Thursday, May 31, 2012

Don't distort the beverage market just because the health insurance market is messed up

The Political Economy of Obesity

In the above article, Jared Bernstein argues for a Pigovian tax on soft drinks to fight the obesity epidemic. A Pigovian tax is economic jargon for a tax that is levied to remedy an externality. It does this by increasing the private marginal cost so that it aligns with the social marginal cost. More info can be found here.

Mr. Bernstein's argument is summed up by him as follows:


- The increased caloric content of sugary drinks has contributed to the epidemic;
- The epidemic is a significant contributor to the increase in health costs;
- There's a large price elasticity in play here.

Mr. Bernstein feels that this tax is necessary because obese people who drink "high calorie" soft drinks do not take into account the additional health care costs that they place on society and thus they consume too much.

But in my opinion the bigger problem is that we have a health care system that allows obese people to burden others, mainly because they are not charged correctly for their insurance. Mr. Bernstein anticipates this and counters with "But there are problems here -- what about low-income, overweight people who can't afford the higher premiums? What about the uninsured?"

But if low-income, overweight people could not afford insurance because of their weight problem, wouldn't that provide them with an incentive to lose weight? Simply saying that they could not afford it and thus this idea would not significantly reduce the problem is missing the point of incentives. If we subsidize their insurance through inefficiently priced premiums so that they can afford it, where is their incentive to change?

The insurance market is full of distortions such as the tax benefits given to employee provided insurance and coverage mandates for certain services (both of which lead to having an excess of uninsured). But just because there are distortions and inefficiencies in the health insurance market does not mean that we need to resort to a second best solution in the beverage market. What policy makers should do is remove the distortions in the health insurance market and let the marketplace work. In my opinion this would internalize a lot of the externality, eliminating the need for any Pigovian tax on "high calorie" drinks.

Tuesday, May 29, 2012

Global warming skepticism

Good article from Forbes contributor Larry Bell about the "facts" behind global warming.

Even if you think humans significantly contribute to global warming I think this article is a good read. It probably won't convince you to change your mind, but I hope it encourages you to do some more research and always be skeptical of experts and their science.

Hopefully honest debate will prevail on the topic of global warming and real scientific data can be used to guide our decisions about what to do if there really is a problem.

Monday, May 28, 2012

More clean energy babble from the NY Times

Cleaner Energy

The NY Times editorial page is again writing about the need for congressional subsidies for "clean energy" aka wind, solar, geothermal etc.

Basic economics says that subsidies are only (potentially) desirable if there is some divergence between the private marginal benefit of the business or individual and the social marginal benefit to society.

Many people argue that this divergence exists in the form of the benefits to the U.S. as a whole of weaning ourselves off foreign oil. They argue that this benefit is not accounted for by the energy companies, and thus the energy companies do not value clean energy enough. This is the stance taken by the NY Times writers in this article.

But most of the energy that the U.S. gets from foreign sources comes from friendly sources. The top 4 countries are Canada, Mexico, Saudi Arabia, and Venezuela. Out of those 4 countries only Venezuela has anything close to a hostile relationship with the U.S., and they are certainly not a military threat.

The NY Times argues that we need to subsidize clean energy to rid ourselves of these imports, but if ridding ourselves of imports is truly the most important reason (though I am not sure why it would be considering who we import from) they why not just use the abundant coal and natural gas that we have in this country? Those fuels need no subsidies and could easily do the job, or at least take the place of countries like Venezuela.

The truth is that people who say this do not  primarily care about relieving us of our dependence on foreign oil. What they really care about is shutting down the production of fossil fuels in order to save the environment. In particular they want to save us from global warming. If this is not the case, it seems odd that they would want to take money that they could spend on their other pet projects and divert it towards subsidies for "clean energy" when they could just argue for more coal and natural gas to solve the dependency problem.

So the next time you hear someone talking about ridding our gas pumps of foreign oil through clean energy remember that what they really want to do is rid us of our gas pumps.



Saturday, May 26, 2012

Here is another cool website

Learn Liberty

This website was created by the Institute for Humane Studies and is a great place to start for those interested in libertarianism.

If you have ever wondered why some people say that a hurricane can be good for an economy, I recommend the broken window fallacy video.

Also check out the tragedy of the commons video and the externalities video, both of which are done by Sean Mulholland, a fellow Clemson man.

Thursday, May 24, 2012

Sounds like a great idea

The Cato Institute has just started a new website dedicated to publicizing police misconduct.

