Minor Thoughts from me to you

A. Barton Hinkle examines the Virginia state budget and determines that increased Medicaid spending is the big reason that the state government has had to cut the budget in recent years.

To hear some folks tell it, budget cuts in Virginia over the past three to four years have been so savage it’s a miracle there’s any state government left. We long ago cut out all the fat and hacked through the muscle; now we’re sawing deep into bone. Localities are scared stiff that the state will stiff them come January. And it’s only going to get worse. Gov. Bob McDonnell has had state agencies prepare plans cutting 2 percent, 4 percent, and 6 percent from their budgets. The stories have grown numbingly familiar.

Still: The general fund has grown roughly $1 billion from last fiscal year to this one. That represents about a 6 percent hike. So why is the governor asking agencies to plan for cuts?

… For example: From fiscal 2008 to fiscal 2012, general-fund outlays for the Department of Medical Assistance Services (that’s the one responsible for administering Medicaid and the state’s Children’s Health Insurance Program) have grown 35 percent. General-fund revenue hasn’t grown anything like that, so the difference has to come from the pockets of other programs.

Huh. Maybe we really should talk about reforming Medicaid.

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Education used to make up a bigger share of state spending. When the association first began compiling the report in 1987, elementary and secondary education made up the biggest share of state spending, and higher education the second-biggest share. Medicaid surpassed higher education as the second-biggest state program in 1990, and in 2003 it became largest state program for the first time. Since then it has vied with schools for the biggest share of state spending, but for the past three years it has been in the lead, with an increasing margin.

Maybe it's time to consider reforming Medicaid? Before it eats up state budgets completely? And maybe we could do it without demonizing the one party that's willing to talk about it? (Hello, Congressman Paul Ryan.)

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Some health plans require you to fill your prescriptions through mail order pharmacies. Some patients don't like that requirement. In New York State, that requirement will soon be a thing of the past.

The bill barred insurers or employers from forcing patients to use mail-order plans for prescription drugs, except for plans negotiated by unions. Instead, consumers would be guaranteed the choice of having their prescriptions filled either through mail-order or at the local drugstore, without any added copayments or fees.

So, at a time when health plans are under tremendous pressure to cut premiums (or at least to raise them as little as possible), the Governor is going to raise health plans' costs? Not exactly.

But the governor signed both bills late Monday on the condition that the Legislature would retroactively amend them to require retail pharmacies to accept the same reimbursement rates for drugs as mail-order pharmacies.

Oh, okay. The Governor is going to force small mom-and-pop stores to lose money on every prescription that they fill. Yeah, that's going to work out well.

There's absolutely no good way to fulfill this requirement without raising somebody's costs. The patient's preference for locally filled prescriptions is more expensive. By rights, patients should pay for that preference. Instead, the Governor is looking to make someone else pay instead. That's always a bad idea and this is going to end up back-firing.

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John Goodman finishes his analysis of complex systems. This time, he considers the policy implications of the fact that healthcare is a complex system.

• Complex Systems Cannot Be Managed from the Top, Down
• The Core Components of Complex Systems Cannot Be Copied
• Choosing Public Policies for Complex Systems
• Public Policy Lessons

Most people in health policy do not understand complex systems. They really don’t understand social science models either. As a result, when they advocate or enact public policies, they are almost always oblivious to the inevitability of unintended consequences. The idea that a policy based on good intentions could actually make things worse is beyond their comprehension.

Speaking as someone who works in healthcare: yup. Every time healthcare people get together in large numbers, I see the belief that they can figure out a master plan, using the power of good intentions to make everything better. (Usually, of course, without using any evil profits either.)

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Radley Balko points out how the Occupy encampments should have been taken down.

All of the cops who weren’t busy transporting and processing the voluntary arrestees lined up, blocking the stairs down into the plaza. They stood shoulder to shoulder. They kept calm and silent. They positioned the weapons on their belts out of sight. They crossed their hands low in front of them, in exactly the least provocative posture known to man. And they peacefully, silently, respectfully occupied the plaza, using exactly the same non-violent resistance techniques that the protesters themselves had been trained in.

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Peggy Noonan, on Newt Gingrich.

And that is exactly what I've been hearing from Newt supporters who do not listen to talk radio. They are older voters, they are not all Republicans, and when government last made progress he was part of it. They have a very practical sense of politics now. The heroic era of the presidency is dead. They are not looking to like their president or admire him, they just want someone to fix the crisis. The last time helpful things happened in Washington, he was a big part of it. So they may hire him again. Are they put off by his scandals? No. They think all politicians are scandalous.

