Thursday, September 30, 2010

Restoring Discussion of Liberty

We all know that progressives have different ideas about politics and the roles of the government than our nation's founders.

I know I will be trounced on by Conservatives and Libertarians for today's post, but I believe that progressives also have radically different ideas about markets and business as well.

I actually go a step forward and say that progressive ideas about markets are as dangerous as their political ideas. Quite frankly, I see progressive economic ideas as central to the economic malaise of the day. (It was also the cause of the recession that FDR prolonged into the Great Depression).

If people are serious about saving America, they must sit down and think seriously about the differences between the progressive and traditional approach to markets.

Unfortunately, the culture war has people so caught up on the debate of communism v. capitalism that the discussion of distinctions within the market becomes impossible.

A few posts back, I brought up The First Department Store. ZCMI was created by a progressive leader who convinced merchants to pool their resources into a single business that could dominate the local market. Since that time, the retail market has been dominated by large groups of investors who would leverage their resources in a gamble to build stores that would dominate the market.

Most efforts fail, with a few coming out on top. Needless to say, as retailers try to gain dominance, the retail market has become much more of a political beast.

This game of dominance and submission is different from the game of creating and re-investing capital described by Adam Smith.

The big box store was the creation of progressives. During the early days of the big box store, progressives would laud the older prices.

Today, of course, progressives make shrill noises as they try to assert ever greater political control over their creations while idiotic Conservatives line up to defend the progressive big box paradigm.

This game of taking a massive leveraged position to dominate a market is different from the methodically game of reinvesting capital described by Smith.

During the DotCom Boom and Bust, we saw the system throwing massive amounts of leveraged money in efforts to dominate the new market. Investors sold product at a loss to gain market share. The people playing this game went under, and their bad money pulled down those with rational business models.

Taking out a massive leveraged position to dominate a market is different from the systematic investment and re-investment of income that build this nation.

Patrick Byrne of Deep Capture burned himself to a frazzle arguing against naked short selling. Libertarians lambasted the work for wanting tighter control of short selling. They called it regulations, forgetting the fact that naked short selling is an artificial contrivance of regulations. The short selling regime was created by progressives seeking a way to regulate market spikes.

Progressives use a state-of-the-art fever-pitched-whine where they use the abuses of short selling to demand greater market regulation. Like the libertarians, they completely ignore the fact that naked short selling was a contrivance of progressives past to regulate the market.

The 2010 Financial Regulations were a similar joke. The primary aim of this wave of regulation was to regulate the regulations of the 2000 Security Modernization Act which was cleverly called "deregulation." It is pure insanity. Conservatives blindly supported a set of regulations because it was called "deregulation." The little semantic trick now lets progressives project the failures of an absurd set of regulations on the free market.

Another example that I explored in depth is insurance. Once again, insurance was the creation of progressives. Insurance is a scheme to regulate health expenses. People are told to put their health care resources into a pool. In times of ill health, people would place a legal claim against the pool. The system is remarkably inefficient and unjust as the people with inside connections get the service and the outsiders get pushed aside.

Unfortunately, if one attempts to debate the failings of insurance, progressives will let forth with a loud piercing screech about how insurance must be regulated. Progressives beat the loud drums of market failure despite the fact that insurance is intrinsically anti-market.

Conservatives, focusing solely on the question of private v. public ownership, will counter with a knee-jerk reaction to defend private insurance companies. Conservatives will do stupid things like demand tort reform (while failing to notice that every transaction is a legal claim which require legal oversight). Conservatives will champion states rights in on breath then demand they be allowed to buy insurance over state lines in the next. As insurance is inherently a legal product, buying insurance across state's lines demands national regulation.

Conservatives have become as dangerous a threat to the free market as the progressives they loath.

A primary thesis of Alinsky, Marx, Moa, Stalin, Hitler, the professoriat at the University and other progressives is that they intend to use to the tools of the market to destroy the market.

Progressives spend the vast majority of their time in efforts to define the market. In this effort they count on conservative reaction.

This is the game played by Marx in Das Kapital. The game is to define the market in ways that concentrate wealth and is instable.

Conservatives then flock to defend the Marx's model of Capitalism.

One will not preserve the free market simply by arguing Marx's anti-thesis. Arguing Marx's anti-thesis allows the progressives to define the market, and progressives have a long history of defining the market to our peril.

To restore America, we have to recognize that we've been on the wrong path for several decades. We need to identify the traps set for us modern discourse and strive to reignite the discussion of the nature of mankind, government and freedom the US Founders.

Monday, September 27, 2010

Opening the Royal Treasury

Today it was announced that the Lord President of the United States would open the royal treasury and lend $30B to small business.

Guess what?

I am skeptical of this measure.

I worry that President Obama does not have a solid understanding about the way economies produce wealth.

The economy described by Adam Smith in The Wealth of Nations was where companies invested real resources, produced real wealth, then reinvested portions of this real wealth.

The faltering American economy is being driven by paper money. The government borrows paper money from China. It lends this paper money through banks to make leveraged plays against the market.

In this paper economy, there is more money in the shuffling of paper than in the creation of real wealth.

The out of control paper economy did not start with Barack Obama. Recent decades have seen a steady increase in the manipulation of paper money with idiotic ideas like Enron, Credit Default Swaps and hedging formulas taking precedence over the actual production and valuation of wealth.

The 30 billion in loans might help start the economy. Like all margin plays, the small business loan it is a gamble. The $30B in loans must come back out of the economy in the form of inflation, taxes, or liquidation of assets.

If the people who borrow the $30B do a good job and invest the funds at a higher rate than the cost of the money, then we would see a boost in our well being.

If the money from the loans crowds out the investments of traditional wealth centric capital, the loans will do little more than start yet another paper economic boom that will result in a deep bust.

I titled this post "Opening the Royal Treasury" as Obama's economic action appears to be more in line with the economic interventions of the failed monarchies of the ancient regime than the wealth producing actions of the Liberal tradition of Adam Smith and the US Founders.