I haven't had a chance to fully check it out yet, but I like the concept. Police misconduct has become a huge issue in  my opinion and I think it is great that Cato is drawing attention to it.

Thursday, May 17, 2012

Wow, Chuck Schumer is only 5!

Can it get any more petty than this?

What's next? Is Schumer going to audit me because I called him out on this blog?

This is absolutely ridiculous. Mr. Saverin helped create something that almost a billion people enjoy and, as stated in the article, has already paid hundreds of millions of dollars in taxes. Mr. Saverin has done more for this country than nearly every politician and was a better American than Schumer will ever be.

Saturday, May 12, 2012

Businesses lose money all the time

Chase loses $2 Billion

On May 11th JP Morgan Chase announced that their investment bank made some bad bets and that could result in losses of up to $2 billion. This has reignited the call for more oversight of banks and stiffer regulation, along with the possible breakup of "large" banks.

What I don't understand is why this loss is any one's concern other than Chase, its management, its employees,  its creditors, and its shareholders. Businesses lose money all the time. They make mistakes and sometimes go out of business because of it. Sure $2 billion is a lot of money, but Chase made over $5 billion in profits in the first quarter of 2012. At that pace a loss of $2 billion will be less than 10% of 2012 profits.

But Barney Frank and the rest of the democrats are lauding this event as proof that banks need the government looking over their shoulder to ensure that mistakes like this don't happen again. But why is it their concern? If shareholders are upset, they can sell their stock and buy something else. If employees are upset they can find new jobs. The responsibility of correcting this mistake and ensuring that it doesn't happen again does not lie with the U.S. government, but with Chase's management and board of directors.

If we start looking at financial mistakes made in the private sector as reasons for government intervention then soon it may be impossible for anyone to go out of business. If a coffee shop makes a mistake and has to close down, maybe Mr. Frank can write some regulation to make sure that no coffee shop goes out of business ever again. We can have government agencies monitoring all industries to ensure that no mistakes are ever made again. Ever. I mean look at the great work the government did watching Fannie and Freddie.

Pundits are saying that Mr. Dimon, CEO of Chase, has no leg to stand on when it comes to criticizing more regulatory oversight anymore. But I disagree. Bank management did not promise that they would never make mistakes, and mistakes like Chase's will always occur, even with more regulation. But businesses that make mistakes and lose money should not be subject to some special government monitoring disguised as "protection". I hope that Mr. Dimon continues to speak out against the pitfalls and burden of more regulation. I also hope that more people join him.

Losing money is a necessary part of capitalism. There is profit and there is loss. If we try to eliminate the latter I am not sure what system we are using, but it certainly isn't capitalism.

Thursday, May 3, 2012

NFL deaths

With the recent death of former San Diego linebacker Junior Seau, sports writers and media pundits are again bringing up the dangers of football, specifiably the dangers of repeated head trauma. Many former NFL players, including a group lead by former Cowboy and hall of famer Randy White, have filed lawsuits against the NFL looking for damages.

I am not a lawyer, but I cannot possibly see what case these players have. It seems obvious to me that if you have a lot of concussions or head injuries it could lead to some problems down the road. Are the players not smart enough to figure this out for themselves? I know medical science wasn't as advanced in the 60's and 70's as it is now, but I don't think it takes too much medical knowledge to come to the conclusion that repeated blows to the head are not good for your health.

 Junior Seau came out of retirement twice to play football again. Was he not smart enough to understand the risks? Or did he know about them and decide that the benefit was greater than the cost? If it is the latter, and I think it likely is, then the NFL is no more responsible for his death than a city is for the death of one their police officers who dies in the line of duty. There are known risks to the job, and if a competent adult chooses the occupation of a pro football player they are accepting those risks. Are MMA fighters going to get to sue the MMA in 25 years when former fighters start developing problems?

Former players coming back to sue the NFL are in my opinion saying that they were too ignorant, or perhaps too stupid, to understand what they were doing when they played in the NFL. This seems like a dangerous road, and if a judge sides with them then we are moving onto a slippery slope of adults not being responsible for the actions they take. It is bad enough when lifetime smokers win cases against tobacco companies (wait, you didn't think inhaling smoke into your lungs would be a bad thing?). If football players start winning too, jobs that are not fundamentally necessary and are risky, like playing pro football, may not exist. Perhaps that is not a bad thing, but it is something to think about.