Category: Incentives

“A Safe Space for Entrepreneurs to Share Their Stories of Ascent”

(p. 1) Guy Raz is wrapping up an episode of How I Built This, his podcast about the origin stories of late capitalism, when his guest, the Israeli investor Haim Saban, gets to the good part. The throw-your-arms-aloft, finish-line moment of his personal business journey. In the story Mr. Saban is telling, he is about to make a lot of money, and then quadruple it into even more money.

Mr. Raz cuts in, astonished. “But half a billion dollars — that’s a lot of money,” he says. “I mean, wow.”

“Two billion is more,” Mr. Saban says.

“Was money — becoming really rich — did that motivate you?” Mr. Raz asks a moment later.

“You know, it wasn’t only money, but it was also money,” Mr. Saban says. “Money is a marker to success.”

There’s a moment like this in every episode of How I Built This. The guest has let his or her guard down and revealed something intimate, or financial, or financially intimate, and Mr. Raz keeps the disclosures rolling by reacting with total marvelment.

. . .

By creating a safe space for entrepreneurs to share their stories of ascent, Mr. Raz has become one of the most popular podcasters in history.

For the full story, see:

Nellie Bowles. “How Guy Raz Built ‘How I Built This’.” The New York Times, SundayBusiness Section (Sunday, November 25, 2018): 1 & 7.

(Note: ellipsis added. In the original, the word “more” is italicized.)

(Note: the online version of the story has the date Nov. 23, 2018, and has the same title as the print version.)

Ranchers Will Protect and Invest in Brazilian Forest Land That They Own

(p. A1) POMBAL, Brazil—For the past 15 years, Carlos Pacheco has raised cattle in what was once virgin forest. When pastures went bad, he would simply cut deeper into the Amazon, one of millions of farmers who have helped strip away about a fifth of the world’s greatest rainforest.

Because he expanded into land he doesn’t own, he can’t use it as collateral for a loan to buy equipment and fertilizer, nor can he tap the expertise of a government agronomist. The upshot is that he uses more land to raise each cow than do legal farmers in the breadbasket of southern Brazil.

It may sound counterintuitive, but Brazilian authorities think giving Mr. Pacheco a deed to the land he farms might curtail deforestation. The idea is it could help him become a more efficient farmer, able to produce more on less land, and also make him hesitate to just walk away from depleted pastures and carve new ones. In short, it might discourage him and squatters like him from cutting ever deeper into the jungle.

“If this doesn’t happen, we will continue to deforest,” said the 49-year-old rancher, the leader of a tightknit group of several hundred settlers on the forest frontier.

The administration of Brazilian President Jair Bolsonaro wants to see if he is right. In February [2020], it plans to start handing out deeds to some 300,000 Amazon squatters, with a plan that might help but has raised a howl of disapproval for re-(p. A12)warding bad behavior.

. . .

Over the decades, 73-year-old cattleman João Bueno cut into the forest in Pará state to build a network of ranches totaling 45,000 acres, with 28,000 head of cattle.

He has a special document that allows him to produce and sell cattle to a slaughterhouse, but it isn’t a title, so it doesn’t allow him to use the land as loan collateral. Mr. Bueno said tapping credit would permit him to modernize his operation with fertilizer and techniques common elsewhere, raising three times as many head of cattle on the same acreage.

“Land without documentation is nobody’s land, so people take advantage of it to clear forest for pastures,” Mr. Bueno said.

For the full story, see:

Paulo Trevisani and Juan Forero. “Brazil’s Unusual Bid to Curb Deforestation.” The Wall Street Journal (Saturday, February 1, 2020): A1 & A12.

(Note: ellipsis, and bracketed year, added.)

(Note: the online version of the story has the date January 31, 2020, and has the title “Squatters Cut Down the Rainforest. Brazil Wants to Give Them the Land.”)

