I'm A Big Nerd

Last week David Brooks wrote an interesting opinion piece called Let’s Get Fundamental which highlights some of the more pervasive underlying problems with insured healthcare.  Brooks’ writing itself wasn’t anything special (sorry David, I usually enjoy your columns, but this one was pretty mundane), but it did call to my attention a truly great essay written by David Goldhill in The Atlantic entitled How American Healthcare Killed My Father.   Goldhill’s essay has a misleading title — little of it is actually about how the American system failed his father.  It’s actually a high-level view of how any system whereby all of our health-care costs are “insured” is theoretically terrible.   Healthcare is not health “insurance!”

Crystallized into its most succinct form, Goldhill’s argument has three major points:  1) there is no possible universe in which having routine healthcare paid for by “insurance” instead of out of our own pockets makes sense, 2) we don’t realize how significant the true cost of this perverse setup (where even routine checkups are paid for by “insurance”) is to our own pockets., 3) even worse, the misdirection that occurs by having us pay money to insurance companies who in turn pay for all our healthcare causes massive inefficiencies in the type of care (and how much of it) we actually get.  All of this paid for out of our own pockets just in an obfuscated way that makes it tough for us to get a real handle on it.    I highly recomend Goldhill’s entire article as his writing is brilliant and he has several other terrific arguments, but the scope of my post today just covers these major points.

Think about this issue at a high level.  You walk into a doctor’s office.  You walk out, having paid some pittance of a co-pay (say $30).  To you, it seems nearly free.   But how could it possibly be free?  Who would be subsidizing our care?  Furthermore, an insurance company, one that specializes in statistically understanding how to finance rare large outflows (e.g. massive surgeries) with common small inflows (premiums), pays for this.  How could it possibly be more efficient for an insurance company — which has to handle massive overhead, investigate claims, etc. — to pay for services only you and your doctor know the true value of?

The answer is it can’t, it isn’t, it never will be!  The entire American healthcare system is actually one giant misdirection caused by a single seemingly innocuous law which made employer contributions to employee health plans tax-deductible half a century ago.   This law meant that employer-funded health insurance became the most affordable option (after taxes) for all healthcare coverage and that completely skews our entire system.

How so?

Let’s take an example from my own life.  About four or five years ago, I had terrible pain on the outer half of my left knee every time I ran.  One routine visit to an orthopedist and I had a reasonable diagnosis of iliotibial band syndrome (ITBS), a common injury in which one has strained the band connecting our hips to our knees (along the sides of our legs).  The injury either gets better on its own or through physical therapy in more severe cases.  However, in addition to this diagnosis, I got a prescription for an MRI, “just to make sure.”  These works plague our healthcare system.

MRIs are something like $1200 (why they cost so much is another argument and to avoid circularity, I will avoid discussing that).   You should not have a $1200 procedure to diagnose an injury that has already been diagnosed(!) when the prognosis even if this diagnosis is not correct is still nothing serious (at worst without an MRI I would have to see the doctor again in a few months if the pain continued).   Is there any planet on which this can possibly be efficient?

And yet I of course had the MRI done because in our current system that’s the most efficient thing for me to do — hell, I’m already paying for it anyway.

In this post I’m going to attempt to address some portion of the debate surrounding Health Care. Obviously this is an enormous topic which cannot possibly be covered in a single blog post. Nevertheless, I will try to make some useful arguments.

First, we present the problem. The essential problem is that Health Care spending as a percentage of our total income is on the rise. The Congressional Budget Office predicts:

• Aggregate health care spending which amounted to 16% of our GDP in 2007 will rise to 25% in 2025, 37% in 2050 and 49% in 2082.
• Federal spending on Medicare (net of beneficiaries’ premiums) and Medicaid will from 4% of GDP in 2007 to 7% in 2025, 12% in 2050, and 19% in 2082.
• The growth in spending does not lead to a commensurate growth in actual health (as measured in complicated fashion)
• The “aging population effect” only accounted for roughly 20% of the overall “excess” cost growth in aggregate spending

Related to the second argument, but not quite the same — the New England Journal of Medicine claims that we are simply getting more care from more expensive procedures (which are “better”, i.e. either cause less discomfort or are more diagnostically accurate). If this were true, the most important outcome would be substantial improvements in our life expectancy.

Our health care standards are actually improving substantially, leading to longer lives. As we live longer we will need more health care (older people need more care). Thus improvements make sense — I state this as an argument, but it is effectively debunked in the CBO report above, in which the CBO shows that only 20% of increasing health care costs can be attributed to the “age” effect and this number decreases over time down to 10% in the CBO’s 2082 predictions.

