Quotulatiousness

February 3, 2014

The welfare trap

Filed under: Britain, Bureaucracy, Government — Tags: , , , — Nicholas Russon @ 09:27

An older post by A Very British Dude discusses the real problem with most of the public welfare/income support/unemployment benefits in Britain, but the same argument applies to most Western countries:

So your taxes, about a third of which go to paying working-age benefits, about a third in pensions, and the rest, everything else are part of a decent society in which everyone’s helping everyone else. Or they would be if the system wasn’t comprehensively broken, failing at all the significant tasks the welfare state is supposed to achieve. The welfare state is supposed to prevent poverty. It is, in fact, its major cause.

The problem is one of incentives, and not just those faced by the poor themselves. It’s obvious to anyone who isn’t paid handsomely to farm the poor, that for many people, it’s simply irrational to work. Once they’ve paid for taxes, clothes, transport and lunch, they’re considerably worse off than they would have been had they stayed in their pyjamas and watched Jeremy Kyle. Why would you take a miserable, boring, unpleasant minimum wage job instead of existing on benefits? The job insecurity at the bottom of the pyramid and the bureaucratic complexity of informing the authorities of a ‘change in circumstance’ is a further barrier. So when when the low-waged is “let go” after a couple of weeks, he’s got to re-apply for Housing benefits, Job-seekers’ allowance, Council Tax Benefit, income support and so on, from scratch. He may be genuinely destitute as a result of payments stopped, then restarted again too late, thanks to an abortive effort to “do the right thing”. Is it really any wonder so many feel trapped?

So, who benefits from this system? Certainly not those getting the benefits many of whom are comprehensively trapped in a life they wouldn’t have chosen. Not the Children of those getting benefits, who learn no other life thanks to the distorted incentives faced by their parents, but in whose name the benefits are paid. Certainly not the people paying the bill, John Q. Taxpayer, who thanks to the system face a sullen and resentful underclass, some of whom spend their non-working lives looking for ways to relieve you of your easily saleable property in order to buy sufficient narcotics to break the tedium for a few hours.

The main benefit of the benefits system accrues to those employed on secure graduate salaries to administer the system. These people are the farmers of the poor. This is not just the civil servants and local government employees who administer the system, but also the charity employees who don’t see the homeless and destitute (they outsource this to unpaid volunteers). It’s the police who are part of the state-crushing of the spirit of the young who find themselves trapped in this hell. The that the poor exist at all causes fear in the hearts of the affluent, and justifies the need for a police force. The Bureaucracy is an excellent provider of jobs. Which is why none of the solutions suggested by the Left of the political spectrum would ever reduce bureaucacy or police numbers, or the benefits bill. For that would involve firing sub-paying members of Unite or the PCS, and Unite is by far the biggest funder of the Labour party.

H/T to Amy Alkon for the link.

Update: A useful reminder from Rob Fisher at Samizdata — inflation hits the poor much harder than anyone else.

The Institute for Fiscal Studies is pointing out that while poorer people are paying more for food and fuel, richer people are enjoying low interest rates. So government spending and borrowing and the artificially low interest rates that go along with that are harmful to poor people, as are taxes on fuel, and income tax on minimum wage earners, and countless other instances of state meddling.

January 17, 2014

The Nanny State ethos – you’re too thick, so we’ll do the thinking for you

Filed under: Bureaucracy, Government — Tags: , , , — Nicholas Russon @ 08:37

At the Adam Smith Institute blog, Tim Worstall talks about the way regulatory agencies approach problems:

It’s claimed as one of the great victories for enlightened (sorry) regulation, the way that the EU and US have both banned the incandescent light bulb through bureaucratic action. The ban came about by raising the efficiency standards required: this meant that the traditional bulb could no longer be sold.

The argument in favour of doing things this way was, in public at least, that everyone’s too stupid (or, in a more polite manner, subject to hyperbolic discounting) to realise that the new bulbs will actually save them money in the long term by consuming less electricity. There are also the more cynical in the industry who insist that it’s actually a case of regulatory capture. The light bulb manufacturing companies managing to get us all away from using cheap as spit bulbs and onto something with a decent margin on it.

[...]

This has a number of implications in the larger world as well: for example, it means that bureaucratic regulation on car mileages (like CAFE in the US) is contra-indicated. A simple tax on petrol will drive up average mpg because we’re not all as thick as bricks. Assuming that climate change really is a problem that must be dealt with then a carbon tax is going to do the job. For we’re not all so dim that we cannot work out the utility of using fossil fuels or not given the change in prices.

