Stop Paying for 411 Calls
This post originally appeared on The Finance Buff.
Today a friend noticed I was using Google 411 and asked me what it was. If it is important enough to explain to a friend then it is important enough to blog.
So, if you’re still paying for 411 calls, whether from a land line or mobile phone, you should stop doing so. Google 411 is very good and it is free. I’ve been using it since I became aware of it a few months ago. Give it a try next time you need to find a phone number.
The Fallback Plan Emerges
This post originally appeared on The Finance Buff.
Today’s NY Times article by Robert Pear explains ways in which Senator Kennedy’s health reform bill (expected out next week) and the one being developed by Senator Baucus differ. One difference is that Kennedy supports a strong public plan while Baucus is considering a compromise. Pear writes,
Democrats on the Finance Committee said Mr. Baucus was exploring a possible compromise. Under this proposal, the public plan would be created only if private insurance companies had not made meaningful, affordable coverage available to all Americans within several years.
Senate Democrats said they believed that Mr. Baucus might settle for this “fallback plan,” which could win some support on both sides of his committee, from people like Senator Ron Wyden of Oregon, a Democrat, and Senator Olympia J. Snowe of Maine, a Republican.
So, it appears as if the fallback plan is being seriously considered.
Organizational Failures Come in Threes
This post originally appeared on The Finance Buff.
Three organizations failed me today.
Number 1: The United States Postal Service (USPS). I received an e-mail today stating that the USPS could not deliver my package from Amazon.com. I had ordered three normal size books so this was not an unusually large package. I have received packages much larger many times. I have an easily accessible covered porch. There is no excuse for the USPS not to leave a package.
When I called the post office I was told I could come pick up the package. My exact reply was, “No. That’s not my job. The entire reason I made this purchase by mail and paid the shipping is so that it would be delivered to my house. That’s your job. I cannot think of a reason why it would not have been delivered to my house except that someone is not doing their job.”
The postal worker took the tracking number and said she’d look into it. I received a call about a half hour later saying she found my package and was sending it out. When I got home I found it on my porch. Was that really so hard?
Number 2: The State Department of Revenue (DoR). The USPS had no trouble delivering a letter to me from the DoR stating that they did not receive my 2008 tax payment with my tax return. According to them I owe the tax (~$500) plus interest and a penalty (another $20). They seem to have received my tax return and my payment was in the same envelope. I think they lost the payment so I intend to fight the interest and penalty payment.
Fortunately, Bank of America permits a payment stop on a check for free if you say the check is lost, otherwise it would be a $30 fee. I think I will always say the check is lost. In this case that is not a lie. So I stopped payment on the original check and will make a new payment electronically. Sheesh!
Number 3: Bank of America (BoA). Tonight I looked into BoA’s Online Bill Pay service. I’m not impressed. I would like to pay a friend electronically, transferring funds from my checking account to his. Since I will be doing this regularly (probably monthly) to pay for a service he is providing it would be nice not to have to write a check and to save him a trip to the ATM to deposit it. But, it seems that Bill Pay is set up just to send out bill payments. It does not seem set up to make electronic transfers to checking accounts. Or, if you can do that, I don’t see how with the options provided online. There is no place to enter a routing number, for example. Where it asks for an account number it seems to be thinking of a billing account, not a checking account. (If anyone knows how to make electronic payments between checking accounts via BoA, let me know.)
The “Have No Fear” Inflation Update
This post originally appeared on The Finance Buff.
This is a quick update on recent arguments by economists that high inflation is not to be feared at this time.
- Paul Krugman’s NYT column today makes the case that current inflation fears are unwarranted.
- As I’ve already written, CBO is predicting little inflation.
- A list of reasons why high inflation is unlikely was given by Scott Sumner in a post earlier this month.
- Menzie Chinn’s analysis of real and nominal interest rates suggest low inflation expectations.
- I linked to additional details provided by James Hamilton, Susan Woodward, and Robert Hall in a prior post.
I’m sure one can find economists who have written that high inflation is inevitable. I tend not to run into those arguments as often as those referenced above. Feel free to post links in comments to this post to contrary opinions by economists.
Later: Here’s a Slate article by Danile Gross that includes descriptions of positions by economists that are contrary to Krugman’s position referenced above.
Sweet Frugality: Lessons in a Cup of Tea
This post originally appeared on The Finance Buff and has been cited in the 207th edition of the Carnival of Personal Finance.
