Free Markets – Page 41 – artdiamondblog.com

We Should Reward Those Who Take Risks to Produce What We Need

On the Democratic and Republican-in-Name-Only side, we have the idea of "windfall profits taxes" on energy companies. These would presumably mandate a desirable level of corporate profits in one sector on which we depend. (And how long do you think it would apply to only one industry?) If profits exceeded that level, they would be taxed.

As far as I can tell, there is no plan to give a rebate to the companies if their profits have fallen below that desired level.

In other words, the plan is to send this message to energy-company investors, including retirees and pension funds: "Yes, we are in a situation of oil and gas shortage. Yes, we want you to risk billions of dollars exploring for and producing and refining oil and processing gas. But if you succeed for any reason, and even if no price-fixing is found, we will punish you for it."

This is what I would call confusion. You usually get more of something by rewarding people for doing it or producing it, not by punishing them for doing it or producing it.

Yes, the human instinct of envy demands that we get some licks in against people who are doing well, even if we are doing only slightly less well ourselves. But economies built on the politics of envy are rarely successful. Ask the Cambodians or the Chinese or the Russians before they went capitalist.

For the full commentary, see:

BEN STEIN. "Everybody’s Business; A Quick Course in the Economics of Confusion." The New York Times (Sun., May 28, 2006):

“My Merit Is My Caste; What Is Yours?”

NEW DELHI, May 22 — The problem of caste prejudice here is as ancient as the Hindu texts. The efforts to redress it date from the formation of modern India nearly 59 years ago. Today — as India enjoys awesome rates of economic progress and confronts the challenge of spreading the benefits to its needy majority — the nation faces a polarizing totem of public policy: a government plan to extend college admission quotas to certain "backward" castes.

Affirmative action is in some ways an even more emotional issue in India than in the United States. In recent weeks, a proposal to extend quotas for admission to some of the country’s flagship, federally financed universities has caused fresh turmoil.

Protests — particularly by medical students who say merit should be the only basis for admission to India’s intensely competitive medical schools — have spread across the country and, here in the capital, hobbled public health services. Advocates and opponents of the measure have exchanged often ugly rants.

. . .

Medical students have been particularly outraged because the plan would further restrict the limited number of seats. Medical education in India begins with a five-year undergraduate program, and the proposal could affect students’ chances of completing their training.

The central lawn of the All India Institute of Medical Sciences, the pre-eminent public hospital, was occupied Friday by medical students on the fifth day of a strike that began last week and continued on Monday. "My merit is my caste. What is yours?" read one T-shirt.

. . .

The opponents say set-asides would diminish the quality of India’s best universities and divide students along caste lines.

"Why after 55 years are we still thinking in terms of caste-based reservation?" demanded Poojan Aggarwal, a third-year student at Safdarjung Medical College here. "We should talk now of total meritocracy. We know on this issue none of the political parties will support us."

For the full story, see:

SOMINI SENGUPTA. "Quotas to Aid India’s Poor vs. Push for Meritocracy." The New York Times (Tues., May 23, 2006): A3.

(Note: ellipses added.)

Doha Tariff Cuts Would Save Global Economy About $100 Billion; France Objects

Source of graphic: online version of the WSJ article cited below.

(p. A1) The so-called Doha round of talks, which began in 2001, were designed to boost developing nations; among other things, they want lower barriers to their agricultural exports. France has vowed to veto any deal that doesn’t protect its farmers. A pivotal missed deadline April 30 has led to predictions the talks could die by summer if countries including France don’t change their stance.

The standoff shows how cultural and emotional factors can combine with politics to stifle free-trade goals that most economists believe would provide a net benefit to the world. The tariff cuts envisioned by Doha would not only help developing countries sell their minerals and food products, but would also lower barriers to the industrialized world’s exports of goods and services. The World Bank calculates that Doha would boost the global economy by around $100 billion.

