted such a practice.

I want to come back to this topic of halachic permissibility more in a bit, but I want to touch upon some other questions: Why does one say the Mourner's Kaddish? What is it the function of the Mourner's Kaddish? Part of the recitation of the Mourner's Kaddish is supposed to be for the departed. In normative, traditional Jewish eschatology, the departed soul spends 11 months purifying itself in the netherworld (גהנום) before formally entering the afterlife (העולם הבא), which is why the tradition is that a child (or other closest relative) is supposed say the Mourner's Kaddish for the full 11 months: to help ensure that the purification process goes smoothly. It doesn't take place for the full 12 months because under this eschatology, it would imply that the individual were a particularly wicked human being.

Jewish views on the afterlife, however, are not so universal, and not everyone might necessarily hold that belief of what the soul goes through within the first year of departing from this world. Regardless of your views of what happens in the afterlife, there is another party that decidedly benefits from reciting the Mourner's Kaddish, and that is the mourner. How does it help the mourner?

A bit about the Kaddish itself. Aside from the text being in Aramaic, which was at one point a lingua franca of the Jewish people, the text also does not make a single mentioning of death, bereavement, the departed, or the mourner. The text is about G-d's name and sanctifying G-d. This is important when mourning because it could all too easily result in anger, resentment, or frustration with G-d. Rather than losing faith in G-d, the Kaddish is there to reaffirm our faith in G-d and committing oneself to Torah and mitzvahs, thereby sanctifying His name. Sanctifying G-d's name, which is known as קדוש השם, is actually a mitzvah. Not only is it a mitzvah, but it is a mitzvah that is incumbent upon both men and women at all times, which also supersedes the idea mitzvot aseh shehazman grama (women being exempt from time-bound mitzvot) because sanctifying G-d's name is not a time-bound mitzvah. Since the Mourner's Kaddish is a manifestation of sanctifying G-d's name, there is no valid reason that women should be prevented from performing this mitzvah. If anything, preventing a woman from saying Kaddish would be a violation of the commandment of לפני עבר, which is the Levitical commandment of not putting a stumbling block before the blind (Lev. 19:17), but also understood as a prohibition of against others from committing violations of the Torah. Essentially, not allowing women to say Kaddish is a violation of the Torah.

In addition to sanctifying G-d's name, the mourner is also honoring the memory of the departed individual. When looking at it from the eschatological point of גהנום, it is a declaration that you believe that the departed one's sins will be forgiven. It also shows that you respect the individual enough that you are willing to honor the individual's memory, even postmortem. For this reason, I would argue that while not obligatory, one would still be able to recite Kaddish for a grandparent, close friendsHolocaust victims, or even non-Jews. Being able to honor the departed is a way to help grieve. A way to help grieve in a traditionally Jewish context to help one realize what really matters is something both men and women should be allowed to do. Women should not be deprived of that ritual because of baseless slipper slope arguments.  Instead of providing a disdain or disintegration of Jewish customs, allowing women to partake in the recitation of the Kaddish is a reaffirmation of the importance of Jewish traditions. The Kaddish exists to show respect for loved ones. Instead of preventing women from performing a mitzvah that honors the departed and helps with the grieving process, I hope for a day where Orthodox communities everywhere allow for women to partake in this important sanctification of G-d's name.

Monday, January 25, 2016

Bernie Sanders' Medicare For All And Why Single-Payer Generally Doesn't Work So Well

Right before the Democratic presidential debate, Bernie Sanders released his latest bombshell of a policy alternative: Medicare for All, which is Sanders' plan for single-payer health care. Sanders' federally administered universal single-payer health care plan would abolish private health insurance and would "cover the entire continuum of health care from inpatient to outpatient care; preventative to emergency care." Sanders' plan would supposedly do away with copays and deductibles. This plan, according to Sanders, would integrate the system that would contain costs, thereby being able to "avoid provider shortages" and "negotiate fair prices for the American people collectively." In spite of the name, this plan hardly resembles Medicare since Medicare requires cost-sharing and premiums, not to mention that Medicare is nowhere near as comprehensive or generous as what Sanders is promising. It sounds lofty to provide the American people with comprehensive, affordable health care with very little obstacles. However, taking a look at the plan, one has to ask whether Sanders' plan would work in America or even be a good idea.

Let's talk about political feasibility first. Sanders attributes political infeasibility to the health insurance companies since it's in their self-interest not to have a single-payer health care system. While insurance companies would lose out under a single-payer program, Sanders is conveniently forgetting about some other obstacles. A majority of Americans historically have not been in support of a single-payer system. Although there has been some wavering on whether the government should be responsible for providing healthcare, more Americans have been against government intervention in healthcare since Obamacare's main provisions took into effect in 2014 (Gallup). It won't just be the loss of freedom that annoys Americans, but the increased tax rates under Sanders' plan (more on that momentarily). Also, most people like their current plan. Sanders' proposal is that you can't keep your current plan because he is going to replace it with a single-payer system. Even Obama realized that such upheaval was a bad idea. It's why he had to keep promising that one could keep their plan under Obamacare, even though that ended up being a lie. Threatening to disrupt that contentment is not going to make voters happy. An even bigger obstacle is that the Republicans will most probably either have one or both chambers of Congress after the November election. Even when the Democrats controlled both chambers back in 2010, they were unable to pass the public option. Also consider that Bernie's home state of Vermont, which is the one of the most liberal states in the Union, could not pass single-payer health care because it was unaffordable. What makes Sanders think that he could possibly pass such a bill with Republican control of Congress?

