Microsoft Musing

I caught this courtesy of Brad DeLong:
"Every quarter Microsoft reports earnings, and every quarter it reports a massive loss in its online operations. Today it reported a $543 million loss for its December quarter. This gives Microsoft a trailing-four-quarter loss of $2.5 billion. That's simply astounding. We've asked it before, and we'll ask it again: Has any company lost as much money online as Microsoft?"
This blows my mind. I am sure this is more than just Bing and Internet Explorer but both suck tremendously. Ironically Bing is the default search engine of my Android phone (courtesy of Verizon apparently getting boatloads of money from Microsoft to make it so).

Less Care or Greater Productivity?

There is a fundamental assumption in health care reform that "bending the cost curve" is synonymous with reducing care*. For example see this very thoughtful post from Donald Taylor**. I think this assumption leads most health care experts to focus on empowering some omniscient bureaucrat (whether employed by the federal government or by an insurer) to wisely decide how to maximize the returns on our health care dollar by only spending on high bang for the buck procedures. This view precludes the notion that productivity gains could drive down costs. In health care the conventional wisdom holds that technology only drives prices up (it may also enhance quality but at a significant premium). I wonder how much of this is driven by the fundamentals of health care financing as opposed to actual delivery? The areas of health care where insurance is not the normal means of financing care such as plastic surgery or dental care have shown significantly lower cost growth than the rest of health care. Or if you look at something like Lasik eye surgery there has been both an increase of quality, utilization accompanied with price decreases. Obviously insurance should play an important role in health care but the important question is what role? Should we be subsidized to purchase a product that adds parties to a routine and predictable transaction? No. We should focus on ensuring that when something that unexpectedly causes one to incur great expenses that he does not end up in the poor house.

*I do believe that part of bending the cost curve will be better utilization of care and this will necessarily entail some reduction in the care provided. But I can't help but wonder if how health care delivery is financed holds back some potential productivity enhancing measures.

**If you are interested in health care policy Donald Taylor's blog is a must read. He has considerable expertise in health care policy but also has a keen read on the politics of health care. He has a very provocative compromise proposal that I will blog in a bit but you should definitely read now.

The Great Stagnation

Tyler Cowen has a kindle single (a small e-book) out called "The Great Stagnation". I haven't read it but hope to soon and will report on it once I do. That said, it appears one of the basic premises is that innovation has stalled or declined. It's an interesting premise because I think it is a very debatable premise. I look at my life at almost thirty and if I were to bisect my life into two 15 year terms the second term appears to me to be the one where a lot more amazing things have happened.

I recently purchased a smartphone (I don't know how I ever lived without it). 15 years ago I had a cd player. If I wanted to carry my music collection then I needed to transport a book of cds. I had a desktop that had dial up and internet was glacial compared to what it is now. I had just started emailing and surfing the web but the notion of doing that while riding the metro or waiting for my coffe was unimaginable to me. I didn't have a navigation tool other than a map book (I was either unaware of mapquest or it didn't exist yet). My go to basic reference guide was encyclopedia brittanica. Video chats was not something I was aware of then (I am guessing it existed but was probably exorbitantly expensive and probably unreliable). Voice recognition, I doubt it. If I wanted a book for leisure reading I needed to bring that with me (a choice of books, had to of course bring those too). Amazon existed so I could buy stuff readily. Cell phones were rare and to the extent they existed were massive and expensive. Now, I have this little thing that is 3"x6" has a beautiful display (AMOLED) and barely weighs anything and can carry more music than I could have, has as much data at my fingertips than I could have dreamt of, access to thousands of books, phenomenal connectivity and speed, and a million other things for a pittance. The functionality that this little device I would have, or more accurately, begged my parents to spend thousands of dollars for. My guess is that such a device if it had existed then would have cost over $10,000. Now it can be had for maybe $500 without signing up for a plan and as low $0 with a cell plan. The marginal cost over what my parents paid for dial-up and long distance is negative. I am sure that my cell and data plan today costs less than their landline and dial up did back then. That is amazing to me. To me that sounds like a lot of innovation.

Jim Webb Just Won His Re-Election Bid

George Allen, R-Macaca, has announced his intention to run for his old senate seat.