The biggest fear of those who've known Mr. Gingrich? He has gone through his political life making huge strides, rising in influence and achievement, and then been destabilized by success, or just after it. Maybe he's made dizzy by the thin air at the top, maybe he has an inner urge to be tragic, to always be unrealized and misunderstood. But he goes too far, his rhetoric becomes too slashing, the musings he shares—when he rose to the speakership, in 1995, it was that women shouldn't serve in combat because they're prone to infections—are too strange. And he starts to write in his notes what Kirsten Powers, in the Daily Beast, remembered: he described himself as "definer of civilization . . . leader (possibly) of the civilizing forces."

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"Sugar" addresses a young adult who's worried and angry about having to start paying for her own student loans. Sugar's response was a great way to say what absolutely needed to be said.

Your parents helped you pay for your undergraduate education while you were a student and, presuming you didn’t graduate at 25 (a presumption which may or may not be correct), they also paid your monthly loan bill during the years immediately following your graduation. They’ve declined to continue to pay not because they wish to punish you, but because doing so would be difficult for them. This strikes me as perfectly reasonable and fair. You are an educated adult of sound mind, able body and resilient spirit who has absolutely no reason not to be financially self-sufficient, even if doing so requires you to earn money in ways you find unpleasant.

You say you’re grateful to your parents for helping you pay for your undergraduate education, but you don’t sound grateful to me. Almost every word in your letter tells me that you’re pissed off that you’re being required to take over your student loan payments. I point this out because I think it’s important that you acknowledge your anger for what it is. It does not rise out of gratitude. It rises out of the fact that you feel entitled to your parents’ money. You’re simply going to have to come to grips with the fact that you aren’t.

Her point is that working hard, working unpleasantly, will give you a big life that you can't get any other way. Hard work isn't a punishment, it's an opportunity. Don't squander it through self-pity and anger.

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I'm chortling madly over here. Why? Because the law of unintended consequences strikes again. Because people who ignored Bastiat's dicta regarding the "seen and the unseen" are being bitten, hard, by reality. Because federal regulators (hi Senator Durbin!) are once again proving to be powerless. People are not just pieces to be moved around a chess board by wise overseers. They make their own decisions and you can't predict what the ultimate effect of regulations will be.

Many business owners who sell low-priced goods like coffee and candy bars now are paying higher rates—not lower—when their customers use debit cards for transactions that are less than roughly $10.

That is because credit-card companies used to give merchants discounts on debit-card fees they pay on small transactions. But the Dodd-Frank Act placed an overall cap on the fees, and the banking industry has responded by eliminating the discounts.

"There will be some unhappy parties, as there always is when the government gets in the way of the free-market system," says Chris McWilton, president of U.S. markets for MasterCard Inc. He said the company decided that it couldn't sustain the discounts under the new rate model because the old rates had essentially subsidized the small-ticket discounts.

And, the kicker.

Mr. Scherr, the coffee shop owner, says that debit-card fees at one of his five stores rose to about 4.5% of sales from 3.5% of sales in the month after the new law took effect. "It's a killer for me," says Mr. Scherr, who estimates that 95% of his sales are under $15.

In the meantime, Mr. Scherr is weighing whether the expense of an ATM would justify its installation. If he gets one, he says he plans to "stick a sign on top of it, calling it a 'Durbin ATM.'"

I didn't expect that level of pushback from a Manhattan coffee shop owner. Good for him—I hope he does it.

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Dr. Robert Zubrin bangs a drum he's beaten before.

The Open Fuel Standard bill (H.R. 1687) would remedy this situation by requiring automakers to activate the flex-fuel capabilities of their vehicles. This would open the market to fuels producible from plentiful domestic resources not under cartel control, free us from looting by OPEC, create millions of jobs, slash our deficit, reduce the flow of income to the Islamists, and cushion us from counter-effects should forceful action be required to deal with threats such as the Iranian nuclear-bomb program. Introduced by Reps. John Shimkus (R., Ill.) and Eliot Engel (D., N.Y.), its current bipartisan list of sponsors includes liberals such as Jim McDermott (D., Wash.), Allyson Schwartz (D., Pa.), Steve Israel (D., N.Y.), and Howard Berman (D., Calif.) to conservatives Dan Burton (R., Ind.), Roscoe Bartlett (R., Md.), Tom Cole (R., Okla.), and Allen West (R., Fla.), as well as many in between. It is a bill clearly in the national interest, and should be supported by everyone from left to right.