I like the efficiency and frugality of bulk purchasing. My volume purchasing includes various jumbo multi-pack paper goods and five pound sacks of my favorite non-caffeinated tea (hazelnut Teeccino). After a recent, particularly large Costco run that included many bulk purchases I felt like I’d just finished a large meal. After consuming so much I could not imagine ever needing or wanting more. It seemed inconceivable that I would ever run out. Of course, I was wrong.
About one year ago I purchased a ten pound bag of sugar to be used for tea at work. Hauling the bag into work wasn’t trivial as my commute includes a lengthy walk from train stop to desk. To take my mind off my heavy burden I contemplated how long it would take me to consume that quantity of sugar. I didn’t read the package to see how many teaspoon servings there were (960) or really think much about it. I just took a WAG. My guesstimate was 18 months. Of course, I was wrong.
It turns out that the average American consumes about 140 pounds of sweetener per year, including refined sugar, corn-based sweeteners, honeys, and syrups (source: USDA, Table 50). Upon learning this I reacted like any healthy apple-pie eating American would, “Not me!” I was certain I consumed far less sugar than this. I eat well: lots of vegetables, few fats. I could not imagine consuming more than a few tens of pounds of sugar per year. Of course, I was wrong.
The moment after I dropped the ten pound sack of sucrose on my desk I marked it with the current date and the date upon which I expected to use the last crystal. I mark the date of first use of bulk items sometimes, just to help me determine how long they last. It’s just plain, good, old-fashioned, penny-pinching fun. (I also mark the installation date in a concealed spot on my large home appliances: washing machine, dryer, furnace, hot water heater, etc.) My new sack of sugar was now adorned with, “start-6/16/08, end-12/16/09 (est.).” Surely it would last that long. Of course, I was wrong.
Approximately eleven months after my first, sweet scoop from the bag it was empty. Accounting for vacation days and holidays, eleven months at the office is about 205 work days. Since a ten pound bag of sugar has 960 teaspoons, that’s 4.7 teaspoons per day. I drink two very large mugs of tea every work day, each one about 18 ounces or 2.25 cups. Thus, I used almost exactly one teaspoon of sugar per 8 ounces of tea. Nevertheless, I used 10 pounds in 11 months, which is equivalent to nearly 11 pounds per year. And that’s just for tea, modestly sweetened, at work, on work days only. And I believed I didn’t consume much sugar. Of course, I was wrong.
Since sugar is in nearly everything (see this for an amusing illustration), it is not hard to imagine I consume vastly more than a few tens of pounds of sugar per year. While I have not done (nor will I do) a careful dietary analysis, a reasonable extrapolation from my sugar consumption via at-work tea (another WAG) suggests I do indeed consume much closer to 100 pounds of sugar per year (or more) than I do to a few tens. I really was wrong.
I love my tea. It is tasty and makes a few moments of work feel special and relaxing. It has also taught me two valuable lessons. I’m not as different from the average American as I thought. And, in sugar consumption, as in saving, little things add up. In this, I am confident, I am not wrong.
The Curse of Nonuniqueness
This post originally appeared on The Finance Buff.
This post reviews some academic literature relevant to a discussion about health reform referenced previously. The focus is Uwe Reinhardt’s paper “Can Efficiency in Health Care Be Left to the Market?” (2001, Journal of Health Politics, Policy and Law), for which I will use the shorthand “EHC” for “Efficiency in Health Care.” I highly recommend EHC to anyone wishing to understand welfare economics, even those without an economics background. It is quite accessible, more so than my own words below, selected in large part for space efficiency. (Duke University Press honored my request to provide a few months of unrestricted access to EHC.)
EHC is a review of certain themes in the seminal paper in health economics by Kenneth Arrow, “Uncertainty and the Welfare Economics of Medical Care” (1963, American Economic Review). In particular EHC’s focus is Arrow’s analysis of the application of foundational concepts of welfare economics to health care. Arrow himself made his argument so efficiently that, to quote Reinhardt, “nothing less than the academic analogue of talmudic scholarship” is required to extract its full value.
A central concept of neo-classical welfare analysis is that of Pareto efficiency, a “first do no harm” welfare criterion. A Pareto efficient distribution of a good (like health care) is one for which any change would make at least one individual worse off. Only a change that would make everyone better off is Pareto efficiency improving. A limitation of the criterion is nonuniqueness: every distribution for which there is no change that makes everybody better off is Pareto optimal, including those judged inequitable by other criteria. A redistribution of just one penny’s worth of care from a prince to a pauper does not increase Pareto efficiency, no matter how well off the prince or in desperate need the pauper.