Nevermind, Repeal HCR

Ezra Klein has a post begging us to remember the story of Deamonte Driver when we think of the plight of the uninsured. For those unfamiliar with Deamonte's tragic story, Deamonte was a 12 year old who passed away several years ago as an abcess in his tooth which then spread to his brain, multiple operations and $250,000 later Deamonte died from what could have been solved by a routine tooth extraction. The only problem with Ezra's plea is that Deamonte was covered under medicaid and area dentists that accept medicaid are few and far between. Medicaid is crap and health care reform is expanding it. What we should be doing enabling people to buy catastrophic coverage to protect them from a medical bankruptcy, and providing cash support to cover the deductible for those who are lower income. What if Deamonte's mother could have walked into a dentist's office and said that she was prepared to pay the $100 for a tooth extraction there on the spot, the dentist wouldn't have to wait six months to get reimbursed by medicaid? My guess is that Deamonte would be alive. Ezra Klein has been a tireless advocate for the uninsured and has brought a lot of light to the health care debate, but this is a post that he will forever regret as it is beyond stupid.

I don't think we should actually repeal HCR, but if we are creating insurance exchanges and then also subsidizing the purchase of insurance, why have medicaid? Or at least why not reform medicaid away from this centrally planned price setting model to one that is cash based. Give people a health debit card. Something along the lines of Marty Feldstein's proposal.

Update: I just reread Ezra's post and it still totally blows my mind. He owes his readers an apology. This is the type of error that gets right wingers nominated for stupidest person alive by Brad DeLong.

Reform, Don't Repeal

Republicans are hot and heavy for repeal and this may be a political winner but it will have no impact on actual policy. Any repeal will not make it to the president's desk and if it did the president would surely veto such a measure. I think Republicans would be much better off spending their time and energy on making the health care reform bill better. If I were Speaker Boenher and Minority Leader McConnell my priorities would be the following:
1. Change the minimum benefit plan to allow for Real Insurance- presently the minimum benefit plan is quite generous and thus will be quite expensive. This will put many uninsured that are of modest means in a bind. Make the minimum qualified plan a naked HDHP with some low level of coinsurance after the deductible. First dollar coverage increases utilization and by extension causes medical price inflation.
2. Tax All Health Insurance Equally and Limit the Tax Subsidy- the Health Care Reform bill aims to do this beginning in 2018 on high cost plans ($27,500). This measure is too far out and too modest. Ideally the employer exclusion should be removed entirely and health insurance provided by an employer should be taxed as income. Alternatively, the value of the exclusion could be capped at the median health plan cost and not indexed while enabling those who buy healthcare on the individual market to purchase insurance with pre-tax dollars.
3. Get Employers Out of the Health Insurance Business- by taxing health insurance there will be less of an incentive for employers to provide insurance, but once they dump their coverage, where do their employees go? Presently the state based insurance exchanges will not be available to employees of large firms or firms that offer health coverage. Make the exchanges available to everyone. Now!
4. Get rid of CLASS- it is an unfunded entitlement that was used to game the CBO scoring process.
5. Pass the Brown-Wyden Waiver rule into law- Senators Scott Brown and Ron Wyden proposed that states could opt out of health care reform and use their medicaid dollars so long as they provided similarly comprehensive care. I think if a HDHP plan becomes qualifying care then this would be a sensible option.

An Impassioned Defense of Libraries

My analysis of Pied's defense of libraries elicited a very inciteful comment from a reader, Carla (I have readers, who knew?), who as a librarian provides a very thoughtful defense of libraries and in her view their continued relevance. Here is an excerpt from her comment:
"Libraries have community spaces for business meetings, potlucks and book clubs. A children's storytime hour can captivate a child's imagination and get them hooked on books for a lifetime. Libraries are places where artists can exhibit their work. They provide instruction on how to use a mouse, getting started with email, understanding the web, ESL, photoshop and other software, how to write a resume and look for a job, homework help and tutoring for kids and adults in English, math, GED, citizenship test prep, tax prep... I could go on and on. Libraries level the playing field for their users. The rich and poor alike have the exact same access to information and services. Where else does an organization or institution offer equal access to everything?"
One of the interesting things here is that Carla, correct me if I am wrong, seems to be putting a great deal of emphasis on the libraries function as a community center but also as having a role in fostering social equality. The other thing that is interesting to me is the extent to which Carla portrays the public library as this entrepenurial organization that has keyed its efforts in large part on assisting the underserved. These are two points that I really hadn't considered. Anyhow, please do read her comment in full.