That is, we don’t need to be regulated into behaviour, we can be influenced into it through the price system. Something that really shouldn’t be all that much of a surprise to us market liberals: for we’re the people who already insist that people do indeed respond to price incentives in markets.

May 12, 2013

British emergency wards are overcrowded … so we’ll fine the ambulance service!

Filed under: Britain, Bureaucracy, Health — Tags: , , — Nicholas Russon @ 08:59

Hard to come up with an explanation for this perverse policy:

Ministers came under fresh criticism for their handling of the NHS last night after it emerged the ambulance service will be hit with £90 million in fines — as punishment for the chaos blighting casualty departments.

Critics said the fines will simply deprive trusts of vital funds that could help tackle the deterioration in patient services.

A new penalty clause that was written into ambulance trust contracts from last month will levy fines of £200 for every patient who has to wait for longer than 30 minutes for admission to A&E, and £1,000 for each patient forced to wait more than an hour.

You can understand the desire to speed the delivery of injured people to the emergency services they need, but how does it make any kind of sense to punish the ambulance service because the emergency wards they need to get their patients into are overcrowded? Unless the ambulance service has some kind of magic ability to shift priorities in the hospitals, fining them for patients’ wait times makes less than zero sense.

But acute overcrowding in A&E departments has led to increasing ambulance ‘jams’ formed as they queue to unload, with waits of four hours recorded at some hospitals at the busiest times.

Damning new figures reveal that during the past year there were more than 265,000 occasions in England when ambulance staff took more than half an hour to deliver patients into the hands of hospital doctors.

And shockingly, more than 37,000 patients had to wait over an hour to move on to the wards.

Official guidelines say ambulances should deliver patients, clean the ambulance and be back out on the road within 15 minutes. A longer wait is seen as ‘unsafe’.

Yet the chaos in A&E departments is so bad that at one, the Norfolk and Norwich University Hospital, doctors were forced to put up a tent to act as a makeshift ward to treat patients alongside the ambulance queue.

March 14, 2013

The scare stories about increasing antibiotic resistance

Filed under: Bureaucracy, Business, Health, Science — Tags: , , , , — Nicholas Russon @ 09:36

In sp!ked, Robin Walsh debunks some of the scare factor from recent reports about antibiotic resistant diseases and the looming pandemic:

The UK’s chief medical officer (CMO), Professor Dame Sally Davies, made a splash in the media this week with her warning that antibiotic resistance is the new climate change. There is a ‘catastrophic threat’ of ‘untreatable’ diseases, she said, which promise to return us to a ‘nineteenth century’ state of affairs. The CMO has form: she warned the House of Commons health select committee about the same problem in similarly stringent terms back in January — a case not so much of apocalypse now, as apocalypse again.

As with all such stories, reading the actual CMO’s report leavens some of the hysterical excesses of the press, which were stoked up by the CMO’s excitable media appearances. Setting out the epidemiology of infectious diseases in the UK, the report highlights that while some drug-resistant infections, such as the well-known Clostridium difficile (C diff) and MRSA, are becoming less widespread, there is an increasing occurence of harder to treat multi-drug resistant bacterial infections, which, although still only in the hundreds of cases per year, are on the rise. The report states that only five antibiotics to fight such infections are currently in phase II or III trials, so the cupboard seems worryingly bare of new, necessary drugs.

So if we’re running short on drugs, how can we make more? A sensible article in the British Medical Journal from 2010 clearly set out the challenges facing the development of new antibiotics. Firstly, there are many regulatory hurdles that make running clinical trials in this area difficult. More importantly, there is a major financial disincentive for drug companies to develop antibiotics. Currently, drugs which are profitable are those for chronic conditions that are prescribed lifelong: painkillers for arthritis, diabetes drugs, and the like. A drug that you take once to cure you is unprofitable; doubly so if it is likely to be husbanded to prevent resistance developing until the patent runs out. A change in government payments to incentivise new antibiotics, like that which already applies to so-called ‘orphan’ drugs for rare diseases, would be an easy and rational step towards producing more drugs that meet our needs.