By eliminating the artificial incompatibility between the vehicles we drive and the fuels we can make ourselves, the Open Fuel Standard bill will unchain the Invisible Hand, creating a true free market in vehicle fuels. Those reluctant to embrace it need to answer the following questions: In whose interest is it that Americans should continue to be denied fuel choice? In whose interest is it that America’s vast natural-gas, coal, and biomass resources remain unusable as a source of liquid vehicle fuel? In whose interest is it that America continue to give hundreds of billions of dollars each year to foreign potentates bent upon our destruction, instead of paying our own people to make fuel out of our own resources? In whose interest is it that a foreign cartel retains unlimited power to raise the cost of our fuel? In whose interest is it that we remain in the power of our enemies? Finally, should their interests be allowed to prevail, or should ours?

Bah. I dislike any proposal that starts with "someone is missing an opportunity to do some good" and ends with "let's force them to do it!". I don't care how good the idea is and I don't care whether it's proposed by a conservative or a liberal. I just care that your primary interest is in forcing it down everyone's throats and not in convincing everyone that it's in their own self interest.

If consumers were really shopping for methanol cars, manufacturers would be producing them. If methanol producers wanted consumers to drive methanol cars, they'd start an advocacy campaign and advertise about the benefits of methanol. That's how things should work. Bottom up change. Not top down coercion. And I don't care if Congressman Allen West does think this is a good idea. On this, he's wrong.

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Ramesh Ponnuru is pretty much where I am, regarding Mitt Romney and the Republican primaries. He's not my first choice but, of the choices we have, he may be the best.

Governor Romney has his weaknesses as a candidate, too. In the past only high-income voters have demonstrated a natural affinity for him. His flip-flops are well documented. He won’t be able to take full advantage of the unpopularity of Obamacare. A significant number of voters will hold his Mormonism against him, although Republican voters in recent surveys seem likely to look past this misgiving in the interest of retiring Obama and most Democrats who oppose Mormon candidates won’t be available to any Republican nominee. But he is also reasonable, articulate — phenomenally articulate, by the standards of recent Republican presidential candidates — and reassuring. Democrats will try to make him into a scary figure, but they will have less to work with than if Republicans nominated Bachmann, Cain, Gingrich, Perry, or Rick Santorum. He has improved as a campaigner, and now usually projects an air of command that eluded him in the last presidential race.

Honestly, given Governor Huntsman's record, I think he'd be a good candidate. But he and the Republican base apparently feel nothing but antipathy for each other. So, Romney's the one.

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An oldie from August, that I've been hanging on to, for some reason. Veronique de Rugy breaks down S&P;'s memo about why they downgraded US debt to an AA+ rating.

The bottom line:

In other words, to avoid a downgrade, it would have been key in S&P’s opinion to show signs of willingness to cut (contain) Medicare and other entitlement spending. That didn’t happen, since many lawmakers in Congress (Democrats mainly, though not exclusively) refuse to talk about how much we can really afford to spend on Social Security, Medicare, Medicaid, and other social programs.

As a result, it is difficult to claim that the Republicans’ unwillingness to raise revenue is the only reason for this downgrade. It seems to me that there is enough blame to go around.

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If we ignore the fake prices that typify the American health care experience, it's clear that the U.S. uses fewer resources to deliver health care than any other developed nation.

The concept of opportunity cost allows us to see that if we don’t trust spending totals in the international accounts, there is another way to assess the cost of health care. We can count up the real resources being used. Other things equal, a country that has more doctors per capita, more hospital beds, etc., is devoting more of its real income to health care than one that uses fewer resources — regardless of its reported spending.

On this score, the United States looks really good. As the table below (from the latest OECD report) shows, the U.S. has fewer doctors, fewer physician visits, fewer hospital beds, fewer hospital stays and less time in the hospital than the OECD average. We’re not just a little bit lower. We are among the lowest in the developed world. In fact, about the only area where we “spend” more is on technology (MRI and CT scans, for example), as is reflected in the second table.

We might be able to see these lower costs if we could only get some real price competition into the market.

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Jerry Pournelle, on foreign policy.

