Mathew Binkley's Blog

The fundamental problem with the whole healthcare debate is a lack of realism. Given the rapidly increasing costs of healthcare, some measure of reform is inevitable. People who want to maintain the status quo simply aren’t dealing with reality. The only question under consideration is *how* do we change it.

The individual mandate was historically the Republican solution to healthcare reform. This is what I as a (r)epublican find most baffling about the whole debate. The individual mandate isn’t some form of socialist conspiracy. The Democrats voted for *our* healthcare plan, but Republicans are opposing it mostly because they don’t want Obama to get credit.

The problem is, the alternative to the individual mandate isn’t going back to the status quo, because that’s never going to happen. The alternative is a single-payer healthcare system. And opponents of the individual mandate need to be crystal clear on this: if the individual mandate is struck down, Democrats only need 51 votes to ram single-payer healthcare through the budget resolution process, and the courts long ago decided that Medicare was constitutional.

And I expect single-payer healthcare to be as good for our country as single-payer education. Education can primarily be judged by a) quality and b) cost. But measuring quality is hard and takes years, while measuring cost is much quicker and easier. Given that, many politicians cut quality because the consequences won’t be evident until they’re out of office tomorrow, whereas raising taxes gets voters riled up today. That’s one of the reasons why America’s education system has dropped to 25th in the world, behind such intellectual heavyweights as Latvia and the Slovak Republic.

I don’t personally consider the individual mandate in healthcare to be any more onerous than the individual mandate in education. I can send my kids to public, private, or home school, but I don’t have the option to *not* educate my kids, because dumb uneducated kids grow up to be dumb uneducated adults, which imposes costs on our society. Similarly, I can buy health insurance from BlueCross, Aetna, Humana, any number of companies, but I don’t have the right to *not* insure myself, because if I don’t have insurance, someone else’s tax dollars will have to pay for it.

Your health is partly luck of the draw, partly your own decisions. I know people who have cerebral palsy, myasthenia gravis, brain tumors, mental illness, scleroderma, a whole host of diseases that no one asks for and that you can’t do anything to prevent. On the other hand, I also know plenty of people who smoke, eat fatty foods, don’t exercise, and consequently suffer from diabetes, heart disease, lung cancer, and other aliments.

In Mathew Binkley’s healthcare plan, everyone would be expected to save money tax-free in a health savings account to pay for minor services. If you had a friend that was sick, you could give them money from your HSA tax-free. For the things you don’t have any control over, government would mandate catastrophic health insurance over a certain level (say $10k a year or $30k lifetime). For the things you can control, government would increase taxes (a so-called Pigouvian tax) to cover costs. That way, if you’re smoking Marlboro and eating Ho-ho’s three square meals a day, that tax burden will either a) incent you to eat bad foods less often, or b) pay for your healthcare when you’re laid up in the hospital bed with a gangrenous leg.

I distilled this plan from reading various health care experts and political wonks for several years, but since it’s middle-of-the-road, pragmatic, and violates both the Tea Party and the hippy left’s ideologies, is guaranteed to make everyone mad and will never happen in a million years.

As I get older, I’ve started to appreciate that “crazy” and “not crazy” aren’t two separate states, like black and white.  Everybody is at least a little crazy, myself included.  The only difference is how much crazy you have, and what flavor of crazy it is.

I enjoy politics (which is at least one piece of evidence confirming that I’m crazy), so I watched the State of the Union address last night.  What I find far more entertaining though is other people’s reactions to it.  People who have never opened a macroeconomics textbook in their life, have thunderously strong opinions on the job Obama is doing, whether good or bad.

If you had a brain tumor, you wouldn’t just listen to anyone’s advice.  You’d want to see a neurosurgeon that graduated from a recognized school at the top of their class, and who had lots of experience performing brain surgery successfully, even if he said your odds were only 50/50.  If a quack said “I can 100% guarantee success if I just cut your skull in half with a chainsaw and yank out the tumor with salad tongs”, you’d run away as fast as you could.   You care more about the surgeon actually healing you than you do about the quack trying to make you feel better.

