A Millennial figures out Obamacare

Millennial, David Barnes, writes in The Wall Street Journal why his generation chooses not to buy Obamacare: because they can’t afford it.

After Obamacare was passed in 2010, I wrote this post poking fun at how the 2008 campaign promise to solve the problem of the uninsured (to attract their vote) was solved by making it illegal not to buy insurance.

I think, like most people, they envisioned the solution would be to make insurance so affordable that everyone would choose to buy it.

David Barnes’ op-ed helps close the loop. It only took 6 years for someone to figure it out. He explains:

The administration has targeted my generation to sign up for ObamaCare for one reason: We’re healthy. The health-insurance companies selling plans on the law’s exchanges need us to pay a pretty penny in premiums without using much medical care. We’re supposed to subsidize the system so that it stays afloat. That was the plan, anyway. It fell apart when we didn’t sign up in droves like the White House expected.

Since ObamaCare’s implementation three years ago, the percentage of enrollees under 34 has remained steady every year at about 28%. According to the Census, some 16% of Americans between 25 and 34 have opted to remain uninsured, which is 71% higher than the uninsured rate for 45- to 65-year-olds.

It turns out that Obamacare didn’t make not buying insurance illegal enough (bold added):

Either way, the White House is doomed to fail. Young Americans are avoiding ObamaCare because it isn’t a good deal for us.

Last week I visited Healthcare.gov to scout out the most-affordable health-insurance plans I could buy for next year. In Arlington, Va., where I live and work, the cheapest option is $200 a month with a $6,850 deductible. Across the Potomac in D.C., the premiums are slightly cheaper but the deductible is still sky-high.

My experience isn’t unique. ObamaCare is plainly unaffordable for many young Americans. We’re at the start of our careers—and the bottom of the income ladder—so paying so much for something we likely won’t use makes little sense. The IRS penalty of $695 or 2.5% of our income is often cheap by comparison. We may be young, but we can do the math.

Incentives matter. When it’s cheaper to pay the penalty than to buy insurance, it’s not surprising what happens.


Surge Pricing

(Thanks to Cafe Hayek for article linked to in this post and the previous post)

Here’s Ryan Bourne defending Uber’s surge pricing.

Surge pricing is a tough concept for people to understand. Most people view it as exploitative and as price gouging.

It’s easy to understand why. To them it seems like, on the margin, it’s the poor who get priced out of the market.

For those who understand the bigger picture, they can see that the benefit of surge pricing is to bring more supply into the market to meet the higher demand. The key trade-off is higher prices reduce wait times for the service or product.

Keep the price low, and the rationing is done mostly by how long people are willing to wait. Increase the price, more supply comes into the market to reduce wait times and also, this should bring prices down again.

One question that should be asked of those who complain of the surge prices on Twitter, would they rather have low prices and had to wait 1-2 hours or maybe even never have got the ride or would they rather have paid the higher price?

Another piece information that might be helpful is what the surge pricing looks like. Do the prices surge, but then come back down as supply increases? Standard Econ 101 (many 102) supply and demand curves suggest that should happen, though the new price level will still be higher before the demand surge.

But, it would be nice to know. It might help the price gouging crowd to know that prices jumped 30% initially and then dropped to a 10% over normal prices as more drivers came online.

As for Uber, I have a suggestion. I wonder if they could use a voluntary surge pricing model.

How would that work? Like the fast pass lines at amusement parks. If you want to pay more to be served quickly, you can. If you’d rather pay the regular price and wait, you can do that, too.

That allows people to make the cost-benefit trade-off on their own, instead of Uber forcing it down their throats.

Power of Exit: Corporate Tax Inversions

Veronique de Rugy writes about a good example of the power of exit: corporate tax inversions.

To escape the U.S.’s high corporate tax rate, corporations do what they are supposed to do: make more money for their owners. So, they exit the U.S. and relocate to countries with lower corporate tax rates, even if only on paper.

Like with the Mylan Epi-Pen example, some politicians wag their finger at these corporations and say, No Fair!

