April 30, 2005
Health care at 1/10th the price is only 20 hours away
A luxurious health care alternative for some 40 million uninsured Americans lies in the hospitals of faraway countries.
In case you missed it, 60 Minutes had a fascinating segment last week on private hospitals catering to foreigners in both Thailand and India. These places look more like luxury hotels than hospitals, employ doctors that have practiced at top medical institutions in the U.S, and do it all at a fraction of the cost.
Could this be a solution to out of control health care costs? I think it has a lot of promise. Head over and watch the free segment, or give the whole article a read if you have the time.
April 29, 2005
Progressive Indexing Making Headlines
In his press conference last night, Bush endorsed Democrat Robert Pozen’s idea of progressive indexing in order to help shore up the massive unfunded liabilities of the Social Security system. The basic idea is that instead of having everyone’s benefits grow at the same rate as wages, benefits for higher income workers would instead increase by the slightly lower rate of inflation.
This would ensure that higher income workers would have the same purchasing power with their social security checks as retirees do today, while lower income workers would have greater purchasing power with their checks than today’s retirees.
Here are Bush’s exact words:
First, millions of Americans depend on Social Security checks as a primary source of retirement income, so we must keep this promise to future retirees as well. As a matter of fairness, I propose that future generations receive benefits equal to or greater than the benefits today's seniors get.
Secondly, I believe a reformed system should protect those who depend on Social Security the most. So I propose a Social Security system in the future where benefits for low-income workers will grow faster than benefits for people who are better off.
By providing more generous benefits for low-income retirees, we'll make this commitment: If you work hard and pay into Social Security your entire life, you will not retire into poverty.
This reform would solve most of the funding challenges facing Social Security.
How did the press report his proposal this morning?
Here’s the front-page headline from the New York Times:
Bush Cites Plan That Would Cut Social Security Benefits
and here is the headline from the Washington Post:
Bush Social Security Plan Would Cut Future Benefits
Deceptive? I’d say so. David Hogberg has more over at the Social Security Choice blog.
What really gets me about this whole debate is when you realize that Social Security benefits have not always been tied to wages. We actually switched from a system of inflation indexing to wage indexing in 1977. Why you ask? It wasn’t an act of benevolence by the government to give future retirees higher benefits. In fact the exact opposite is true.
Unlike today, in 1977 the inflation rate was higher than the rate at which wages were growing. So the Carter administration switched to wage indexing, as the NYT or Washington Post would say, to “cut” future benefits. But somehow I doubt you would find that fact in a headline of their papers, or for that matter, even buried on the 10th page.
April 27, 2005
Rep. Paul Ryan and Sen. John Sununu Throw Bush a Lifeline
The question is will he take it?
Ryan and Sununu reintroduced their legislation to reform Social Security last week in an attempt to get more support for their proposal. I personally think that if the White House would support this bill it would have a good chance of passing. Strong points include 1) progressive private retirement accounts ensuring that low income workers can accumulate a substantial amount of assets, 2) a setup that directly ties private accounts to solvency, and 3) according to the Social Security actuaries it turns deficits into true surpluses by 2038 and accomplishes full solvency by 2051.
Here are some highlights:
- From 2006-2015, the Ryan-Sununu legislation would allow workers to devote to tax-free personal accounts 5 percentage points of the current 12.4% Social Security payroll tax on the first $10,000 in wages and 2.5 percentage points on taxable wages above that. Starting in 2016, workers will then be able to shift 10 percentage points of the current 12.4% on the first $10,000 in wages and 5 percentage points on taxable wages above that. Once fully phased-in, this creates a progressive structure with an average account contribution among all workers of 6.4 percentage points.
- Workers age 55 and over would remain covered under the traditional Social Security system with no change in benefits.
- Workers will be enrolled in a “life-cycle” fund that automatically adjusts the worker’s portfolio based on his or her age - moving near-retirees into safe, government-backed bond funds. Workers may stay with this “life-cycle” fund or choose from a list of five index funds similar to those found in the federal Thrift Savings Plan (TSP).
- The accounts are backed up by a guaranteed minimum benefit equal to Social Security promises under current law.
- Survivors and disability benefits would continue as under the current system unchanged.
- Social Security and the reform’s transition financing are placed in their own separate Social Security budget, apart from the rest of the Federal budget.
and here is its affect on solvency:
- Permanent and growing surpluses begin in 2038.
- Permanent solvency achieved in 2051.
- The reform would also greatly increase and broaden the ownership of wealth and capital through the accounts. All workers could participate in our nation’s economy as both capitalists and laborers. Under the Chief Actuary’s score, workers would accumulate $7 trillion in today’s dollars in their accounts by 2020. Wealth ownership throughout the nation would become much more equal, and the concentration of wealth would be greatly reduced.
