General Welfare

More great thoughts from Walter Williams, Exploiting Public Ignorance.

He points out that the Constitution does not empower Congress to manage the economy.

Most attempts to persuade otherwise rests on the misinterpretation of what is commonly referred to as the general welfare clause in Article I, Section 8 which states, “The Congress shall have Power To lay and collect Taxes, Duties, Impost, Excises to pay the Debts and provide for the common Defense and general Welfare of the United States.”

Not understood by those who misinterpret this section is that the Constitution specifically lists the powers in the rest of Section 8, which is entitled, appropriately enough, Powers of Congress.

Rather than letting those who misinterpret this section frame the debate in their terms, I recommend keeping a copy of Article I, Section 8 handy and referencing it when discussing whether Government should do this or that and asking them to specify and explain which of the listed powers of Congress enables Congress to take that action.

Here is Article I, Section 8 in it’s entirety (thanks to usconstitution.net):

The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States;

To borrow money on the credit of the United States;

To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes;

To establish an uniform Rule of Naturalization, and uniform Laws on the subject of Bankruptcies throughout the United States;

To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures;

To provide for the Punishment of counterfeiting the Securities and current Coin of the United States;

To establish Post Offices and Post Roads;

To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries;

To constitute Tribunals inferior to the supreme Court;

To define and punish Piracies and Felonies committed on the high Seas, and Offenses against the Law of Nations;

To declare War, grant Letters of Marque and Reprisal, and make Rules concerning Captures on Land and Water;

To raise and support Armies, but no Appropriation of Money to that Use shall be for a longer Term than two Years;

To provide and maintain a Navy;

To make Rules for the Government and Regulation of the land and naval Forces;

To provide for calling forth the Militia to execute the Laws of the Union, suppress Insurrections and repel Invasions;

To provide for organizing, arming, and disciplining the Militia, and for governing such Part of them as may be employed in the Service of the United States, reserving to the States respectively, the Appointment of the Officers, and the Authority of training the Militia according to the discipline prescribed by Congress;

To exercise exclusive Legislation in all Cases whatsoever, over such District (not exceeding ten Miles square) as may, by Cession of particular States, and the acceptance of Congress, become the Seat of the Government of the United States, and to exercise like Authority over all Places purchased by the Consent of the Legislature of the State in which the Same shall be, for the Erection of Forts, Magazines, Arsenals, dock-Yards, and other needful Buildings; And

To make all Laws which shall be necessary and proper for carrying into Execution the foregoing Powers, and all other Powers vested by this Constitution in the Government of the United States, or in any Department or Officer thereof.

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Capacity for Complexity

Families that move into a house with ample space will find ways to use that space.  That’s basic economics.  An abundant resource will be used until it becomes scarce.

Companies that supply products such as shelves, billiard tables and home theater seating are appreciative of that principle.

That principle applies with an organization’s capacity for complexity.  If an organization has plenty of people, it will figure out how to keep them all busy, regardless of whether their activities add value or not.

 Deadwood should be appreciative of that principle.

Beware the Clever Manager

I was reminded recently of something I noticed long ago.   Clever managers will utilize their organization’s capacity to make things complex. 

Clever people think of complexity as a virtue.  They’ve differentiated themselves from others their whole lives by figuring out complex things.  They probably got attendtion from their parents at a young age by solving puzzles.  They achieved academic success by studying hard.  Their early career success came from doing the stuff others couldn’t figure out.   

Watch out when one of these people become a manager.  They continue to think their job is to figure out complex things.  And, if they find something isn’t all that complex, they think it’s their job to make it so. 

This happens at successful firms.  The managers who made the firm successful bring in clever people to take the company to the next level.  Not looking to disappoint, the new managers – often with presitigious degrees and experience of a more academic nature – try to work their magic. 

To be sure, these people don’t know what they’re doing, but they’ve never admitted that to themselves let alone anyone else.  Thinking their intelligence will carry them, they try things.  After all, their job is to take the organization to the next level.  

These clever people learn to sell these things by making them sound clever.  Others buy into the cleverness.  The cleverness of the ideas keeps them going for awhile, even in the absence of true results.   The clever people will find ways to spin the lackluster results with a hint of silver lining and clever analysis and clever reasons why we need to wait and see. 

