Bob Hayes Online

How much better off would we be if we were drilling in ANWR or similar areas, rather than in deepwater?

We don’t yet know how bad the Deepwater Horizon spill will end up being. Let’s go super-worst case, and say that it reaches the level of the worst-ever oil spill: the 1991 deliberate spill in the Persian Gulf. The high end estimate of that spill is 520 million gallons. Let’s say it’s twice that bad – 1000 million gallons, a nice round billion. Worst. spill. ever.

We know what that looks like in water. It’s bad. How does it look on land?

A gallon is 0.13 cubic feet. (I know, it looks like more than that when you hold a gallon jug of milk, but a cubic foot is actually a fairly hefty volume of space.)

Thus, a billion gallons is 130 million cubic feet. Holy cow – we’d flood Alaska!

Or would we? The nice thing about an oil disaster on land is that it is relatively easy to throw up a berm to stop the spill from spreading. (In fact it’s so much easier to stop a spill on land that there would never be a billion gallons spilled – there wouldn’t even be a million gallons spilled. Check that list – of the top 12 spills, only one was on land, and that one happened when just such a berm collapsed after eight months of the spill being neglected. But let’s assume for the moment that we’re going to have to contain the entire billion gallons.)

Berms vary in height, but let’s not wait for the Corps of Engineers to show up. We want to protect the Alaskan wilderness, after all, before the tide of black gold drowns Governor Palin and Mr. McGinnis and all the little Alaskan bunny rabbits. Let’s limit ourselves to a berm 10 feet high. That’s something that yahoos in pickup trucks can manage, let alone serious civil engineers. How big a circular berm do we need to contain our spill?

At a height of ten feet, to encompass 130 million square feet, we need a radius of 2034 feet. Now, that’s not a tiny berm. Our rednecks in pickup trucks are going to need some friends. (Of course, they have months to build it, given the spill RATE is “only” a few hundred thousand gallons a day at most.) It’s a circle about 4/5 of a mile across. Not trivial, by any means – not a weekend project. Still, even if throwing up the berm costs $1000 a linear foot (and it wouldn’t, not nearly), we’re looking at $12,779,000 for the whole project – chump change. (And hell, the billion gallons of oil in the berm is worth about $2.4 billion on the open market, so you might even make a little profit on the deal.)

How much Alaska would be wiped out? Less than a single square mile.

THAT is why we should be drilling in Alaska (and Canada and a few other places), rather than out in deepwater.

An excellent essay. Read, as they say, the whole thing.

Many years ago, when I was an elementary school student, I devised a trick of calculation that greatly sped the work on a particular type of math assignment. Naturally, I shared the trick with my friends and classmates, and soon everyone had the same technique. The aggregate amount of time saved was quite staggering, and I found it extremely gratifying to consider that an innovation that took me perhaps ten minutes to conceive and implement could have such an enormously disproportionate positive impact.

Ever since that time, I have nurtured and developed a keen eye for optimizing processes and systems, particularly organization-level systems where many thousands or even millions of people will be using a methodology or an interface. At the same time, my work in the computer software industry has also taught me that premature optimization can cause problems larger in scope than the inefficiencies the optimization purports to fix. My economics background, meanwhile, informed me that for most situations to speak of an optimum is to grossly oversimplify; most systems and processes have many different functions or outcomes that can be optimized, and finding “the optimum” is in fact a balancing act between competing values – if we can even find out what the values are! Finding the best fit for “optimum”, it turns out, requires an enormous exercise of judgment (hopefully informed by experience) and, often, guesswork.

For example, my boyhood invention undoubtedly saved us endless tedium on our math worksheets – but, lacking a grounding in what the worksheets were trying to accomplish, I failed to understand that the practice was itself the point. We were doing the sheets to get practice with the mathematical rule we had just learned. My clever trick didn’t teach its practitioners anything – it just let them skip ahead to the right answer. As a one-off, that is sometimes a good thing. When we’re trying to learn, it’s a disaster. My “optimization” was in fact a body blow to the process of our class learning math! Someone optimizing for short-term student happiness would mark my idea as a brilliant success; someone optimizing for student learning would stamp with it with a fat red “F”.