Libraries Revisited

I was reading this post by Matthew Yglesias, where he makes the case that libraries are something of an anachronism, which reminded me of a post in defense of the modern library by PeP's very own founding blogger- Piedpiper. Pied's defense of libraries was written not quite five years ago. I would be interested to see if he believes if his defense of libraries has weathered this brief test of time. Pied laid out three arguments in favor of the library in modern times:

Well Pied's first argument in favor of the library is confusing so I will cite the whole bit (notice something here? Yes my readers, a hyperlink, that is like a citation that is even better than a citation. You click on it and it takes you to the source):
"First, the Web is great at providing information. But that information is neither here nor there without the ability to cite your source (!), prove its authenticity, or delve deeper into the subject. The problem with the Web is that since there is so much information, we can't delineate (in many circumstances) fact from fiction."
I think there seem to be two related thoughts here: 1a. appears to be the difficulty of citations (which in the middle aughts actually was a greater concern as citing conventions for online sources where less common than they are today and certainly less accepted). 1b seems to be a concern with the ability to discern whether the source is an authority or not. Apparently Pied gained much more faith in a source if it was on the printed page than pixels on a screen. I guess I don't understand how this is really an issue and I don't think I would have thought it was at the time either. I would say his first concern, that of citations has cured itself. His second concern, that of authenticity was misplaced.

Pied's second argument in favor of libraries centered around the concern with the cost of connectivity. The argument goes that the web is a poor substitute for a library because you need connectivity and a computer a router and so on in order to use the web. Pied argued that one of the areas where a library demonstrated its relevance was by providing the poor with access to the web. I think this still holds up, though, I would guess that at this point the barriers to web access as far as cost goes has substantially diminished in the last five years thus attenuating the libararies usefulness in this function.

Pied's third argument is I believe the most potent, which is that the Library functions as a community center. I guess, here too I wonder how valid this is? A library may be a place where people can have meetings but typically there are in fact things called community centers for that. Libraries typically are characterized by stern old ladies shushing you which really inhibits that whole interaction bit that is the predicate to functioning as a community center. Then again, I don't read books, I burn books, so maybe I am not a good arbiter of this discussion. Pied, what says you?

I think the basic function of a library, sharing books, is still a good one, even as e-readers proliferate but not as necessary as it once was. To me that augurs for the scaling back of public libraries but not outright elimination of them.

Conservative Stupidity on Mandates

The individual mandate is an idea that was popularized by conservatives during the Clinton administration when the Clinton administration initial reform proposal included extensive employer mandates (which I think was and is bad policy). I don't really mind the mandate per se. I suppose it is somewhat odd that the federal government can require you to purchase a private product, this does seem like a new step (what about an iPod, broccoli, treadmill, how about a specific service- colonics anyone?). That said, it is only an incremental step from subsidizing homeowners or employees of certain firms and so on through the tax code. I suppose this explains my indifference.

In the end, there needs to be some pooling mechanism to prevent adverse selection. I do not view adverse selection as THE central health care problem but it certainly is a problem and could become a bigger problem. Thus, I think the mandate or some substitute is necessary. Maybe you could be required to post a bond in the absence of a mandate. In Germany if you opt out of health insurance you cannot immediately purchase health insurance in the event of a medical crisis, but rather must wait for a predetermined enrollment period (Paul Starr of the American Prospect made a proposal along these lines where the re-enrollment for an opt-out would be restricted to the January of a leap year, that seems pretty significant). To the extent that a subsidy is available for healthcare, such as a refundable credit, its availibility could be conditioned on the purchase of qualifying healthcare. Another alternative would be a federal re-insurance program along the lines of what John Kerry proposed during his 2004 presidential campaign (this type of policy is one that some republicans have embraced, though, they have focused on replicating this policy at the state level). Conservatives are advocating for private insurance and to keep government out of health care. A risk pooling mechanism is a predicate to a functioning insurance market. If the republicans should refrain from gloating unless they propose an alternative risk pooling mechanism.

hat tip: Avik Roy of the Agenda

Christmas and Other Predictions Revisited and Other Consumerist Musings

Back in the glory days of 2007 I predicted that a Blu Ray or an HD-DVD player would be an awful present as the format war had not yet been resolved (so your chance of getting the right format was only 50/50) but I also predicted the winning format would be obsolete soon thereafter as people would increasingly download their content. Frankly, I think I was right on that. Increasingly people are forgoing DVDs or Bluray or any physical media at all and are opting to stream their media (whether for pay or not, legally or not is a different matter). And netflix has been leading the charge.

