Wednesday, May 15, 2013

30 Minutes to Better Health

A report about the effect of Medicaid has been in the news recently. The quick summary is that having health insurance does very little to improve your health (although it may make you more financially secure and less depressed). These results are not really very surprising. Your personal behavior has far more to do with your health than does health care.
So, let's say you want to improve the health of the uninsured and you have two options. Under Option A, taxpayers are required to work for 30 minutes a day without compensation so that that money can be used to provide health care for the uninsured. That's about 6% of GDP (based on an 8-hour workday) which is in line with expected govt. expenditures on health care. Of course, these workers may have to work another 30 minutes to pay for their own health care. Under Option B, the uninsured would be required to exercise for 30 minutes a day.
I would argue that Option B would have more positive effects on the health of the uninsured (especially considering the evidence that Option A has little effect). I would also argue that Option B is fairer in that those who benefit from the plan would also be contributing to the plan. However, tax and spend policies similar to Option A, including Medicaid and Obamacare, are proposed while nobody other than me seems to be advocating anything related to Option B (as far as I know).
I'm not really a big fan of Option B from a civil liberties stand point, and I can't stand the idea of Big Brother making sure I do my sit-ups every morning. But it does raise a question. If someone won't devote 30 minutes of their time to improve their own health, why should I be expected to devote 30 minutes of my time to improve their health?

Tuesday, August 14, 2012

What if Robin Hood had gotten a job?

There have been a few commentatators that have taken to contrasting Mitt Romney with Robin Hood. Romneyhood, or as Krugman calls it dooh nibor, supposedly takes from the poor and gives to the rich. Nevermind that at most his plan calls for taking less from the rich to give to the poor and nevermind that Robin Hood stole from the government and returned the money to taxpayers. I'll stick with the idea that Robin Hood took from the rich and gave to the poor and ask if the poor might not have been better off if Robin Hood had gotten a job instead.
By getting a job, he would be increasing total output which means that there would be more goods and services available to everybody. As an excellent hunter, he could have used his skills to feed an entire village. His Merry Men could have been building homes, tending crops, or crafting tools. As an added bonus, any resources (guards, fast horses, stones, ...) used by the rich to protect their wealth would also be freed up to be used in productive manners.
In short, using resources to spread wealth instead of creating wealth makes everyone poorer. And as long as scarcity exists, there will always be jobs available for those able to provide the wants and needs of society.

Monday, July 30, 2012

Economic Mobility and Meritocracy

There seems to be a little debate going on between Tyler Cowen, Paul Krugman, and others so I thought I'd add my two cents. While people in America like to think of ourselves as a bootstrappy country where someone can rise from the depths of poverty into a world of wealth, there is actually less income mobility in the US than in Europe. Tyler argues, rather ineloquently even if I might agree with him, that income mobility is overrated because if someone is moving up in class then someone else must be moving down in class. Thus, we are overall no better off and may even be worse off from a utility standpoint because of habit formation and reference effects. Basically, poor people are OK being poor because they've never known anything else. Alex tries to support his colleague, again rather ineloquently even if I agree, that growth is more important than mobility. Paul Krugman objects to Tyler's argument and frames it as if Tyler is arguing in favor of a regimented caste-like state while Brad DeLong mischaracterizes Tyler's remarks as being against income mobility.

The real issue (in my humble opinion) is not mobility but meritocracy. The relationship between mobility and meritocracy really depends on the relationship between ability and heredity. If ability and heredity are highly related, then able parents will have able children (and less able parents will have less able children). If they live in a meritocracy, then the able parents and their able children will both be successful (and the less able parents and their children will be less successful). Thus we will have no mobility. If there is a weaker relationship between ability and heredity, then you will have more mobility even if we have a meritocracy. Less abled and unsuccessful parents can have able and successful children. If success depends on parentage regardless of ability (a caste sytem or aristocracy instead of a meritocracy), then there will be less mobility no matter what the relationship is between ability and heredity.

So, is America's relative lack of mobility the result of a lower level of meritocracy or the result of a greater relationship between ability and heredity? I think you can make a stronger case for the latter rather than the former (although I would love to see any studies on this). I would argue that Europe still has a much greater social aristocracy even if they've moved to a more economic meritocracy. This reults in people marrying members of the same social class even if they have different abilities  producing a weaker relationship between ability and heredity. In America, parents are more likely to marry someone with the same level of abilities which results in a stronger relationship.

Again, this is just conjecture and I'd love to see the evidence, but the main point is that a lack of mobility does NOT mean that there is a lack of meritocracy.

Wednesday, July 4, 2012

Gone Fishin'

We all know the saying that if you give a man a fish then you have fed him for a day. If you teach a man to fish, then you have fed him for a lifetime. I think many people would agree with this sentiment and would be willing to help teach people how to fish. The challenges arise when this old saying fails to hold true.
Some people don't want to fish and would rather just be given the fish. If you don't give them fish then you're forcing them to starve. If you try to make them fish then you're making them slaves.
Some people, for whatever reason, suck at fishing. You can spend all of your time trying to teach them how to fish, but they will never be able to be self sufficient from fishing. Should these people be left fishless? If you just give them fish, then other people will want to be given fish as well. Instead, we need to figure out what they CAN do and have them do that in exchange for fish.
Some people would rather do something other than fish. They have the ability to fish and they may already know how to fish. But fishing is too pedestrian for them.They want to do puppetryteach medieval history, or become an artist. I'm all for artists and puppeteers, but don't whine about not having enough fish just because you'd rather do something else.