The nonuniqueness of the Pareto criterion is often side-stepped through appeals to the first and second fundamental theorems of welfare economics. The first is that a perfectly competitive market achieves Pareto efficiency. The second is that any Pareto efficient distribution of resources (e.g. health care) can be achieved as a competitive equilibrium arising from a particular distribution of wealth. Thus, if the conditions of these theorems are met, any Pareto efficient distribution of health care resources could be brought about by a set of suitable initial endowments of wealth (e.g. achieved through the tax code). In Arrow’s words,
“by successive approximations a most preferred social state can be achieved, with resource allocation being handled by the market and public policy confined to the redistribution of money income.”
However, it is (or should be) uncontroversial that the market for health care is not perfectly competitive. Thus, it does not satisfy the conditions of the first and second fundamental theorems. In fact, this is one of the main themes of Arrow’s paper.
EHC’s critique is deeper, however. It is unlikely that any one initial distribution of wealth would achieve the desired distribution of health care and the desired distributions of all other goods and services. The maximization of utility by the recipient of wealth transfer may include the “right” amount of health care but also “undesirable” amounts of other goods (e.g. too much gin, not enough education). The first and second fundamental theorems are of no help at all in “optimizing” distributions over multiple goods simultaneously.
The public policy solution to such an undesirable outcome is distribution not of wealth but of in-kind benefits. In health care this has become commonplace: think Medicare and Medicaid. Is this sufficient justification for a public health plan available to all non-elderly Americans? EHC poses the question thus, “How are we to judge the merits of social health care policies?” Having seen that the nonuniqueness of the Pareto criterion makes it a particularly blunt tool, EHC turns to another pillar of welfare economics: Kaldor-Hicks efficiency.
Under the Kaldor-Hicks criterion, optimality is achieved when no voluntary exchange of compensation would motivate a change in distribution. If a unit of health care is more highly valued by the prince than the pauper Kaldor-Hicks efficiency justifies a shift of health services from the latter to the former. This is a direct appeal to individual utilities and therefore is subject to the same critique as levied against policy via wealth distribution: an “undesirable” distribution of a particular good may result. This is essentially the argument made in EHC. Other objections to the Kaldor-Hicks efficiency criterion are raised elsewhere.
My own sense is that it is asking far too much of welfare economics to point to a unique solution that optimizes a universally accepted criterion. Indeed, one ought to be suspicious of any claims of unique optimality. It is plausible that any such result is preordained by the form of the optimand, even if not explicitly stated. Extra-utility welfare analysis (also called extra-welfarism) can very likely recommend “optimal” policies distinct from “optimal” ones suggested by utility-based (welfarist) approaches.
But no approach has a unique claim to legitimacy. An unassailable argument does not exist for any one solution, whether public or private, to any problem, not even health care. Is this curse of nonuniqueness the death knell of welfare economics? Certainly not. The value of welfare economics in particular and economics in general is the clarity of thought it enforces. A welfare analysis of almost any type will lead the analyst to consider particulars and consequences that are opaque to casual thought. While it is relevant that health care is not a perfectly competitive market one misses the point of economics entirely to suggest that this renders it inaccessible to welfare analysis. Such a thought would be a grave mistake, especially since it appears as if private provision of health care and health insurance is here to stay.
The responsibility of the economist is to understand the assumptions and limitations of his tools. This is the great virtue of Reinhardt’s contribution. By expanding and clarifying Arrow’s words, in EHC he makes those facets of neo-classical welfare analysis plain, not just to the economist, but likely to any clear thinker motivated to read it.
Hidden Costs of Media Hysteria over Lost Data
This post originally appeared on The Finance Buff.
In principle one could embed everything of value in a block of concrete so nobody could ever walk off with anything. That just makes it kind of hard to extract any productive value out of things. This applies to data. Media reports of lost data like this have an impact. They cause government agencies to tighten their control on data. A consequence is lower risk of data loss. Another consequence is less data available for the folks that use it to get stuff done, to make things better.
Data for research on health insurance and health care is critical to improving coverage, access, and outcomes. Today researchers around the world are waiting for data to conduct studies about programs tax payers have funded. Data access barriers erected in reaction to media hysteria slow or stop the progress of research. The more we lock down the less we learn. The less we learn, the less those programs can improve, and the more we waste tax payer dollars.
It is critical to be careful with data. It is possible to be too careful. To be of value, data must be used. To be used it must be shared, which risks loss. It is an unavoidable trade off, like driving and traffic. The goal should be to encourage responsible use of the vehicle while minimizing the risk of head-on collision. The solution is not to junk the car. (That’s the solution to a different problem.)