But let's assume that Sanders had the votes to pass such legislation. While it is commendable to see Sanders put out actual numbers, the numbers he presents should give us great reason to pause. Health care spending reached $3.0T in 2014. Sanders' plan promises to only cost $1.38T in addition to current health care costs. A 54 percent price differential from the status quo seems too good to be true, so let's see how he plans on paying for the plan, and then I can go item-by-item as to the feasibility of each figure:
  • 6.2 percent income tax on the employer: $630 billion
    • Sanders is disingenuous if he is passing this off as a tax on the employer. With the employer-sponsored tax exemption, the amount that the employer pays into that translates into lower wages for the employee. Although the employer and employee pay roughly the same for the payroll tax, guess where the brunt of the incidence falls? On the employee in the form of lower wages. Commentators have already picked up on this idea, and there is no reason to believe that Sanders' so-called "tax on the employer" would be any different. Regardless of tax incidence rate, saying that there would be a new 8.4 percent payroll tax would in net terms (the current 15.3 percent FICA tax, and removing current Medicare still only accounts for 2.45 percent, which still translates into a net increase of 5.5 percent, i.e., 8.4-2.45=5.5) that creates a net total of a 5.95 percent FICA increase doesn't have as good of a ring to it. 
  • 2.2 percent flat income tax on households: $210 billion
    • Sanders' tax exemption would still have a family of four making $50K a year only pay $466 (if said family is making $40,000 a year, it's still a 1.16 percent tax). If you are a family of four making beyond that, well, you're paying the full tax on your income. In 2014, the median household income in this country was $53.6K. For someone who is campaigning to help the "shrinking middle class" and said only a month ago he would only raise taxes for the middle class for paternity leave, it seems odd that he would now be open to increasing taxes for the middle class.  
  • Increasingly progressive income tax with marginal rates at 43.9 percent for those making at least $500K, and 52 percent for those making at least $10M: $110 billion
    • This tax hike would affect not quite 5 percent of the population. While it might sound nice to "stick it to the rich," the benefits of marginal income tax hikes are overstated. Historically, tax revenue as a percent of GDP has hovered between 14 and 20 percent since the end of WWII [mostly between 15 and 18 percent], regardless of what the marginal income tax rate has been. High income taxpayers are more responsive to marginal tax rates (Gruber and Saez, 2000), and a drop in the marginal tax rate would have a positive effect on the GDP (Mertens, 2013). The Brookings Institution also published a report last year saying that increasing marginal income taxes to 50 percent would have a negligible effect on income inequality, which has indirect effects on the health care market. This all gives me reason to doubt that Sanders' marginal income tax-based estimations are high. 
  • Taxing capital gains and dividends the same as income from work: $92 billion
    • This is effectively supposed to increase the top rate on investment income from 23.8 to 54.4 percent. However, taxing capital gains in this country is not the same as taxing income from work because capital gains and dividends are double-taxed in this country. First, 35 percent of one's profits are hit by the corporate tax. Then, Bernie would take 54.4 percent of the remaining 65 percent, which would only leave 35 percent. Going from taxing 50 percent of investment income to 65 percent is a bit much, even for liberal economists like Peter Diamond and Emanuel Saez, who think the peak of the Laffer Curve is effectively at 54 percent. I would go as far as to say that lower capital gains tax rates are better because such a high tax rate would greatly disincentivize investment (see here, here, here, and here). 
  • Limit tax deductions for the rich: $15 billion
    • Sanders does not state which tax deductions will be limited, so I cannot comment further on the efficacy. Even if Sanders could actually deliver on these tax deductions, it would still account for a little over 1 percent of the overall revenue for this proposal.
  • Responsible Estate Tax: $21 billion
    • Sanders makes this sound nice with having something "responsible," but I don't know how responsible it is to not thinking something through. In 2014, the revenue collected on the estate tax was $19.3B. The estate has an exemption of $5.34M and a 40 percent top rate. In order to reach this goal, Sanders would have to more than double current revenues. Sanders could either lower the exemptions, raise the estate tax rates, or a combination thereof. Estate taxes are already unpopular, not to mention that the Republicans tried repealing the estate tax last year (see more about that in my analysis on the estate tax). Sanders provides no plausible way of doubling estate tax revenue to fund "Medicare for All."   
  • Projected savings on health care expenditures: $310 billion
    • Sanders' argument is that because there is a single payer, it is more efficient than having multiple insurance companies, which cuts down on the costs. Under these figures, Sanders predicts that his plan would cost $6.9T less for the American people than the status quo, which is hardly a ringing endorsement for Obamacare. I am not skeptical of Sanders simply because our president already promised us lower healthcare costs, and all the American people received was higher health care costs.  
    • Intuitively speaking, Sanders is promising much more health care coverage than what even Obamacare is covering. Even with no cost-sharing requirements and the elimination of the $150B employer-sponsored health insurance tax deduction, people will no longer have a reason to question the price of their health care. If anything, health care costs are going to skyrocket. 
    • Larry Levitt at the Kaiser Family Foundation thinks that Sanders being able to save $6T over ten years is an unrealistic form of aggressive cost containment. We also have evidence showing that single-payer actually drives up costs, mostly due to waste: 
      • Ezra Klein recently mentioned the Rand Corporation's Health Insurance Experiment (HIE). Although conducted from 1971 to 1986, it is still the largest and most comprehensive study on U.S. health policy to date. The purpose of the study was to find out two factors regarding health care financing: 1) whether people consumed more health care when it was free, and 2) whether it caused a change in one's health. Not only was there a negligible difference in health quality, but less services were used, which also led to less health care expenditures. In this Experiment, 34 percent of spending under the free health care system was waste, whereas it was only 4 percent under the cost-sharing system. 
    • His cost containment figures are specious at best. Sanders assumes that the slowdown in health care costs of 3.6 percent is going to continue, when in fact, actuaries over at the the Center for Medicare and Medicaid Service show that health care inflation is going to pick up once more, which is to say that his estimation here is rosy. 
    • Sanders also fails to take in account another factor in terms of cost savings. In the United States, there is a significant amount of health care spending done at the state and local levels. Sanders' plan assumes that all of health care spending is done at the federal level, which means Medicare for All would also be replacing state-level spending. Essentially, Sanders fails to take in account the state-level spending into his figures. As Avik Roy of the Manhattan Institute points out, once Bernie's plan accounts for state-level spending, Sanders' plan does not save us $6T, but rather, it ends up costing an extra $28T over the next decade! What that means for Sanders' tax numbers for this plan is that he would either increase them more in hopes to acquire more tax revenue or run up a whole lot of debt to make it work. 
    • In his proposal, Sanders leaves out deadweight loss. Deadweight loss is the "loss of economic wellbeing imposed by a tax." This loss occurs because the price differential induced by taxes causes a good or service to be less attractive to consumer. Whether or not Sanders likes it, the economic reality is that higher taxation creates less incentive to consume. The fact that Sanders does not remotely address deadweight loss renders the proposal to be, at the very least, incomplete.  
I have taken a good look at the particulars of Sanders' "Medicare for All," and they don't work. Perhaps we need better figures. Perhaps seeing if there are any success stories of single-payer health care would help the case of proponents. I took a look at the single-payer system about three years ago, but it was more from the lens of economic theory. This time, I would like to take a look at three large countries that use a single-payer system: Canada, the United Kingdom, and Taiwan. Before continuing, let me differentiate between universal health care and single-payer. Single-payer is a form of universal health care that refers to the the funding mechanism, i.e., health care is financed by a single [public] fund. Single-payer says nothing about how the health care is delivered or for whom the doctors work. There are other types of universal health care, such as the two-tier system and mandated insurance. The countries I selected fall under the definition of single-payer. The countries I selected are also on the larger end, which is important considering the diseconomies of scale that take place with larger countries. By getting a better sense of how single-payer is implemented in other countries, we can see whether the argument for single-payer health care has merit or if it's mere speculation.