Wasteful Administrative Health Care Costs

The study quoted from below suggests that the main cure for wasteful administrative costs is a “single payer” system, which is a politically correct euphemism for socialized medicine. I suggest that a better cure would be to eliminate the government middle-man, and make the patient be the payer. The patient as payer would seek and buy low-cost cures or therapies, which would shift efforts at healthcare innovation toward lower cost innovations. As has been suggested for education, vouchers could provide poor patients with the means to pay for basic care.

(p. B4) Even a divided America can agree on this goal: a health system that is cheaper but doesn’t sacrifice quality. In other words, just get rid of the waste.
A new study, published Monday [October 7, 2020] in JAMA, finds that roughly 20 percent to 25 percent of American health care spending is wasteful. It’s a startling number but not a new finding. What is surprising is how little we know about how to prevent it.

. . .

Teresa Rogstad of Humana and Natasha Parekh, a physician with the University of Pittsburgh, were co-authors of the study, which combed through 54 studies and reports published since 2012 that estimated the waste or savings from changes in practice and policy.

. . .

The estimated waste is at least $760 billion per year. That’s comparable to government spending on Medicare and exceeds national military spending, as well as total primary and secondary education spending.

. . .

The largest source of waste, according to the study, is administrative costs, totaling $266 billion a year. This includes time and resources devoted to billing and reporting to insurers and public programs. Despite this high cost, the authors found no studies that evaluate approaches to reducing it.

For the full commentary, see:

Austin Frakt. “THE NEW HEALTH CARE; Up to 25% of Health Costs Called Wasteful.” The New York Times (Tuesday, October 8, 2019): B4.

(Note: ellipses, and bracketed date, added.)

(Note: the online version of the commentary has the date Oct. 7, 2019, and has the title “THE NEW HEALTH CARE; The Huge Waste in the U.S. Health System.”)

The print version of the academic article in JAMA mentioned above is:

Shrank, William H., Teresa L. Rogstad, and Natasha Parekh. “Waste in the Us Health Care System: Estimated Costs and Potential for Savings.” JAMA 322, no. 15 (Oct. 15, 2019): 1501-09.

Expense of Clinical Trials Reduce the Incentive to Re-Purpose Old, Cheap, Off-Patent Vaccines

(p. A5) “Retrospective studies are great and they provide some hints, but there are caveats,” said Dr. Shyam Kottilil, a professor of medicine with the Institute of Human Virology at the University of Maryland School of Medicine. “It’s very difficult to establish causality.”

Interest in the cross-protective effects of vaccines has led to efforts to repurpose old vaccines that may have potential to provide at least transient protection against the coronavirus until a specific vaccine against SARS-CoV-2 is developed and proven safe and effective, he said.

“But nobody knows whether this approach will work unless we test them,” Dr. Kottilil said. “To endorse this, you need to do really good randomized clinical trials.” There is little incentive for private companies to invest in expensive trials because the old vaccines are cheap and off-patent, he added.

For the full story, see:

Roni Caryn Rabin. “Are Past Vaccinations a Shield? It’s Doubtful.” The New York Times (Thursday, July 30, 2020): A5.

(Note: the online version of the story has the date July 29, 2020, and has the title “Old Vaccines May Stop the Coronavirus, Study Hints. Scientists Are Skeptical.”)

The Son of Jonas Salk Calls Operation Warp Speed “Absolutely Extraordinary”

A screen capture from the Replica Edition of the NYT, p. A4 for Thurs., Nov. 18, 2020.

(p. A4) A 76-year-old man in La Jolla, Calif., says he will get a coronavirus but not the way he got a polio vaccine when he was 9 — lined up in the kitchen next to his two siblings. Their father had sterilized the needles and syringes by boiling them on the stove.

The father was Dr. Jonas Salk, who had developed the vaccine.

. . .

At the time, the vaccine had gone through trials with small numbers of children. A trial with 1.8 million children did not begin until the next year, and the vaccine did not receive approval as safe and effective until a year after that — a timetable that he said made the development of coronavirus vaccine candidates in just months “absolutely extraordinary.” He said he had been concerned about pressure from the Trump administration to have a vaccine ready by Election Day. But he also said the decision to back the development of vaccines through Operation Warp Speed, the federal effort to accelerate vaccine development, “was quite positive.”