- The official score shows that by the end of the 75-year projection period, instead of increasing the payroll tax to over 20% as would be needed to pay promised benefits under the current system, the tax would be reduced to 5.18%, enough to pay for all of the continuing disability and survivors’ benefits. This would be the largest tax cut in U.S. history. The bill includes a payroll tax cut trigger providing for this eventual tax reduction once all transition financing and debt obligations have been paid off.
- The reform also achieves the largest reduction in government debt in U.S. history, by eliminating the $12 trillion unfunded liability of Social Security, which is almost three times the current reported national debt.
This is a no-brainer to me... but then again I'm not a politician. That's a fact I'm prouder and prouder of after watching one group of Senators on the Finance Committee deliberately twist facts for political gain, while the rest don't even have the backbone to call them on their dishonesty.
April 26, 2005
New Link on Blogroll
I've added a new weblog, Coast to Coast, to my blogroll down on the left. It's author, Tao Chen, was in a Schweser Seminar with me this past weekend for the L3 CFA exam. We had a good time during lunch breaks talking about everything from Canadian politics to photography to China. Over the next month most of our conversations will undoubtedly center around the exam, but after June 4th I'm looking forward to picking his brain on other topics before we leave on our trip.
Testing Photo Software
April 20, 2005
"We are helping lots of kids with medical care -- this place continues to break my heart -- need to get out of here -- but hard!" ---Marla Ruzicka, from an email to a friend sent on the day of her death
Catching up on email this morning, which I've neglected for the last few days, I came upon some depressing news. An email from my sister informed me that her friend Marla Ruzicka had been killed in Iraq.
Over the last few days I'd heard on the news, and even discussed with friends, the story of a humanitarian aid worker who died at the hands of a suicide bomber. But until this morning I had not put two and two together and realized that this individual was a friend of our family.
Marla and my sister lived together on a coffee cooperative in Machakos, Kenya in 1997. That year, when my family traveled to Kenya to spend the holidays with my sister, I had the pleasure of meeting her. She definitely stood out among the other students. Talking and joking with her on our first night in Kenya, it was clear that although we came from opposite ends of the political spectrum, there was no doubting her passion and determination to make this world a better place for the unfortunate. Reading over her amazing accomplishments since I've seen her last, it's clear she transformed that passion into a reality.
Her parents are also also asking for donations to her organization, Civic Worldwide, in her memory to keep her work going.
My condolences go out to her family, friends, and all those whose lives were touched by this amazing individual.
Trey Givens liked the Heiniken commercial from my last post so much that he's now considering a career move into the advertising field.
April 19, 2005
Best... Ad... Ever...
Advertising was once attacked by many economists as inefficient and wasteful. For the most part, these arguments have been refuted and today there is a broad consensus that advertising does provide economic benefits.
But in case there are still any doubts, head over and watch this Heiniken commercial.
Genius. That pretty much puts last nail in the coffin for the critics. As you might have guessed, Heiniken has now become my beer of choice.
April 17, 2005
Back from Hawai'i
I'm back from a week in O'ahu visiting my sister and brother-in-law. In case you didn't know, having family living in the state of Hawai'i is a good thing.
While I didn't have computer access to update the website, between the beaches, snorkeling, and some studying for the CFA I did find time to write this letter to the Honolulu Advertiser on Social Security reform. We'll see if it get's published:
Visiting family this last week in O'ahu made me realize how many similarities the island has to my home in San Diego. There are great beaches, friendly people, and of course… a lively debate over Social Security.
For example, in his April 13th letter, John Williamson lambastes Rep. Galen Fox for misrepresenting facts about the Social Security trust fund. It is surprising then that he did not hold himself to the same standard of truthfulness.
A few quick points. First, Williamson states that although Social Security will start running deficits in 2017, there is no need to worry as we can draw on the trust fund until 2041. But Williamson conveniently ignores the source of revenue for these bonds. In 2017, when the Social Security Administration takes the bonds currently in trust fund to the Treasury for redemption, where will they get the money?
As Rep. Fox pointed out, the money in the trust fund has already been spent. Today's Social Security surpluses go to aircraft carriers, managing national parks or whatever else the government needs. To account for this spending the Treasury places a bond in the trust fund for the amount of the surplus it has consumed.
But since both the Treasury and the SSA are different arms of the same federal government, by definition, it owes this money to itself. It follows that when the SSA does need to collect on these bonds, the government will have only three choices for revenue: 1) issue more debt, 2) divert money from other government programs, or 3) they can raise taxes. There is no other way around it.
Secondly, Williamson leaves the impression that when the trust fund does run dry, 80% of the benefits will continue to be paid. But if in 2041 we decide to keep benefits unchanged for those in or near retirement (age 55 and above), this would mean cutting benefits by 2/3 for everyone else in the system. Can anyone seriously argue that this would be fair to the younger generation?
One fact that everyone should be able to agree upon is that the Social Security system is in need of reform. Instead of passing this political hot-potato off to our children and grandchildren to deal with, let’s tackle the problem head on. We have the opportunity to create a system that continues to ensure a social safety net, while at the same time allowing all Americans to accumulate real wealth in private accounts.