Canada
Canada is one of the most infamous cases of single-payer health because of notoriety. Even with the rise in the rate of doctors in Canada, it has not done anything to mitigate Canada's waiting times, which are horrific. According to a 2015 report from the Canadian think tank Fraser Institute on Canadian waiting, waiting times in Canada for a general practitioner is 8.5 weeks, which is 130 percent longer than it was in 1993. A consultation with a specialist takes 9.8 weeks on average. These long waiting periods have created a backlog of 894,449 procedures. This has cost the average waiting person $1,289, or the entire Canadian health care system $1.2B per annum. These waiting times also affect the mortality rate by causing an estimated 44 thousand female deaths between 1993 and 2009 (Barrua et al., 2014). This could explain why in 2014, 52,000 Canadians received non-emergency treatment abroad. The province of Ontario, which accounts for nearly 40 percent of the Canadian population, is dealing with an acute case of hospital cuts.

Single-payer systems use the immense bargaining power to lower prices for health care services. Artificially pushing health care costs below the equilibrium point, i.e., what the prices would be in a competitive market without government interference, creates fiscal solvency issues in the long-run. The World Health Organization has estimated health care expenditures for each country, and Canada comes out at 10.9 percent of GDP. Granted, this is better than the USA's 17.1 percent. However, Canadians pay still pay a substantial amount because many health care expenditures are not earmarked as such, which makes them all the more difficult to track and compare. According to Canadian government statistics, total expenditure has increased in real dollars, and health care expenditures as a percent of GDP have increased by 3 percentage points since the implementation of single-payer in Canada. So much for cost containment!