Later: Today’s OMB announcement about data.gov is a good sign.
What Inflation Means for Social Security and Medicare
This post originally appeared on The Finance Buff.
The Congressional Budget Office (CBO) Director’s Blog is one of my favorite ways to stay current with issues that affect the financing of federal programs. The 22 April 2009 post explained why CBO projects no cost of living adjustments (COLA) for Social Security in 2010 through 2012 and the implications for the Social Security taxable maximum. A follow-up post on 23 April 2009 explained the implications for Medicare Part B premiums. Below I summarize what the director communicated in those two posts.
The Social Security COLA is based on the consumer price index for urban wage earners (CPI-W). Social Security benefits cannot be reduced and they will only increase if the CPI-W climbs to new highs. CBO projects that for the next three years the CPI-W will stay below the value it attained toward the end of 2008. If this projection holds, Social Security benefits would remain at their 2009 values for the three years 2010-2012. Benefits provided by other federal programs with COLAs tied to that of Social Security would also see no increase in these years (includes civil service and military retirement, as well as veterans’ compensation and pensions benefits).
That’s the bad news for those receiving Social Security and other federal retirement benefits. The good news for wage earners is that the maximum amount of wages subject to Social Security payroll tax (the so-called “taxable maximum”) would stay fixed too because it only rises as COLAs rise. The taxable maximum for 2009 (and projected for 2010-2012) is $106,800 (historical values here).
There is, however, good news for some Medicare beneficiaries. Since 1996 the Medicare Part B premium for most beneficiaries has been set at 25% of the cost of Part B coverage. In 2009 the Part B premium is $96.40(*) per month (see this Congressional Research Service report for past premium values). For some Medicare beneficiaries this 2009 value would hold steady through 2012 if, as CBO projects, the CPI-W stays below its peak over that period. This “hold harmless” provision applies to 75% of Medicare beneficiaries who have their Part B premium withheld from their Social Security check. The hold harmless rule is that the Social Security check after Medicare withholding cannot decrease. That limits the Medicare withholding increase to be no larger than the Social Security COLA. No COLA, no additional Part B premium.
But, this situation does not apply to the quarter of Medicare beneficiaries who fall into any of the following categories: (1) new enrollees in Part B, (2) enrollees who pay an income-related premium, or (3) those who do not have the Part B premium withheld from their Social Security check (most of whom have their premiums paid by Medicaid).
These beneficiaries (or, through Medicaid, their state governments) would be hit with a double whammy. Not only would they not benefit from the zero COLA (in the sense of their Part B premiums holding constant) but their premiums would rise an additional amount to compensate for the revenue lost due to the other 75% of of premiums that would stay flat. The increase would be nearly four times larger than it would be if everyone’s premiums went up. CBO expects the monthly premium for these unlucky beneficiaries to be $119 in 2010, $123 in 2011, and $128 in 2012, while premiums for the hold harmless beneficiaries would stay at $96.40 per month (*).
Medicare prescription drug plan premiums are not subject to a hold harmless rule for anyone. If they go up, as they are expected to do, beneficiaries pay the higher premium whether automatically deducted from their social security check or not. Therefore, the six million or so Medicare beneficiaries with drug premiums deducted from their social security check will see their net social security payment decrease.
Medicare is many things and one of them is a complicated and confusing mess.
(*) As confirmed by an e-mail exchange with CBO staff, all premium amounts reported by CBO and, thus, in this post apply to individuals and couples who do not face income-related premium adjustments. For those with sufficiently high incomes premiums would be even higher. (Hat tip: bob u. of the Bogleheads Investment Forum.)
Fallback Public Plan: Does It Have Legs?
This post originally appeared on The Finance Buff.
This from today’s Kaiser Daily Health Policy Report:
Sen. Olympia Snowe (R-Maine) last week held a private meeting to discuss a compromise on health care reform legislation that would include a “fallback public plan,” implemented in several years if private insurers do not take steps to make coverage more affordable and accessible, CongressDaily reports. The plan is modeled on the Medicare prescription drug benefit, under which the government can offer prescription drug benefits if private insurers choose not to do so. The government currently does not offer a Medicare Part D directly plan because a sufficient number of private firms have done so.
As I wrote in a previous post, it sounds like a good idea to me. It is far too early to tell but it is not inconceivable that this is the necessary compromise. We shall see.
An Illustrative Welfare Analysis of Google Reader
This post originally appeared on The Finance Buff and was cited by The Carnival of Personal Finance #206.