But, corporate tax inversions are the predictable result of having a higher tax rate than other countries.

The No Fair! crowd’s solution is to build the corporate tax equivalent of the Berlin Wall and shoot any corporations that try to defect across it. They want to restrict corporations’ power of exit.

A better solution is a competitive corporate tax rate.


Why Error Correction is the Most Important Feature of a Political Economy

On Cafe Hayek, Don Boudreaux quotes from Arnold Kling’s new book, Specialization and Trade: A Re-Introduction to Economics. The quote:

What we should be comparing is not the existing market configuration with an ideal based on a simple model but the market process of error correction with the political process of error correction.

Yes, I agree.

Kling says well in one sentence what took me a couple hundred words.

Also, in my original Bottom-Up vs. Top-Down post, I used the terms “Power of Voice” and “Power of Exit.” I learned those from Arnold Kling.

I think the error correction process is the most important facet of a system. It’s typically ignored.  Discussions/arguments about public vs. private become a debate over semantics and nuance, much like many discussions over what communism, socialism, fascism and capitalism is.

The question shouldn’t be whether it’s public or private, or whether it’s communist or capitalist?

The question should be how well does the system correct for errors/failures?

Often, the answer is how much power of voice and power of exit the participants in the system have.

This week, David Legates wrote a piece worth reading, The Experiment: Capitalism vs Socialism. In it, he compares one of the best A/B tests on the subject ever — West and East Germany post World War II until reunification.

The improvement in the standard of living in East Germany’s socialist/communist state over the life of the separated country paled in comparison to West Germany’s capitalism.

Why? West German’s had more freedom, including power of voice and power of exit. East Germans did not. An example of East German’s low power of exit, from Legate’s column:

A wall of concrete, barbed wire and guard towers was built to separate the two halves of Berlin – and keep disgruntled Eastern citizens from defecting to the West. Many who tried to leave were shot.

Former British Prime Minister, Tony Blair famously said:

A simple way to take measure of a country is to look at how many want in. And how many want out.

In other words, watching how people exercise their power of exit can be telling.

If I could choose one subject for students to learn regarding political and economic systems, it would be how does it correct for errors and how to analyze that by considering the powers of voice and exit.

Political Theater at its Finest

Members of Congress are trying to get political play by grilling the Mylan CEO about the companies large hike in the price of it’s Epi-Pens.

I saw a video clip on one TV news shows where a Congressman accused the CEO of taking advantage of its monopoly status. What? No way! A monopoly is doing what every Econ 101 textbook predicts it to do and raises its prices? Get out of here. (Yes, the italics indicate sarcasm).

Instead of grilling the Mylan CEO for doing what monopolies do, Congress should grill the FDA for creating the monopoly in the first place, by not approving competitors to Mylan’s product and push it to do so, ASAP.

By the time everyone graduates high school, they should have some inkling that competition is the best way to hold businesses accountable, among many other benefits.

Sadly, too many people see the Mylan price hike and reflexively think more government intervention needed, not understanding that government intervention led to the problem in the first place, instead of reflexively thinking, Mylan needs competitors.

Low Wages at Walmart. Cause or Effect?

In this post at Cafe Hayek, Don Boudreaux addresses the idea that Walmart imposes costs on taxpayers because it pays low wages. This line of thinking says taxpayers “subsidize” Walmart’s low wages through the welfare benefits many of Walmart’s workers receive to help supplement their income.

While I think this line of thinking is tenuous, there may be more to it than Boudreaux lets on. I think it’s possible that, like most things, government action has created distortions in the low skilled labor market.

A way to test it would be to eliminate welfare benefits. If true, then Walmart may need to pay more to attract and keep workers. Problem solved.

My guess is that the pay distortion is minimal, though not non-existent. It may be on the order of adding a gallon of water to a good sized pond. The change in water level would be imperceptible.

I think there’s another larger distortion that the welfare benefits have created that would be undone if welfare benefits were eliminated.