Getting to optimum is not easy or trivial.

I think the debate over AGW has grown confused for many reasons, but one of the important ones is that there actually two related but separate propositions being argued. For political reasons, proponents of the AGW theory have deliberately fused the two propositions, but for clarity of perception I think it important that we separate them and see them in their actual relatioship.

The first proposition is that due to the activities of mankind – eating, breathing, farming, building cities and factories, driving – the planet is getting somewhat warmer – not drastically, but measurably.

The second proposition is that these changes, combined with our species’ other environmental depredations, is going to lead to some type of Climate Armageddon, with the species’ future in doubt and our poverty all but assured. (I regularly see AGW-friendly commentators expounding this doom and gloom as a simple stated fact, something assumed as obvious, as a consequence of AGW.)

Science has largely decided that the first element – it’s getting warmer, mostly – is true. Wrangles over the CRU’s exact level of culpability aside, they don’t need to fudge the data to show some warming; the exact instances of malfeasance at CRU look at this early date to be in areas like trying to eradicate inconvenient truths like historical climate optima when things were a bit warmer than they are now. That effort, to dampen debate by trying to create a pretend consensus that something inconvenient to a simple, easily-sold narrative simply never happened – an “unevent” – is reprehensible and vile, but not central to the core of AGW proposition number one. Other data sources also show a warming trend, and while I am very willing to believe that there are corrupt scientists in the world, I do not believe that they are everywhere. Someone is always willing to be the hero by proving the truth in the face of such conspiracies of lies, and climate science is hardly Mafia-like enough to enforce complete silence.

It’s the second element where the real debate should be occurring, and mostly, it isn’t.

Could AGW lead to catastrophic scenarios? Sure. I’d wager it won’t, for complex reasons having to do with human adaptability and the survival instinct, but I’ll readily admit I could be wrong in my guess. But the burden of proof for such catastrophic possibilities is on the people proposing them; the rest of us don’t have to justify our use of energy to selfishly heat our homes and feed our families by first disproving that this is going to cause Gotterdammerung.

Society must tread warily. Advocates of the strong AGW position are fond of arguing the precautionary principle, but seem much less heedful of its guidance when it comes to social engineering. Our EPA has just declared that every human being (and other breathing life form) on the planet to be polluters, by virtue of our respiratory metabolism and its production of carbon dioxide. Global elites are meeting now in Copenhagen to throw bones to the developing world and monkey wrenches into their own economies.

I do not believe that the science justifies such strong measures. A social precautionary principle, that we should not throw away centuries of economic progress and betterment of human welfare on a whim, must guide us as we determine how best to match the needs of our species with the constraints of our planet.

In my Oberlin College days, I was a member of OSCA, serving on the board for a term and putting in a happy year of residence at one of the hippier residence halls. It was an interesting experience, and it convinced me of the ability of cooperatives to function competently in the economy. I wonder if some of that competence couldn’t be utilized in the health care field. I have sketched out some ideas on how such a co-op could function.

A co-op organization could be formed with a charter of providing health care for its membership. To start things off, initial membership would probably have to restrict itself to people without current major medical conditions or expenses. That could change later on as the co-op deploys more resources, but to begin with it has to be a mutual self-insurance group, not a charity.

The co-op’s financing would work on the basis of a tithe. Members would agree to contribute a fixed percentage of household income – probably starting at something like ten percent – as their membership contribution. There would be an income minimum – probably something like $10,000 a year. Households with more than one member would pay an additional percentage – perhaps two percent per person. Members who utilize an arbitrarily large quantity of resources might have their base rate increase. There would be a cap on the tithe of say twenty-five percent of income.

Payout would be very simple. Every household would have a credit balance, consisting of their contribution to the co-op to date. Members can spend their credit freely from co-op funds using a credit card issued by the co-op. Members have to spend it on medical expenses, but the honor system plus a minimal review system (“how is a resort stay in the Bahamas a medical expense, dear?”) should keep administrative costs low.