Single-payer uses bargaining power to lower the prices not just for doctors, but for those doing research and development in pharmaceuticals and medical devices As such, a single-payer system provides little incentive to invest in new medical technology. Canada's investment in pharmaceutical research has dropped 35.8 percent between 2004 and 2013. Even the Canadian government concedes that the United States has a 36.3 percent market share in the medical devices market that is disproportionate to its overall representation in the world economy of 23 percent (see IMF data here).

Taiwan
The Brookings Institution published a policy brief (Cheng, 2015) highlighting some of the major metrics to determine health care success. In Taiwan's favor are healthcare costs as a percent of GDP (only 5.4 percent), high public satisfaction, near-universal coverage (99.6 percent coverage), and short waiting lines. To be fair, those short waiting times seem to exist because Taiwan's average consultation time is lower than average. Even looking at Taiwan's budget numbers, it had been running deficits up until a few years ago, all of which have been paid off (p. 31). Cheng, however, did point out some disadvantages. One is that Taiwan's population is rapidly aging. All developed nations are dealing with a rapidly aging population, but it's more pronounced for a single-payer system because the system relies on tax revenues. Much like with Social Security, if we reach the point where there are more beneficiaries and less taxpayers, the accounting is not in favor of long-term solvency. Aging population won't just put pressure on revenues, but also on doctors. Taiwan already has a doctor and nurse shortage. Taiwan has 1.7 doctors and 5.7 nurses per 1,000 people, while the OECD average is 3.3 doctors and 8.6 nurses.

Another is that by the the admission of the Ministry of Health and Welfare, the agency that runs that National Health Insurance Administration (NHI), Taiwan does not provide high-quality care. Taiwan is one of the Four Asian Tigers, so it's not as if it's some dysfunctional, developing country that is incapable of providing high-quality health care. The lack of quality is predictable because lower prices provide less incentive for quality or even research and development.

PriceWaterhouseCooper (PWC) published an interesting report on Taiwan's healthcare system last year. There are worries that low prices are delaying development in the development of pharmaceuticals and medical devices. Taiwan already has to import the high-quality medical devices because it only produces lower-quality devices. Related to the idea of quality is that the number of hospitals has been decreasing in Taiwan, while the number of clinics has been increasing.

United Kingdom
Great Britain has the National Health Service (NHS) that directly funds health care through tax revenue. What's more is that most of health care practitioners in the United Kingdom are government employees, which is a facet that turns single-payer into a bona fide system of socialized medicine. The King's Fund Quarterly Monitoring Report sheds some light on the problems that the NHS presently faces. The waiting list size is 3.5 million people, which is about five percent of the overall population. 64.4 percent of provider organizations are recording deficits at year end. Professor John Appleby, the chief economist of the King's Fund, stated last year that "the next government will inherit a health service that has run out of money and is operating at the very edge of its limits."As the King's Fund brought up in its Budget Brief last July, the NHS is facing real financial challenges.

Quality also suffers as a result of single-payer. In the United Kingdom, cancer survival rates are much lower than those in the United States. The same issues of quality can be said for strokes. For those who were worried about "death panels" in the United States, it is a reality under the British health care system. The National Institute on Clinical Effectiveness (NICE) is the entity that rations health care by declaring what services are too expensive. When drug prices hit around the £30,000 mark (around $44.5K), the government won't pay any further. Effectively, the puts a price tag on the life of each citizen at £30,000.

Postscript
The effects of single-payer health care are not just sound economic theory. In practice, single-payer health care results in creating considerable barriers to access health care, reduces quality of health care, disincentivizes health care innovation, and does nothing to contain health care costs. With the rapidly aging populations of the countries in the developed world, the problems with single-payer and its ability to be solvent in the long-run will be more pronounced with time.

To think this is what Sanders wants for the American people: Medicare for All. With how single-payer systems perform, why should we destine ourselves to such mediocrity? The fact that Sanders wants Medicare for All says lot, considering how Medicare presently performs. In 2014, Medicare made $60B in improper payments. Medicare has been labeled "high risk" by the Government Accountability Office (GAO) since 1990. When Sarah Kliff over at the Left-leaning Vox, who is by no means a free-market advocate, says that Medicare is not great to begin with, it should make us wonder why we should entrust the government with providing "Medicare for All" when the federal government cannot even handle what it manages now.

