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    Health Care Reform and Sausages

    Jun 7 • Government, Regulation • 326 Views

    Now that we have a health care reform bill, I wondered about the next step. After a law is passed, how are the provisions implemented? A recent Washington Post article provided the answers.

    The next step unfolds in government offices where staffers decide what each provision means and how it will be applied. With more than 2,000 pages of provisions, for health care reform, the decisions are countless and the logistics unfathomable. According to the Washington Post, government staffers are arriving earlier, staying later, and seeing White House officials oversee key timing and content decisions.

    Immediately, $250 checks have to be sent to seniors because of Medicare’s drug benefit coverage gap, small businesses will receive a tax break in exchange for their employees’ insurance coverage, and insurers will have to let families keep adult children on their policies. The law prohibits an “unreasonable” premium increase but what is “unreasonable”? Because the law says that insurers have to spend premiums on improving members’ health, insurers have begun to reclassify activities as improving members’ health. Who determines their validity? Even agency names are being debated. Creators of OCIIO (The Office of Consumer Information and Insurance Oversight), for example, have to decide what to call themselves, “oh-sig-oh” or “C-C-I-I-O”. And this is only the beginning.

    Reading the legislation (H.R.4872 and H.R. 3590), I recalled that Otto von Bismarck said, “Laws are like sausages. It is better not to see them being made.” And we should add, “and implemented”.

    The Economic Lesson

    Fiscal polcy can be defined as the activities of the President and the Congress that relate to spending, taxing, and borrowing. It sounds so concise and clear until we look at health care reform and see how complicated fiscal policy can be.

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    Social Contagion

    Jun 6 • Behavioral Economics, Labor, Thinking Economically • 356 Views

    If unemployment creates unhappiness, then will people be less unhappy if their friends are also unemployed? According to a recent IMF paper, not only are people less unhappy when they and their friends are unemployed, but also, they then tend to be jobless for a longer time period.

    Somewhat similarly, a Harvard medical sociology professor discovered that people gain weight when their friends gain weight. Saying that weight gain was similar to the spread of a virus, he observed that obesity spread through social networks.    

    The Economic Lesson

    Economically speaking, we are looking at “utility differences”. An individual who is very unhappy being unemployed gets satisfaction (utility) from job hunting although it requires considerable effort. By contrast, a less unhappy person will discover that the job hunting effort does not elevate his or her happiness level enough to be worth the effort.


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    Jobs and Crocodiles

    Jun 5 • Labor, Macroeconomic Measurement • 362 Views

    Hearing yesterday’s employment numbers, I recalled the Malaysian proverb, “Don’t think there are no crocodiles because the water is calm.” Everyone is worried about crocodiles.

    Looking beneath the surface, the employment numbers could be troublesome. The water may look smooth because we added jobs; however, they primarily resulted from temporary census workers. During the beginning of May, census hiring peaked at nearly 600,000. Similarly, the good news is that the unemployment rate dropped to 9.7% from 9.9%. Still, though, the broader U-6 rate which included workers marginally connected to the labor force, worsened.

    A jobs bill, also could have crocodiles lurking nearby. In a Teaching Company lecture from Professor Robert Whaples, he explained high European unemployment rates through supply and demand. Providing skills, labor is on the supply side. Meanwhile, we have businesses who hire labor as the source of demand. Whaples says that on the supply side, workers tended to be more comfortable remaining jobless because of generous and sometimes unending unemployment benefits. On the demand side, businesses were looking for fewer employees because of higher minimum wage laws and union control over the workplace. Consequently, workers in France, for example, remain unemployed longer than U.S. workers. In the United States, is the crocodile the cost of a European approach?

    Maybe we need a new proverb:

    “The reverse side always has a reverse side.” (Japanese proverb)

    The Economic Lesson

    The unemployment rate is calculated by dividing the number of people in the labor force who are actively looking for a job by the the size of the entire labor force. People are defined as being in the labor force if they are 16 or older, employed and receiving a wage or salary or unemployed but looking for a job.

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    Michael Lewis and the U.S. Congress

    Jun 4 • Economic History, Financial Markets, Regulation • 298 Views

    The Big Short by Michael Lewis (who also wrote The Blind Side) is a “hot read” on Capital Hill. Senate Majority Whip Dick Durbin (D-Ill) recommended it. Chris Dodd (D-CT) referred to it during a speech on Fannie and Freddie. And, Senators Harry Reid (D-Nev), John Ensign (R-Nev.), and Ted Kaufman (D-Del.) were among several other lawmakers who said, “Read it.”

    Meanwhile, in a fictitious NY Times letter called “Shorting Reform,” Lewis expressed withering skepticism about Congress.  


    The Economic Lesson
    The 34 page Glass-Steagall Act functioned productively between 1933 and the mid-1970s. Lessons from it?


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    Trivial Pursuits

    Jun 3 • Businesses, Economic History, Economic Thinkers, Innovation • 361 Views

    Playing Scrabble in a bar, Canadian journalist Chris Haney and a sports reporter friend thought they could do better. Within an hour, during December, 1979, the two created the idea for Trivial Pursuit and drew an initial version of the game board on bar room napkins. Haney focused on writing the first 6,000 questions for the game, they secured financing by gathering a group of small investors, and the game was launched in 1981. In 2008, Hasbro bought Trivial Pursuit for $80 million. 59 years old, Chris Haney died on May 31.

    The Economic Lesson

    The Chris Haney story started me thinking about the market system. Seemingly chaotic, only Adam Smith’s “invisible hand” gives instructions. The “invisible hand” tells businesses to make profits through the goods and services they produce. At the same time, it instructs consumers to purchase what they want and need at the lowest prices. Winding up as supply and demand, the two intersect and answer the three basic economic questions: What should be produced? How should goods and services be produced? Who should receive the income generated by production? Indeed, the “invisible hand” propelled Chrs Haney.

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