The results

Posted: March 7, 2012 by alephnaughty in Politics
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Compare with my predictions

Washington–Romney, Paul, Santorum, Gingrich (67% correct)

Alaska–TBD
Georgia–Gingrich, Romney, Santorum, Paul (100% correct)
Idaho–Romney, Paul, Santorum, Gingrich (100% correct)
Massachusetts–Romney, Santorum, Paul, Gingrich (100% correct)
North Dakota–Santorum, Paul, Romney, Gingrich (83% correct)
Ohio–Romney, Santorum, Gingrich, Paul (100% correct)
Oklahoma–Santorum, Romney, Gingrich, Paul (83% correct)
Tennessee–Santorum, Romney, Gingrich, Paul (100% correct)
Vermont–Romney, Paul, Santorum, Gingrich (83% correct)
Virginia–Romney, Paul (100% correct)

That’s 92% correct overall. If you just count Super Tuesday states, I was 94% correct. A/A- seems fair.

Note also that these contests could’ve played out in one of over 2.6 trillion different ways. Come on…fives.

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Super Tuesday Forecast

Posted: February 29, 2012 by alephnaughty in Politics

I issued private forecasts for Arizona and Michigan, but forgot to post them on the blog. Needless to say, I nailed both. Now, onto Super Tuesday…but first, Washington (on March 3rd): Santorum, Romney, Paul, Gingrich

Super Tuesday contests (on March 6th)
—————————————————————-
Alaska: Romney, Paul, Santorum, Gingrich
Georgia: Gingrich, Romney, Santorum, Paul
Idaho: Romney, Paul, Santorum, Gingrich
Massachusetts: Romney, Santorum, Paul, Gingrich
North Dakota: Santorum, Romney, Paul, Gingrich
Ohio: Romney, Santorum, Gingrich, Paul
Oklahoma: Santorum, Gingrich, Romney, Paul
Tennessee: Santorum, Romney, Gingrich, Paul
Vermont: Romney, Santorum, Paul, Gingrich
Virginia: Romney, Paul

Enjoy.

President Obama has gotten more than he bargained for with the fire fight he is facing with religious groups over a mandate that even religious organizations include birth control as part of their insurance coverage. What was originally framed as a step in the right direction for woman’s rights and universal healthcare quickly turned into a constitutional debate over the president’s ability to force specific coverage onto everyone, including religious groups.

The president’s so called ‘accommodation’ was nothing but a shell game: the mandate still requires religious organizations to subsidize and authorize conduct that conflicts with their religious principles. The very first amendment to our Constitution was intended to protect against this sort of government intrusion into our religious convictions. (Texas Attorney General)

The Texas Attorney General’s argument is weak at best and I call into question his understanding of the First Amendment:

Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the government for a redress of grievances.

The mandate is not directed at religious groups, but rather the insurance companies themselves. Are religious groups affected? Sure they are but then again they are also part of the greater population so any decision that applies to the United States as a whole affects them. Greg Abbott, as are religious groups, are linking the idea that insurance companies offering contraception methods as part of insurance plans somehow “authorize(s) conduct that conflicts with their religious principles” but I beg to differ. Something like 42% of women use contraception methods for something other than preventing pregnancies (the real reason religious groups are up in arms) – let’s just ignore that for the time being since the religious groups are.

Let’s take a tangent real quick before we continue and look at my experiences with sex and religion. I was raised a Catholic. Went to Catholic school for 10 years of my life and have a pretty good understanding of the mindset utilized by similar groups. Since sex education was a required thing growing up, we were taught three basic ideas:

  1. Only way to not get pregnant is to not have sex. Actually was told numerous time:  “the use of any contraceptive is a sin”
  2. You need to wait until you’re married to have sex
  3. If you have sex with more than one person, you will get a STD for life

Pretty grim stuff if you ask me, but the reality was that it was only part of the truth. If you read into these ideas a little, you sense a fear factor rather than that of love and compassion. Why is that? Why was the church pushing a harsher reality onto students in their early years? Plain and simple – they have always done it. My interpretation of the church is that if the general public were left to their own devices, morality would not exist and the integrity of people would be that of Sodom and Gomorrah. Since the church has little physical influence over the personal lives of their employees (free will), another avenue of control is required – making birth control somewhat fiscally out of reach through not providing it in insurance plans. You won’t find any studies published on the cold, hard number of people who classify themselves as religious and their use of contraceptives but I’ll go out on a limb and say that more than 80% of married couples practice it in some form.