For the full story, see:

Barron, James. “Coronavirus Update; ‘l Just Didn’t Feel the Shot’.” The New York Times (Wednesday, November 18, 2020): A4.

(Note: ellipsis added.)

(Note: after considerable time spent searching, I was unable to find this article on the nytimes.com web site. I searched on 11/21/20 for the article that had appeared in-print on 11/18/20. In my experience, it is extremely rare for so recent a print article to be missing from the online web site. So, for documentary purposes, I have reproduced a screen capture of the article from the Replica Edition. (For subscribers to the NYT, The Replica Edition provides an online replica of the print edition for the previous 30 days of issues of the NYT.)

California Government Allowed “Buildup” of “Fuel for Future Blazes”

(p. A1) California is one of America’s marvels. By moving vast quantities of water and suppressing wildfires for decades, the state has transformed its arid and mountainous landscape into the richest, most populous and bounteous place in the nation.

. . .

(p. A16) The intensity of the fires . . . reflects decades of policy decisions that altered those forests, according to Robert Bonnie, who oversaw the United States Forest Service under President Barack Obama. And the cost of those decisions is now coming due.

In an effort to protect homes and encourage new building, governments for decades focused on suppressing fires that occurred naturally, allowing the buildup of vegetation that would provide fuel for future blazes. Even after the drawbacks of that approach became clear, officials remained reluctant to reduce that vegetation through prescribed burns, wary of upsetting residents with smoke or starting a fire that might burn out of control.

That approach made California’s forests more comfortable for the estimated 11 million people who now live in and around them. But it has also made them more susceptible to catastrophic fires. “We’ve sort of built up this fire debt,” Mr. Bonnie said. “People are going to have to tolerate smoke and risk.”

For the full story, see:

Christopher Flavelle. “Mankind’s Feats Place California At Climate Risk.” The New York Times (Monday, September 21, 2020): A1 & A15.

(Note: ellipses added.)

(Note: the online version of the story has the date September 20, 2020, and has the title “How California Became Ground Zero for Climate Disasters.”)

Litan and Mankiw Endorse Paying People to Take Vaccine

(p. 5) What’s the best way to get the economy back on track after the Covid-19 recession? Simple: Achieve herd immunity. And what’s the best way to achieve herd immunity? Again, simple: Once a vaccine is approved, pay people to take it.

That bold proposal comes from Robert Litan, an economist at the Brookings Institution. Congress should enact it as quickly as possible.

. . .

Recent research by the University of Chicago economists Austan Goolsbee and Chad Syverson has found that the government-mandated shutdowns account for just a small part of the decline in economic activity. The main reason people aren’t spending is that they are afraid to leave their homes and contract the virus. That hypothesis explains my own behavior. I have not stepped foot on an airplane or inside a restaurant for six months.

. . .

Immunology, meet economics. One of the first principles of economics — perhaps the most important — is that people respond to incentives. Applying this principle to the case at hand, Mr. Litan recommends that the government pay $1,000 to whoever gets the vaccine. With a large enough incentive, most Americans are likely to get vaccinated.

This proposal is textbook economics. (I’ve written some of the textbooks.) As all economics students learn, when an activity has a side effect on bystanders, that effect is called an externality. In the presence of externalities, the famous theorems of economics that justify laissez-faire do not apply. Adam Smith’s vaunted invisible hand can no longer work its magic.

A classic example of a negative externality is pollution, and the simplest and least invasive policy solution is a tax on emissions. In economics-speak, such a tax internalizes the externality: It induces polluters to take the cost of pollution into account by giving them a financial incentive to cut emissions. That’s why I have written here many times that a tax on carbon emissions is the best way to deal with global climate change.