Iraq is another story. We’re pulling out. We have spent $Trillions, we have left chaos, we have removed a major threat to the stability of Iran, and I am not sure what we got out of it. And Iraq certainly does have stuff we want. Oil, to begin with. A fair amount of Yellowcake – uranium ore. Lots of other stuff. And we’re running out because the Iraqis insist on applying Iraqi “law and order” to the US forces in Iraq.

I’d be tempted give them a $3 Trillion bill on the way out, and leave an occupation force in one of their major oil fields where we’d be pumping oil and selling it until most of the bill was paid, but that option was apparently never considered. Incidentally, we could defend our occupied oil fields with Sudanese and for that matter Libyan mercenaries, which we pay for out of the oil proceeds.We wouldn’t need a large US force in Iraq; they could be in Kuwait . Pumping lots of Iraqi oil would drop the world price of crude, and be a great jobs program for the United States.

... I don’t much like Empire as a policy, but if we are going to play Empire, can’t we find someone who knows how to do it competently?

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Megan McArdle artfully skewers an entire genre: books that make us feel bad about buying things.

One of the running themes of the economist Robin Hanson's excellent blog is that arguments like the ones found in these books are actually an elite-status proxy war. They denigrate the one measure of high-visibility achievement—income—that public intellectuals don't do very well on. Reading "Shiny Objects," you get the feeling that he is onto something.

Consider the matter of status competition. Mr. Roberts, like so many before him, argues that conspicuous consumption is an unhappy zero-sum game. But this is of course true of most forms of competition: Most academics I know can rank-order everyone in the room at a professional conference with the speed and precision of a courtier at Versailles. Any competition, from looks to money to academic credentialing, both consumes a lot of resources and makes many of the participants feel bad about themselves. Why, then, does the literature on status competition always tell us that we should redistribute capital gains or inheritances and never tell us that we should redistribute academic chairs or book contracts?

Fantastic.

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Ron Paul's new ad explains perfectly why I'm not interested in nominating Newt Gingrich.

The usual liberal complaint against the conservative opposition to higher income taxes is greed and the better-offs’ self-serving reluctance to pay their “fair share.” But while perhaps true in some instances, I don’t think that is an accurate writ against most of those in that now demonized $200,000 and above categories who resent forking over more. Rather, here are a random 12 complaints that I hear from those who become furious about preposed higher income tax rates:

1. The Entire Bite
2. Inequality?
3. Wise Spending?
4. Always More Spending?
5. Less Efficiency?
6. Inequality by Income?
7. Psychological
8. Sic Transit Gloria
9. The Private HHS Department
10. The Technocratic Class
11. Politics
12. Technology

Worth reading. This certainly explains a lot of my own resistance to higher taxes: for me or for others.

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This is the real work of "rebuilding America's crumbling roads". And the money involved is going to require everyone to pitch in, especially the people who use Wisconsin's roads the most.

All highways wear out over time, despite ongoing maintenance. Over the next 30 years, most of Wisconsin’s Interstate system will exceed its nominal 50-to 60-year design life and will need complete reconstruction. When that point is reached, it makes sense to update designs to current safety and operational standards, as was done recently in the reconstruction of the Marquette interchange. And in corridors where demand is projected to exceed capacity, resulting in heavy congestion, it makes sense to add lanes.

Wisconsin already has a $1 billion per year highway funding gap. The total $26.2 billion cost of this Interstate program is far beyond the ability of current transportation funding sources to handle. Federal and state fuel tax revenues, the largest source of transportation funding, are in long-term decline in real, or inflation-adjusted, terms, and a portion of Wisconsin’s vehicle registration fee revenue is now committed for several decades to paying debt service on transportation revenue bonds issued since2003 to cover funding shortfalls. General obligation bonds, with general fund debt service, were also issued to make up for recent diversion of transportation fund revenue to the state’s general fund. To rebuild the rural Interstate and southeastern freeway system in a timely manner will require an additional source of transportation revenue.

This study explores the feasibility of using toll revenue financing to pay for this $26.2 billion reconstruction and modernization program. Under the principle of value-added tolling, tolls would not be charged on a corridor until it was reconstructed and modernized. All toll revenues would be dedicated to the rural Interstate and southeastern freeway system corridors, as pure user fees. Based on a 30-year program of reconstruction and assuming moderate toll rates comparable to those on other toll road systems, the study estimates that the entire rural Interstate program could be financed by toll revenue bonds. For the southeastern freeway system, one option is to toll only the new lanes, operating them as express toll lanes. Doing so would produce enough revenue to cover about 17% of the cost of the entire freeway system reconstruction. Tolling would be all electronic, with no toll booths or toll plazas to impede traffic. If political support could be garnered to price all lanes on the southeastern freeway system instead, our analysis estimates that the revenues would cover 71% of the cost of reconstruction.