I’m going to pull the religious card here. I was always taught that people are tested while here on earth but every decision was yours, including the decision to sin or not follow the church. How is the abstinence from contraceptives offered by an insurance company any different? The answer is it’s not.

Enough tangent, back to the argument. Religious groups can harp all day on moral issues of offering birth control as part of their insurance plans but the reality that they do not want to face is that, regardless of it being available in the insurance plan, their congregation would still practice contraception methods in some form. The other side of the argument, that some how they are subsidizing the use of contraceptives is totally crazy. The mandate specifically says that rates will not go up as a result of this. Let’s look at the insurance company for a minute because this is the best thing that could have happened for them. The insurance costs of raising a child are enormous compared to providing birth control so it’s a win-win for them.

Obama is not shoving contraception down the throats of everyone but merely making it financially available to everyone. That’s it. It’s the person’s decision to take it or not. Because it is a free will decision, arguing that this mandate violates the First Amendment is absurd. Now if it was “crazy religious fanatics are required to take birth control every day” then you have something, but merely making something available to the greater public and arguing it violates your rights? Give me a break.

Banking, in a nutshell

Posted: February 23, 2012 by alephnaughty in Economics
Tags: , ,

What do banks do? Two things. First, they maintain their customers’ deposits, paying interest on them for the privilege. Second, they lend some of their customers’ funds to creditworthy borrowers, charging them interest for the privilege. Banks make money, in brief, by taking a bit off of the top when transferring interest payments from their debtors to their depositors.

What is the economic value of what banks do? Banks perform the important tasks of liquidity & maturity transformation. In so doing, they play the role of financial intermediaries–institutions that match savers with borrowers, facilitating investment. Investment, in turn, is a critical driver of economic growth.

A depositor, in general, wants to invest in a short-term, highly liquid vehicle. That is, she wants to be able to, on a moment’s notice (short maturity), convert her investment into cash (high liquidity). A bank deposit offers her just that. As long as her savings reside in the bank they yield her interest. Whenever she wishes, however, she may make a withdrawal, converting her investment into cash without warning.

A borrower, in general, wants to provide a long-term, illiquid vehicle. That is, he wants to be able to spend his borrowed funds over a long period of time (long maturity), without necessarily being able to convert his purchases into cash in the interim (illiquidity). For example, if he borrows from the bank to buy a house, he may not be able to fully pay off his mortgage until it matures (say, thirty years from now), because his stream of income prevents this. A bank loan offer him exactly what he wants. As long as he makes his payments on time, he need not fully pay for his purchases until his loan matures, which may be well into the future.

How do banks manage to match depositors with borrowers, then, given their divergent wants? They manage to do this thanks to the law of large numbers. The withdrawal behavior of each depositor is very unpredictable. Because the behavior of one depositor is independent of the behavior of others, however, the law of large numbers entails that the withdrawal behavior of many depositors is very predictable. A bank that enjoys a large number of customers may confidently predict aggregate withdrawals on a given day, even if it cannot predict how much each customer withdraws. As a consequence, banks keep just enough cash in their vaults (their reserves) to honor these predictable withdrawals, freeing up the remaining funds to be invested with long-term, illiquid borrowers. Banks, therefore, make possible productive investments that would otherwise not be possible, thereby contributing to economic growth.

Sounds too good to be true, doesn’t it? There is, indeed a catch: Exploiting the law of large numbers is only possible because, most of the time, the behavior of one depositor is independent of the behavior of others. If withdrawals become correlated, the business model of banking breaks down. Suppose, for illustration, that a bank invests heavily in one sector of the economy (e.g., housing), believing that this promises the highest risk-adjusted returns for its depositors. Suppose further that many of these investments go belly up, with large numbers of borrowers defaulting on their loans. A depositor, observing this, worries about the ability of her bank to make good on her future withdrawals. Moreover, she knows that if she is worried about this, other depositors must be similarly worried. Even if the bank is in fact solvent, it is never in a position to make good on every deposit simultaneously, for some of the funds have been invested. Knowing that others will make larger-than-usual withdrawals, fearing that the bank is insolvent, it is in her best interest to beat them to it. If she isn’t one of the first to get her money out of the bank, the bank may not be able to honor her deposits, even if it was solvent in the first place.