Vaccination confers a positive externality. When you get vaccinated, you benefit not only yourself but also your fellow citizens by helping society take a step toward herd immunity. In this case, internalizing the externality requires not a tax but a subsidy, as Mr. Litan suggests.

For the full commentary, see:

N. Gregory Mankiw. “A Vaccine Subsidy Licks 2 Crises With One Shot.” The New York Times, SundayReview Section (Sunday, September 13, 2020): 5.

(Note: ellipses added.)

(Note: the online version of the commentary has the date Sept. 9, 2020, and has the title “Pay People to Get Vaccinated.”)

The Robert Litan op-ed mentioned above is:

Litan, Robert E. “Want Herd Immunity? Pay People to Take the Vaccine.” Brookings Institute Op-Ed. (Tues., Aug. 18, 2020) URL: https://www.brookings.edu/opinions/want-herd-immunity-pay-people-to-take-the-vaccine/.>

The Goolsbee and Syverson NBER working paper mentioned above is:

Goolsbee, Austan, and Chad Syverson. “Fear, Lockdown, and Diversion: Comparing Drivers of Pandemic Economic Decline 2020.” NBER Working Paper #27432, June 2020.

At Nonprofit Hospitals Revenue Rises and Charity Care Falls

(p. 7) On paper, the average value of community benefits for all nonprofits about equals the value of the tax exemption, but there is tremendous variation among individual hospitals, with many falling short. There is also intense disagreement about how those community benefits are calculated and whether they actually serve the community in question.

Charity medical care is what most people think of when it comes to a community benefit, and before 1969 that was the legal requirement for hospitals to qualify for tax-exempt status. In that year, the tax code was changed to allow for a wide range of expenses to qualify as community benefits. Charitable care became optional and it was left up to the hospitals to decide how to pay back that debt. Hospitals could even declare that accepting Medicaid insurance was a community benefit and write off the difference between the Medicaid payment and their own calculations of cost.

An analysis by Politico found that since the full Affordable Care Act coverage expansion, which brought millions more paying customers into the field, revenue in the top seven nonprofit hospitals (as ranked by U.S. News & World Report) increased by 15 percent, while charity care — the most tangible aspect of community benefit — decreased by 35 percent.

. . .

The average chief executive’s package at nonprofit hospitals is worth $3.5 million annually. (According to I.R.S. regulations, “No part of their net earnings is allowed to inure to the benefit of any private shareholder or individual.”) From 2005 to 2015, average chief executive compensation in nonprofit hospitals increased by 93 percent. Over that same period, pediatricians saw a 15 percent salary increase. Nurses got 3 percent.

For the full commentary, see:

Ofri, Danielle. “Nonprofit Hospitals Are Too Profitable.” The New York Times, SundayReview Section (Sunday, February 23, 2020): 7.

(Note: ellipsis added.)

(Note: the online version of the commentary has the date Feb. 20, 2020, and has the title “Why Are Nonprofit Hospitals So Highly Profitable.”)

The Politico article mentioned in the passages quoted above, is:

Diamond, Dan. “Health Care; How Hospitals Got Richer Off Obamacare.” Politico (Posted July 17, 2017). Available from https://www.politico.com/interactives/2017/obamacare-non-profit-hospital-taxes/.

Stents Do Not Reduce Heart Attacks or Deaths

(p. A17) The findings of a large federal study on bypass surgeries and stents call into question the medical care provided to tens of thousands of heart disease patients with blocked coronary arteries, scientists reported at the annual meeting of the American Heart Association on Saturday [Nov. 16, 2019].

The new study found that patients who received drug therapy alone did not experience more heart attacks or die more often than those who also received bypass surgery or stents, tiny wire cages used to open narrowed arteries.

That finding held true for patients with several severely blocked coronary arteries. Stenting and bypass procedures, however, did help some patients with intractable chest pain, called angina.

. . .

Stenting costs an average of $25,000 per patient; bypass surgery costs an average of $45,000 in the United States. The nation could save more than $775 million a year by not giving stents to the 31,000 patients who get the devices even though they have no chest pain, Dr. Hochman said.