Overall, France itself likely would be a major economic gainer from a global (p. A10) deal. Though it’s the world’s second-largest agriculture exporter after the U.S., farming accounts for just 2.5% of the French economy. World-class manufacturing and service companies, such as car maker Renault SA and insurer AXA SA, are larger engines of the French economy. France could gain more income than it would lose in opening its agricultural markets to budding farm superpowers like Brazil.

Even in agriculture, France can be a formidable competitor, notably in products such as wine and cheese. Its brand is well-known the world over. And its farms are increasingly home to capital-intensive agribusiness companies, not just small family producers. Most of the $11.5 billion in European Union subsidies that France receives each year goes to the largest, most commercially viable farms.

WTO chief Pascal Lamy, a Frenchman, says he doesn’t understand France’s position. "As an efficient farm producer, the strategy should be to reduce subsidies and prices, because others won’t be able to compete with you," he said in a recent interview.

. . .

The French rural tradition, however, is changing. Between 1993 and 2004, the number of arable farms fell by nearly a third. Wide swaths of neglected land are now home to unsightly scrub, and the farms people see as they drive down France’s immaculate highways are often parts of major business enterprises. Oxfam says as much as 60% of subsidies went to the richest 15% of French farmers in 2004, the latest figures available.

Oxfam believes the EU’s tariffs and farm subsidies, which total over €40 billion annually, are harmful to the world’s poorest countries. High customs duties keep products from poor nations out of the wealthy EU market. At the same time, EU farmers overproduction is dumped cheaply abroad, driving down global prices and harming farmers in the developing world.

For the full story, see:

SCOTT MILLER. "Food Fight; French Resistance To Trade Accord Has Cultural Roots; WTO Talks Promise Benefits But Farmers Retain Hold On the Nation’s Stomach; ‘Politicians Are Frightened’." The Wall Street Journal (Tues., May 16, 2006): A1 & A10.

Doctor Overhead Increased 15 – 20% Due to Insurance Delays in Paying Claims

Source of the graphic: the online version of the NYT article cited below.

What is noteworthy in the table above is not the differences in delays in paying. What is noteworthy is that the fastest payer still takes a month to pay.

(p. C1) Few things rankle a doctor more than an insurance company’s saying it cannot find a claim for medical services. Particularly when there is even a signed return receipt to document delivery of the bill.

"We actually had the little green card to show who signed for the dang thing," said Elizabeth Wertz, chief executive of the Pediatric Alliance, a large group of Pittsburgh doctors. "We sent it by certified mail. The insurance company said they didn’t have it."

The claim was for several thousand dollars, according to Ms. Wertz, who declined to identify the company, a large regional insurer, for fear of making it more difficult to wrangle payments. It is a problem known to many doctors as they struggle to balance the rising cost of providing patient care with what they see as a reluctance by some powerful insurers to pay promptly.

Pediatric Alliance’s 37 doctors are among the 7,000 physicians, nurse practitioners and other health care providers around the country who are clients of the claims-processing company Athenahealth, which plans today to present a rare warts-and-all look at how well — or not — the nation’s seven biggest health insurers pay their bills.

Not well enough, in many cases, according to the data and to experts who say the survey provides the most comprehensive look yet at the state of accounts payable vs. accounts receivable in the nation’s health care system.

Tardiness or refusal to pay what doctors consider legitimate medical claims may add as much as 15 to 20 percent in overhead costs for physicians, forcing them to pursue those claims or pass along the costs to other patients, according to Jack Lewin, a family doctor who is chief executive of the California Medical Association, a professional group of 35,000 physicians.

. . .

(p. C10) Athenahealth, which says it collected $1.8 billion on behalf of its physician clients last year, is among the biggest of several thousand companies that help doctors and hospitals get paid by editing their claims and helping them to deal with difficult cases. Health care providers who can afford such services say they have become a necessary part of doing business.