On Rental Cars

I like rental cars.

The cool think about rentals is that the renting industry allows people to match the amount of car to one's needs. If one has multiple passengers, they could rent a big car. Traveling alone, one could rent a compact.

In the ideal market, people could rent electric or alternative fuel cars when they need a car for local trips.

The car rental industry does a good job taking care of cars and manages to use the resources we put into the automobile to its maximum return.

Unfortunately, the rental car industry suffers one big problem. The cars tend to be rented by travellers who do not have effective local representation. As such, states reams it to the rental industry with extremely heavy taxes.

Arizona Free Enterprise Club is reporting on an effort to increase taxes on car rentals to fund a minor league ballpark. Governments jack up taxes on rental cars and hotels because the people who use these services are from out of town and can't vote. TAXATION WITHOUT REPRESENTATION.

The justification for taxing car rentals is that the people renting a car might want to watch a ball game.

This is a funny justification as people passing through town might be ball fans, but they are likely to be fans of different teams.

The Minor League team in Mesa is a franchise of the Chicago Cubs. Many of the people renting cars in the Phoenix area are fans of the Diamondbacks.

Not only are people taxed without representation, our corrupt political system taxes people and gives the cash to the other team.

Personally, I think there's too many cars in this world. The car rental industry does a good job optimizing the resources put in transportation. I find it sad that we hobble this industry with excessive taxes.

Saturday, September 25, 2010

The First Department Store

One of the quaint pieces of Utah history is the fact that the LDS Church established "the first department store." Zions Cooperative Mercantile Institution (ZCMI) was founded in 1868 by Brigham Young.

The Wikipedia article on ZCMI is interesting. It says the primary reason for establishing ZCMI was that "[Mormons] were despised by the surrounding community." As Mormons were a persecuted majority, their leader, Brigham Young, launched a boycott of non-Mormons businesses. As non-Mormon businesses continued to exist, President Young persuaded Mormon merchants to pool their resources into a single cooperative. This cooperative gave preference to Mormon suppliers and established manufacturing concerns that sold through the cooperative.

The independent businesses gradually merged into a single concern with the LDS Church as the majority share holder.

The term "gentile" refers to anyone who is not LDS. My guess is that the Wikipedia article was written by members of the Church of Jesus Christ of Latter Day Saints. I doubt that there is any group with a particular interest in research favorable to the gentile merchants of early Utah.

I have some sympathy for the gentile emigrant. I've always rejected the idea that gentile merchants were part of a cabal out to destroy Mormonism simply by existing. I suspect that gentile merchants were people who wanted to live in the area and were at wits end trying to figure out how to deal with the Mormon majority.

When there is a large power base that defines the market, people must develop a strategy to confront that power base.

In the computer industry, Microsoft established a large market base. People interested in the PC market must factor Microsoft into their business plans. Some take a decidely anti-Microsoft approach to life.

Yes, there are many geeks who are hostile to Microsoft. However, I doubt that anyone became a geek because they dislike Microsoft. They dislike Microsoft because they saw it as counter to their ideals about computer technology.

I believe a better description for the founding of ZCMI is that Brigham Young practiced an early form of progressivism in which he sought control by fanning conflicts and positioning centralization as the solution to the conflict.

I highlighted the term "pool resources" above as the idea that people must pool their resources to overcome some mysterious evil force is a common theme among progressives.

This is the justification for insurance.

The effect of pooling resources is a highly centralized market with a wider gap between rich and poor. This gap between rich and poor is often the very evil that progressive railed against.

Big department stores can create efficient inventory and product flows. The big stores have the negative effect of reducing the number of people directly engaged in investment and reinvestment of goods. Big box stores reduce the middle class from the position of owner to that of skilled employee.

ZCMI lasted for over a century. In the last decades it, and hundreds of other independent department stores May Department Stores, then Federated Department Stores and now a massive complex of Macy's Department Stores.

The process of economic centralization has gone unchecked for well over a century.

As mentioned in the last post, Glenn Beck has some odd reason for wanting progressivism to be an exclusively 20th century phenomena.

I see all of the elements of progressivism alive and well in the 19th century. For that matter, there has always been people willing to mix government, religion, philosophy and business in the never ending grub for power.

Friday, September 24, 2010

Religion and Business

Glenn Beck will have a program on the toxic mix of religion and the state today. I think I will change my schedule around to watch it.

I've been critical of Beck in the past. In Beck's universe, progressivism started in 1900 (as if the US was some sort of paradise before Teddy Roosevelt). The 1800s had really big problems such as slavery and the Civil War.

I criticize Beck's view. I see modern progressivism forming in the 1800s. Many of the strategies and ideas of the progressives formed as defense for the peculiar institution of slavery.

Please note, the ideas of the modern progressive stretch back into antiquity. The modern mix of ideas was a creation of the complex of ideas formed by Kant, Hegel (1770-1831) and Marx and imported by American philosophers such as Dewey.

I happen to include Joseph Smith and Brigham Young among the progressives. The early Mormon Church took stabs at establishing a theocratic based commune. When the attempts to established communes failed, there continued to be a very close tie between Church, business and state.

Polygamy was a form of sexual revolution.

The book of Mormon (published 1830) seems to have some very interesting parallels to the works of Hegel (1770-1831) whose philosophy of history was widely discussed during the time of Smith's revelations.

Hegel's historicism had the world spirit evolving through a series of great clashes between civilizations and the Book of Mormon just happens to be about a great clash between two civilizations called the Nephites and Lamanites.

Just as Hegel tried to predict the future evolution of history from a conflict driven view of history. Joseph Smith appeared to be making predictions based on a conflict driven view of history.

Thankfully, the modern LDS Church has given up on many of the oddities of Smith and Young. I find it interesting that Beck (a member of the LDS Church) has tip toed around progressive history and carefully skipped discussion of the roots of modern progressivism in the 19th century.

