The Liberal Order

Is Health Care "Insurance" Really Insurance?

John Cochrane has an excellent op-ed in the Wall Street Journal. It's regarding the mandate that all employer-provided health care insurance covers prescription contraceptives, but Cochrane does an outstanding job of explaining why health care coverage for foreseen expenses is a bad bet, including this great example.

The minute pills are "free," under insurance, the incentive for drug companies to come up with cheaper versions vanishes. So does their incentive to develop safer, more convenient, male- centered or nonprescription birth control. And by making pills free but not condoms, the government may inadvertently be contributing to an increase in sexually transmitted diseases.

 

Dating Tips for Single People

In fact, nearly half of all singles surveyed (46%) say their political views have not changed in the last 10 years — including men and women of all major ethnic backgrounds (African Americans, Caucasians, Asians, and Latinos fall into the 92-96% range) and those of different sexual orientation (94% of straight men, 96% of straight women, 93% of gay men and 89% of lesbians). So if you date someone across the political aisle from your own, accept that you probably won’t be able to change anyone’s beliefs one way or the other — and get ready to make some real compromises for the sake of your relationship. 

It seems that politics is a greater minefield for a couple to navigate than any other issues they may encounter. If you can't compromise and accept someone for their political differences, are you really going to compromise and accept someone for dysfunctional behaviors like smoking, drug use (illegal and legal), sports attendance and participation, and video game use?

From a different story comes this interesting item of note relative to the story above:  

Conservatives are far more open to reaching out to someone with a different point of view than a liberal is.” That is, when it comes to looking for love, conservatives are more open-minded than liberals. 

See here. (HT: Tyler Cowen for the second story.)

What to know about IPOs.

It's not the greatest explanation, but for students wanting to know more, here is some information.

Santorum Nails It

I'm not a fan of Rick Santorum (I'm not a fan of any presidential candidate, I always write myself in), but he explains superbly the importance of the Constution and Declaration of Independence and how it explictly explains the relationship the relationship between the governed and their government.

 

Danny DeVito Explains the Morality of Companies Like Bain Capital

In a speech that offers one of the best (though of course rare) defenses of capitalism (sad that we have to constantly defend it), Danny DeVito explains the social benefits of what companies like Bain Capital do.

Setting the scene: Danny DeVito plays Lawrence Garfield, chairman and CEO of Garfield Industries. He's earned the name "Larry the Liquidator" because the objective of his investment firm is to purchase companies with asset values that exceed the stock capitalization of the firm and sell off the assets. So if a company's market cap is, say, $1 billion and the assets are worth, say, $1.2 billion, buy controlling interest in the firm and sell off the assets, reaping a 20% return on your investment.

Garfield Industries has targeted New England Wire and Cable, a cable manufacturer that is struggling in light of creative destruction - fiber optics. The speech is at the shareholder's meeting, where Larry the Liquidator is seeking to convince the other shareholders to vote for his slate of directors. On the opposing side is Andrew Jorgenson, CEO of New England Wire and Cable and the grandson of its founder, played by Gregory Peck. He pleads with the shareholders to protect labor and the existing mission of the firm.

If you haven't seen this, it's worth watching. 

 

A Debate On Private Equity Firms

Diane Rehm had Eileen Appelbaum, Megan McArdle, and Steve Kaplan on her show debating the merits of private equity firms. Springboarding off the animosity toward private equity firms due in part to Newt Gingrich's criticisms of Bain Capital and Mitt Romney, Ms. Appelbaum, on two occasions, brings up Mervyn's, a clothing retailer that was taken into bankruptcy by the private equity firms that purchased the company from its founder a few years earlier.

The private equity firms (there were more than one) that purchased Mervyn's split the company into two separate entities, creating a commercial property company and a clothing retailer. Apparently Mervyn's owned the real estate on which its stores operated. After setting up the commercial property entity, the company soon discovered that rents for the property currently occupied by Mervyn's stores increased substantially, which means Mervyn's had been operating with an accounting profit, but after taking into account the opportunity cost of its real estate holdings, not an economic profit.

Mervyn's had already been struggling as a retailer in an increasingly competitive market. The company also failed to change its image, effectively failing to find and serve a niche market, which caused it to lose revenue. Once the company was split in two, Mervyn's had to pay the opportunity cost of using its properties, causing them to operate at a loss. They were a losing venture prior to being bought by the private equity firms, and these firms only exposed inefficiency of the operation.

The example of Mervyn's is a virtue of private equity firms, not the villainous rogues Appelbaum makes them out to be. Something similar happened to the large department store Woodward & Lothrop. That company was bought out by Alfred Taubman, who subsequently liquidated the company after finding it losing market share in a more competitive market. The effect of Taubman purchasing Woodward & Lothrop and then taking into Chapter 7 liquidation was a benefit to the store's creditors, including its employees, both current and retired. Without Taubman taking the company into bankruptcy when he did, it likely would have depleted the capital it had, leaving these employees and retirees with a lot less. By taking it into bankruptcy and liquidating its assets, Taubman was able to provide these stakeholders more than had he waited while the store bled more of its existing capital.

UPDATE: Here is FactCheck.org going over Gingrich's criticisms. 

NPR Story #1, Manufacturing Jobs In the U.S.

