“Free” contraceptive –or- Politico Dupery, Under Politico Nitwitery, and in Government Mysticism We Trust.

What if one is faced with the introduction or more succinctly the mandated introduction of the notion: “free” contraceptive. Why “free”, at what cost “free”, and does “free” mean transfer, and does “free” change outcomes?

Appearing in US Today 02/09/2012 was a story Birth control mandate stirs debate . The authors of the story refer to "free" contraceptives no less than three times in the essay and not once examine the fact that nothing is "free". Not once is there a reference that all economic propositions have an associated cost and an associated opportunity cost. Hence the authors proudly carry the politico dupery banner of "free". (1)

“What I tell you three times is true.” - The Hunting of the Snark.

“Free" contraceptives morphed today, in that, the religious employer e.g. catholic hospital can opt out of the coverage but the insurer must supply "free" contraceptives at the employee-insured’s request. Who is paying for the free lunch? In this case the cost of "free" is borne directly or indirectly by the employer and other premium payers. Hence nothing changed. Same exact song, different beat. (2)

Further, the concept mentioned above is being framed as, no, the employer doesn't pay directly or indirectly nor are other premium payers paying for the "free" contraceptive because (fasten your seat belt) the insurance company is paying for the “free” contraceptives. Hmmmmm.

Upon further review, Catholic hospital C opts out of the contraceptive provision, however insurer Y must offer the “free” item directly to the employee-insured. One knows for a fact that “free” cannot exist hence the cost associated with “free” contraceptive is passed onto all parties [the catholic hospital being one of those parties] by insurer Y.

Moreover, Catholic hospital worker E pays for the “free” contraceptive as C experiences a premium increase from Y associated with furnishing “free” and E’s potential total compensation is effected either by a reduction in compensation, an increase in employee health-care contributions, or lower benefits in the form of higher deductibles or co-insurance. Even if C attempts to pass on the cost to health-care consumer X then X’s health-care bills increase and insurer Y has to raise premiums to compensate for additional expense and keep reserve requirements healthy hence back to E we go with Y’s increase in cost.

“The state is the great fiction by which everybody seeks to live at the expense of everybody else.” - Frederic Bastiat, French economist, 1850

Assume for a moment that one agrees with the logic that "the insurance company" pays and hence the contraceptives are free. Then why stop at contraceptives? Shouldn't every last health-care item be furnished “free” as we merely have "the insurance company" furnish the items for free?

“The fact the compromise had not been proposed earlier angered the president, who felt let down by his staff, officials said. Obama waded into the details of the dispute himself this week and personally crafted the solution, according to a Democratic official who spoke on condition of anonymity to discuss a sensitive matter.” (2)

Ah, the political dupery was challenged and hence political nitwitery was introduced! Very nice.

“Under the new plan, administration officials believe insurers will comply for free because the coverage may not actually cost them anything. Evidence suggests that providing birth control coverage reduces overall costs for health plans because birth control is much cheaper than pregnancy, according to administration officials and some health industry analysts.” (3)

Hence “free” really does exist because politicos tell you so.

If one where to ponder the notional proposition that “…administration officials believe insurers will comply for free because the coverage may not actually cost them anything. Evidence suggests that providing birth control coverage reduces overall costs for health plans because birth control is much cheaper than pregnancy…” one would need to consider present circumstances and known-knowns, unknown-knowns, and unknown-unknowns:

       (1)    The cost of “free” is a known cost,

(2)    Contraceptives are widely available at modest cost yet unwanted pregnancies occur,

(3)    The assumption is that the cost of “free” substituted for the cost of widely available at modest cost, the transfer of cost thereof causes a different outcome,

(4)    The different outcome is an assumption that unwanted pregnancy is reduced although the same cost exists, the same population exists, the same wants and needs exist, yet a transfer of cost causes outcomes to change.

However, if offering “free” contraceptive causes free to be free via the proposition of “…administration officials believe insurers will comply for free because the coverage may not actually cost them anything. Evidence suggests that providing birth control coverage reduces overall costs for health plans because birth control is much cheaper than pregnancy…” then should not all health-care be free as the cost to produce X is offset by Y hence no cost exists and hence all is “free”. In other words why is anyone paying a premium of any sort as every last health-care item should be free as cost X is offset by the cost savings of outcome Y?

Therefore, a known cost is transferred and “transfer” is a magically, mystically procedure that creates outcomes of a much better variety which cancels out the cost. Hence we arrive at “free”.

We end as we began:  Politico Dupery, Under Politico Nitwitery, and in Government Mysticism We Trust.