After Notes

Rats, I watched the show and found it lacking substance. The example of the evil comingling of church and state was Nazi Germany with hints that Soviet Union was really bad and there are some disturbing trends here at home where those seeking power still ply Christianity (when it suits political objectives) or ply anti-religion (when anti-religion suits political objectives).

A substantive review would see good and bad in all groups and individuals.

History is a long chain of experiments where people will try one path ... have good or bad results ... then try another path.

Successful societies allows multiple concurrent experiments with mechanisms that let the successful experiments win and unsuccessful ones fade.

My view of history is that early Mormons tried the progressive path with collectivization of resources, polygamy, a tight relation between church, state and commerce. Their experiment did not work out all that great. Now they are on a more traditional Christian path with better results.

Anyway, I heard an ad for Beck's show earlier this week and actually looked forward to hearing a substantive talk on the good and bad within states and churches. I was left feeling that I wasted an hour.

Is Insurance Socialized Medicine?

Insurance was a creation of progressive businesses last century.

The basic idea behind insurance is that a large entity (either big government or a big business) can regulate health care by placing the health care resources for a group into a pool. People would draw from the pool as needed.

EMPHASIS: Insurance exists to regulate care. Insurance has people paying a regular premium to pay for irregular health care expenses.

The culture war battle has been about ownership of the pools. The left says big government should own the pools (communism). The right says that big business should own the pools (capitalism).

I contend that the culture war is a false dichotomy and that the underlying structure of the economy matters more than top level ownership.

Step away from health care for a moment: If we were to privatize the IRS, the new private entity would still be using state coercion to collect taxes. Taxes collected by IRS, Inc. would have the same effects on the market as taxes collected by a government bureau.

It is the underlying structure of the IRS that makes it a tax collection agency. Privatizing the IRS is a cosmetic change that does not change the form.

The Federal Reserve, Fannie Mae, and Freddie Mac have cosmetic private ownership. The cosmetic private ownership does not change the fact that they are governing entities.

I contend that ownership is cosmetic. Tthe primary difference between a free and socialized market has to do with decision making. In a free market, decisions are made by the individual (free will). In a socialized market, decisions are made at a group level (group think).

In a free market, individual own their own resources (property rights) and uses those resources as they see fit. In a socialized market, resources are owned by a group and used for the benefit of the group (collectivization). Decisions are made through political and legal processes.

Returning to the discussion of health care, I look at insurance and see people placing their resources into a collective. There is then a complex legal and political process to determine the care that people will receive from the collective.

The language of insurance gives the game away. When people use insurance, they don't pay a doctor's bill, they file claims.

Insurance turns health care into a legal dance. Rather than negotiating with doctors, patients must place a legal claim against the insurance pool to receive health care benefits.

The claims are settled according to state laws. From the inception of insurance until the passing of Obamacare, settlement of claims has been regulated by the states.

The reason one cannot buy insurance across state lines is that, with insurance, every transaction is a legal claim. The legal jurisdiction is an integral part of the claim. Nevada handles claims differently from California. For insurance to work, the buyer and seller must be in the same jurisdiction.

Allowing people to buy insurance across states lines necessitates the creation of a national jurisdiction for processing insurance claims.

It is absolute bizarre to hear Republicans champion state rights in one sentence and suggest that we be allowed to buy insurance across states line in the next. There is some really bizarre disconnect that prevents people from examining or understanding the nature of insurance.

Allowing people to buy insurance across states lines does as much to undermine state sovereignty as Obamacare!

Republicans also claim that they want to get the lawyers out of medicine through tort reform.

The Republican position is bizarre beyond belief. The tort problems within insurance arise because every single transaction in health care is a legal claim. Tort reform is unlikely to realize great benefits as the totality of the health care is a mixed up complex of legal contracts requiring constant legal vigilance.

When the totality of health care is a legal claim, any stab at tort reform is cosmetic.

Don't you see? It's the form and not just the top level ownership that defines a socialized system.

Employer based insurance is simply a privately owned form of socialized medicine. This scheme attempts to fund the care of an individual through a collective resource. Privately owned socialized systems fail as miserably as government bureaucracy.

The shrill debate on Fox News (where Hannity screeches for private ownership of the collective while Bob Beckel screeches for government ownership of the collective) masks the fact that the fault lies with the absurdity of using a collective to fund the needs of individual.

To conclude, I would like to look again at privately collected taxes: Obamacare does something interesting. Obamacare mandates that everyone buys insurance. The system then defines, in great detail, what will be covered with this mandated insurance.

Under Obamacare, insurance companies behave exactly like privately owned tax collectors. They use the force of the state to collect insurance premiums; they then spend this money as dictated by the state.

Yes, the left/right dichotomy screams that top level ownership is the most important issue in the universe.

But can't people step back long enough that the difference between a free and socialized market is deeper than the shrill debate about the title of the dictator? A free market is one centered on the free will of the individual. A socialized market is one where the resources are collectivized and decisions are made by the group.

The Medical Savings and Loan is a program where people pay their doctors directly from their savings (or in some cases with loans). The contrast between this structure and pooled insurance is more profound than the difference between a privately owned and state owned insurance pool.

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Wednesday, September 22, 2010

Crossing State Lines

I decided to make another big change to the Medical Savings and Loan.

The Medical Savings and Loan does not currently exist. However, I decide that, from the get-go, the program can be sold across state lines and will be accepted anywhere physicians are permitted to take cash payments for care.

I believe quite strongly that health care resources should be owned and controlled locally. I don't see any advantage to selling the product across state lines.

I decided to make the leap from a local to a nationwide product to emphasize the difference between self-funded and risk-pool funded health care.

With self-funded care, people saving their money and spend it where they like. With insurance pools, people place their health care resources into an enormous pool, then place legal claims against the pool.

As insurance is driven by legal claims, the buyer must be in the same jurisdiction as the pool.

A Medical Savings and Loan consists of three primary components. These are:

  • Savings Accounts
  • Lending Accounts
  • and grants.

A person should be allowed to keep a savings account in the bank of their choosing, even if it is in a different state.

