Wednesday, December 25, 2019

The Problem Isn't Socialism, It's Stupid Socialism - Potatoes, Electricity, and Rent Control

Let's look at pricing, and let's use farm produce as a first example, say potatoes.

What should the price of potatoes be in a hypothetical country that grows potatoes, but neither exports nor imports them?

In a capitalist country, the answer is easy. The price is the point at which supply and demand are matched. And that price can vary daily (hopefully by a very small amount) as people's taste for potatoes rises or falls, and as farm production rises or falls (good or bad crop years, farmers starting to grow potatoes or switching to another crop or exiting farming, etc.).

But in a country where the government sets the price of potatoes, the situation is much more complex. If the government wants to increase its support among consumers (think Venezuela), it is tempted to set prices low. Artificially low prices would allow a few people to buy potatoes at a bargain price, but the supply would run out before everyone got the potatoes they wanted. And the situation would rapidly get far worse as farmers suffered from the price of potatoes being set below their cost of growing them, and eventually stopped growing potatoes at all.

In a country where the government is more concerned about its support among farmers than among consumers (think rice farmers in Japan), consumers try to switch to other products if they can, and production exceeds consumption leaving the government to either absorb a surplus or artificially limit production.

A third possibility is that the government sells potatoes to consumers at a low price, but buys potatoes from farmers at a high price. This makes both consumers and farmers happy until the government runs out of money and inflation skyrockets when the government prints near-worthless additional money.

The above is not a blanket condemnation of government price-setting, merely a warning that a government that wishes to set prices must ignore all parochial demands and set prices based on sound economic principles and accurate analysis.

While it is very hard to justify setting potato prices, each government really does need to set electricity pricing, because there is only one electric line to a home, thus making the delivery of electricity (not necessarily the generation of electricity) a monopoly, whether a private monopoly or a government monopoly.  In spite of pressures both from consumers wanting low prices and from an electric company wanting fat profits, a rational government must set prices based on sound economic principles and accurate analysis. If the government itself actually IS the electric supplier, the problem is even harder, as there is no counterforce to balance the demands of consumers for low price electricity, and the government is in great danger of choosing to sell electricity below cost, resulting in deficient equipment maintenance (again think Venezuela), higher taxes or default, etc.

As a third example, look at rent control. Rental properties are in many ways like potatoes. They each require land, potentially very expensive land. They each require a lot of up-front capital. And they are each in danger of being in undersupply or oversupply if supply and demand are out of balance.

Exactly as with potatoes, if a government wants to inflate its support among consumers and sets rents artificially low, a few people can rent apartments at a bargain price, but then the supply runs out before everyone gets a place to live. And the situation rapidly gets far worse as landlords suffer from the price of rent being set below their cost of providing homes, stop building any more rental units, and (unless prevented from doing so by an even more disruptive law) convert existing rental units to other uses.

Sunday, November 3, 2019

A Few Ways in which the Warren/Sanders Assaults on Billionaires would Backfire

Billionaires have lawyers and tax accountants FAR smarter than I am, but here are a couple of ways they would defeat the assault on their wealth by Warren/Sanders...

Transaction Tax:  The answer to a transaction tax is to stop having any transactions. Form or join an offshore entity whose function is to buy/sell/hold US securities, as a mutual fund does. The ultra-wealthy American simply buys and holds an interest in the offshore entity, so no transaction tax. The offshore entity is free to buy and sell stocks and bonds with no transaction tax as long as the transactions don't go through a US exchange.  --  The real burden of a transaction tax would fall on ordinary workers whose 401K retirement plans currently make a fair number of transactions.

Wealth Tax: The ultra-wealthy American moves themself and their wealth to another country and renounces US citizenship. Yes, it would be a significant inconvenience for them, but their contribution to the US Treasury would be completely gone. Yes, Warren/Sanders propose to tax Americans renouncing their citizenship (which may or may not be legal), but there is always a window between when a law is enacted and when it takes effect, so those wanting to leave would just do so quickly.

I wish Warren/Sanders would approach the issue of taxes on the ultra-wealthy as a logical issue, rather than trying to create a campaign issue by inciting hatred of billionaires in the way Trump incites hatred of migrants. We can greatly increase the tax revenue our US Treasury receives from the ultra-wealthy, if the issue is addressed as an optimization problem rather than through hate mongering.

Further reading:  Billionaire Bill Gates doesn't oppose the idea of a wealth tax, but points out the fatal flaws in the absence of global cooperation.

Tuesday, October 22, 2019

The Real Numbers Don't Support Sanders' Assault On Insurance Companies

Sanders and Warren and some of the other candidates are trying to pull the wool over our eyes on health care costs by trying to make insurance companies the boogie man. The administration costs plus profit of health insurance is only 6.4% of total health care costs. Even if those costs could be eliminated (which of course they can't, there is always an administrative cost whether private or government), it would barely move the needle of overall health care costs.

While the 8-figure salaries for the CEOs of the largest insurers might be considered some kind of moral issue, financially it has zero impact on national health costs.

To make any meaningful reduction in overall costs, hospitals, doctors, pharmaceuticals and other components would need to be addressed. Those reductions would be hard, and more important for this discussion, any reductions in those areas could be made equally well whether health care is administered publicly or privately.

Sanders etc. could have proposed a system like the Veterans Administration health care system where the government owns the hospitals, and the doctors are government employees, but that is not their proposal. Their proposal (fortunately) does not nationalize doctors or hospitals, so there are no inherent savings in these areas (and the Veterans Administration health care system certainly has its own scandals, and cost overrun issues).

Sanders and Warren also have proposals to force the pharmaceutical companies to lower prices (which also has some very complex issues), but again this is completely divorced from their assault on insurance companies.

Bottom line, Sanders et al are inciting hatred toward insurance companies as a political tool in the same way that Trump incites hatred toward immigrants as a political tool.

and no, I am not an employee of an insurance company or have any financial interest.

Friday, September 27, 2019

100% Vote-By-Mail, The Best Answer To Election Security And Other Election Issues

100% Vote-By-Mail is the answer to several important questions about American elections...

Election security...  Vote-By-Mail inherently leaves a paper trail that is easy to audit. The Vote-By-Mail ballots can be counted twice, by unrelated machines and unrelated staff, and if the results are identical, the election is pretty secure. Vote-By-Mail is also inherently inaccessible from the internet.

The push to make election day a federal holiday... Vote-By-Mail allows voters to make their decisions and vote from the convenience of their own homes at a time of their own choosing, so there is no necessity of the expense and disruption of an Election Day holiday.

Accessibility...  Vote-By-Mail provides optimum accessibility for the disabled and others who have trouble traveling, walking, reading, etc.

Cost... The equipment to scan Vote-By-Mail ballots is much less expensive than voting machines. And far fewer people are required to staff a Vote-By-Mail system.

Convenience... There is no waiting in line to vote with Vote-By-Mail. And any technical issues (which are much less likely with Vote-By-Mail) do not cause delays or inconvenience to voters.

Voter ID issues...  With Vote-By-Mail, there is the possibility of informing a voter of a discrepancy and for them to resolve it before voting is finalized.