A banking panic (or bank run) is a self-fulfilling prophecy. Fears concerning a bank’s solvency trigger correlated withdrawals, rendering the bank insolvent regardless of its prior condition. Systemic banking panics occur for similar reasons. If many banks turn out to have exposure to lots of bad loans, uninformed depositors may play it safe, running on their bank regardless of its individual exposure. This pushes the entire banking system into insolvency, causing a complete breakdown of financial intermediation in the economy, severely undermining economic growth.

Most economists, therefore, believe it is part of the role of government to stem banking panics, but not to make every failing financial institution whole. It is also important to regulate banking, because if banks can count on the government to bail them out in a panic, that limits their downside, encouraging them to take excessive risks with their depositors’ funds. The best way to do these things, however, is a matter of considerable debate. With the introduction of deposit insurance, depositors no longer monitor commercial bank’s investments, which is why the government tightly regulates them (for better or for worse). In the recent financial crisis, there were runs on so-called ‘shadow banks’, which work similarly to commercial banks, but operate outside of ordinary bank regulations.

The most important lessons, going forward: (1) preserve the banking system, not individual banks; (2) preserve institutions–preserve neither the management, nor the shareholders; (3) the purpose of regulation is to force bankers to put their own money on the line, not just the taxpayer’s–otherwise, keep it simple. The US definitely erred too much on the side of caution in ’08-’09, for which it may be rightly criticized, but it is safe to say swinging too far in the other direction may have done even more damage to the economy. Pick your poison.

Fixing the corporate income tax

Posted: February 22, 2012 by alephnaughty in Economics
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First, businesses only ought to report their revenue from sales. Second, they should deduct purchases from other businesses. Third, they must also deduct labor expenses (wages & benefits). On the difference, they ought to be taxed at a flat rate. No further deductions, credits, etc. Simple.

‘Closing loopholes’ sounds good, but the devil is in the details. If it is code for taxing purchases from other businesses, for example, then these may not be loopholes worth closing. Also remember that means-testing raises marginal tax rates. If you want to close loopholes, close them for everyone, not just big businesses.

Finally, note that corporate income tax reform has little or nothing to do with stimulating the economy in the short run. By contrast, it has everything to do with long-run economic growth, the state of the government’s finances, and the distribution of wealth in society. So judge proposals on those terms.

Drugs to make you sick

Posted: February 22, 2012 by nullpointerexceptional in Health
Tags: ,

Here is a gem I came across while reading an article on the FDA reviewing caffeine:

This is so ridiculous.  I suppose the manufacturers of this product greased the palms of the FDA but good.  How about a cure for Diabetes and Cancer?  There are thousands of young scientists doing just that but they can’t get into clinical trials because they don’t have the funding– but some quack produces THIS and it gets considered and will only be recalled when a few hundred die from it.  The FDA has one thing in mind — Money, and if you have it, they will allow it, hence all the bogus pharmaceuticals designed to keep you or make you sick.  What a world. (CNN.com)

I appreciate alternative views on society but this comment is second to none, well except maybe people that think the gold standard is a good idea, and really show the lack of education on the matter. Being sort of an expert on all things pharma, I can only laugh at what this person has to say and want to educate others which may fall into this same mindset. Queue National Geographic intro music…

First off, of the costs associated with bringing a drug to market only a small percentage ever hits the books of the FDA. Your average drug development costs are on the order of $1 billion once you factor in four rounds of clinical trials compared to the ~$1.2 million associated with a full drug application (roughly .001% of the costs). If you’ve ever seen a drug application (I’ll just assume you haven’t), you’d know that they basically cut down a small forest to print out a hard copy with all the clinical data. The FDA needs a small army of people to review all the data and ensure that the drug company followed industry standards – all people that are paid. Let’s also not forget that just because the company pays the application fee, that the drug is approved. Use your favorite search engine and look for “fda rejections” for a little bit of fun. The FDA is meant to provide reasonable oversight to drugs and devices marketed to the greater public – without them, we’d literally have snake oil being sold as the cure for cancer…

What about a cure for cancer and diabetes? Between these two classes of diseases, billions of dollars are spent in basic research at universities and an unimaginable amount at both big and small pharma. Any time a viable treatment option is found or new potentially viable compound is discovered/created, money is thrown at it. Venture capital goons love throwing their money at these wonder compounds because their few million dollar gamble now could be worth billions in drug sales in the future – sort of like hitting the lottery.  Heck, even universities will spin off commercial entities to bring a drug to market just for a cut of the licensing fees. I have a hard time believing that there are scientist sitting out there with viable compounds or revolutionary treatment having a hard time finding funding – there is just too much money to be made to risk not looking into it further.