Notes:

(1)    http://www.usatoday.com/NEWS/usaedition/2012-02-09-Contraceptive-debateRECOVERED-Wed-Feb--8-163722-2012-_ST_U.htm

       (2)    http://www.nashuatelegraph.com/newsworldnation/949794-227/obama-accommodates-  religious-groups-changes-birth-control.html


      (3) ibid.

“Spillover into the local community": Politico Mantra and Politico Reality

Spillover effect: a secondary effect that follows from a primary effect, and may be far removed in time or place from the event that caused the primary effect”. (1)

In the Foreground

 The politico and spillover effects

Spillover effects are positive or negative externalities [neighborhood effects] of a particular action e.g. burning coal for electricity has the positive externality of power-on-demand while soot is depicted as a negative externality. Other times political proponents of proposed private sector investment or proposed public sector spending co-op the concept of “spillover” to mean some positive external economic activity that arises from a primary economic activity e.g. a computer maker builds a new assembly plant which then attracts suppliers to situate nearby or a downtown revitalization plan based on X causes businesses associated with X to be attracted to the downtown area as well. The phenomena are many times termed/framed as "spillover into the local community".

Note: "spillover into the local community", in the main, is a politico proposition-phrase that frames only the positive aspect of spill-over effects and purposely leaves out any negative externalities of such spillover effects such as traffic congestion, the taxpayer cost of additional social overhead capital, tax relief for the attracted primary event and hence taxpayer cost for attraction by low or zero tax rates for a specified period, etc.

Failure to diversify an economy’s portfolio of primary effects

A potential as well as real life reoccurring long-term problem with the depicted spillover effect is the concentration of particular spillover activities associated with the primary event. That is to say, the first stage spillover effect as described/depicted is many times a concentrated single end result. For example, a natural gas find, a valuable coal seam, the opening of a large auto assembly plant, or the attracting of an entire sub-sector such as textiles becomes associated with a concentrated first stage spillover effect that lacks diversification within the economy at hand. For example, the primary effect described above is followed by a first stage item which is generally the primary event’s direct suppliers. The primary and the first stage secondary effect create a robust economy that causes no perceived need to diversify the economy further. That is, the robust economy is concentrated around the primary first stage and secondary events.

 Over time ancillary items pop-up regarding the primary and first stage secondary events such as additional housing, auto dealer, grocery stores, retail strip centers, etc. However these items are not additional primary events. Hence we have an economy based on one prime event and the prime events suppliers. Occasionally the economy seems so well situated that the need to diversify and find additional and alternate primary effect and associated spill over effect items are put aside in favor of additional duplicates of the initial primary and first stage secondary events e.g. Buffalo as a steel center, Detroit as an auto assembly center, greater North Carolina as a textile center.

Hence the primary driver and first stage secondary events create such a robust economy that the mind-set becomes “what goes up continues to go up”. Over time exogenous events such as aggregate regulation, taxes, technology, changes in demand preferences, etc. can cause a decline in the concentrated primary event which causes the reverse process of the primary first stage secondary events. The economy begins to deteriorate, deterioration increasing at an increasing rate e.g. Detroit.

In the Background

Spillover effects and politicos through the mechanism of government

From the discussion above it becomes obvious that diversification is very important within an economy’s portfolio of primary effects. However, regardless of the amount of diversification, the politico’s mantra of “spill over into the local community" comes with a lesser known phenomena that empowers the politico and simultaneously drives away the very primary effect, secondary primary suppliers, and ancillary items that the politico trumpets with the manta "spillover into the local community".

When politicos want to attract a primary effect and sing the praises of “spill over into the local community" caused by the primary effect, the politico also sees the entire exercise as potential tax revenue the politico can use for political constituency building purposes. That is, the politico rejects the concept that all capital and all human capital is mobile, and most capital and most human capital migrates to the lowest environment of tax and regulation. The politico substitutes mobility with “fixed”. That is, the politico sees the primary effect, primary suppliers, and ancillary items as tax revenue generators that can fund political constituency building exercises.

The politico, with the mind set of primary effect, primary suppliers, and ancillary items as tax revenue generators, begins a long march of raising taxes on the very concept of “spill over into the local community" and the revenue is used for political constituency building. The politico thinks they can raise taxes and further raise taxes, and raise tax even more as the taxed entities are perceived as “fixed”. That the “fixed” entity will not/cannot move and hence is a constant target of tax. The politico then takes increased tax revenue and builds politico monuments [public structures that supposedly benefit the greater public], increases redistribution to build a dependent constituency base, and increases size and scope of government to create yet another dependent constituency base of the public sector dependent on the politico to maintain funding.