. . .

But getting a stent does not obviate the need for medical therapy, Dr. Boden noted. Since patients with stents need an additional anti-clotting drug, they actually wind up taking more medication than patients who are treated with drugs alone.

About a third of stent patients develop chest pain again within 30 days to six months and end up with receiving another stent, Dr. Boden added.

For the full story, see:

Kolata, Gina. “Drugs Are Shown to Reduce Need For Surgery to Fix Blocked Arteries.” The New York Times, First Section (Sunday, November 17, 2019): A17.

(Note: ellipses, and bracketed date, added.)

(Note: the online version of the story has the date Nov. 16, 2019, and has the title “Surgery for Blocked Arteries Is Often Unwarranted, Researchers Find.” The online version says that the page number of the New York print edition was A19. The page number of my National edition was A17.)

High Palladium Prices Incentivize More Mining and Search for Substitutes

(p. B13) Palladium prices are at their highest level in nearly two decades, as investors bet that rising global growth will buoy automobile production and stoke demand for the rare metal.

. . .

Longer term, the auto industry may consider switching to platinum in gasoline engines if the price of palladium continues to climb, some market participants said.

Shree Kargutkar, portfolio manager at Sprott Asset Management, said he thinks platinum provides a better long-term value alternative to palladium given palladium’s sharp rise.

Still, changes in the automotive industry don’t pose an immediate threat to the rally, he said. Those shifts and mining companies’ efforts to bring more areas of supply on line to capitalize on higher prices are likely to take years.

“We’re not at a point where the palladium bulls have something to worry about,” he said.

For the full story, see:

Ira Iosebashvili and Amrith Ramkumar. “Palladium Soars on Hopes for Growth.” The Wall Street Journal (Tuesday, Oct. 24, 2017): B13.

(Note: ellipsis added.)

(Note: the online version of the story has the date Oct. 23, 2017, and the title “Palladium Prices Soar in Sign of Global Growth and Auto Demand.” Where there are minor differences in wording, the passages quoted above follow the online version.)

Fear of Malpractice Suits Increases Useless Medical Care by 5%

(p. B4) Researchers from Duke and M.I.T. . . . offer what is perhaps the most precise estimate of how much defensive medicine matters, at least for care in the hospital. They found that the possibility of a lawsuit increased the intensity of health care that patients received in the hospital by about 5 percent — and that those patients who got the extra care were no better off.

“There is defensive medicine,” said Jonathan Gruber, a health economist at M.I.T. and an author of the paper, which was published in draft form Monday [July 23, 2018] by the National Bureau of Economic Research. “But that defensive medicine is not explaining a large share of what’s driving U.S. health care costs.”

Mr. Gruber and Michael D. Frakes, a Duke economist and lawyer, looked at the health care system for active-duty members of the military. Under longstanding law, such patients get access to a government health care system but are barred from suing government doctors and hospitals for malpractice. Their family members can also use the military hospitals, but they can sue for malpractice if they wish.

Their study looked at what happened to the hospital care that military members received when a base closing forced them to use their benefits in civilian hospitals, where it was possible to sue. Spending on their health care increased, particularly on extra diagnostic tests.

They also found that, even within the military hospitals, family members who could sue tended to get more tests than those who could not.

For the full commentary, see:

Margot Sanger-Katz. “Doctors’ Fear of Lawsuits May Hit Patients in the Wallet, Study Hints.” The New York Times (Tuesday, July 23, 2018): B4.

(Note: ellipsis added.)

(Note: the online version of the commentary has the date July 23, 2018, and has the title “A Fear of Lawsuits Really Does Seem to Result in Extra Medical Tests.”)

The Frakes and Gruber working paper, mentioned above, is:

Frakes, Michael D., and Jonathan Gruber. “Defensive Medicine: Evidence from Military Immunity.” National Bureau of Economic Research, Inc., NBER Working Paper # 24846, July 2018.