Economics is just as intellectually difficult as medicine.   That’s why they hand out Nobel Prizes in Economics, because it’s *really* hard.  But for whatever reason, when it comes to economics lots of people tend to believe the quacks and not the experts.   Because the quack told them something they like, something that resonates with what they believe too.  They’d rather the quack make them feel better, than the expert help them.

I think, if I could get the world to read these two Wikipedia links and think about how it applies both to themselves and to others, I will have done my service for the day.

Wikipedia: Dunning-Kruger effect

Wikipedia: Confirmation bias

A few hours ago I read a message from a friend who graduated a few months ago with a graduate degree, but after months had still not found a job.  I wanted to write down a few thoughts.

Once upon a time dad and I were at our weekend trailer by the river.   We opened the freezer, and inside was a bottle of water, and it was still liquid.  Dad shook it, and almost instantaneously the bottle froze solid.  The water got cold enough to freeze a long time ago, but it needed a little nudge to kick-start the freezing process.

This is an example of what’s called a “phase transition”.  Physics is filled with such things.   It’s where most of the interesting science takes place.  They mark points where one sets of physical laws stop being valid and new laws take over.  What we’ve been through the past few years is an economic phase transition.  Our economy got filled with too much debt, someone shook our bottle, and suddenly the rules changed.

One of the things you see whenever there’s a phase transition is that the new rules often seen extremely weird or even backwards compared to the old rules.  In grad school my specialty was black holes.   Inside a black hole, “space” becomes time-like.   “Time” becomes space-like.   Even physicists have a hard time wrapping their mind around that.   It seems paradoxical and contrary to common sense.   But that doesn’t mean it isn’t true.

Similarly, behaviors which are good in normal times (like austerity and saving money) can have bad outcomes.  For instance, if you have a dollar, you can choose to consume it or save it.  And every dollar you want to save requires someone else to borrow it to consume something they want.  That works great in normal times, because there are more borrowers than savers.

But now, everyone is in debt up to their eyeballs and desperately trying to save money because they can’t count on their house, their job, or their 401k.  When *everyone* tries to save money, they can’t because there aren’t enough borrowers to go around.   Consumption falls because people are trying to save, and the economy gets smaller.  The net effect is that when everyone tries to save, everyone ends up poorer than before.   That’s called the Paradox of Thrift.

Today, even with interest rates at 0%, we can’t attract enough borrowers.  It is estimated that the interest rate would have to be below -5% to attract enough borrowers.   But who in their right mind would loan out $100, expecting to get only $95 in return?  No one.  That’s the economic black hole we’re trapped in.

The only way out is for someone to step in and act as the borrower of last resort.  That’s why the federal government is doing so much deficit spending, because there is a build-up of savings with no place to go.  The fiscal conservative in me *likes* this kind of deficit spending, provided it’s short-term.  It allows other people to save their money, it props up the economy, puts people back to work, and it lets our government do a lot of necessary and overdue infrastructure investment while interest rates are near 0%.

Yes, government will eventually have to tighten it’s belt.   It’s actually long-overdue.   But right now is a very dangerous time to start.  It’s like trying to jump-start someone’s heart while they laying in a pool of gasoline.

The problem is that some politicians are still playing by the “normal” rules and are determined to force our government into austerity.   This would actually be wonderful policy in normal times, but can be catastrophic in our current situation.  Government deficit spending is fueling our recovery from depression.

Imagine you’re trapped in a black hole.   You turn on the warp drive to escape, get half-way out, and then someone decides to turn it off because it’s burning too much fuel.  You end up falling farther into the black hole than when you started, and now you have even less fuel to try to get back out again.

That’s the danger of premature austerity, that the economy will end up back where it was, or worse.  It happened to the USA in the Great Depression, and appears to be happening to Ireland and Great Britain as I speak.

I know this type of behavior doesn’t seem normal.  Saving money should make you richer, not poorer.  Government deficits should be bad, not good.  That’s why it’s called a “paradox”, because it’s something that’s not normally true, but occasionally it is.  Some politicians are determined to play by “normal” rules when we aren’t in a normal world right now.  Premature austerity will substantially worsen unemployment (I’ve heard estimates of 700,000 additional jobs lost), as well as prolong our country’s misery longer than necessary.