In the case of Pediatric Alliance, with 37 pediatricians in a dozen offices in and around Pittsburgh, the doctors’ group spends at least $250,000 a year on salaries for eight billing clerks who handle claims and pursue money owed by insurers and patients. That is on top of salaries in Pediatric Alliance’s offices for staff members to verify the patient’s coverage and collect co-payments, plus paying an outside company to check for errors before the bills go out.

Ms. Wertz, the alliance’s chief executive, says some insurers’ telephone call centers limit claims-related issues to 10 per call. "That’s incredibly inefficient," she said. "We see thousands of patients. Our people have to sit on phone 30 minutes to get a live person."

. . .

"I would much rather have my staff talking to patients than talking to insurance companies," Dr. Katz said.

For the full story, see:

MILT FREUDENHEIM. "The Check Is Not in the Mail." The New York Times (Thurs., May 25, 2006): C1 & C6.

(Note: The "Dr. Katz" mentioned is "Dr. Molly Katz, a Cincinnati gynecologist and former president of the Ohio Medical Association.")

U.S. Government “spending $3,500 to find out if we handled $1 correctly”

Indian records buried in a limestone cave near Lenexa, Kansas. The Omaha-World Herald identifies the unhappy gentleman as "Ross Swimmer, a special assistant with the Interieor Department" (see source cited for excerpt below). The Olympian Online of Olympia, Washington identifies him as "John Allshouse, assistant regional administrator for the National Archives" (see source cited for image). Source of image: http://159.54.227.3/apps/pbcs.dll/article?AID=/20060507/NEWS/60507029

LENEXA, Kan. (AP) – Seventy feet beneath the prairie, the government is filling limestone caverns – protected by guards and a bomb-sniffing dog – with truckloads of American Indians’ financial and cultural records.

What is ground zero for an accounting that will take seven years and cost $335 million owes its existence to a bitter class-action lawsuit brought against the Interior Department a decade ago. Still, it’s only a short version of the historical accounting that Indians demanded but no longer want, because they do not think it can be done properly.

The Indians say the government mismanaged a trust in their names for 120 years and now owes them tens of billions of dollars.

. . .

Concerns about the how the trust accounts are managed are almost as old as the trust itself.

In 1915, the Joint Commission of Congress on Indian Funds warned of "fraud, corruption and institutional incompetence almost beyond the possibility of comprehension." In 1928, the Interior Department found Indian trust data unreliable and almost useless. Dozens of other scathing reports followed.

Finally, in 1994, Congress demanded that the department fulfill an obligation to account for money received and disbursed. A year later when account statements still had not been reconciled, Elouise Cobell of the Blackfeet Indian tribe in Montana joined with the Boulder, Colo.-based Native American Rights Fund and others in suing.

"Fractionalization" of accounts is a major obstacle in managing the trust. As ownership of the 160-acre and smaller land parcels transferred from generation to generation, proceeds from the trust accounts had to be divided among more and more descendants. Department officials say 90 percent of the transactions are for less than $100.

"In every category it has cost us more to find the errors than the total amount of the errors we found," said departing Interior Secretary Gale Norton. "When you consider that we have millions of transactions under $1, you’re spending $3,500 to find out if we handled $1 correctly."

For the full story see:

"Paper Trail Fills Massive Cave." Omaha World-Herald (Sun., May 21, 2006): 10A.

(Note, the online version, has a different title and a day-earlier publication date:

"Counting Up What Indians Are Owed." Omaha World-Hearald (Sat., May 20, 2006).)

Leonard Read’s Comparative Advantage

When I was a student at Wabash College, Ben Rogge arranged for Liberty Fund to finance my attendance at a couple of weekend seminars at the Foundation for Economic Education in New York. The seminars were taught by Rogge, Edmund Opitz, and Leonard Read. I remember upon returning to Wabash after one of the seminars, Rogge asking me what I thought of Read. I said something along the lines that I didn’t much like his presentation style. I remember saying that he expressed himself in a way that I associated with used car salesmen. (So unlike Rogge’s low-key, witty, intensity.)