In that same blogpost I rescinded a previous prediction that SmartCars would be a failure. I think I was too hasty to withdraw. SmartCars had an initial spark of enthusiasm but have since struggled for relevance as everyone has concluded that they suck.

The other thing that has been vexing me is the differing sizes of the tablets out there. The iPad is the standard at 10 inches basically resembling a netbook in size. The Samsung Galaxy Tab is 7 inches and the Dell Streak is only 5 inches. The Dell Streak to me could actually be more of a really large smart phone. The Droid X is 4.3 inches and I wouldn't characterize it as unwieldy. It's funny, the trend was to have the sleekest smallest form factor possible. But since the iPhone the trend has been to get as much screen space as your pocket will fit. But I digress. To me, the iPad is neither fish nor fowl. It is too large to be truly portable or much more so than a netbook. It doesn't really replace my normal computing needs as I do fiddle a lot with spreadsheets and like to run things at the same time. The one thing about the Galaxy tab is that it is a little more portable (maybe it can fit into your coat pocket but not your pant pockets). It could probably replace your GPS without obstructing your view like an iPad, though your smartphone could do the same. I don't quite get the tablet thing though I know a lot of people that have and love their iPads (I can't say the same for the Samsung Galaxy tab or any other android tab). I don't know where I come out on this. I have heard the tablets described as platforms for new applications that aren't really available today but that these newer form factors will facilitate (book-textbook size with touchscreen). I can imagine them in a health care or educational context of being very useful. In college you could see a math textbook slowly evolving into an interactive module that will interrupt you mid formula as you are going down the wrong path in a problem.

Bipartisan Health Care

With the individual mandate possibly in doubt (depending on Anthony Kennedy's mood at the moment) some are speculating that PPACA will need to be heavily modified. Unfortunately, I don't think that the health care bill will be significantly changed anytime soon. I think Republicans would rather have a bad and unpopular policy to campaign against in 2012 than actually do something to fix it. This is foolish because while I do think PPACA is bad policy it is not beyond repair. Additionally, irrrespective of whether or not it is improved upon, I don't think it will be unpopular for long (people love spending other people's money). Anyhow, in the event that Republicans decided that they would actually like to make some good policy, Donald Taylor has proposed something that they might find somewhat congenial. The meat of his policy would be:

1. for medicare to offer catastrophic coverage to every individual and family (Taylor says caps of $10k and $15k respectively, I wonder if he is referring to deductibles)

2. to offer premium support (who qualifies is undefined) for insurance to cover the gap

3. Employer tax exclusion would be eliminated to fund the above.

The first sticking point I see is I doubt republicans would be keen on having medicare for everyone even if it were a catastrophic program. I could live with this. The second sticking point that I envision is the relatively high deductible before medicare kicks in. I don't actually have a problem with it, this would limit the government's exposure in the outyears significantly, however, it sort of shocks the eyes when you see it. There is something of a lock-in effect that makes even a deductible as low as $2500 shocking to people. People have been conditioned to think of first dollar coverage as being free as it is provided by their employer (even though it as at the expense of wages).