So read, think, and act.  Call your congressman.   Tell them that unemployment is a more immediate concern than deficits.  Some of them are putting ideology in the way of fact.  A lot of them actually know better, but are cowed by the squeaky wheels in the crowd.  But maybe, just maybe, if enough people read this and agree, we can shake Congress’s bottle, and change the rules again.

Total nerd post. If you don’t like reading nerd, please ignore this and accept my apologies for spamming you.

I originally wrote this as a reply to a friend who had joined one of the “Cut the Debt Now!” groups that seem to be popping up left and right now.

I am Republican and a fiscal conservative, and think we desperately need to pay down the debt, but right now is a particularly bad time to fixate on it.

Consumers and businesses are spending less. Government *has* to spend more now (or, we have to start exporting like mad, which shows no signs of happening) to offset their falling spending in order to keep the entire economy from shrinking and getting into a negative feedback loop that would make things much, much worse. (And to all the anti-Keynesians, please read the whole message before getting surly).

I’ve been studying economic depressions like we’re in and the mathematics of black holes, and I’m convinced there’s some underlying mathematical similarity. Inside the event horizon of a black hole, our very definition of space-time breaks down and “flip-flops”: space becomes time-like and time becomes space-like.

Similarly, inside the “event horizon” of a depression (called a liquidity trap by economists), behaviours which are ordinarily good (like saving money or cutting the deficit) have bad economic outcomes (google “the Paradox of Thrift” or “Fallacy of Composition”), and vice-versa.

There’s also a mathematical similarity between the speed of light in black holes, and the nominal Fed interest rate in depressions. If your spaceship falls through the event horizon of a black hole, it would have to travel faster than light to escape, which is impossible.

Similarly, you need a nominal Fed interest rate of < 0% to escape a liquidity trap, which is also impossible. This is why monetary policy (lowering the Fed interest rate) has been ineffective at getting us out of this depression, so we have to resort to fiscal stimulus, (deficit spending), to kick ourselves back out. Otherwise, we are going to be trapped in the depression for a long, long time.

I know that I’m about to be clobbered by some of my uber-conservative friends who think Keynes is a four-letter word. I don’t believe Keynesian economics is generally true, but it does have a range of validity when you’re inside a economic black hole. There is no Grand Unified Theory of Economics any more than there is one of physics. In physics, you patch different laws together (Newton’s law, Einstein’s law) and use them where they happen to be valid, and ignore them where they aren’t. It just so happens that we are in a time and place where Keynes has something to tell us.

All that was an incredibly long-winded way of saying that right now is exactly the wrong time to be focusing on federal deficits. The correct time to fixate on that was 5 years ago, or 5 years from now. Right now, our country has to focus on getting out of the “event horizon” of this depression, and the only way we know how to do that is increased deficit spending. Showing fiscal restraint (which is ordinarily a wonderful thing) at this point in time will only kick us back into the depression and make things worse.

<puts on asbestos underwear>Thoughts? Criticisms? I’m more interested in being right than defending my view, so if you think I’m wrong, I’d love to hear it.

There is a rule-of-thumb in economics called Okun’s law, which says that reducing unemployment by 1% requires a 2% increase in GDP above it’s long-term average. Let’s see what this means for Cheatham County.

The average unemployment rate in Cheatham between 1990-2008 was 3.7%. The current unemployment rate is 9.0%. So we need to reduce unemployment by 5.3% to get back to normal unemployment.

The average US GDP growth rate since 1973 is 2.7%. The average GDP growth rate during the dot.com boom (1992-2000) was 3.7%. So during the dot.com era, the GDP was growing at 1% above its long-term average.

So, if we cross our fingers and hope that the US economy suddenly bursts back into dot.com-like growth, then it will take:

2 * 5.3% / 1% = 10.6 years

for our unemployment rate to return to normal.

Now, predicting this stuff is like trying to predict the weather. This is just an order-of-magnitude number, not some iron law of physics. There are all sorts of real-world factors, both good and bad, that will affect this. But barring some economic miracle, we’re going to have chronic unemployment for years to come.