It’s the perfect business model: drug companies create drugs that keep you sick so they are able to turn a greater profit off of your warm body, eventually killing you in the long run. If people were not sick in the first place, drug companies would not exist. Ok, so you got sick and now you’re taking a drug – if you stayed sick or got sicker while taking a drug, wouldn’t you stop taking it? I know if I took a drug for my acne and required Chipotle Away in response to a nasty side effect I’d stop taking it. How bout those fun-loving side effects caused by chemo therapy? No one said drug development or treatments were perfect – far from it actually. Drugs and treatments are rated and compared by their statistical likely hood of being effective at treating your symptoms while at the same time weighing the risks of the side effects. Except for twins or the like, the effect a given drug or treatment has on an individual can vary greatly so the expectation of a wonder drug with no side effects, curing your ailment is absurd unless you talk about custom tailored drugs, currently cost prohibitive. Sick people can’t work – people that can’t work can’t pay for prescription drugs, even with Obamacare.

Drug companies are around not because they are money hoarding, evil entities looking to steal your money, soul, and wife but because they improve the quality of life in a statistical sense. Sure some guy might die from a heart attack that might have been caused by a drug or you might be covered in teal polka dots for the rest of your life but if it improves the quality of life for a statistically significant population what’s the big deal? The person knew the risks of taking the drug in the first place (except in cases of shoddy clinical trials but that’s a topic for another day) and valued the potential life without the ailment more than the statistical likelihood of any of the side effects.Case closed, no conspiracy, no cover up.

To the person that wrote the quotation above, next time you get sick don’t take any drugs or antibiotics and see how well you feel and how fast you recover.

Supply-side economics, for babies

Posted: February 22, 2012 by alephnaughty in Economics
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Suppose you’re deciding how much gas to purchase. The gas station charges $x per gallon, but you also have to pay a gas tax of $y per gallon. The effective price of gas for you, then, is $(x+y) per gallon.

Suppose first that y = 0.25. In that case, let’s say you want to buy 10 gallons. Now suppose that y = 0.75. Do you still want to buy 10 gallons? Those same 10 gallons would cost you $5 extra. Even if that isn’t enough to make you want to buy a little less gas, it’s plausible that someone out there is going to buy fewer gallons than they otherwise would, right?

How will the change in y impact the government’s income? On the one hand, y goes up, which means every gallon purchased adds $0.50 more to the government’s income. On the other hand, the gallons of gas purchased probably go down, which means every gallon not purchased deducts $0.25 from the government’s income. If the former effect dominates, then the government’s income rises with the tax hike. If the latter effect dominates, then the government’s income falls with the tax hike.

Suppose you’re deciding how many hours to work. Your employer pays you $x per hour, but you also have to pay a tax of y% on your wages. Your effective wage, therefore, is $x(1 – y/100) per hour.

Suppose first that y = 0.25. In that case, let’s say you want to work 40 hours. Now suppose that y = 0.75. Do you still want to work 40 hours? Those same 40 hours would earn you only half as much. Even if that isn’t enough to make you work less, it’s plausible that someone out there is going to work fewer hours than they otherwise would, right?

How will the change in y impact the government’s income? On the one hand, y goes up, which means every hour worked secures the government more income. On the other hand, hours worked probably go down, which means every hour not worked loses the government more income. If the former effect dominates, then the government’s income rises with the tax hike. If the latter effect dominates, then the government’s income falls with the tax hike.

What’s the difference? Well, if the price of gas goes up, you become poorer, which makes you buy fewer things in general (and gas in particular). If the price of work goes up, you still become poorer, but that makes you work more hours to make up the difference. Thus, there is a third effect, which reinforces the revenue-reducing aspect of the gas tax, but reinforces the revenue-raising aspect of the wage tax. Common sense suggests, therefore, wage tax hikes are likely to be more successful in raising revenues than gas tax hikes.

What do the data tell us? Higher income taxes unambiguously raise more revenue, but some expected revenue is lost because some people do not generate (or report) as much income. In other words, the supply-siders had a point, but one that was way overblown. So when peeps tell you cutting taxes raises revenue, understand that there are multiple things going on, and that we have pretty solid evidence that other, more intuitive effects, tend to dominate in the end. Doesn’t mean higher tax rates are desirable, but they would raise more revenue–possibly a lot more.