During the first year of operation, the co-op would collect tithes and disburse only funds from its existing balances. No balance, no payout, sorry.

At the end of the first year, the co-op’s cash balance would be examined and the co-op board would decide what portion to invest (conservatively, in government bonds or something of similar solidity) and what portion to be made available for charitable redistribution within the co-op. Invested funds would still have to be somewhat liquid, since members can make withdrawals from their balances, but it should be relatively easy for the banking types to figure out what percentage needs to be kept purely liquid and what can go into T-bills or what have you. The board would also review the contribution rates and make adjustments as necessary, in response to member feedback and the economic climate.

After the first year, when the co-op has a working balance sheet, a review board is formed. This is a rotating volunteer panel made up of co-op members elected to one-year terms.  A modest fraction of the slots on the panel are reserved for doctors and nurses so that the board always has access to a medical point of view. The board knows the charity balance, as does the membership, as it’s posted on the web site and updated regularly.

If people need more care than their balance allows, they can apply to the review board. Applicants are expected to either already have spent their balance to zero or be willing to do so in pursuit of some much more expensive treatment. The board’s approach should generally be to allow a budget to the member, rather than to specifically approve or disapprove a procedure. Thus, the co-op can help with partially financing procedures where a member may have access to other partial funding sources, rather than making an all-or-nothing decision. The budget can be large or small, and can be designed to pay for one procedure or for a reasonable course of treatment, at the board’s discretion. Board meetings are public, but deliberations on cases are private. The budget would be added to the recipient’s card once it was granted, and they could go out and buy the care they need.

There would be a couple of different policies that the co-op could adjust as needs and conditions changed. One is the criteria for membership. Obviously, the co-op wants to have lots of healthy people who don’t need a lot of medical care, in order that the system flourish and have plenty of resources. But the point is to deliver health care, not just to accumulate capital in the charity fund. The governing board will have to set the rate at which already-sick people can join the co-op. A ratio like 1 in 10 is probably sustainable even in the early years of the co-ops development; 1 in 5 would not be unreasonable once the system is rich. The other number the co-op would have to fiddle with, of course, is the base tithe and the quantity of the adjustment for being an expensive member (expensive member meaning people paying a higher tithe than the base rate).

The reason to adjust upwards for expensive members who draw down their balance is to create a moral pressure against unneeded use. The expensive member isn’t really losing anything – the money goes into their account, after all, and they can always take it out to use on their medical bills. But it’s a psychological construct that reminds this member that they do have health care expenses and must plan ahead for them.

The board could also use its discretion to purchase group catastrophic insurance for certain conditions, if that turned out to be cost-effective for the membership.

The principle virtue of a co-op like the one I’ve described is that it almost completely eliminates moral hazard. Everyone understands that they are responsible for their own care, that they must contribute in order to receive – and yet membership is voluntary, so there is no coercion or threat. There is a powerful and obvious incentive for everyone to not spend down their balances – not only does the money accumulate to them (it could even pay interest), they know that every year of a budget surplus improves the investment pool, meaning that there will be more available in the future when the member might need a big helping hand. Members who were able to put in a year or two without incurring medical costs could relax somewhat, knowing that if Junior breaks his arm, there’s thousands of dollars in the account to cover it – but they wouldn’t feel incentivized to stop working and contributing to the system, because they also know that Junior’s cancer-God-forbid would go through that fund like nothing.

Rather than one giant national co-op, it would make more sense to have lots and lots of smaller groups – perhaps oriented around affinity groups so that members would have an automatic fraternal feeling. Lots of small co-ops spread risk, and also give people maximum freedom in finding a group with policies they approve of.

Even smaller co-ops (say 1,000 members), if localized, would have considerable buying power, and since the co-op credit card is just like cash, they would be extremely desirable customers. Doctors and hospitals would be eager to take co-op business – no paperwork, no hassles with the gatekeepers (the member already having gone through that), just smooth easy green for services rendered. The co-ops could probably negotiate very good discount rates, locally and nationally. Hearkening back to OSCA’s membership in various umbrella groups, a co-op of health care co-ops built on this model could probably negotiate with the big boys.