On the margin, I think the presence of welfare benefits may have caused a number of folks to decide to stay in low-paying jobs that a generation or two ago were more suitable for actual entry-level workers like high school and college students, people just getting started and true part-timers looking to supplement another full-time salary in their home.

They decide to stay in a low-paying jobs this because what they earn from their job plus welfare benefits satisfies their needs.

So, the bigger distortion that might be undone by removing welfare benefits would be to see entry-level jobs turn back to entry level workers.

One other thing I would like to mention. While correspondents that Boudreaux addresses like to demonize Walmart for paying low wages, they say nothing of the benefits Walmart brings to society by enabling consumers to live cheaper.

I suspect that such correspondents might respond, Walmart’s inexpensive goods have been made possible on the backs of low wage workers!

If so, they wouldn’t be consistent with their original argument because they will have just admitted that consumers, not Walmart’s owners, receive the benefit of the low wages through low prices. And, so it would be consumers, not owners, who would need to pay the price of higher wages.

Slow Fast Food

Recently, being stuck in long and slow lines at the drive thrus of McDonald’s, In-N-Out Burger, Starbucks and other restaurants seems be the norm.

What’s going on? It seems like consistently long-lines are a sign of high demand and business success. So, why aren’t these businesses building more capacity to serve the high demand? Why aren’t other businesses looking at these successful business models more closely to copy them?

Some possible explanations

  1. I’m just happening to consistently see these businesses at their peak times and there really isn’t enough demand to justify increasing capacity — be it a heavy investment in opening new locations nearby or a more modest investment like expanding kitchens to pump out more orders per unit of time.
  2. There is high demand, but the companies are cautious to make investments to expand, thinking it may just be a short-term trend. Mark Perry’s Carpe Diem blog, posted a chart showing restaurant sales outstrip grocery store sales for the 17th straight month based on recent Census Bureau data, but prior to that, grocery sales were greater than restaurant sales.
  3. Other things are slowing the lines down.  I think a contributor to long lines at Chipotle and Starbucks has been the added  ability to order through their phone apps, which adds a third queue to the same production line that was previously just serving two queues (counter and drive thru).
  4. I’ve seen some internet posts speculating that companies are cracking down on schedules to manage labor expenses especially in regards to keeping their workers under the Obamacare thresholds for providing health insurance benefits and potential $15/hour minimum wage mandates. These may also increase the caution these companies have in expanding capacity in their low-skill labor intensive business models.

Could it be that distortions caused by health insurance and minimum wage mandates are the contributing to turning fast food slow?

Maybe it’s a bit of a mix of all these things: People eating out more, businesses reluctant to invest in expansion and also dealing with changes in health insurance and wage law, along with some fits and starts incorporating apps into their businesses.

Whatever is causing it, it’s annoying.

Thoughts on “Grit”

I just finished reading Angela Duckworth’s book, Grit: The Power of Passion and Perseverance.

I liked it. I have a few thoughts on it.

The first one is about how standouts approach the day to day hard work of practice. She comes to the conclusion that they just do it because they are motivated by the reward it brings later when they win a competition.

While I agree that stand outs are motivated by the eventual glory, I think there’s more to it.

Rather than just grunting it out, I think they may be more creative in their approach to the daily grind and more directed about what they work on.

They gain a good sense of where they are headed by observing in fine detail the folks they idolize. If they like basketball, they develop an affinity toward a few players and observe in detail how those players play and try to emulate them.

So, when they go to the driveway to practice, it isn’t just about generic hoop shooting. It’s about emulating the style of their favorites. A specific goal (shoot like LeBron), rather than a generic goal (practice for 45 minutes).

They are more creative about making the practice interesting while achieving small goals that build to their overall success.

Instead of taking a 100 random shots because their coach said to, they make small games out of it. They see how many free throws, jumpers or hook shots out of 10 they can make. When they get bored with one game, they alter the rules or change it up to keep it interesting.

They are also on the top end of objective evaluation and responding to their own performance. When they miss a few easy layups in a game, they go back to the driveway and do 200 layups to make sure that doesn’t happen again.