What follows is an illustrative sketch of a classical economic welfare analysis using Google Reader as an example. It is intended for an audience with no economics background. At the risk of disappointing readers, I confess that, due to lack of data, I make up all the numbers. However, anyone with better estimates of the components could improve the calculation by following the steps outlined. Those familiar with Google Reader may wish to skip the next paragraph.
One way to read blogs is to visit each one’s website. Wouldn’t it be better if each could send new posts to one consolidated place for you? Well, nearly all can; the way to take advantage of this efficiency is using an aggregator like Google Reader. Blog sites, like The Finance Buff, advertise this service with icons that say “subscribe,” “RSS,” or “Atom,” or with a symbol like this. By clicking on these icons, you can add blog “feeds” to Google Reader (or another aggregator). The result is akin to a receive-only e-mail experience in which blog posts are listed in your reader and updated automatically.
Google Reader has enhanced my life, changing how I work and spend leisure time. I would not easily keep up with blogs of interest without Google Reader or something like it. (The blogs to which I subscribe are listed in this spreadsheet.) Google Reader is free, but it provides more than zero dollars worth of value to me. If it were not free I would pay something for the service.
For the sake of argument, let’s say I’d be willing to pay $100 per year for Google Reader. This represents the gross value of Google Reader to me. Since I actually pay $0, then the net value I receive from Google Reader is $100 – $0 = $100 per year. This is just like $100 in my pocket because I’d have paid that amount more for Google Reader than I had to. That $100 represents my individual annual consumer surplus.
I don’t know how many Google Reader users there are, but let’s say there are 10 million. Suppose the average individual user is like me, with a consumer surplus of $100 per year. Then the annual total consumer surplus of Google Reader is $100 x 10 million = $1 billion per year. That’s a lot of value. Of course, I made the numbers up.
There is also value that Google receives beyond its costs of producing Google Reader. Google does not receive revenue directly from its Reader right now. Let’s assume it attributes revenue to its Reader because it draws users to other (ad-based) revenue-producing Google products. Ad revenue earned by Google subsidizes the price consumers would otherwise pay for its services in general and the Reader in particular. A market in which producers use revenue from one group (e.g., advertisers) to subsidize another (e.g., viewers, readers) is called a two-sided market. Broadcast TV is another example of a two-sided market.
Let’s pretend that ad-based revenue Google imputes to its Reader is, on average, $11 per user per year. Let’s also assume that the average marginal cost of providing Google Reader to each of the 10 million users is $1 per user per year. So, Google nets $11 – $1 = $10 per year for an average user and, therefore, $100 million per year for all users. This $100 million is the annual total producer surplus associated with Google Reader.
Total surplus is the sum of consumer and producer surplus, and is an economic measure of welfare. In our example total surplus is $1.1 billion, $1 billion for consumers and $100 million for the producer.
Typically an economic welfare analysis of a market includes comparisons of surplus values for different market configurations. Doing so leads to conclusions about which group, consumers or producers, is made better or worse off in one setting versus another. It is possible for both producers and consumers to be made better off (or both worse off) via a structural change in the market. Total surplus is maximized in the circumstance of perfect competition, an ideal situation which is actually quite rare.
As an example, we could consider the RSS aggregator market with and without the participation of Google Reader. The analysis above is almost complete for the market with Google Reader. What it lacks is the consumer (producer) surplus associated with RSS aggregator users (producers) who do not use (supply) Google Reader that can be attributed to its presence in the market. It is plausible that its presence in the market causes other aggregators to be less expensive or of higher quality. Thus, users of other aggregators receive consumer surplus and their producers lose producer surplus due to lower prices and higher marginal cost of higher quality.
A separate analysis is required to compute the surplus of consumers and producers in the RSS aggregator market in the absence of Google Reader. To conduct this analysis, one would need a model that predicts what current Google Reader users would do in this case. If Google Reader left the market, how would aggregator market shares adjust? How many Reader users would forego aggregator use altogether? I’ll leave suggestions of ways of making such predictions to a future post.
One thing the above explicitly illustrates is that both producers and consumers are made economically better off through market transaction. It isn’t just that producers get revenue and consumers get products. Producers earn profit and consumers receive value beyond the sticker price. Since most of us are in the role of consumer frequently but seller hardly ever we tend to begrudge the firm its profit and pay little notice to the additional value beyond price we receive in return. Google Reader is not the only bargain. Given the enjoyment and convenience obtained by the multitude of products we use it’s a wonder how little of that full value we actually pay. The rest is consumer surplus.
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