It’s a noble goal and I commend Rep. Fox for speaking his mind on the issue.
San Diego, CA
April 7, 2005
Jim Glass has a great though experiment on his site about the "transition costs" of funding private accounts within Social Security:
Let us imagine that Social Security continues into the future operating exactly as it does today, with just one exception: the US government bonds that currently are deposited in the trust fund are distributed among individual private accounts created for Social Security participants instead, substituting for benefit promises of equal value -- the same benefits the bonds would finance under the status quo. Going forward, additional government bonds that would be deposited in the trust fund under the status quo system are allocated to private accounts as well.
Compared to the current system the change in government tax revenue is $0, there is no change in the government's use of its tax revenue, and there is $0 change in the government's liability on its bonds issued to finance future benefits.
Is there any "transition cost" to the government in creating such private accounts funded with the government bonds?
If yes, identify what it is. If "no", proceed...
The answer is no. Head over and read the whole thing...
April 6, 2005
Out of Town
I'm out of town for the next week so already light posting will become even less frequent. In the meantime I've added two new posts below. Enjoy...
A "New Man"?
Yesterday, I spoke with a friend in Caracas about our ever closer trip around the world. Most of our discussion was about Venezuela and was quite fascinating. After the call, I was reminded of a WSJ article on an attempt in the country to make a "New Man". Obviously easier said than done, but bizarrely the attempt is being made. In the bigger picture, the article is quite a commentary on means and ends:
To Fix Venezuela, Ex-Guerrillas Want To Make 'New Man'
Grand Utopian Experiments Are Funded by Oil Money; A Boost to Chávez's Power - Job for a Former Kidnapper
CARACAS, Venezuela -- Trying to foment a Communist revolution here in 1976, Carlos Lanz and five other men kidnapped an American executive, who then spent much of the next 3½ years chained to a tree in the jungle. The revolution didn't arrive and Mr. Lanz went to prison for military rebellion.
Thanks to Venezuela 's fiery president, Hugo Chávez, Mr. Lanz is getting a second go at revolution in the world's fifth-largest oil exporter. Buoyed by oil billions and back-to-back electoral victories, Mr. Chávez recently gave the ex-guerrilla a new job: devising a plan for economic self-sufficiency in which selfless workers would labor contentedly in utopian cooperatives. Mr. Lanz says he wants to create nothing less than Venezuela 's "New Man."
"We are talking about the transformation of man's attitudes," says Mr. Lanz, now 60 years old, during an interview in his office high above the armies of peddlers who bivouac in Caracas's decaying city center. Among his goals: having Venezuelans eschew Pepsis and Big Macs for sugar-cane juice and Venezuelan-style pancakes called cachapas.
One of the many reason's I am indebted to Ayn Rand is that by reading her work, I realized I needed to be able to clearly define many concepts I'd use in everyday speech. Freedom, reason, and logic are but a few examples. These are words that often mean different things to different people. Clearly, if you want to have substantive debates about ideas, everyone must start with an agreement on the definition of the concepts being discussed. If not, discussions unknowingly digress into a debate over semantics.
Probably the best example of the importance of being able to define a concept comes from the word "right". Years ago, if someone would have asked me to define what a "right" was, I'd probably reply "Well... it's a right. You know... a right" and would have been stuck with this circular definition. While I did have an idea of what the concept meant, not being able to articulate it clearly in some ways made it meaningless. Is there a difference between a right to free speech, a right to health care, or the right for Louis XIV to have absolute control over France, summed up by his famous declaration “L'état, c'est moi” (I am the state)? Clearly yes but what is that difference?
Let me start with Rand's definition of a right, as it is one of the clearer I've ever read (from "Man's Rights" in TVOS):
A "right" is a moral principle defining and sanctioning a man's freedom of action in a social context. There is only one fundamental right (all the others are its consequences or corollaries): a man's right to his own life. Life is a process of self-sustaining and self-generated action; the right to life means the right to engage in self-sustaining and self-generated action—which means: the freedom to take all the actions required by the nature of a rational being for the support, the furtherance, the fulfillment and the enjoyment of his own life. (Such is the meaning of the right to life, liberty and the pursuit of happiness.)
The concept of a "right" pertains only to action—specifically, to freedom of action. It means freedom from physical compulsion, coercion or interference by other men.
Thus, for every individual, a right is the moral sanction of a positive—of his freedom to act on his own judgment, for his own goals, by his own voluntary, uncoerced choice. As to his neighbors, his rights impose no obligations on them except of a negative kind: to abstain from violating his rights.
Keeping that definition in mind, head over and read Tom Palmer's recent review of Cass Sunstein’s book The Second Bill of Rights: FDR’s Unfinished Revolution and Why We Need It More Than Ever. It will make the NRO piece all the more enlightening.