Eventually, in capitalism, true results trump cleverness.  It may take some time, especially if the organization had a lot of momentum before the clever arrived.  Shareholders with a direct financial stake in the company tend to eventually hold their managers accountable to producing value, even though they may have been sidetracked by the cleverness for awhile.

Such cleverness, however, often finds a self-reinforcing home in politics.  Voters, with less direct interest in particular political outcomes, can be taken by cleverness for quite some time.

Good Thoughts on Health Care

Thomas Sowell wrote an excellent column on medical care, Medical Care Confusion.   I encourage you to read the entire column.  Here are some good paragraphs:

None of the people who are trying to rush government-run medical care through Congress before we have time to think about it are pointing to Medicare, Medicaid or veterans’ hospitals as shining examples of how wonderful we can expect government medical care to be when it becomes “universal.”

Nothing is easier than for governments to impose price controls. They have been doing this, off an on, for thousands of years– repeatedly resulting in (1) shortages, (2) quality deterioration and (3) black markets. Why would anyone want any of those things when it comes to medical care?

Refusing to pay the costs is not the same as bringing down the cost. That is why price controls create these problems. When developing a new pharmaceutical drug costs roughly a billion dollars, you are either going to pay the billion dollars or cause people to stop spending a billion dollars to develop new drugs.

The confusion of “health care” with medical care is the crucial confusion. Years ago, a study showed that Mormons live a decade longer than other Americans. Are doctors who treat Mormons so much better than the doctors who treat the rest of us? Or do Mormons avoid doing a lot of things that shorten people’s lives?

Steve Forbes also writes on health care in the latest issue of Forbes.  The timing was excellent.  He echoed some thoughts I shared in my previous posts.

Today there is a disconnect between providers and consumers. Almost all health insurance is covered by third parties–either insurance companies or governments–so patients rarely know what most health care services cost. If you go to a hospital and ask about prices, the staff’s immediate reaction is that you must be uninsured. Why else would you want to know what something costs? Yet in just about every other aspect of our commercial lives the price of things is known.

Now that I’m writing the checks for my health care, I do want to know the price of the options I have and what I get for that price – difference in effectiveness, recovery time, side effects, risks and so forth.  Having the conversation with price is something my medical care providers aren’t prepared to do.

More good stuff from Forbes:

We could attain similar and ongoing miracles in health care. We are already seeing some in a few areas. Conventional Lasik eye surgery costs a third of what it did ten years ago. And there has been virtually no inflation in the prices of cosmetic surgery, even though there have been enormous technological advances, and the demand for these procedures has increased sixfold since the early 1990s.

He offers some great recommendations (for all the critics who say conservatives offer no solutions):

–Equalize the tax treatment of individuals and businesses. If the company you work for doesn’t provide insurance or you don’t like the plan offered, you are forced to try to buy a policy with aftertax dollars. If an individual wishes or needs to buy health insurance on his own, why shouldn’t he get a refund tax credit of, say, $4,000–and a family, $8,000?

–Allow consumers to shop for health insurance across state lines. Today it’s illegal for someone in Chicago to buy a health insurance policy that someone living in New York City can buy.

–Encourage the use of Health Savings Accounts. That way consumers–not government bureaucrats or employers–would control the purse strings, or at least a portion of them.

–Permit small businesses to form pools so they can increase their pricing leverage with insurers.

–Remove state-imposed obstacles to allowing routine medical care to be offered in, say, Wal-Mart ( WMT – news – people ) stores.

–Remove the obstacles that prevent entrepreneurs from setting up new clinics or hospitals. A number of states make this extremely difficult by demanding that such entrepreneurs obtain a certificate of need. In fact, in some jurisdictions hospitals must get permission to make major capital purchases.

Genuine free-market reforms in health care will slash the number of the uninsured and lead to the same kinds of innovations and efficiencies that are experienced in most of the rest of the economy.

Why I Still Need My Health Insurance Company

This year I switched from traditional health insurance to a health savings account with insurance to cover the big stuff.   I write the check on the first $5,000 of health care costs, my insurance kicks in after that.

So far I’m pleased.  But, I still need my insurance company because I get services at the same cost its costs, which is a significant discount to list price and probably closer to the true price of the service.

I need this benefit to pay the insurance company rate because I’m bidding for health care services against a majority of people whose health care is paid by a third party, so they have no incentive to get the best deal for the money.