The fallacy of “fixed” entities and escalating taxes on such entities ends by the entities merely following the economic phenomena that: all capital and all human capital is mobile, and most capital and most human capital migrates to the lowest environment of tax and regulation. Over time, most capital and human capital migrate away leaving the locale with no tax base yet the associated cost of maintaining prior build politico monuments, a redistribution system with politico build constituency dependent on continue redistribution of a tax dollar stream and a bloated public sector. That is, the economy begins to deteriorate, deterioration increasing at an increasing rate. A phenomena that can be in place of or in concert with the failure to diversify primary effects as discussed above.

That is, purposely, the politico creates a situation that causes the primary source to pass like the wind through the trees.

Notes:　

(1) http://www.businessdictionary.com/definition/spillover-effect.html

Greek Debt Crisis, US Entitlement Crisis and Through the Looking Glass

Say one were to describe the Greek debt crisis and associated politico negotiations regarding over spending by use of debt and the subsequent austerity measures as well as the bail-out time line. One would be attempting to describe the ongoing, rolling, on-again-off-again, never seems to be resolved crisis. One might go on to write a 2,500 word essay describing the situation.

Further, if one were to describe the US entitlement crisis and associated politico negotiations regarding the tens of billions of dollars of unfunded liabilities -one would yet again be attempting to describe the ongoing, rolling, on-again-off-again, never seems to be resolved crisis. Once again, a 2,500 word essay describing the situation might be called upon.

-Or- one might seek an existing compact and succinct description if such description existed.

Why create a 2,500 word essay when the following exists:

"It's very good jam," said the Queen.
"Well, I don't want any to-day, at any rate."
"You couldn't have it if you did want it," the Queen said. "The rule is jam tomorrow and jam yesterday but never jam to-day."
"It must come sometimes to "jam to-day,""Alice objected.
"No it can't," said the Queen. "It's jam every other day; to-day isn't any other day, you know."
"I don't understand you," said Alice. "It's dreadfully confusing."
-Through the Looking Glass.

Being Green -or- Merely Wearing Green Shaded Glasses: Conundrums, Product Substitution Panacea, and the Prius Fallacy

“A favorite trick of people who consider themselves friends of the environment is reframing luxury consumption preferences as gifts to humanity. A new car, a solar-powered swimming-pool heater, a 200-mile-an-hour train that makes intercity travel more pleasant and less expensive, better-tasting tomatoes—these are the sacrifices we're prepared to make for the future of the planet.

Our capacity for self-deception can be breathtaking. In 2010, a forward-thinking friend of mine took me for a ride in a Ford Fusion, a gas-electric hybrid that gets more miles per gallon than comparable cars with conventional engines. His dashboard fuel gauge filled with images of intertwining green foliage, a symbolic representation of the environmental benefits we were apparently dispensing from the tailpipe as we aimlessly drove around.

I felt a twinge of idiotic virtue while in that car, as I also do when I leave an especially large pile of cans, bottles and newspapers at the end of my driveway for the recycling truck. Like many concerned Americans, I'm susceptible to the Prius Fallacy: a belief that switching to an ostensibly more benign form of consumption turns consumption itself into a boon for the environment.” - It’s Too Easy Being Green, David Owen, WSJ, 02/04/2012

Link to the entire article appears below:

http://online.wsj.com/article/SB10001424052970203889904577198922867850002.html

St. Petersburg Paradox: when an infinite gambit is preceived as a finite gambit.

“If you are considering buying into Facebook's initial public offering of stock, take a moment to ponder the St. Petersburg Paradox, an old riddle still relevant to investing today.

Proposed in the 18th century, the paradox works like this: I will toss a coin until it comes up heads, at which point you get paid and the game ends. You get $1 if the coin comes up heads on the first toss, $2 if the coin comes up heads on the second, $4 if it is heads on the third, $8 on the fourth and so on. Your prospective payoff doubles with each successive flip until the coin finally lands on heads and the game is over.

How much would you pay to play? The paradox is that the potential payoff is infinite; after the first flip, you have a 50% chance of winning $2, plus a 25% chance of winning $4, plus a 12.5% chance of winning $8 and so forth. You will win $537 million if you get heads on the 30th toss; on the 50th, $563 trillion.

However, psychologists have found, most people won't pay more than $20 or so for a chance to play the game. After all, you could get heads as early as the first toss, leaving you with only a $1 payoff and no chance to earn those giant later gains. With that risk of quick, sharp loss looming at the outset, the infinite value of playing the game feels finite to most people.

