2 quick statistics for today:
21% of people will make over $250,000 in a year at some point in their life.
58% of people who are in the bottom 20% of income are not in that group 20 years later.
Saturday, November 30, 2013
This Thanksgiving weekend, I am thankful for many things, including a great family, good health, a job I enjoy, and reasonable financial security. I am also thankful for the miracle of free markets, and that I live in a country that still, for the most part, allows for the wonderful rewards that capitalism brings. In that spirit, I am posting this video motivated by the poem “I, Pencil”, by Leonard E. Read. Even if you have heard the poem before, it is worth watching this short video, to remind yourself of the beauty of Adam Smith’s invisible hand, and to give thanks for free markets.
Friday, November 22, 2013
"It is not by augmenting the capital of the country, but by rendering a greater part of that capital active and productive than would otherwise be so, that the most judicious operations of banking can increase the industry of the country." - Adam Smith
Tuesday, November 19, 2013
Sunday, November 17, 2013
The 1,000 page Obamacare legislation is of course complicated, but some of the key provisions are fairly easy to understand and yet are often misunderstood. So I thought I would try to objectively explain some of the main provisions of the law. I will save the editorials until after I lay out the key points.
1. Preexisting conditions and the individual mandate. One of the keys of the plan is to be sure that people with preexisting conditions can get coverage. The way this still works for insurance companies however is to require everyone to buy insurance (the individual mandate). So if you like the preexisting condition part, you need the mandate. Otherwise, everyone can just wait until they get sick, and then sign up for insurance, which would lead to only the most sick paying for insurance.
2. Standardized plans. Another key is to standardize health care plans (so called Bronze, Silver, Gold and Platinum plans). This is done to allow for risk pools outside of employer provided plans, to allow clearer price competition from insurers, and to simplify choices for consumers. One of the big issues for debate is of course what to include in each plan. But the tradeoff is between simplicity and transparency versus choice and flexibility.
3. Subsidies, taxes, fees and deficits. Obamacare has significant subsidization of premiums. For example, a family of four with income of $55,000 gets half of its insurance paid for them and even a family of five with income of $94,000 is eligible for subsidies. These subsidies are partially paid for with some dozen or more new taxes and fees on individuals and companies. These subsidies are also partially not paid for and will therefore increase the federal deficit.
These are just facts, so none of this is really debatable, by the left or right. Whether you like this law or not depends on how you weigh the pros and cons. For example, the law clearly requires young healthy people to pay more for insurance to subsidize the old and sick. This occurs because of points #1 and #2. If you like that someone can now get insurance that is unhealthy, you have to trade that off against the fact that a bunch of young healthy people are now required to sign up and pay more for their insurance than is actuarially fair for them. The law also increases the deficit to pay for health insurance to middle class (and poor) families, through point #3. Since that deficit will eventually get paid for by younger people as well, this is another transfer from young to old. Some of the new taxes to fund the subsidies are paid directly by insurance companies, which increases their costs, and therefore increase premiums for everyone. The standardized plans include maternity care, so this requires people who will not have kids to pay more for insurance to subsidize other people who do have kids. They also include mental health coverage, so if you don’t use mental health services, you will pay for others to use mental health services. All of this is just transfers, there is no magic. Some people win and some people lose.
Finally, understanding how Obamacare works also puts in plain perspective Obama’s press conference last week and his promise of “if you like your health insurance, you can keep it”. Points #1 and #2 make it clear how this was never possible. The law requires individuals to get insurance and it must be a standardized plan. The law needs this to create a broad risk pool in the exchanges, including the sick and healthy. So Obama, who many people claim is very bright, surely knew that people would not be able to keep their plans. And it also shows that his “change of heart” last week was 100% politically driven. The law does not work unless you actually get these people who have lost their plans to buy higher priced plans in the exchanges to subsidize the higher risk enrollees. So he actually temporarily harmed his own law to save face politically.
Friday, November 15, 2013
Wednesday, November 13, 2013
It is getting tiresome to see how seemingly every day some leftist is bemoaning declining middle class incomes and increasing income inequality. The fact is, middle class living standards are significantly better today than at any point in the past by virtually any objective metric. And income inequality measures ignore several other salient facts. For example, wealth inequality has actually not changed much over time at all, nor has consumption inequality. Also, to the extent there is more inequality now by some measures, it has been caused more by significant gains for people at the top, not by losses for people in the middle or bottom. Finally, these arguments also ignore that significant income mobility continues in the United States; for example, 40% of people in the lowest quintile of income will move out of that quintile over time. See the articles and video below for more details and data.