As for lending, groups with money to lend should be able to lend that money wherever they please.

The same is true with the grants. If a person or group has money to give away, then they should be able to grant that money as they see fit.

It is very likely that grants and loans will be highly targeted and available only within a given state. There may even be types of loans and grants that are regulated by the state. A good analogy is scholarships. Some scholarships work for all schools, others only work for in state schools.

Certain employees of the medical savings and loan may be regulated by the state. For example, the Health Care Advocates are essentially financial advisors. States tend to regulate financials advisors. Doctors tend to be highly regulated as well.

I am not sure how a doctor could do surgery with the doctor and patient in different location. Simple things like taking a pulse require people to be in the same general area.

Despite there is great advantage in buying care locally and that certain aspects of the program will be regulated locally, I feel comfortable declaring that Medical Savings and Loan a universal concept that can exist beyond state borders.

The difference between the medical savings and loan and insurance is that insurance is one massive legal construct that tries to be the end all of health care for a large group of people. With the insurance paradigm, every single transaction is a legal claim against a legal structure. As people become 100% dependent on a single point of failure, that point of failure requires substantial regulation.

The Medical Savings and Loan, on the other hand, is a collection of financial tools designed to help people self-fund their care. Just as people should diversify their retirement savings, the Medical Savings and Loan benefits from the involvement of many actors.

The biggest difference between the MS&L and insurance is that every insurance transaction is a legal claim. With the MS&L people negotiate with doctors and pay cash for service.

Hopefully, I will someday find entrepreneurs interested in starting an MS&L. I would love to see a Medical Savings and Loan a viable alternative to insurance. Since the program benefits from diversity, I will promise to actively seek to create a program with components that span state borders just to rub noses in the difference between self-funded and pooled health care.

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Tuesday, September 21, 2010

Single Payer and States Rights

The cause of states rights is a trap. States have limited powers. Only people have rights.

An example of this trap occurred during the Utah Senatorial debate. A studio member asked the candidates if their commitment to the state rights cause would lead them to support a single payer scheme in states opting for socialized medicine.

The candidates answered a befuddled "yes."

If the candidates thought in terms of "states power" v. "states rights," they would have immediately questioned whether or not the states have the power to impose a single payer scheme on the people.

The key feature of single payer health care is that it excludes any direct contract between patient and doctor. In single payer, it is illegal for a person in pain to go up to a doctor and pay for the relief of pain.

In single payer, there is one and only one payer that makes final decision on the health care a person receives. All other contracts are forbidden.

Do the states have the power to deny people the fundamental right to negotiate health care contracts with a physician?

When people uses the term "states rights" they end up created a paradoxical system where rights are in conflict.

Historically we find that the Democrats used the cause of "states rights" to support slavery. After the Civil War, the Democrats used the cause of "states rights" to support Jim Crow and impose segregation.

Republican advocates of states rates are trying to support the idea of a multidimensional system where government power where the federal government has a limited set of enumerated powers. The states are the primary players in local governance and a free people retain their human rights endowed by their creator.

Republicans have been trapped into arguing for the absurd concept of "states rights." The failure to make the distinction between rights and powers is likely to be detrimental to both the cause of limited distributed government.

The question of single payer hinges on the question of whether or not the government has the ability to deny the people the right to negotiate health services with a medical provider. This question is muddled when loud Republicans stand on the capitol steps and support the cause of "states rights."

Americans fought a nasty Civil War to answer the question of whether or not the states have the right to deny a race of people their liberty. Let's not muddle this important effort by using the wrong term.

Monday, September 20, 2010

Which Waste?

Doctor Joe Jarvis of Utah Patients PAC left an interesting comment on my post on charitable care. The comment said:

"What is missing from your proposal is any approach to the real problem in our health system: waste."

The comment shows that I am failing to convey the nature of the Medical Savings and Loan.

The Medical Savings and Loan is not insurance! It is a mechanism for self-funding care. Medical expenses are no longer a claim against an insurance company. There is no third party involved in the transaction. Medical expenses are a direct transaction negotiated between doctor and patient.

The Medical Savings and Loan pretty much eliminates all waste associated with the insurance company.

The challenge from a business perspective is that the MS&L structure pretty much removes all profit centers from the business. Patients now own their risk and negotiate their transactions directly with the doctor. All of the justifications for massive insurance profits vanish. They are gone. The stuff Doctor Jarvis calls waste is no longer there.

The bad part for me is that the MS&L creates "George Bailey" style dramas as the hard work of the owners of the Medical Savings and Loan help enrich the community, but fail to realize their own dreams of world travel.

The Medical Savings and Loan is not completely without employees. The system employs Health Care Advocates. These advocates work for the patient and will assist in negotiations. They do not take a cut of the expense, as insurance does. They charge for their service and must provide value to justify their their salary.

The advocates work with lawyers who are charged and ready to sue doctors and hospitals for any real malpractice that occurs.

The Medical Savings and Loan makes the patient the center piece of the health funding puzzle. (Insurance makes an abstract risk pool the focus of things) The goal of the system is to identify medical expenses and provide financial resources for each person and to optimize the return from those resources.

I tend to speak of optimizing resource instead of reducing waste.

The debate about reducing waste immediately jumps into the question of "which waste"?

Everyone has a different definition of waste. What one person defines as waste may not be considered waste by another.

For example, doctors tend to place patients through batteries of expensive medical tests. With insurance people are happy to take all the tests requested by the doctor without thought about the price. With the Medical Savings and Loan, patients must pay the bill and are more likely to challenge the test.

So lets say a doctor requests a $300 test. The test gives information that the doctor likes to know. A patient using insurance would take the test without question. The patient paying cash would question the doctor and might decide that this test is not worth the $300.

Was this test waste?

What if a patient decide to buy a health care product that the insurance wouldn't have purchased. Is that purchase waste?

When people have control of their own resources, they will probably buy more alternative medicine. A pointy nosed bureaucrat is likely to see all "alternative medicine" as waste.