Mr. Taylor suggests premium support for "gap insurance". I am of two minds on this. If you go back to the Rand study it appears that people actually manage to be competent health care consumers, with the exception of lower income folks (specifically those with chronic conditions). They are more likely to forgo care if they don't have first dollar coverage (even if their income is supplemented to offset the difference). In the Rand experiment, my understanding is that people were randomly assigned to different health plans but they were provided with side payments to equalize their economic circumstances. So for instance, let's say I had a gold plated plan that normally cost $10k with no copay and no coninsurance and no deductible and was assigned to a plan that cost $2.5k and had a $5k deductible. In the Rand study I would have been provided the cash to cover the deductible and possibly more. The central finding was that people spent considerably less the more coinsurance was involved while having a negligible impact on health outcomes. As I said, the real caveat was for poor folks with chronic conditions such as hypertension. This would indicate that providing first dollar coverage to the very poor would ultimately benefit health outcomes and should be considered preferable to a simple cash benefit. My question is would first dollar coverage also be preferable to something along a health savings account or MediSave (a la Signapore) where unlike cash your only option is to spend the money on health care? If the answer is yes, then so be it. If the answer is no then I think the some sort of either tax incentivized savings regimen (like an HSA) or more preferably a MediSave account (forced savings accounts used in Signapore) would be more preferable as a straight cash transaction involves less overhead and forces the consumer to to be price conscious and evaluate the tradeoffs involved in a given treatment.

Los Angeles Vikings

It would be sort of funny if the Vikes followed the Lakers out to LA.

Tyler Cowen on Income Inequality

In a nutshell his view could be distilled into the following: doesn't matter except for those bastard bankers. I basically agree with this take. It's a good and quick read, enjoy.

Xtra's Pronouncement on the Tax Deal

I think it is crap and stupid. The payroll tax cut is good. I don't know which side it would be better to cut (here is Matt Yglesias in favor of cutting the employee side and Bryan Caplan and Greg Mankiw in favor of cutting the employer side). I don't view boosting aggregate demand as the most important thing in the world but rather cutting the cost of labor so as to reduce unemployment. I think instead of the crap stimulus bill that we got with $100 billion for highways and the stupid Make Work Pay tax credit we should have focused all the tax cuts on the employer portion of the payroll tax cut and sought higher value infrastucture investments but that day has passed. The Obama administration botched that stimulus and they seem intent on botching the tax deal. Some suggest that Obama adminstration had no leverage. I disagree, the default, i.e. current law, would have resulted in the expiration of the Bush tax cuts which the right desperately wanted to presever. If I had been President Obama, at a minimum, I would have sought a downpayment on deficit/debt reduction in the outyears (maybe an increase in the gas tax or a federal booze tax, whatever) in exchange for any extension of the tax cuts. I think the alternative view is that the Obama administration wanted to get as much stimulus as possible and this was the deal that got them that. That may be the case but it is still weak sauce in my view.

What Should Health Insurance Be

Ezra Klein provides a good definition (though I actually doubt that he agrees with this definition):
"... that helps protect you from a health-care crisis is,.."

I think if Health Care Reform mandated such a product, essentially catastrophic coverage, then there would be much less apprehension and uproar about the mandate. Here is my lament from almost a year ago about then proposed high minimum benefits and the problem a mandate creates:

"Thought 1: I have probably said this previously but I think the biggest peril in health reform lies in the convergence of two areas- the minimum benefit and an individual mandate. If the minimum benefit is generous (i.e. covers all the first dollar stuff like physician visits and eyeglasses) than it will be fairly expensive. This will be problematic as even with subsidies (currently proposed for folks with an income up to 3X-4X the poverty level) a lot of the middle class that do not get their insurance from an employer will find themselves still unable to afford healthcare (maybe less so than before) and will now face the prospect of a penalty for not having complied with the mandate. Sounds fantastic.

"Thought 2 (closely related to thought 1 for those keeping score): The emphasis on coverage thus far has been on the first dollar variety (e.g. low deductible, low copayment, low coinsurance). This emphasis is misplaced. Going to the doctor for your annual physical, semi-annual dental checkup, and some antibiotics are the typical interactions for most people with the medical system. This can be done and should be done out of pocket. These are predictable events not suited for insurance and add to the overall cost growth of health insurance in creating administrative waste. What is important though is that you are covered when something unfortunate does happen, such as getting hit by a bus, a sudden stroke, etc. This is what insurance is typically for, low frequency events with high payouts. It is this type of event, a catastrophic event that causes medical bankruptcies for the uninsured. It would thus seem logical that a mandate would involve such a plan-catastrophic coverage-as opposed to something that makes sure you can get a pair of designer glasses and prescription sun glasses without having to reach into your wallet."