I would join such a co-op. Heck, I might just start it.

The pro-health care reform folks are holding a rally in Denver this Friday.

Hey, fellow forces of good, we should get on this and show up. Whaddya say?

At least according to these lawyer-type guys, Congress lacks the power to mandate insurance purchases.

Good! I had already resolved that I would disobey the law, and that I would further not pay the penalties and fines, etc. A law repugnant to the Constitution is void and I am not obliged to obey it.

Reading this wiki article on Amtrak, it strikes me that we are likely to see the same type of deterioration in the health sector as we saw in the rail transportation sector over the course of the twentieth century. Rail transport was once the most vital and important American industry – its sad decline is a story of government error and mismanagement of economic decisions. If the Democrats succeed in passing their inchoate health care plans, we can look forward to a creaking, half-functional system that prevents private market actors from doing the job, while doing a poor job itself.

My friends on the left (and they are my friends) are angry and upset because so many Americans with employer-provided benefits (and even many without) are unhappy about the existence of a “public option” plan. These liberal folk say “the public option won’t take away your choices. You will be able to keep the insurance that you have.” And it’s true that the plan as drafted in its various forms and trial balloons does permit people to keep their existing plan.

Unfortunately, the plan as drafted will not be dictating the economic reality once the public option is in place. Instead, market forces will. And market forces will push millions of people out of the private insurance market against their will, and could well cause a near-collapse of the private system.

If the public option is in place, employers all over the country will jump at the chance to move their employees out of costly benefit plans and into the public system. The left themselves make this argument about corporations’ willingness to move social welfare expenses onto the public shoulders. Unless the plan is punitive towards employers who do that – and it won’t be, because that would be politically suicidal for Democrats – there will be an inevitable tidal wade into the public system, not by choice, but by expulsion. Leftists will tiredly (and tiringly) argue that “oh look, it worked in THIS Swiss canton for the eight years the study conveniently ran” – ignoring the uniquely American spin that often makes those studies of dubious applicability, at best. Mr. Obama won’t have personally taken away those millions of peoples’ health insurance – he would just have made it impossibly tempting for their bosses to do it to them.

The private insurance system will be further undermined by the fact that employer-provided healthcare has one of the best demographic profiles for health insurers. People who are working tend to be younger, in better health, and to take care of themselves. The customers it will be losing to the public sector will be the profitable ones – the ones who make up for the lady who gets cancer at 49 and spends a lot of money getting better to live to 80. I know, boo hoo for the insurance companies – but without profitable customers, the companies can’t stay afloat. If it takes 3 Healthy Harrys to keep one Ailing Alice going, then anytime the public option takes away a Harry it better take a third of an Alice as well – but a lot more of the workers in those pools and their families are HH than AA. So companies go under, and companies that want to provide healthcare coverage to their workers have a hard time finding a market. The fact is that the government can “fight” for those valuable premium-payers a lot more effectively than a bunch of mopes in Connecticut can – the government has money and tanks and Congressmen. All the company has is money.

There are 88 million Americans with employer-provided healthcare, and most of them like their coverage very much. There’s no reason they wouldn’t; while it’s not a choice I’ve myself made, the security of having medical expenses covered in case of disaster is surely reassuring. That security has value to the families who know Dad getting sick won’t be the end of the world.  Liberals were correct in gauging that there is public support for health care reform – but there is zero support for taking a great whack at the stability and viability of employer-provided healthcare financed through the private insurance market.

That is why people are getting hetted up at town halls. The people waving swastikas, if they aren’t plants, are flecks of crazyfoam on a genuinely large popular upswelling of sentiment. My liberal friends, saying “we don’t intend to do that” isn’t good enough; people don’t believe it’s up to you to decide if that’s what happens. People know that their choices are going to go away, and it doesn’t really matter to them that the cause will be an impersonal market mechanism, rather than the volition of some nervously smiling Congresscritters. The Congresscritters are going to get the blame.