I am inclined to say that people spending money they earned as they see fit is not waste.

In social policy, the question of reducing waste can become scary.

In social policy one wants to spend money for the social good. Old people are no longer productive. Is spending money on the elderly waste?

Doctor Jarvis responded to a post about charitable care. There is all sorts of waste in charity. For example, charities are prone to run inefficient sporting events to raise funds.

Is the money spent on a 5K Fun Run waste?

Lets say the Jarvis Family put together a health foundation from family funds. This wonderful charity provides grants to people in need. Lets say the foundation had an annual (ahem, ahem) "Board meeting" at Deer Valley. The cost of the chalet, catering and lift tickets for the week come to $40,000. The money for the Jarvis Family Foundation came from the Jarvis family. The foundation appears to be buying the Jarvis family an annual ski vacation along with the money donated to health care.

The ski vacation is not money spent on health care. But is it really waste?

IMHO: It's their money. The fact that they give some money to charity earns my applause.

Everybody who participated in the Komen Race for a Cure gets my applause despite the fact that the race is a horrifically inefficient way to raise money. I mean, get real folks! Wearing a pink outfit and running 5K is not curing cancer!!!! A professor in an ivory can rightfully point their long bureaucratic finger at this effort and sneer the accusation "waste"!

Me, I applaud the racer who buys matching pink socks and a pink hat to go with the pink shoes, pink ribbon and pink running shorts for the race. Yes, the race might make a bureaucrat see pink, but I see wonderful people engaged in life.

I rarely use the word "waste." I cringe at the idea of an empowered bureaucrat running around pointing fingers and labeling people's actions waste.

I see the act of labeling others as waste to be a waste.

I like to think in terms of optimization.

If we had a system where individuals controlled their personal health care resources; people would seek to optimize the care they receive for these resources.

The question of how one optimizes the system is more productive than the question of waste reduction efforts.

The insurance industry optimizes for the needs of the abstract risk pools owned by the insurance company. The reason we see so much waste in insurance is that the system naturally optimizes for the desires of the insurance bureaucracy and not for the needs of the people.

Government health care optimizes for the needs of the bureaucacy.

If one simply changes the funding mechanism so that people owned and controlled their personally health care resource, then one would see the system optimize to the desires of the people.

Doctor Jarvis criticizes the Medical Savings and Loan because it does not include a Bureau of Waste Reduction. I contend that any system requiring a Bureau of Waste Reduction is fundamentally flawed. So, in my opinion, the Utah Patients PAC shows that it is going in the wrong direction by engaging in the inherently negative discussion of waste reduction.

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Sunday, September 19, 2010

Utah Freedom Conference Dims my Hopes

I was disappointed with the Utah Freedom Conference.

The apparent goal of the Utah GOP is to use anger from the Obamacare debacle to grab at Federal lands. Of the 17 break out sessions, only one dealt with overturning Obamacare.

The Utah United Conference coincided with a meeting of the American Association of Physicians and Surgeons which held a Doctors Tea Party at the Utah State Capitol.

Despite the fact that the tea party was positioned as the culminating highlight of the day, only a few of the people from the Freedom Conference showed up at the tea party.

Once again, Utah Conservatives prove to be just like the progressives. They use public concerns to grub at power.

There is some merit to arguments for greater control of the undeveloped Federal Lands within the state. Yet, when I look at all the things that we have stolen from future generations, I find myself reluctant to steal the last of the undeveloped land in this nation from them as well. As a native westerner, I've never been fully convinced that having no trespassing signs and fences around every parcel of land enhances freedom.

A speaker at the conference claimed the coal under the Grand Staircase Escalante is currently worth one trillion dollars. Guess what? It was worth half that a decade ago. The coal only appreciates in value.

To justify the land grab, the Utah Freedom Conference bubbled about how the sale of the land would generate billions for public schools. This was followed by a workshop on how public school funds are systematically spirited away by political interests and are used for indoctrination, not education.

The conference pounded the drum of State's Rights but failed to acknowledge that local tyranny can be more oppressive than state level tyranny.

IMHO, The ideal government is a multidimensional structure where a federal government checks local tyranny and states defend against federal tyranny. In this multidimensional structure, only the people have rights. The Federal Government and States have select authorities aimed at defending the rights of the people.

Putting this in traditional language: Man is a creation of God. The rights of man flow from God. Cities, Counties, States and Federal Government were the creation of men, and have the power granted (or taken) by men. The state has powers, not rights.

The argument for "States Rights" tends to lead to a local tyranny as people fail to distinguish between rights and powers.

Coming away from the conference, I was left feeling that the cause of overturning Obamacare is lost. The next generation of Conservatives will prove to be like the Gingrich generation. They will stray from the rhetoric of protecting freedom and plunge head first into the grub for dollars as political winds shift in their favor.

While the conference was a disappointment, I found the doctors of the American Association of Physicians and Surgeons were simply amazing. We are truly a blessed nation to have such people dedicated to improving the quality of our care.

Thursday, September 16, 2010

A Complex of Funding Efforts

The last two posts combine together to make something really remarkable:

The first posts said that I am no longer pursuing the Medical Savings and Loan as a stand alone business. I now see the program as a way of organizing a nexus of small businesses that help people self-fund their care. The second post said that I've steered away from re-insurance to a system of grants.

These two posts add up to a remarkable change: Instead of having one entity (an insurance company or HMO) dominating one's health care, the MS&L would create a whole network of small businesses and charities working directly with people to accomplish the important task of funding health care.

The separation into different businesses isn't just a nicety, it is a necessity. The separation keeps each segment of the system in its own accounting and legal space.

An employer using the Medical Savings and Loan would pay a monthly premium to the Medical Savings and Loan. Some of this money would be held in a loan reserve with the rest distributed to bank accounts held by the employees. A set portion of the premium would go into the grants program.

The employees would negotiate their health care directly with doctors and would pay for the care from their bank account.

The fact that money comes from an employee's bank account drives the fact that this is self funded care.