An increasingly litigious society means more, expensive malpractice lawsuits. Malpractice insurance premiums go up, thus so do doctors fees, and doctors practice “defensive” medicine in which they order unnecessary tests to save their skin.

Excellent post by Roger Cohen (he is really a terrific columnist). Obama has been right about treading gently so far, but he needs to forcefully condemn the violence in Iran and the banning of the media from its coverage.

Charles Krauthammer today writes a scathing review of Obama’s handling of the brewing Iranian conflict.   He, along with countless other conservative pundits, believes that Obama is “…afraid to take sides between the head-breaking, women-shackling exporters of terror” and that his even-handed response of simply refusing to get involved is cowardly and wrong.  This is an easy and even persuasive argument — Americans hate repression and repression is certainly the name of the game in Iran at the moment.

I’m not going to respond with my own too-wordy polemic on the flaws of the past 50 years of American realpolitik.  Let me simply say that I am not a Kissengerian and I think the Manichean worldview is wrong not in the moral sense, but in the “how can we get it right” sense — i.e. what will produce the best outcome.  In a perverse way, I and other liberals are actually more Machiavellian than our conservative counterparts like Krauthammer!  While he believes it is our fundamental duty to stand up against repression and for democracy, even if it means a worse outcome in the long run (because it makes America an easy stooge), I believe the ends justify the means — we should do whatever we consider necessary to end up where we want to be … with a freer and more Western friendly Iran.

Peggy Noonan has a great piece on this topic and I agree with her 100%.

I’ve decided to re-open my blog.  It will be a mix of politics, technology, and economics (and maybe some sports) given my interests.

Today’s post will be tech-centric, so those uninterested can navigate away now.

I want to talk a little bit about my vision for “devices” as we begin to move towards the next generation of computing.  To me there are three major factors which define the “next generation” of consumer computing/tech:

- significantly faster, ubiquitous broadband (wireless)

- unlimited computational power and relatively cheap access to any software via cloud

- open specifications for devices which enable device categorization and communication between multiple manufacturers

You can probably tell from my use of bold and my blog title that I want to discuss the last of these three in this post.  

What is an open specification?  To begin, let me posit a scenario.  Let’s say Apple comes out with a much anticipated tablet PC on Monday at their Worldwide Developer’s Conference.  What would this tablet look like?  Well, it would probably look like a big version of an iPhone to some extent — it would be mostly for web browsing and watching media, not for doing document editing which is clearly a pain with no keyboard (although certainly one could attach a wired or wireless keyboard).

But what if instead of just being a standalone device, Apple envisioned the tablet as a device capable of multiple functions.  Let’s call each of these “classes”:

- display

- internet access/wireless router/network creator

-  computation/CPU

… among other, more specific categories.  Now imagine that you have 2 people with iPhones, which would be have all of the capabilities above, plus the ability to act as a “controller” because of its small size.

Now imagine you could play a game of air hockey, using the tablet as the screen (it would also handle the computation of the game and set up an ad-hoc wireless network over which the game would occur), and your iPhones as paddles/controllers.  How cool would that be?  How cool would it be if you could just as easily use a Google (Android-based) phone as one controller and an iPhone as the other?

The concept here is abstraction.  If device makers start to create abstract “classes” which restrict a device’s sphere of activity, it enables much superior interplay between devices even among different manufacturers.  For the above example to work, there simply needs to be a controller “class” that hands off control data to a “computation” class over a network created by a “network” class, with the ultimate output displayed by the “display” class.  These can all be the same device, each different devices, or 3 classes in 1, 1 class in another, as in the air hockey example (tablet is computation, network, and display, iPhones are controllers).  In other words, rather than deal with specific devices having different capabilities, we have an open specification that says “ok, if you’re going to claim to be a network class, here’s what you have to support and in this language that every other device understands.”  And all of the sudden myriad devices can interoperate and open up new use possibilities that simply weren’t possible before.

This is not a new concept.  Abstraction and object-oriented (hierarchical class structure) are ideas that have defined software development for decades.  Nor are these ideas limited to software development.  Your computer itself is built on similar principles — you have a motherboard which can be made by one company, a CPU which can made by another, a graphics card made by a third, a hard disk made by a fourth, and etc.  None of this would work if these pieces of hardware were not written with defined roles and interoperability in mind.   But for years since the advent of the personal computer, we have thought of these distinct types of device — a desktop, a laptop, a mobile phone, a music player [ipod], a personal organizer — rather than about the roles they actually fill.  Nowadays it is common for the mobile phone to encompass multiple roles and even subsume portions of the laptop/desktop role, but we’re still hamstrung by lack of interoperability between them even though all of the technology exists to make amazing interoperability work seamlessly.