Sweden recently switched from single-payer to a system with private insurers, and Switzerland rejected single-payer last year via a referendum. It is possible to provide universal healthcare coverage and keep the healthcare market relatively free, much like we see in Switzerland and Singapore. Just because I do not like single-payer system doesn't mean that I am going to defend the American health care system as the best system of health care. There is plenty to criticize regarding the American health care system, including employer-sponsored health insurance, including insurance mandates under Obamacare, and FDA regulations over research and development for pharmaceuticals. Government regulations have made it difficult for the health care industry to innovate. As the Manhattan Institute elucidates in its recent report on health care reform, government intervention in health care has made it impossible to use the digital revolution to innovate health care, an "Uber for healthcare" of sorts. Multi-payer health care systems that have a semblance of a liberalized health care system work best. I hope that as voters head to the voting booth for the presidential primaries, they can see Sanders' single-payer plan for what it is: a snake oil cure completely divorced from reality.


1-31-2016 Addendum #1: Emory University health care expert Kenneth Thorpe, who was the same expert who created the plan for the failed single-payer plan in Vermont, released a study on Sanders' plan. Unsurprisingly, this study found that Sanders' plan would cost the American people twice the amount that Sanders had estimated.

1-31-2016 Addendum #2: The Tax Foundation released their analysis of Sanders' tax plan, of which the taxes for the single-payer plan play a major role. When looking at Sanders' tax plan as a whole, it is projected to shrink the size of the United States economy by 9.6 percent over the next decade.

2-4-2016 Addendum: The bipartisan Committee for a Responsible Federal Budget (CRFB) released their analysis on Sanders' plan. Even assuming that Sanders' cost-savings are accurate, the CRFB calculates a shortfall of $3T over the next decade, which would translate into an additional 13 points to the debt-to-GDP ratio. However, if Thorpe's calculations are accurate (see first 1-31-2016 addendum), then the extra $14T that Thorpe estimates will increase the debt-to-GDP ratio to about 150 percent.

Friday, January 22, 2016

Pirke Avot 3:12: Actions Are More Powerful Than Words....And Wisdom

Talk is cheap......well, not quite. I find that talk is cheap when it isn't backed up by anything. Anyone can run their mouth. You know the type: the one who keeps talking for the sake of talking and appearing intelligent, even though the substance is non-existent. Referring to these types of people, former British Prime Minister Benjamin Disraeli once said that "It is better to remain silent and have people say, 'I wonder what he's thinking,' than to speak up and have people say, 'I wonder why he spoke." Take that idea up a step: you come across a seemingly wise person who actually has some interesting things to say. However, those things don't manifest into anything practical or concrete. Words as a mere abstraction, with no practical meaning, can be a scary thought. As much I love intellectualism or profound conversation, wisdom seems like a waste when there aren't practical implications. Someone who doesn't translate that wisdom or intelligence into action is not as bright as they would seem at first glance, as a passage from Pirke Avot (Ethics of the Fathers) points out:

כל שמעשיו מרבין מחכמתו, חכמתו מתקימת. וכל שחכמתו מרבה ממעשיו, אין חכמתו מתקימת.
Anyone whose good deeds exceed his wisdom, his wisdom will endure; but anyone whose wisdom exceeds his good deeds, his wisdom will not endure. -Pirke Avot 3:12

Jewish tradition teaches that Torah study is as important as all the other mitzvahs (Mishnah Peah 1:1). It makes sense why Torah study ranks so highly. You have to know the do's and don'ts, what makes for right and wrong before you can actually do it. Wisdom has to precede action since it is not endowed, i.e., it has to be learned. However, wisdom doesn't end in an academic setting. Good deeds are applied wisdom. Rashi interprets the word as מתקימת "of everlasting value," i.e., the result of one's good deeds and charity are of everlasting value. When one's performance of mitzvahs is greater than his wisdom, his desire for more wisdom will increase, which will challenge the individual to increase wisdom (R. Yonah). The inverse is also true: an individual with greater wisdom than action will sit on his laurels of knowing more wisdom, won't acquire more wisdom, and the wisdom will fade. If the wisdom were true in the first place, the supposed wise individual would not have let such erosion take place in the first place.

That is why the truly wise individual is aware that actions need to supersede wisdom. The mitzvah of tefillin teaches us this lesson quite well. When we put on tefillin, the arm tefillin are put on first, and then the head tefillin. When taking off the tefillin, the head tefillin come off first. Never is there a moment in which the head tefillin is on while the arm tefillin is off. That halacha is to teach us an important lesson: Wisdom, which is represented by the head tefillin, is only useful when there is action, which is represented by the arm tefillin (Artscroll). Wisdom is only true wisdom when the wisdom is translated into action. One who studies Torah and does not fulfill it is like one who plants crops, but does not harvest them (Rashi). Yes, let's study Torah because it is the Jewish way of understanding G-d. But let's treat Torah like a Tree of Life (עץ חיים) and actually live Torah to actualize G-dliness. Much like a tree, let our actions and wisdom continue the symbiotic interplay that will ultimately branch out the joys of Torah.

Tuesday, January 19, 2016

Would the Supreme Court Quashing Compulsory Union Dues Be Doing Us a Favor?