The funny thing I’ve learned about the health care industry since I’ve started writing the checks is that most service providers don’t know their price.  They can’t tell you how much that extra bag of IV fluid will cost.  They haven’t had to.  Nobody cared.  Someone else was paying.

Supply and Demand

A family member believes supply and demand hasn’t worked in the U.S. because price has risen on many things.  I think she believes that supply and demand means things always get cheaper.

She hasn’t yet recognized that supply and demand is a framework for understanding changes in price.  Supply and demand can help her see why real prices on some things have risen. 

Rather than seeing a rising price and assuming that supply and demand doesn’t work, she should ask herself what changed in the supply or demand of the item to cause the change in the price?

Health Care Decisions

Received an e-mail today from Raoul with two troubling links:

1. NICE – National Institute for Clinical Excellence

Patients cannot rely on the NHS to save their lives if the cost of doing so is too great, the Government’s medicines watchdog has ruled for the first time.

2. NICE Part II – Federal Coordinating Council for Comparative Effectiveness Research

PURPOSE— The Council shall foster optimum coordination of comparative effectiveness and related health services research conducted or supported by relevant Federal departments and agencies, with the goal of reducing duplicative efforts and encouraging coordinated and complementary use of resources.

I’m not sure when we get out of this groupthink funk where we believe the answer to our problems lies in giving government more responsibility.

I think some wake up when when they find themselves in a position where the decision to save their life or that of a love one lies in the hands of a disinterested, removed bureaucrat charged with evaluating the cost and benefit of treatment.  That’s when it will become apparent that individual evaluation of value may differ greatly from those of the overseers.

Anyone who has struggled with a disagreement with their homeowner’s association board may have an inkling of how that plays out.

Good Management Thought

Tyler Cowen packs ten powerful words into one short sentence on page 46 of his book Discover Your Inner Economist:

Businesses with bad reward systems tend to lose market share.

I’ve witnessed firsthand business managers grapple with why their business is losing market share.  Many theories are tossed about, many things are tried to right the ship, but rarely is the reward system properly addressed.  When the reward system is addressed, rarely are the new rewards any better, and they’re often worse, than the previous reward system.

It might pay you handsomely to remember Professor Cowen’s insight should you find yourself leading a business that has lost market share.

I don’t recommend going to the conventional industry experts.  I recommend asking your associates to be brutally honest about the company’s reward systems, explicit and implicit, and bring in someone like Professor Cowen who is a good economic thinker and can help map out the unintended outcomes of both the explicit and implicit rewards at the company.

Costs and Benefits

A major source of discourse in society occurs when a group of people focus heavily on the costs while another trumpets the benefits, and neither considers the trade-off of both.

Simple, Complex, Simple

“I would not give a fig for the simplicity this side of complexity, but I would give my life for the simplicity on the other side of complexity.” -Oliver Wendell Holmes, Jr., Supreme Court Justice, 1902 – 1932

“Everything should be made as simple as possible, but not one bit simpler.” -Albert Einstein

Oliver Wendell Holmes’s quote brings to mind a curve on a graph in the shape of a single hump, commonly referred to as the normal distribution.  To the left of the hump is the simplicity he wouldn’t trade for a fig.  The hump is complexity.  To the right of the hump is the simplicity he values.

Getting to the right side of the hump is a fine art few recognize, let alone achieve.  Holmes, Ben Franklin and Einstein were masters. Warren Buffett and Jack Welch are modern day masters.

Getting to the right side requires thorough understanding of a subject and deep reflection.  Like sculpting a human form out of a lump of rock, it takes practice, determination, refined technique, mastered use of the right tools, a feel for the material and a keen eye for achieving the desired shape.

The complexity curve explains why NFL management talent is not deep.  Over 95% of the managers operate to the left or inside the complexity hump.  Less than five percent are to the right.

The effectiveness of leadership and management strategies from the 95% of managers is random.   Some work, some don’t.  Successes aren’t consistently repeatable by this crowd.  They’re often like the one-hit wonders of the music world.

The success rate from the 5% is not perfect, but it is high and more consistent.  They’re much more like the bands that endure.

The five percenters started off as 95 percenters and moved to the right with experience and reflection.

A few things set these people apart.  They’re open to feedback.  They don’t let their egos get in the way of learning.  They distinguish root causes from symptoms.  They have a healthy skepticism of conventional wisdom.  They have a good handle on their biases.  They can see things from other points-of-view.