A high-growth stock like Facebook is a lot like that St. Petersburg coin. The potential payoffs are enormous, although not infinite—and the game might peter out all too soon. At the end of 2010, 608 million people actively used Facebook every month; by this past Dec. 31, 845 million people did. If Facebook keeps growing that fast, more than 22 billion people will be using it 10 years from now, or three times the estimated population of the planet today.” - Facebook and the St. Petersburg Paradox, Jason Zweig, WJS, 02/04/2012

The link to the entire article appears below:

http://online.wsj.com/article/SB10001424052970204662204577200862677176998.html

　

The repeal of ObamaCare's subsection C.L.A.S.S.: entitlement repeal -or- repeal of a budget gimmick entitlement?

“The Republican-led House on Wednesday voted to repeal a financially troubled part of the 2010 health care law that was designed to provide affordable long-term care insurance.

The House vote comes months after the Obama administration suspended the Community Living Assistance Services and Support program, known as the CLASS Act.


Health and Human Services Secretary Kathleen Sebelius in October said she was unable to find a way to make the program financially solvent.

Still, the White House has said it does not support repealing the program, under which workers would pay a monthly premium during their careers and collect a daily cash benefit if they become disabled later in life.

Republicans have targeted the program as part of their overall goal of dismantling the health care overhaul law. Action on the bill in the Democratic-controlled Senate is uncertain.

“Republicans are committed to repealing and defunding it, piece by piece if necessary,” House Speaker John Boehner (R-Ohio) said of the health care bill after the CLASS Act vote.

The House vote was 267-159, with 28 Democrats joining all 239 voting Republicans in support.”

 - CLASS Act Repeal Passes House, Politico, 02/01/2012



However, to understand why-what-where-when-how of the repeal vote one needs to examine this news story from October, 2011:



Budget Shenanigans - Wall Street Journal Political Diary, 10/18/2011, Joe Rago

　

“Congressional Republicans spent yesterday debating their political strategy options now that the Obama Administration has euthanized the Affordable Care Act entitlement program known by the acronym CLASS. The next question is how much of the rest of the law, as a practical matter, they should try to take out too. But they did receive a gift from the Congressional Budget Office, which showed unusual common sense in ruling that formally repealing the CLASS spending program for long-term care would not increase the deficit.

Welcome to the wilderness of mirrors that is the budget process. During the health-care debate, CBO scored the CLASS entitlement as a fiscal benefit because of a Democratic gimmick: The program would have collected $81 billion more in premium taxes over the next 10 years than it would have spent on home health aides and the like -- even though this huge new liability would then have started draining the federal fisc in the following decade. Under these rules, getting rid of Class "costs" $81 billion, which Republicans would have to offset.

　

But then the white smoke rose up from CBO, and in an email to staffers it ruled that it would adjust its baseline to "assume that the program will not be implemented," since the Administration itself junked CLASS. "Beginning immediately, therefore, legislation to repeal the CLASS provisions in current law would be estimated as having no budgetary impact," the message continued. In other words, repealing what is now a vestigial program merely ensures that the CLASS program remains vestigial, while actually preventing future taxpayer dollars from being spent would have also erased the fake deficit reduction.

This kind of non-logic shows why the budget process is so in need of reform. But anyway, CBO's blessing makes it much easier for House Republicans in particular to do some practical good. The White House let it be known yesterday that it opposes a formal repeal of the CLASS program even as it says that the program would be a disaster. Perhaps that's because it may try to revive CLASS in the future, as the Hill newspaper reported it was telling its political allies.

More likely, the veto threat comes because the White House knows that a repeal bill would also be a vehicle for also repealing some of the health-care laws more unpopular and harmful elements that Democrats would find it difficult to oppose -- which is why Republicans should use this new lever to the maximum extent“.

　

Barking Cats, Milton Friedman’s classic 1973 short essay

On an annual basis one should consider re-reading/reviewing Milton Friedman’s classic 1973 essay Barking Cats. This very short essay speaks volumes. It also identifies a constant/reoccurring phenomena that one can identify on nearly a daily basis.

The essay points out that broken economic models are many, many times perpetuated rather than removed. That is, “reformers” merely put forth notional propositions that if the broken economic model would merely produce X or Y results, results that are results the reformer desires [painting the world in one’s own self-image] then the broken model is magically fixed. In other words, the broken economic model is not broken if the broken model produces certain and particular results the reformer desires.

"What would you think of someone who said, " I would like to have a cat, provided it barked"? - Milton Friedman

Below is a link to the very short and very insightful Friedman essay:

http://www.johnlatour.com/barking_cats.htm