Last week, the Supreme Court heard oral arguments for the case of Friedrichs v. California Teachers Association. The case is focused on the practice of agency fees, or what is also known as fair-share fees. This case goes back to Abood v. Detroit Board of Education (1977), which ruled that a teacher's union could extract fees from a nonmember for ostensibly less political activities such as "collective bargaining, grievance adjudication, and contract administration." That Supreme Court ruling, however, is being challenged. Rebecca Fredrichs, the plaintiff, filed the case because she led an effort to save teachers' jobs by pushing for pay cuts when the school budgets were tight. Instead of adjusting salaries so more teachers could stay on, the unions held to their highly entrenched seniority system and let many teachers go. As a result, Friedrichs is arguing that all public-sector unions are inherently political, and thusly a violation of the First Amendment. Based on oral arguments last week, it's not looking good for public sector unions.

Back in the Abood case, Justice Lewis Powell warned that public-sector collective bargaining is inherently political since when done in the public-sector [and thus more problematic than with private-sector unionism], it extends "to such matters of public policy as the educational philosophy that will inform the high school curriculum....[even with issues such as wages, hours, vacations, and pensions], decisions on such issues will have a direct impact on the level of public services, priorities within state and municipal budgets, creation of bonded indebtedness, and tax rates." Franklin D. Roosevelt also realized that public-sector collective bargaining would be problematic because it pits the unions against the taxpayer. Especially given that one of the characteristics of money is its fungibility, the argument that such fees amount to political speech is all the more pronounced. However, the Union is arguing that compulsory dues are supposed to solve the "free rider" problem. The case points to a greater rigidity of unions, which is that of exclusive representation. If unions can no longer require these "fair-share fees," then the idea of exclusive representation is challenged. Not only that, this represents a more existential question about customer service and whether nonmembers derive sufficient benefit from forced association with a union because in all honesty, if a union can effectively represent its workers, why the need for compulsory fees? Rather than emphasize the legal ramifications of such a ruling what I would like to focus on today is whether forcing compulsory dues, even for nonmembers, creates a net benefit or a net cost.

Unsurprisingly, a think-tank that is unabashedly pro-union as the Economic Policy Institute finds positive effects. However, I have to remain skeptical of such findings. As the Right-leaning Heritage Foundation pointed out a couple of months ago in its report on unions' compulsory dues, the function of unions, economically speaking, is more monopolistic in nature. Unions function as labor monopolies or cartels since they control labor supply in order to drive up wages for union workers. Unions have succeeded at acquiring higher wages and greater benefits for its members. However, it does come at a cost, mainly to everyone else because such wages and benefits are higher than they would have been in a competitive market. From an economic standpoint, labor unions constrict labor supply due to the basic law of demand, i.e., if unions successfully raise the price of labor, employers will subsequently buy less of it. As a result, the Competitive Enterprise Institute illustrates that compulsory unionism depresses wages in nonunion sectors and increases the natural rate of unemployment, thereby creating a societal deadweight loss. As I pointed out a couple years ago when analyzing the case of Harris v. Quinn, the inefficient allocation of resources as a result of compulsory unionism leads to greater unemployment and less profitable activities, the latter of which is bad for state governments dealing with budgetary issues. Even a 2002 World Bank report on collective bargaining found that high bargaining coverage tends to be associated with relatively poor economic performance (p. 120).    

This briefly brings the discussion to policy alternatives, the most popular being that of right-to-work laws.  Having discussed the idea of right-to-work laws back in 2014, I founded that right-to-work laws are marginally better than compulsory unionism. While I would have preferred complete work contract liberalization (i.e., each employee has a right to choose a bargaining agent), I concluded that right-to-work laws were still a second-best option.

The ruling of Friedrichs v. California Teachers Association could only apply to the California Teachers Association, or even be more broadly applied to the state of California or public-sector unions across the country. We won't know how the Court will rule until this summer, so any prediction is speculative. In the interim, we can say that this case is going to be impactful, and not simply because 91 percent of union donations go to the Democratic Party, thereby limiting what was once a significant source of campaign contributions. The case acts a call for greater worker freedom and reforming labor union laws. At least for teachers unions, a good remedy in lieu of collective bargaining would be education tax credits. The case also has the potential for unions to experience a paradigm shift. If unions cannot compel agency fees anymore, it will have to think of different ways of doing business. Otherwise, public-sector unions could very well be relegated to the dustbins of history.

Friday, January 15, 2016

It's More Than a Safe Bet That State Lotteries Bring About Considerable Costs

A couple of days ago was the announcement of the lottery numbers for the Powerball game. That jackpot of $1.5B was the largest jackpot in world history. Many frantically bought tickets in the hopes that their lives would change for the better if they had all that money, even with post-tax earnings of $561M. One could do a lot with $561M. It's amusing to think what you can do with all that money, although the odds of winning were 1 in 292,000,000. I briefly wondered the same thing, but my mind wandered in a different direction. First, I thought how hypocritical it was for the government to historically restrict casino gambling on the grounds that it gambling is a moral hazard, while various state governments allow for government-run lotteries to exist. After realizing that the lottery is another example of "do as I say, not as I do," I asked myself whether the lottery caused net benefits, and whether the government should be in the lottery business.