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Yesterday I went through the imaging scanner at JFK Terminal 4 for my Virgin America flight to San Francisco.  Evidently they found something, because after the scan, I was asked to step aside to have my breast area examined.  I explained to the agent that I was a breast cancer patient and had a bilateral mastectomy in April and had tissue expanders put in to make way for reconstruction at a later date.

I told her that I was not comfortable with having my breasts touched and that I had a card in my wallet that explains the type of expanders, serial numbers and my doctor’s information pictured and asked to retrieve it. This request was denied.  Instead, she called over a female supervisor who told me the exam had to take place.  I was again told that I could not retrieve the card and needed to submit to a physical exam in order to be cleared.  She then said, “And if we don’t clear you, you don’t fly” loud enough for other passengers to hear.  And they did.  And they stared at the bald woman being yelled at by a TSA Supervisor.

There are reasons that I don't fly, unless I absolutely have to.

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President Obama is proposing a new principle: the “Buffett rule”

President Obama on Monday will call for a new minimum tax rate for individuals making more than $1 million a year to ensure that they pay at least the same percentage of their earnings as middle-income taxpayers, according to administration officials.

Mr. Obama, in a bit of political salesmanship, will call his proposal the “Buffett Rule,” in a reference to Warren E. Buffett, the billionaire investor who has complained repeatedly that the richest Americans generally pay a smaller share of their income in federal taxes than do middle-income workers, because investment gains are taxed at a lower rate than wages.

This argument, however, ignores the entire concept of double taxation. I oppose the Buffett rule because investment income is already taxed twice: once as corporate income and once as investment income. This means that investors are actually paying higher taxes than everyone else.

I’ll illustrate this by walking through a simplified example. I’m aware that this is a very, very, very simplified example. (For instance, it ignores corporate tax deductions and other “tax breaks”. It also ignores whatever “loopholes” Mr. Buffett is currently using to reduce his own personal tax liability.) I think the general idea is correct, however.

Let’s say Berkshire Hathaway earns a profit of $18,000,000 and wants to distribute the entire amount as dividends to its shareholders. And, for the purposes of extreme simplification, let’s say that Mr. Buffett is the sole shareholder.

First, Berkshire Hathaway must pay U.S. corporate income tax on the profits. Corporate income of $18,000,000 would be taxed at a rate of 35%. The remaining balance would be distributed as investment income, to Mr. Buffet. Mr Buffet will then pay a capital gains tax of 15% on that money. Here’s how that breaks down.

Now, let’s imagine that we implement the “Buffett Rule” and we require Mr. Buffett to pay a 35% tax rate on his investment income. Here’s how that breaks down.

This rule definitely forces Mr. Buffett’s taxes up, but he’s hardly paying the same rate as the rest of us. He’s now paying a total tax rate of 58% on his income—far more than the 35% rate that “we” pay.

If we wanted to aim for equal taxation (the supposed aim of the Buffett Rule), we need to aim at more fundamental reforms. For instance, how about eliminating the corporate tax rate and then taxing investment income at the same rate as personal income? That would eliminate all of the hanky panky that goes on with the corporate tax code and would, in one fell swoop, eliminate all of its deductions and loopholes. It would simultaneously increase the taxes directly paid by Mr. Buffett. Here’s how that breaks down.

Mr. Buffett is now paying the same rate as “we” do. That’s fair, isn’t it?

Georgia absolutely should not execute Troy Davis next week. No one should ever be executed when there is this much doubt in the case record. This is very disturbing and scary.

In an extraordinary hearing in June 2010 ordered by the U.S. Supreme Court, Davis' attorneys were finally allowed to present evidence of his innocence to a federal judge. In statement after statement, witnesses from the original trial avowed that they had been coerced by police to implicate Davis in the shooting or had lied in order to secure lenience for their own troubles with the law.

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Emanuel also noted the prosecutors' reliance on two hearsay confessions at the original trial, including one allegedly given by Davis to a cellmate shortly after his arrest. Both confessions were later recanted by the witnesses in affidavits.

"At the original trial, you've got very dubious eyewitness identifications and a lot of hearsay," Emanuel said. "It's appalling for a death case."

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