My memory is that Rogge did not respond directly to my comment, but (perhaps with a hint of a smile) mentioned that among many audiences, especially in business, Leonard Read was an extremely effective speaker.

I do not doubt that, and I also do not doubt that Read belongs in the pantheon of free market defenders. His essay "I, Pencil" is by itself sufficient for admission. But he did more than write and speak; he nurtured and called attention to others who had wisdom to offer. For one small example, many of us learned about Albert Jay Nock’s "The Remnant" through Leonard Read’s The Freeman.

I believe that the last time I saw Read was at the memorial service at Wabash College for Ben Rogge. I ended up sitting near Read and Opitz, who had flown in from New York. I introduced myself as a Rogge student who had attended FEE seminars.

I remember Read looking very sad, and depressed, and almost lost. I also remember that he expressed some mild indignation that more of Rogge’s students hadn’t made it back for the memorial service.

But as a serious reader of "The Remnant," Read on further reflection probably realized that the attendance at a memorial service is not a good measure of a teacher’s influence on his students.

Apparently one student, whom Read himself influenced, was Charles Koch:

(p. A8) Whereas the bookshelves of most of America’s leading CEOs are stocked with pop corporate management and "how to succeed" books, Mr. Koch’s office is a wall-to-wall shrine to writings in classical economics, or, as he calls it, "the science of liberty." The authors who have had the most profound influence on his own political philosophy include F.A. Hayek, Ludwig von Mises, Joseph Schumpeter, Julian Simon, Paul Johnson and Charles Murray. Mr. Koch says that he experienced an intellectual epiphany in the early 1960s, when he attended a conference on free-market capitalism hosted by the late, great Leonard Read.

For the full commentary, see:

STEPHEN MOORE. "THE WEEKEND INTERVIEW with Charles Koch; Private Enterprise." The Wall Street Journal (Sat., May 6, 2006): A8.

(Note: In the quotation above, I have corrected the WSJ’s misspelling of Read’s last name.)

United States Exports More Services, than it Imports (a.k.a. “Outsources”)

This month a poll by Zogby International for the Foreign Policy Association found that 71 percent of Americans believed outsourcing was hurting the economy. It also found that 62 percent of American workers believed the federal government should penalize companies that send work offshore.

Now, however, we can add some actual figures to the overheated debate. The Government Accountability Office has issued its first review of the data, and one undeniable conclusion to be drawn from it is that outsourcing is not quite the job-destroying tsunami it’s been made out to be. Of the 1.5 million jobs lost last year in ”mass layoffs” — that is, when 50 or more workers are let go at once — less than 1 percent were attributed to overseas relocation; that was a decline from the previous year.

. . .

The data did show that from 1997 to 2002, annual imports of business, technical and professional services increased by $16.3 billion. However, during that same half-decade, exports of those services increased by $20.5 billion a year. In 2002 alone, the United States ran a $27 billion trade surplus in business services, the sector in which jobs are most likely to be outsourced. The G.A.O. correctly stressed that it is impossible to compute exactly how many jobs are lost because of outsourcing, but unless its figures are off by several orders of magnitude, there’s no crisis here.

For the full commentary, see:

Daniel W. Drezner. "Where Did All the Jobs Go? Nowhere." The New York Times (Weds., September 29, 2004): A25.

Paperwork is 31% of U.S. Health Care Costs

. . . , a large part of America’s health care spending goes into paperwork. A 2003 study in The New England Journal of Medicine estimated that administrative costs took 31 cents out of every dollar the United States spent on health care, compared with only 17 cents in Canada.

For the full commentary, see:

PAUL KRUGMAN. "The Medical Money Pit." The New York Times (Friday, April 15, 2005): A19.

Canada may beat the U.S. in this dimension of health care, but they lose in many other important dimensions–for example the wait time to receive ‘elective’ surgeries. And anyway, isn’t 17 percent still too high?

