Doug Comes to Maryland

Doug and Becky Larson were kind enough to include us on their trip up to DC from NC. They stayed for two nights. It was great. Just like old times. We even went running a couple of times (I'm so out of shape.), as Doug showed off his 5-finger shoes (it was too wet for him to run barefoot, which he often does). I hope all of you will stop by for a visit eventually.

We talked a little about this USA, Inc. business. Doug was mostly interested in the health care side of things. His first suggestion was to blow up the tobacco industry, somehow forcing all smokers to cover their own health care cost. Personally, I think it's a nice idea, but as one who has just been snacking on Easter candy, I can't point the 'be healthy' finger. I can't see anything like that happening politically.

Doug also pointed out that we are much more overweight and have many other health problems that other countries don't, so comparing health costs may not be a fair comparison. Plus, we pay a lot for studies (to get approved by the FDA) and the medical trials and basic medical science that we do here is like a gift we give to the rest of the country. Of course, he also recognizes, much better than I, all of the problems with our health care system, and I suppose he'll post here himself and explain them one of these days.

Becky thinks everyone should need some sort of end of life plan in order to receive Social Security. We waste so much money in end-of-life care, when often the person receiving treatment wouldn't even want that done. I like this idea, especially if it can free doctors (even a little bit) from fear of lawsuits.

There are lots of ways our health care system could become more efficient. Obama's budget plan depends on being able to make it more efficient. Even if he does so, I found his plan to be severely lacking. I'm not even against taxing the richest people a little more. I think everyone is going to have to sacrifice some, but Obama's speech wasn't about sacrifice. He basically said, "Hey, we're America. We can afford everything. We just need the rich people to pay their share."

I think all avenues of getting the budget problems fixed should be on the table. USA Inc. ignores defense because it's not that different than historical levels. It's nice not to blame everything on the wars, but we've got to be better in all of our spending.

I have been listening to this book called 'The Black Swan'. It goes into some detail about how wrong economic predictions are. They have quite a terrible track record. The reason they are so terrible is because they always miss big, rare events, such as 9/11, etc. These models that all of this budget talk is based on... they are almost assuredly all wrong, that goes for both political parties. Just like how it always takes you longer than you think to paint a room, the budget will surely turn out worse than people think.

As a government employee, I know that there are a lot of inefficiencies in the government. I expect there are inefficiencies in most companies, too, but companies are better a scaling back and adjusting when things go wrong. I don't have much faith in our politicians' ability to fix our debt problem. I hope I'm wrong.

Thesis Defense and USA, Inc.

For those who didn't see the news via other information feeds, I successfully defended my thesis last Friday. It's a wonderful feeling not to have an unfinished thesis hanging over one's head (Alvin, I'm looking at you). The thesis title was "Coherent Approximation of Distributed Expert Assessments." The main idea is that when people (or non-human expert systems, like computer algorithms) try to guess the value of two or more uncertain quantities that are related (like, for instance, the probability that the Red Sox win the World Series and the probability the Cubs win the World Series), they may generate logically irreconcilable estimates. The irreconcilability manifests itself in terms of money pumps, like Dutch Books in distributed probability estimation or market arbitrage more generally. My thesis develops a mathematical method for correcting such errors.

On the subject of USA, Inc., I think now would be a great time to discuss it. I'd love to see it in context of the several budget proposals that are currently being put forward (evidently House Democrats are expected to put out a budget proposal today to counter the Republicans' proposal from last week, and President Obama is also getting in on the game, outlining a proposal in his speech tonight).

I read the executive summary of the report and liked several of the points the author made. Most importantly, I think she accurately pointed out that we need to set reasonable goals for revenues and outlays. For instance, the Ryan budget sets revenue at 18% of GDP, and balances the budget by 1) capping Medicare outlays and indexing them to inflation and 2) turning Medicaid payments into block grants to states and 3) significantly reducing all non-defense discretionary spending. This is about what we should expect if revenue is set to approximately 18% of GDP; the federal government simply can't do all it's been doing with that level of funding.

If, instead, we want to continue funding Medicare, Medicaid and discretionary spending at the current levels we need to talk about how much of revenue that will require. In this case, as Meeker points out, the outlays have been growing faster than GDP, so the revenue side would have to grow faster than GDP. This is obviously unsustainable, which leads me to conclude that any plan that doesn't index entitlement growth to GDP growth (or a surrogate like inflation) is not a serious plan.

There are a lot of nuances that I think could be added to the debate; for instance, during the 1990s (most recent decade I found data on) US healthcare costs rose at about 3%, in line with inflation. The big increases people cite (particularly in cross-national comparisons) seem to have largely happened in the 1970s and 1980s. So are healthcare rates really increasing, or are outlays increasingly primarily because more people are being enrolled (hint: it's the latter). Meeker rushes by this point (at least in the executive summary), but I think it's an important conceptual one to recognize (if it's valid; I don't know that the sparse statistics I've seen thus far justify my assertion).

USA Inc

This is one of the more interesting and important things I've read in awhile. It isn't exactly a book but has some significant depth and deals with issues that are obviously critical. It is written mostly in finance-speak but I think is presented plainly enough to be clear if you walk through it. We could even make it up for discussion if people have interest...