One of the more obvious reasons that the government allows for such double standards in the first place is because the lottery is such a tempting form of generating revenue for state governments. The lottery has been a net revenue generator for state governments for quite some time. In 2014, lotteries generated about $62B (Census), which exceeded the $37B from the casino industry. In 2013, state governments collectively made a profit of $20.3B. For 2014, the North American State Provincial Lottery (NASPL) found that lottery sales were $70B, and profits were over $19B. That is a 28 percent profit margin! That profit margin is much higher than the 7 percent profit margin of the average company, and is presently even higher than the banking industry (see Yahoo! database here). On average, state governments derive 2 percent of their revenues from lotteries. As nice as it might be to expediently tap into a source of revenue through the lottery system, what's the cost?



survey of the academic literature of the economics of lotteries (Grote and Matheson, 2011) sheds some light on the question. The first interesting finding is that in most cases, the price elasticity is -1 or less, which is to say that people are relatively responsive/sensitive to lotto ticket price changes. Paradoxically enough, the lower the odds of winning, the more likely one is to buy a ticket. The reason isn't that people care about the odds of winning, but are attracted by the size of the jackpot. I also found it interesting that the income elasticity for lotto tickets is relatively low, which is to say that a greater percentage of income is spent on lottery products at lower income levels.

Although the lottery is a voluntary activity, these findings help explain why the lottery is sometimes referred to as a "tax on stupid people" or a "tax on people who can't do math." The findings also explain why the lottery disproportionately affects the poor, in no small part due to the fact that the poor are more likely to purchase lottery tickets than those who are not (Kearney et al., 2010McAuliffe, 2006). For those making less than $10,000 per annum, they annually spend $597 on lottery tickets, which is about six percent of their income. 15-20 percent of individuals believe that the lottery is the [only] way they'll be able to accumulate a significant amount of wealth (see herehere, and here). For the typical ticket purchaser, the costs exceed the benefits.

Lotteries don't have averse effects for the vast majority who lose, but also potentially for those who win, and that's not just in terms of the tax rates on the lottery winnings. There is enough anecdotal evidence about how the lottery makes matters worse. At least for smaller jackpot winnings (i.e., the equivalent of 6-8 months of salary), a study from University of California-Santa Barbara shows that it doesn't have positive effects (Kuhn et al., 2008). The Swedish experience shows that lottery winnings don't have statistically significant effects on one's health or that of their children (Cesarini et al., 2015). Ultimately, it depends on how the lottery winners approach their winnings. Planning for the windfalls is important because if you simply decide to spend (instead of doing something like saving or investing), you'll be in for a world of hurt. One study showed that at least with smaller winnings (i.e., $50-100K), the lottery winnings seem to postpone financial ruin instead of avoiding it (Hankins et al., 2010). Lotteries don't seem to exaggerates one's current situation, which is to say that if you were living a happy life pre-lottery, you should be fine. If not, then the lottery is going to exacerbate your current state of well-being (Mochon et al., 2007). These findings make sense. After all, happiness is relative. But at the same time, poverty does not bring about happiness. Poverty can be quite stressful and deleterious. That is why money buys happiness, but only to a certain pointThe benchmark for happiness used is $75,000, although that changes a bit based on cost of living. Beyond making $75,000 annually, the marginal rate of return for earning an additional dollar does very little to nothing to add to one's happiness.

One of the points that state governments try to use is that the revenues are used to fund schools. The Illinois Association of School Boards found that the lottery provides no additional funds to school coffers, and that it acts as nothing more as an accounting maneuver. North Carolina also found out this lesson the hard way. The North Carolina government promised a boost to education revenue, but the Tax Policy Center (TPC) found that North Carolina actually experienced a decline in education funds. The TPC also found that lottery revenues never covered more than 5.5 percent of expenses. The fact that lotto revenues cannot fund education, certainly to the extent which proponents promise, is because in state budgets, money moves around a lot, and it's hard to securely appropriate the funds for just one aspect of the budget.

Ironically enough, the lottery doesn't help state governments to the extent to which they think it does. Since the odds of winning the lottery are so low, the lottery de facto acts similar to a hidden, implicit tax at a rate of 38 percent. While it is highly expedient for the government to collect lottery revenues, the revenue collected via the lottery creates a relatively high deadweight loss for a few of reasons (Grote and Matheson, p. 20). One is that states tend to levy the amount too high. Second, the administrative costs are higher compared to other taxes. The third is the high advertising costs and retailing commission. Granted, pooling resources with other jurisdictions helps make it more efficient with economies of scale, but advertising is still a considerable cost that is not problematic with other forms of taxation. In terms of efficient collection of government revenue, there are better ways than what the lottery system has to offer. The Nelson A. Rockefeller Institute (Dadayan and Ward, 2009) also found that the lottery has a tendency to create greater imbalances in state budgets.