In other words, I advocate a different type of thinking.  I would do away with the device-centric viewpoint which says “I want one device to do everything.”  Or more accurately, I have no problem with devices that do everything as long as they also implement a restricted set of behaviors according to well-defined, open specifications that enable complex interactions with other devices.  I embrace a different model where devices can do everything or do very specific things(!) and thus interact seamlessly.   In a world where increasingly every piece of electronic equipment out there, including washers, dryers, energy meters, audio equipment, etc., is gaining computing power and versatility, we need abstraction and role restrictions to make the most of our device potentials.

A Side Comment…

Been awhile since I posted. Not because there’s been a lack of political news, because there’s been a lack of real political news. Personally I don’t find a lackluster, empty debate worthy of much commentary.

Nor do I want to waste time covering how absolutely childish the rows over ACORN, Bill Ayers, etc. are. There’s a sort of metapolitical game these people play where no one actually believes anything anyone says, but missteps in how they say it are fair game for skewering. Politics has become the chosen field for those kids who were good at hurling insults and forging comebacks in high school.

Gets pretty old after awhile. It is fairly sad to see the Republican Party in such disarray, though. Hopefully the lesson learned is 1) don’t elect a moron president, it comes back to haunt you even if it works in the short term, 2) vicious political strategies may work short-term but they’re self-damaging long-term.

Tax Policy

Most people assume that because I support Obama, I am a huge liberal. While I am pretty liberal overall, I like to describe myself as a fiscal conservative. I really don’t like Obama’s tax policy. I don’t like McCain’s either, but it’s better than Obama’s. So why would I vote for Obama when economic issues are paramount if I don’t like his tax policy? Because, despite our frozen economic climate, I don’t think the economy is the #1 issue (it’s foreign policy). We like to fool ourselves into believing that the government’s fiscal and monetary policy has a huge effect on how soon we get out of this mess. It doesn’t (outside of bailing out major institutions, perhaps, since a major failure would be a game-changer).

Obama’s tax policy is miserable. A higher tax rate on the richest people just amounts to reducing the most productive peoples’ incentive to work at a time when the economy needs them to be most productive. And America’s corporate tax does have to come down, period. Hardly anyone but small businesses pay the full American corporate tax anyway; most companies pay de minimis tax in America by either exploiting tax loopholes or playing financial games to keep profits offshore. But if we keep our taxes as high as they are, we are going to start losing companies overseas. These days companies go where it’s most efficient to exist in a way that individuals don’t and can’t. And that ain’t the US, especially as the world rebuilds most likely without the US at the unquestionably absolute center of the economic universe.

Leaving aside corporate tax for the time being because it is a more complicated subject, let’s consider personal taxes (basically income tax). The problem with taxes in general are that they promote inefficient behavior. Taxing someone for something means they either do their best to avoid paying that tax or are less incentivized to do the thing you’re taxing them for. Income taxes, for example, mean that a dollar earned is not worth a dollar to me. It’s worth $0.70 or so to me and $0.30 or so to the government. So I’m only willing to go to $0.69 worth of trouble to make that $0.70 even though I charge $1 for it. This is inefficient since governments want people earning more money (thereby raising national productivity) and so want that extra $1 of income to be worth $1.

On a larger scale, this inefficiency means that citizens make less and countries are less productive – therefore income-based taxation is stupid. Why make your country less productive? To figure out what else can be done, we have to consider the goal of taxation.

This is a big topic, but my take on it is that the goal of taxation is to raise money for the government in as efficient a way as possible, invoking “pain” on citizens as little as possible. Since the wealthy can afford to pay more than the middle-class or poor, the wealthy should be disproportionately taxed. This is one of the principals behind marginal taxation (which is a decent idea that makes the most of a flawed system). My thought: we should replace all income taxation with consumption taxation. Such taxation should ramp up marginally based on the cost of an item consumed.

That sounds weird, doesn’t it? Let me give you an example. Let’s add a tax to all movie ticket purchases. Everyone who pays for a ticket pays 10% of the price to the government. This is the concept behind the European VAT (value-added tax).

Why is this a good idea? Because the inefficiency created by taxation is uniform. We’re all uniformly predisposed to spend less on consumption because of this 10% tax (and saving is good since it adds to available investment capital!). And consumption is something we all need to do anyway, otherwise what is the point of making money?