NPR's Planet Money aired an outstanding story this morning about the current prospects of low-skilled workers in manufacturing in the U.S. It was very fair treatment, explaining how technology has changed, making employment prospects less secure for lower-skilled workers. 

People with minimal education could work in a factory and support a lifestyle that their grandparents could only dream of. And the people here — they knew it.

"We've had a fantasy life," says Larry Hale. He worked in the old Greenville, driving a truck and hauling stuff made in Greenville all over the continent. "We've done things that a lot of people dream of doing ... like when I went to Canada and started dating this hairstylist. ...We lived our lives to the fullest."

Compare this fantasy life to the present. There are still factories in Greenville, and they still employ workers with only a high school education. But as I found out, those workers feel far less certain about their job prospects.

But now the demand for manufacturing workers requires different skill sets.

Young is the perfect model of the new factory worker. He has an encyclopedic knowledge of metals and microscopes, gauges and plugs. He works on the team that makes fuel injectors, which require precision engineering. At the heart of the assembly process is an automated machine run by a computer process known as CNC.

"When I came here 20 years ago, we didn't have CNC equipment," he says. "It was more of the hammer and screwdriver fix, to where now it's all finesse."

"Now it's all finesse" could be the motto of American manufacturing today. In factories around the country, manufacturing is becoming a high-tech, high-precision business. And not everyone has the finesse to run a CNC machine.

And the less-skilled worker of the past, what Tyler Cowen refers to as the "zero marginal product worker"?

Madelyn "Maddie" Parlier is more like the old style of worker. She does have a high school diploma, but no further education. She works on a simple machine that seals the the cap of a fuel injector onto the body. All she does is insert two parts and push a button. It requires no discretion, no judgment. There's only one way to run it: the right way.

"It does it for you," Maddie says. "All you do is put the piece in, push the clamps down, and push your finger."

 

What I liked best about this story is there were no inferences about what needs to be done to protect/assist/fix the problems faced by people like Maddie. But it doesn't mean nothing can and should be done.  

On Stephen Colbert Running for President of South Carolina

Below is a hilarious clip of Stephen Colbert mocking the 2010 landmark Supreme Court case Citizens United. It's humorous, but it misses the bigger point. 

Let's say that the NFL basically tells its officiating crews that there are rules to regulate the game of football, but that the officials will now have much leeway in calling penalties outside those specified in the rule book if they believe that by doing so they improve any given game. As a consequence of this new discretion on the part of officials, they begin accepting bribes that advantage one team, or one of its members, over the other team (obviously advantaging the team paying the bribe), under the ruse that their penalties were making the game "fairer" or "better."

The officials are getting rich and accusations of impropriety on the part of officiating crews fly. Would any reasonable person argue that the problem of such impropriety by NFL officials is caused by how they receive their bribes? Just change the way bribes are paid and the improprieties and rent-seeking by prospective officials seeking a job officiating in the NFL will stop? Really? Isn't the problem caused by permitting the officials to stray from the strict rules and guidelines they were hired to enforce, including rules that limit their actions on the field?

There is not too much money in politics; there is too much government and politics in money. 

 

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A Libertarian's Dream Candidate

As we go through another election cycle and all the BS that we'll listen to over the next year, here is a clip to consider from one of my most favorite movies.

Who Cares About This Stupid Election?
Election — MOVIECLIPS.com

 

One source of that increasing income inequality . . .

Not surpisingly, becoming a member of the U.S. Congress is very lucrative to your net wealth. 

What is clear is that members of Congress are getting richer compared not only with the average American worker, but also with other very rich Americans.

While the median net worth of members of Congress jumped 15 percent from 2004 to 2010, the net worth of the richest 10 percent of Americans remained essentially flat. For all Americans, median net worth dropped 8 percent during that period, based on inflation-adjusted data from Moody’s Analytics.

Going back further, the median wealth of House members grew some two and a half times between 1984 and 2009 in inflation-adjusted dollars, while the wealth of the average American family has actually declined slightly in that same time period, according to data cited by The Washington Post in an article published Monday on its Web site.

Some argue that there's too much money in politics, I would argue that it's just the opposite - there's too much politics in money. In other words, the more we collectivize the income and wealth of the country, the greater the returns to lobbyists of getting a bigger piece of that pie. If a company can invest $10 million to build a plant that provides them a net present value of, say, $20 million, or spend that same money lobbying for wealth transfers or special privileges that provide them a net present value of $50 million, it's a no-brainer to determine which road they take. And the consequence:

One likely cause of the rising wealth, political analysts say, is the growing cost of a political campaign. A successful Senate run cost on average nearly $10 million last year, and a successful House race was $1.4 million, significantly above past elections.

The prohibitive cost has inevitably drawn richer candidates who can help bankroll their own campaigns and attract donations from rich friends — while deterring less well-off candidates, political analysts say.

The data analyzed by The Times corroborated the idea that incoming members are in fact richer than those in the past. The freshman class of 106 members elected last year, including many Tea Party-backed Republicans, had a median net worth of $864,000 — an inflation-adjusted increase of 26 percent from the 2004 freshmen.

The returns are so great because the stakes are so high. What collectivizing more and more of the income and net wealth of this country does is weaken democracy and increase income and wealth inequalities, not strengthen democracy or make it or make it less unequal.