Two Statements about Health Care Reform

In the debate over health care, there are two statements that I feel reflect the dilemma.

Rich people should get higher quality health care if they are willing and able to pay for it.
Poor people should get lower quality health care since they can't afford it.

Of course, these statements say the exact same thing. People who favor a single payer system would likely disagree with these statements. People who favor a more market-based approach would likely agree with these statements. But many people would agree with the first statement and disagree with the second statement. Psychologists know that phrasing is very important in poll questions and that is why it is often difficult to gauge public opinion.
Our current system stinks and I know that. Our idea of universal health care is the Emergency Room, but if you have insurance you can see a doctor, get an MRI, and call in a prescription pretty easily. At the other extreme you have a single payer system where health care is free, but you have to wait six months to see a doctor.
In my mind, the real question in the health care debate is determining what level of health care people have a "right" to. I'm basically OK with preventative medicine, periodic check-ups, vaccinations, and other treatments which will lead to full recovery for the patient. I'm generally opposed to expensive procedures that simply prolong death. I think a lot of people might even agree with me on these points (or maybe not), but someone would have to draw the line between what level of health care is a right and what level is a privilege. Can you say Death Panel?

Friday, May 18, 2012

Revenue Maximizing vs. Inequality reducing tax rates

A number of events have occurred recently that relate to the Laffer Curve. First, France elected a new president who has advocated a top tax rate of 75%, a rate that even many liberals recognize as revenue reducing. However, Emmanuel Saez, along with Gruber, Picketty, and Diamond, argues that tax rates in that range are justifiable. One reason offered is that there is very little correlation between economic growth and tax rates. However, growth rates were not the point of the Laffer Curve. Economic growth will be the same as long as the people who are working are becoming more productive.
An additional problem with the Saez argument involves his elasticity measure. The peak of the Laffer Curve depends on how people respond to different tax rates. If people keep working the same amount no matter what the tax rate is, then we say that taxable income is inelastic (or the elasticity is zero). An elasticity of 1 means that a 5% increase in tax rates will result in a 5% decrease in taxable income. An elasticity greater than 1 means that a 5% increase in tax rates leads to a greater than 5% decrease in taxable income. In order to justify a tax rate of 75%, the elasticity measure would have to be approximately .2. His own research estimates an elasticity closer to .4 for the overall population. However, even he recognizes that the elasticity measure rises with income and his elasticity estimate for people making over $100,000 (1992 dollars) is .57. Wealthy people may work less, retire earlier, use tax loopholes, renounce their citizenship, or take some other action which reduces the amount of taxes they owe. Other researchers find considerably higher elasticities, especially for high income individuals. If the elasticity is 1 or greater, then the revenue maximizing tax rate falls to 40% or lower. When you include top federal rates of 35% (and possibly going up to 39.6%), medicare taxes, sales taxes, state taxes (perhaps as high as 13.3% in California), estate taxes, and corporate taxes (now the highest in the developed world), then we may already be beyond the revenue maximizing rate.
However, the goal of tax policy in this case is not to raise revenue, it is to reduce inequality. I have argued before that the best evidence that tax rates effect effort is rising inequality. At low tax rates, the wealthiest people keep working and get richer and richer which drives up inequality. At high tax rates, these people work less which reduces inequality. If reducing inequality is a goal in and of itself, as many people believe it should be, then confiscatory tax rates are beneficial. Under this viewpoint, it is OK to punish the poor as long as you punish the rich even more.

Tuesday, January 24, 2012

Romney's True Tax Rate

Much has been of the release of Mitt Romney's tax returns, and most of it has been misleading at best. The general summary has been that his effective tax rate has been 13.9% based on $3m in taxes and $21.7m in income for 2010. This fits with the argument that he pays a lower rate than his secretary as Warren Buffett likes to claim. However, both men know that that is not the true story. Most of his income (12.5m) was from capital gains which means that it was taxed twice -- once at the corporate level (which is borne by shareholders) and once at the personal level. Not enough information is given to figure the exact amount of pretax income and taxes paid, but let's assume that he made 17.5m before corporate taxes and then paid 5m to leave him with personal income of 12.5m. This would mean that he paid 8m in taxes on 26.7m in income resulting in an effective tax rate of 30%. If you deduct the 3m in charitable contributions he made from his income, then the effective tax rate is 8/23.7 = 33.76% which is much closer to his true tax rate.
If left in charge I would change it to where investment income and carried interest (which resulted in another 7.5m of his income) were taxed as ordinary income. Of course I would also eliminate the corporate tax rate (I'd also eliminate the charitable contribution and mortgage interest deductions). These changes would cancel each other out and wouldn't have too much effect on tax revenue, but at least they would provide an honest representation of the amount of taxes paid by individuals.