The mandate was necessary to make these high minimum benefit plans remotely affordable. I have never been confident that the mandate would actually make the plans affordable (the high minimum benefits make that goal unattainable), but it was the only hope. The legal current legal challenges pose a direct threat to the foundation of health care reform.

Part of the current dilemma could have been mitigated if congress had approached health insurance in a more traditional sense (catastrophic coverage). Mandating a product that costs a family a couple hundred dollars a month without a subsidy is an easier pill to swallow than one that costs north of a thousand a month to purchase without a subsidy. There would still be some opportunistic state AGs willing to file suits but their suits would find fewer sympathizers (on and off the bench). Instead, health care reform has written such coverage out of law. There is in fact something called catastrophic coverage envisioned in the new health care law but it has so many minimum benefits that it would be more accurately characterized as a PPO with a higher deductible.

Bowles-Simpson Commission

I think the commission has actually been fruitful as they have facilitated a national conversation on the deficit and I think have framed a very important issue: tax expenditures. The one area where I think the commission failed was on the revenue side. Their focus on getting rid of tax expenditures and lowering rates was quite good but I would have liked to see some other revenue options thrown into the mix like a securities transaction tax and a carbon tax.

QE2, the Euro, and Currency Devaluation

A couple of good paragraphs from Arnold Kling:
"Yesterday in my high school econ class, I found myself trying to explain why having a separate currency that could depreciate would enable the PIIGS to live happily ever after. I made the textbook argument, but I found myself not so convinced. OK, so maybe you can tell a story where one country that has a recession and a large fiscal deficit would be better off with devaluation. But there are so many countries in that position right now, and they cannot all devalue.
Speaking of "cannot all devalue," doesn't the impact of the PIIGS crisis completely nullify QE2? If the dollar appreciates 10 percent and the foreign sector is 10 percent of the economy, then that represents 1 percent disinflation, which probably more than wipes out any inflationary impact of the Fed's new bond buying program."

Fannie, Freddie, the FHA

The big question is whether we need them. Fannie and Freddie have cost the taxpayer an absurd amount. Yes, I know, they were innocent victims of all other banks malfeasance (that's why they required the biggest bailout? "hmm" he says with a furrowed brow). What is the reason for Fannie, Freddie, and the FHA? Ostensibly they make home ownership more affordable by providing lower mortgage rates. However, if you have a lower mortgage rate then by extension you can afford a larger mortgage thus pushing up home prices in the aggregate and wiping out any savings.

So what is the point of the big three Government Mortgage Giants (I am throwing FHA in here because they are originating most of the loans in the market and my guess is they will be costing the taxpayer an obscene amount shortly). Affordability they don't provide. I think the answer is to provide liquidity in the mortgage market and facilitate a cheap 30 year fixed rate mortgage. I have a 30 year fixed rate mortgage and certainly would prefer one all things being equal. However, all things are not equal. In order to provide me with a 30 year fixed rate mortgage the taxpayer and banks ends up taking the interest rate risk as opposed to the homeowner. If in fact a 30 year fixed rate mortgage is so desirable it stands to reason that banks would offer a 30 year mortgage without a guarentee from the feds. Such a mortgage, one without a guarentee would probably be priced significantly higher then current mortgages, but again, if people are so averse to interest rate risk then they should be willing to pay a higher rate. Alternatively, more people would be inclined to do 5 year ARMS like they do in Canada and continually roll over the debt until the principal is paid down. This would expose the homeowner to interest rate risk that they currently do not face but would also likely encourage homeowners to paydown their principal more rapidly. Some homeowners would find that they couldn't roll over their debt and would lose their homes. The flipside though is that "some homeowners" are less likely to extract massive bailouts from the government than Goldman Sachs and Citigroup when they are unable to roll over their debt. My two cents.

I love WikiLeaks Cablegate

Thanks to WikiLeaks, foreign affairs are no longer the private business of the ruling class, but open for all to see.

Bush Tax Cuts

If I were the Democrats I would say that I had no problem extending the Bush tax cuts for high earners provided they were paid for. This would put the onus on Republicans to find spending to cut or other taxes to raise to maintain current rates. My two cents. If I were a Republican I would respond that an appropriate pay-for would a phase out of the state and local tax deduction.