So perhaps Congress – and the liberals in Congress – had better think about proposing some market-reality-recognizing mechanisms that will work to improve American healthcare, without wiping out people’s dreams and security in the process.

Why not start health care reform with tax reform?

There are two key problems that everyone agrees exists with regard to healthcare. Problem one is that it’s really expensive to get old and die. Problem two is that it’s really expensive to have something terrible happen to you and need tons and tons of medical care. There is disagreement about *why* these things are problems, disagreements about motives, etc., but everybody agrees that these two things are problematic.

Problem one we haven’t solved, but we have a quasi-kludge half-solution in place. It can and should be improved, but old people get their medical bills paid for more or less and they don’t have to bankrupt their families in order to pass away decently. So hooray, there, no doubt we’ll work on making it better, but let’s not **** with it right this minute.

Problem two is the problem of catastrophic care. It’s expensive. You get cancer, you lose your house. As has been pointed out to me, if something expensive were to happen, it would be a terrible financial blow. We wouldn’t go bankrupt, because there are assets, but it would surely suck. It would be far worse for people with fewer familial resources.

There are other problems that exist, but everybody agrees these are acute ones, so let’s focus on them for a moment.

Some people are lucky; they have nice health plans that cover even catastrophic events, while also providing good coverage for more routine and preventive care. Those plans tend  to be expensive, making those people relatively expensive to hire, so as a general rule, only people who contribute relatively large amounts of social capital to their employers are able to get this type of coverage. Most people make do with much less impressive plans which provide a partial shield, but still leave patients owing for large sums when disaster strikes. Ironically, the people with the gold-plated policies tend to be the people who could absorb a ten or twenty thousand dollar loss without grievous harm, while the people who are destroyed by such a debt are the ones with the sketchy pay-most-of-it policies.

Some people have no care coverage at all, reasoning (like me) that their best option for healthcare expenses is to pay for it 100% out of pocket for routine matters, and suffer the loss to capital in case of true crisis. Others pursue the strategy, though without the resources, owing to improvidence, ill fortune, or whatever. Some of these people tend to impose big costs on the system as a whole, since they tend to be the ones showing up at the ER. (Hey, I paid my bill.)

Right now all the people with employer-provided care are getting a substantial tax break, because they don’t pay tax on the large income that their plan represents. Some people propose taxing the benefits; I think that instead of doing that, we should extend the tax break to everyone, and we should count health benefits as income.

Anyone who purchases any health insurance plan, whether comprehensive or catastrophic, gold-plated or bare-bones, whichever they prefer – should get to write off 100% of that expense as a deduction from their income. People whose employers provide coverage stay status quo ante – they lose nothing. Their income has gone up nominally (“holy cow, IBM is paying $19000 a year for my health plan?”) but they get $19000 lopped off their income on the 1040, so they end up with no change.

People who buy coverage with their own money will get a whacking great tax cut, depending on their income levels. No idea what this would cost – tens of billions at the very least.

On the other hand, it would require no bureaucracy and no interference with private choice – and it would greatly encourage people to buy health coverage for themselves, particularly as their incomes rise. We WANT people like me to go out and buy expensive coverage which we then never use; it helps pay for the ER visitors.

This proposal doesn’t do much for the poor, I’ll grant you. Fine – let’s do a block transfer with another NIT-style mechanism and issue $1000 “health care credits” to people at 200% of poverty line. It won’t cost all that much, and again, it gives people an incentive to do something smart but doesn’t coerce their behavior.

The result of this policy would be a strong increase in the demand for private health coverage, leading to greater investment in health care capital, human and financial varieties. It requires no federal power grabs, no objectionable redistribution – no human among us objects in principle to helping very poor people see the doctor – and most lovely to those who care about freedom, no coercion or forced behavior. Although it can be sold to Republicans as involving a tax cut, since all these people would start getting a tax break, in truth we should recognize that it would involve a small but real nominal tax increase or reduction in services elsewhere, since we’re giving people money back on their existing tax levels, but I’ll forgive any liberals who choose to finesse that point. I think it’s worth the expense.