One policy alternative is to have prize-linked savings accounts as an alternative to state lotteries. However, I don't think the government could handle that competition, which is why the ultimate jackpot in this scenario is simply to do away with state lotteries all together, regardless of what one's view of gambling is. State-sponsored lotteries are bad for losers, often bad for winners, and doesn't even help with state revenues or education funding nearly to the extent intended. Getting rid of these lotteries means that people don't have to succumb to the false hope that is known as Lotto.

Monday, January 11, 2016

How Much Do Background Checks Help With Preventing Mass Shootings?

Last week, President Obama gave a speech on gun control in response to dealing with the gun violence that takes place in the United States of America. Let's forget for a moment that the prevalence of mass shootings depends on how you define "mass shooting" or that the Congressional Research Service published a report last year showing that there historically has been no epidemic in mass shootings. Per the most recent CDC data on leading causes of death, gun-related deaths account for 1.2 percent deaths in the United States (32,383 out of 2.59 million deaths). Out of gun-related deaths, only about a third are gun homicides. Mass shootings account about 1.5 percent of overall gun-related homicides. Mass shootings account for 0.018 percent of overall deaths in the United States, yet it is somehow politically expedient for President Obama to pass an executive order to increase gun control to stop something that causes 0.018 percent of deaths in the country. Part of this executive order included more stringent background checks.

Background checks have particularly been prevalent in American society since the Brady Handgun Violence Prevention Act of 1994. The idea behind such legislation is that it would screen out would-be murderers from perpetrating such heinous acts. However, this is not enough for gun control advocates since they would like to close the "gun show loophole," which is supposed to decrease the rate of illicit firearm transactions. Background checks are so intuitive, even for libertarians. How intuitive? It is the type of "common-sense gun legislation" that even 79 percent of Republicans are on board with expansive background checks. I do have apprehensions of such databases because collecting names, addresses, criminal records, and mental history can be misused or abused. Conversely, there is a negative externality argument to be made in the sense that if we can prevent deaths with a minimal loss of freedom or privacy, then I, much like a majority of Americans, support expansive background checks....at least in theory. Before officially supporting greater expansion of background checks, I have to ask whether expansive background checks would help decrease the gun homicide rate, specifically with regards to mass shootings.

The studies showing the effectiveness of background checks have generally had ambivalent findings. There was a study from the Johns Hopkins Center for Gun Policy Research (Rudolph et al., 2015) showing that background checks in Connecticut decreased gun violence by 40 percent, although it seems to have its fair share of methodological flaws. Johns Hopkins also released another study (Webster et al., 2013) showing that background checks have a positive effect, even though there was a "stand your ground" law that passed in 2007 that is getting in the way of distinguishing between correlation and causation. The Left-leaning Center for American Progress (Gerney et al., 2013) also tries to show a link between gun violence and weak gun laws. The academic consensus on the matter is hardly there. A 2000 study (Ludwig and Cook, 2000) shows that the background checks from the Brady Law of 1994 didn't have a statistically significant effect. The same goes with a 2003 review from the CDC.

Even with the aforementioned research, there has not been any research about the link between background checks that include private transfers of guns and mass shootings....that is, until earlier this month. The Crime Prevention Research Center (Lott, 2016) published research asking if there is a link between the two. Lott found that not only is there no evidence that background checks reduced the risk of mass shootings, but that not a single mass shooting would have been prevented by background checks. Some might take issue with this study not simply because of the findings, but because of the definition of "mass shooting" that Lott uses. The definition of "mass shooting" can be quite contentious because the definition determines how many or few incidents are included in the count. If you do something like define a mass shooting as a incident in which four or more are killed or injured by gunfire, you are going to calculate a jaw-dropping figure in which there were more mass shootings than days of the year in 2015. However, such a figure is broad because it doesn't even bother to take in the context of the incident. This is why Lott opted for the narrower definition, which, by the way, is the one that the FBI uses. The FBI defines a mass shooting as one in which four people are murdered (note that it excludes those who are injured) either simultaneously or over a short period of time. The FBI also removes gang and drug violence from the numbers (which is important considering that over 90 percent of gun homicides are committed by gangs and/or while a felony is being perpetrated), as well as gun-related shootings in which it appears that others are not put into peril (e.g., an individual who decides to publicly commit suicide in a parking lot). The FBI definition reduces the number of 2000-2015 mass shootings to 47 mass shootings.

Whether or not we like the narrow definition of mass shooting that Lott uses, this should give us some time to pause about just how effective background checks can be. Since the Brady Act of 1994, 2.1 million background checks were denied. Does this mean that 2.1 million crimes were prevented? Not really. Being denied an application to buy a gun through licit channels simply means one can buy a gun through illicit means. It would be nice to think that background checks choke off the supply of firearms in the underground firearms market. However, a recent Duke University study points out that most criminals purchase their firearms through social networks, not through gun shows or federally licensed dealers, which reaffirms the notion that criminals will simply find ways to bypass background checks. It would be nice to have better data to affirm the effectiveness of background checks, but at least with what we have, maybe Obama should stop and think twice before increasing background checks.