When the employee needs a loan, the money for the loan goes from the MS&L into the employee's bank account then to the doctor reinforcing the contract between patient and doctor.

Charitable accounts would likely be held directly by the employer or a non-profit foundation. The payment from a foundation would either go directly to the doctor or into the employee's account. The fact that the money comes from a different legal entity emphasizes that the money is coming from a grant.

Insurance lumps the health care funding into a massive pool. The administration of this pool tends become politicized and corrupt.

The Medical Savings and Loan separates out the components of funding care.

Although it would be possible to create a single monolithic company that handled each of the components of care, separating the program into multiple legal entities emphasizes the different dimensions of funding care.

Charitable Care

The second big change that I made to the Medical Savings and Loan is due to an article by Doctor Joe Jarvis on the role of charity in western medicine.

The goal of the Medical Savings and Loan is to help those that can self-fund their health care pay for their care.

There are many people who cannot self-fund their care. For these people, I was trying to forge a complex system of re-insurance.

Most re-insurance schemes work on a year to year basis. If your health care costs for a given year exceed a given amount, the re-insurance kicks in. This scheme does not work well for chronic condition.

The re-insurance scheme in the Medical Savings and Loan was based on lifetime earnings. My basic idea was to cap medical expenses as a percent of total income. If a person's medical expenses shot over a set percent of their income (say 30%) the re-insurance would kick in.

NOTE: I was hoping to use a progressive scale. For a minimum wage worker, the re-insurance would kick in at a low figure like 10% of income. For upper income people, the re-insurance might not kick in until expenses hit 40% or 50% of income.

The problem I faced, however, was that no matter how I structured the re-insurance scheme, the re-insurance scheme came to dominate and redefine the Medical Savings and Loan.

After reading Mr. Jarvis's article on charity, it dawned on me: Charity is a very good thing. Charity should play a prominent role in the delivery of health care.

Anyway, I decided to completely rip the re-insurance component out of the Medical Savings and Loan and replaced it with a system of grants and charities.

In the current version of the medical savings and loan, clients use a combination of savings and interest free loans to self-fund their care.

When a person has health care needs that exceed their ability to pay, the health care advocate would run about and find grants to supplement the patient's care.

The money for the grants would come from the same source as insurance. It would come from businesses, investments and personal income.

Let's say a company is currently paying $10M a year in health benefits. This company might put $2M into the charitable fund, then distribute $8M of the benefits into the Medical Savings and Loan. Such a system would be flush with cash.

Grants can work into the system at multiple levels. There's is likely to be a level of grants that kick in automatically (just as re-insurance kicks in automatically). A premature birth or other catastrophe is likely to trigger an automatic grant.

Some grants might have specific purposes. For example, a group advocating preventative medicine would give grants for a check up.

Since people with low incomes can't self-fund as much care as the rich, the grants would naturally be income sensitive. The grant system provides a system for redistributing income from the rich to poor.

People and companies are likely to put as much money into the grant system as they would re-insurance. As people guard their charitable spending better than insurance, it is likely that the money placed into a grant program would buy significantly more care than a pure re-insurance program.

The main benefit of moving from re-insurance to a grant system is that it breaks the illusion that health care is a right.

Insurance and re-insurance muddles health care into an intellectually dishonest mess where people fail to properly recognize sources of income and expenses.

The Medical Savings and Loan coupled with grants provides an intellectually honest system for funding care which properly accounts for the individual's contribution to their care. When a person's income falls short, it provides additional funds and recognizes those funds as charity.

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A Nexus of Businesses

Over the summer, I made two changes to the Medical Savings and Loan design.

I was originally thinking of the MS&L as a business plan for a single business that would hold both the savings and lending accounts.

The problem with such a design is that if the lending accounts are underfunded, a single company is likely to raid the savings accounts. I decided that it would be better if the accounts were held by two different corporate entities.

The lending reserves would be held by a financial firm dedicated to making medical loans. The savings accounts would be in a bank of the client's choosing.

I admit, a primary reason for this change is paranoia. If the powers that be decided they wanted to destroy a MS&L, they would have an easy time going after and destroying the lending portion of the company. They would have a bear of a time confiscating individual savings accounts held in multiple banks.

I am now thinking of the MS&L being more of a nexus of companies than as an individual company.

Creating a nexus of businesses might be easier than trying to create one big business that tackles the whole puzzle of self-financing health care. A nexus of businesses could draw in entrepreneurs who want to start their own business. Such a program could also interface with the myriad of existing financial advisors and banks that would be happy to provide additional financial services.

Instead of having one business model for a monolithic Medical Savings and Loan, I now have a collection of connected business models that together form the functions of a medical savings and loan.

If you are an entrepreneur, financial advisor or financial institution that wants to help people self-finance their health care, you can contact me. Just a few entrepreneurs owning their own companies and working together could change the world.

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Wednesday, September 08, 2010

Cloward, Pivens and Nullification

The Cloward and Pivens strategy is to affect change by overwhelming existing systems. Specifically, Cloward and Pivens hoped to bring about a socialist system by encouraging people to swamp the welfare system.

Swamping the system is a favored strategy of the left. In recent history, the left encouraged widespread violation of copyright laws to swamp the system of property rights. They actively encouraged illegal immigration to swamp the legal system. The left hosts topless protests to overturn decency laws and actively encouraged the use of marijuana to swamp narcotic laws.

This method of using civil unrest to affect laws is not new. After the Civil War, the Left did not like Republican Carpetbaggers and reconstruction. They effectively resisted post war reconstruction, then imposed segregation and Jim Crow laws.

If the Left doesn't like a law or any aspect of a law, they confront the challenge by encouraging the masses to break the law.

The Right does not like Obamacare and has been toying with an idea called nullification.

Nullification is a bit more deliberate than Cloward and Pivens. The idea is that if a law is deemed unconstitutional by a state, then states have a right to declare the law null and void.