Free Market Philanthropy

Charles Koch. Source of image: online version of WSJ article cited below.

Mr. Koch’s latest crusade to spread the ideas of liberty has been his sponsorship of a twice-yearly conference that gathers together many of the most successful American entrepreneurs, from T. Boone Pickens to former Circuit City CEO Rick Sharp. The objective is to encourage these captains of industry to help fund free-market groups devoted to protecting the fragile infrastructure of liberty. That task seems especially critical given that so many of the global superrich, like George Soros and Warren Buffett, finance institutions that undermine the very system of capitalism that made their success possible. Isn’t this just the usual rich liberal guilt, I ask. "No," he says, "I think they simply haven’t been sufficiently exposed to the ideas of liberty."

For the full commentary, see:

STEPHEN MOORE. "THE WEEKEND INTERVIEW with Charles Koch; Private Enterprise." The Wall Street Journal (Sat., May 6, 2006): A8.

“Everybody wants to be like Bill Gates”

Vietnamese university students hoping to see Bill Gates. Source of image: http://www.nytimes.com/2006/04/27/world/asia/27vietnam.html?ex=1303790400&en=255d4d4996b1a9a6&ei=5088&partner=rssnyt&emc=rss

HANOI, Vietnam, April 26 — It was Lenin’s birthday. The most important Communist Party meeting in five years was under way. And the star of the show was the world’s most famous capitalist, Bill Gates.

The president, the prime minister and the deputy prime minister all excused themselves from the party meeting on Saturday to have their pictures taken with Mr. Gates, who has more star power in Vietnam than any of them.

When people heard he was in town, hundreds climbed trees and pushed through police lines to get a glimpse of him. He was the subject of the lead article in the next day’s newspapers.

This is where Vietnam stands today, moving cautiously toward a new version of communism while the people and their leaders lunge eagerly for the brass ring of capitalist development.

"That was very symbolic," said Le Dang Doanh, an official in the Ministry of Planning, speaking of the reception for Mr. Gates. "It is a very clear sign of the new mood of society and the people. Everybody wants to be like Bill Gates."

For the full story, see:

SETH MYDANS. "Communist Vietnam Lunges for Capitalism’s Brass Ring." The New York Times (Thurs., April 27, 2006): A3.

Note: the version of the article above corrects an error in the print version that had misidentified the day of Lenin’s birth, and Gates visit as a Sunday (it was a Saturday).

Spontaneous Order in Cockroaches

Even cockroaches manage to make collective decisions that, seemingly by magic, produce an outcome that benefits everyone (except the people whose kitchens they are in). When roaches decide where to move in, they must balance crowding against protection against predators. The goal: pack enough roaches into a shelter to provide strength in numbers, but not so much that dangerous crowding results.

When scientists put roaches into a dish containing identical shelters, they thought the roaches would fill one shelter and then use others for spillover. But the gregarious bugs defied expectations.

When more than half the bugs could fit into one shelter, they divided into two equal groups: For instance, when 50 had a choice of three shelters, each with a capacity of 40, 25 cockroaches gathered in one, 25 in another, and none in the third, biologist José Halloy of the Free University of Brussels and colleagues reported last month in Proceedings of the National Academy of Sciences.

Dividing up evenly, he says, "spreads benefits and risks among all individuals," rather than having 40 bugs safe and happy while the 10 for whom there was no room at the inn suffer. But when each of three shelters could hold 70, all 50 cockroaches packed into one. Each outcome was optimal, producing the greatest safety in numbers without crowding.

Yet no leader assigns lodging. Roaches just check out shelters, with later arrivals deciding that a crowd signifies "this is the place to be." Overcrowding means "find somewhere else." A group decision that perfectly balances protection and crowding emerges from dozens of such individual decisions.

For the full story, see:

Begley, Sharon. "Buffalo Seek Consensus and Other Tales of How Animals Decide Things." The Wall Street Journal (Fri., April 14, 2006): A11.