Despite the inclusion of a deliberative step, nullification creates a system where laws sit on the books, but are not enforced, with the people mired in conflict.

The most infamous use of nullification came when Southern Democrats tried to nullify Civil Rights legislation. The use of nullification by the South led Martin Luther King to include in his "I Have a Dream Speech" the sentence:

I have a dream that one day, down in Alabama, with its vicious racists, with its governor having his lips dripping with the words of interposition and nullification […];

Nullification is a step above mass unrest. However, Republicans should aim a step higher. To restore local control, states need powers that go beyond civil disobedience. They need a direct ability to wipe unconstitutional laws off the books.

I fear that the current efforts to nullify Obamacare are doomed to failure and will simply lead to greater civil unrest.

Lets face it. The right is not as good at sustaining mass movements. The left controls the media and schools, and the effort to nullify Obamacare will be framed in a negative light.

Rather than trying to use a mass movement to void Obamacare, Republicans would do well to aim higher and create a mechanism that allows states legislatures to directly repeal Unconstitutional Laws.

I suggest that States focus their anger on Obamacare to use modern communication technologies to create a Network of Legislatures that can directly set constraints and repeal unconstitutional laws.

The founders of this nation did not have modern communication technology. They attempted to create a network of legislatures by having the Senate elected by the state legislatures. This system was overturned by the 17th amendment.

The Network of Legs would help correct the imbalance of power created by the 17th amendment.

I happen to be a technophile. The way I would go about creating a network of legislatures would be to have the states call for an online Constitutional Convention. The convention would essentially be a large online conference call (aka GoToMeeting). The legislatures would appoint delegates who login to the convention from the state capitals.

Once established, the states could use the network to set constraints, repeal unfunded mandates or call out unconstitutional law. In other words, the network of legs would allow communication between the states and federal government in a way that gives states the ability to protect their local powers.

Whereas nullification creates conflict and civil disobedience, the network of legs would create a deliberative process that allowed states to affirmatively assert their powers. Creating a network of legislatures would have a longer and more profound effect on our society than the nullification of a single bill.

Nullification is inherently divisive. The antidote to division is deliberation. The Network of Legs would give the states the ability to affirmatively assert local control.

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Tuesday, September 07, 2010

A Short Margin

I ran a long series of rants against short selling a year back.

In the rants I forgot include one of my biggest complaints about the short sell.

One of the prime factors in our current economic instability is that our financial system is structured with far too much money in margin calls and not in direct investments.

A short sell is a margin play. In a short sell, the seller borrows stock and sells it. If I sold $10,000 in Google stock, I would have $10,000 deposited into my brokerage account. If I reinvest it, then I am in a margin position. If I leave it in the money market account, then others will borrow and re-invest it.

A company with short positions can actually get into troubles when the market collapses. To realize the gain from a short position, the speculator must buy back the stock, which means the investor would need to sell other securities.

The claim that short sellers temper overheated markets falls flat because of the fact that their short sells are inherently margin plays. If short sellers correctly called the top of the market, their short selling would flood the market with marginal loans that further distort the market.

Monday, September 06, 2010

SEF-Lien in Practice

President Obama is correct in condemning financial tools that create huge paper profits without creating value. To solve this problem, we should create financial tools with stronger ties between profits and the value of real equities.

The federally backed mortgage industry happens to be a great example of a system that generates huge paper profits by separating profits from the value of the underlying equity.

A mortgage is a fixed interest loan placed against a property. A mortgage is essentially a huge margin play against the real estate market. Such a margin play has two faults: First it encourages people to buy more house than they need in boom times. In times of bust, mortgages go underwater and increase the depth of the collapse.

This post introduces an alternative to Mortgages that I call Shared Equity Financing. Please note, Shared-Equity-Financing can exist in conjunction with mortgages. The two systems would enhance each other by encouraging financial diversity.

A mortgage is a margin play. With a mortgage, one might take out a $50,000 loan against a $100,000 property. This is a good deal when the value of the property increases. A bad deal when it drops.

As the name implies, a Shared-Equity Lien is a direct investment. With a SEF-lien, a homeowner sells shares in a property. Instead of taking out a $50,000 loan against the property, the homeowner would sell a half share in the house.

The value of the SEF-Lien would track the local real estate market. If the market goes up, the value of the SEF-lien rises. If it drops, the value of the SEF-Lien falls.

It is likely that the SEF-Liens would be bundled up and resold on the market as is done with mortgage backed securities. For that matter, one of the best ways to price SEF-liens would be to create regional pools of SEF-liens. A homeowner could sell a portion of a house into a regional pool and repurchase it at a later time.

SEF-Liens would actually be a good deal for investors seeking security in the real estate market. Unlike mortgage backed securities which are backed by paper, the liens would be directly backed by real equity. Buying a $10,000 SEF-Lien would be a lot like buying $10k in land.

A system of shared equity financing would enhance the mortgage system by giving people greater control over their exposure to the volatile real estate market.

In practice, it is likely that people would use SEF-liens in conjunction with mortgages. If a family had a job with a fixed salary, they might have a mortgage with a five year time horizon. The rest of the house would be financed with a SEF-lien. Every couple of the family would take out a new mortgage to buy the next chunk of the home.

The SEF-Lien gives a home buyer the ability to control exposure to a volatile real estate market, while creating an interesting investment for the financial community. An investor would be happy buy shares in a property knowing that the family will be wanting to buy back that share at market prices five years down the road.

I believe that banks would favor a mix of mortgages and SEF-Liens. A 30 year mortgage is a risky investment for a bank. No-one can rationally guess what will happen thirty years from now. Financing with a mix of SEF-Liens and shared equity creates a more dynamic investment tool.

The current mortgage system clearly contributes to a boom/bust cycles. A system of shared equity financing would create a system that corrected overvaluations in the market. If people felt the housing market was overpriced, they would sell SEF-liens. If they felt the market was oversold, they would buy up the securities.

I put the SEF-Lien idea on the back burner because creating such a system would entail a great deal of work writing up contracts and coordination between banks, government regulators, realtors and home buyers.

The general concept is worth pursuing. Our current financial system creates systemic risk by encouraging people to place large margin plays against real estate. This system produces huge paper profits without increasing value. A system of shared equity financing would do a better job tying our financial tools to the underlying value of equities.

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Saturday, September 04, 2010

Christian Secular Tradition

Much of the Western tradition of secularism traces back to the statement of Jesus that we should render unto Caesar that which is Caesar's and render unto the Lord that which is the Lord's.

Throughout western history, Christian communities experimented with varying degrees of separation between the secular and sacred.

The separation is a rarity as most cultures tend to have very strong ties between religious and secular authority. In Rome, Caesar declared himself a God. In the mythology of the ancient world, one would find pagan gods dominating the gods of conquered people.

Christian secularism was not perfect. Political leaders love to use religious sentiment as the base of their power. On the legal front, common law tends to evolve in the context of the beliefs of the common people. As such, the Western world had varying degrees of separation between the secular and sacred.

The Founders of the United States had a Christian background and were interested in the establishment of Constitutional Law. They wrote a decidedly liberal stance on secularism into the Bill of Rights.

It is important to remember that the Founders were not the creators of the idea of secularism. They simply wrote an ancient idea into their Constitution.

It is naïve to assume that all cultures will take to the same division.

Islam, which sprung up after Christianity, was critical of the weak-kneed Christians and established a monotheism with a stronger relation of church and state. Mormonism is interesting in that it appeared in the United States. Both the founding leaders of Mormonism (Joseph Smith and Brighma Young) established themselves as political and economic leaders.

Joseph Smith held political offices in various towns. He had aspirations to the US presidency. He held a military post in the Mormon militia and ran all sorts of businesses.

When Brigham Young left the United States to establish the Empire of Deseret, he set himself up as the titular head of the new government. When Utah became a US territory, Brigham Young set himself up as Governor.

There is a very strong impulse within the hearts of man to combine religious and political authorities.

This impulse affects everyone. Atheists are notorious for demanding that their beliefs be written into law and are driven to distraction whenever a law favors the beliefs of an organized religion.

Communist regimes were decided anti-religion and committed a large number of atrocities in the name of their paradoxical belief system.

I favor the 1st Amendment and believe the Founders did well to write the liberal side of the separation of secular and sacred into the Constitution.

However, I believe it a mistake to assume that all cultures will automatically take to the same separation. This is especially true in a world where bashing America is in vogue. In the international community, we are as likely to be bashed for our secularism as for Bush's Texas accent.

As we tromp around abroad and try to impose our vision of the separation between scared and secular, we need to be aware of the fact that we are taking an idea from the Western Christian tradition. There is a possibility that other cultures won't take to the idea.

They may view our secularism as a form of imperialism.

Likewise, as the West foolishly invites mass migration from countries which reject the secular tradition of Christianity, we might actually be setting ourselves up for failure.

It is the nature of the political mind to grab at any idea that will bring the politician power. Politicians will tell big lies. They will argue the thesis. They will argue the antithesis. They will argue for religion or for anti-religion.

The political mind leads mankind to ruin. The secularism of the Christian tradition and US Constitution helps temper some of this political excess, but it will never completely negate the impulse of politicians to grab at whatever power source they can find for their political aspirations.

Many religions have proven compatible with the multicultural vision of a secural American state. Yet it is foolish to assume our Constitutional separation between church and state is universally accepted. Our own history shows politicians will use any and every means available to achieve their grab for power.

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Wednesday, September 01, 2010

Is "Islamofascism" Islamophobic?

If we are to ever stop the ongoing wars of the Middle East, we must have a term to describe the enemy we've been fighting in the region.

Personally, I favor the term "Islamofacsism." For that matter, I actually prefer the term to the more common "Radical Islam."

The term "Islamofascism" is based on the noun "Facsism." Facsism was a Western ideology that shared many of the totalitarian views as Saddam Hussein and the Taliban. The term says that we are fighting against a totalitarian philosophy that just happens to exist within an Islamic region. It does a great job separating our foe from Islam.

As fascism was a secular ideology. The term "Islamofascism" is not a de facto indictment of Islam as "Radical Islam" is.

The word "radical" means roots. It actually has a positive meaning in some philosophical systems where radical refers to a deep examination of the roots of one's beliefs.

In the modern world, radical often has the negative meaning of manipulation at a root level. With this second meaning, "Radical Islam" could simply refer to rogues manipulating Islam at its roots.

But, if one applies the traditional meaning of the term "radical" then the term "radical Islam" implies that their is something seriously wrong with Islam at its roots.

Using the term "Islamofacsism" to describe the radical movements of the Middle East places a greater separation between Islam and the terrorist groups of the middle east.

Sadly, our intellectual elite have made the term "Islamofascism" taboo. The progressive elite claim that adding the prefix "Islamo" to a word is unnecessarily insulting to Islam.

Anyway, I was reading a leftwing rant that labeled conservatives as "Islamophobic."

My heart sank seeing progressive spittle use the exact same word form to describe Conservatives that they will not allow for discussing the people who blow up planes, buildings and mosques.

Wondering why its okay to use a word form to attack Conservatives while the same word form is forbidden in discusion of international politics, I decided to do some research on word usage.

I discovered that Wikipedia and various dictionaries generally include warnings that label "Islamofascism" as pejorative or controversial. The definitions of "Islamophobia" concentrate on the faults of people who, for whatever reason, fear Islam.

A girl running away from a father wanting to do an honor killing is Islamophobic. The TSA removing a passenger from a plane for having Pepto Bismal bottle taped to a cellphone is Islamophobia.

Meanwhile, the progressives elite will not allow us a word to describe a person driving a carbomb into a crowded market.

Progressives are Radicals of the Worst Kind

This ongoing manipulation of our language by progressives at the root level is the ugly form of radicalism. Progressives systematically engage in the type of radicalism that results in deep divisions and destroy civil discourse.

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