February 20, 2013

Incentives matter (a lot) — the growth of “Disabled America”

Filed under: Economics, Government, USA — Tags: , , , , — Nicholas Russon @ 09:40

Colby Cosh discusses the rise and rise of “Disabled America”, the increasing number of adults of working age who are claiming disability support:

Just looking at fiscal and demographic stats from California will cause a cold, invisible hand to clutch at one’s throat, but talking to an endless series of seemingly able-bodied people who casually disclaim any capacity for honest work is even more chilling. When I got home I found out it’s not just California’s problem. In the OECD’s 2010 “Going for Growth” report, the percentage of the working-age labour force (20 to 65 years) receiving any kind of disability benefit or worker’s compensation is estimated at around 5.1 per cent for Canada. For OECD nations as a whole, the figure is 6.7 per cent.

Northern European welfare states, amiright? But for the super-competitive U.S.A., land of the proudly threadbare social safety net, the number was 9.2 per cent.

[. . .]

There is a handful of economists working on the problem without ever gaining much traction in the popular press; the atmosphere of general crisis hasn’t made it any easier for them to be heard. Reading their papers and seeing them plead for the same reforms every few years is almost as depressing as contemplating Disabled America itself. Just as social security for the aged was devised at a time when workers could expect only a few years of life after clearing 65, social security for the disabled was conceived at a time when manual labour was the norm and “disability” denoted identifiable, incapacitating physical injury. No one envisioned a world in which clerical and “knowledge” work had taken over, but the number of people judged totally unable to work had skyrocketed, owing to vague musculoskeletal disorders, unverifiable chronic pain and an astronomical expansion in the definitions of mental illnesses.

If the system is set up to provide more income through disability payments than through a paying job, there will be a tendency for minor ailments to be parlayed into a disability. When the incentives are rigged to encourage a certain kind of behaviour, people will adapt to take advantage of those incentives. If the system will effectively reward you for being “disabled”, it should be no surprise that we get more people applying for disability support.

Even if the economic climate was better, it’s not likely that governments will crack down on those abusing the system for a couple of solid reasons. First, it’s a public relations nightmare waiting to happen and every government worker knows that you never want your name to appear in the media in this kind of context. Second, people on the disability programs don’t count as unemployed and therefore reduce the pressure on the government to “do more” about jobs. And third, it’s easier to just go with the flow and not try to create any ruckus.

January 11, 2013

In praise of mergers and takeovers

Filed under: Business, Economics — Tags: , , , — Nicholas Russon @ 11:15

In The Register, Tim Worstall points out that most mergers lose money, but that they’re good for the economy anyway:

The final one of the four is the vital part that takeovers play in the clean up of the economy’s failures. Take a company that goes bust. The whole point of bankruptcy proceedings is to make sure that its assets aren’t then left, orphaned, or chained to an unpayable debt. The idea is to get them off into someone else’s hands where they might be put to good use. This is true of contracts, or the workforce, of the land and any other asset. It might be that the machinery is worth most as scrap. Or the factory is worth most as a supermarket. Or it could be that the OS coders and their desks would be best put to writing games: but under different management.

And it’s this last part of the whole system that our economists think is the most important. When failure happens, the vital thing is to clean up the mess and quickly. Don’t leave potentially useful assets orphaned but auction them off and get them working again. The price that is realised doesn’t matter very much at all: from the view of the entire economy, getting people and assets back to work pronto is the vital part. So important is this that we’re urged to overlook all of the above problems with takeovers and mergers to allow this part of it to function as efficiently as possible.

Yes, most takeovers lose money for the shareholders of the company doing the buying. This is often because the interests of the management diverge from those of those owners. Similarly, many companies are kept running longer than they should be for those selfish management reasons. But we put up with all of that (although try to constrain it) so that the scavenging upon the assets of the bankrupt can be as efficient as possible. For this is the very heart of the success of capitalism: Not how the successful make profits, but how the system deals quickly and cleanly with failure.

Public choice theory is neither Left nor Right

Filed under: Bureaucracy, Economics, Government — Tags: , , , — Nicholas Russon @ 00:01

In his obituary for the late James Buchanan, Radley Balko debunks the meme that public choice theory — of which Buchanan was one of the founding fathers — is by nature anti-left:

The discrepancy struck me at the time, and has stuck with me ever since. Buchanan’s work is often seen on the right as a critique of the left’s faith in public service. He showed that like everyone else, public servants tend to serve their own interests, not necessarily the interests of the greater public good. When a new federal agency is created to address some social ill, for example, there’s a strong incentive for the employees of that agency to never completely solve the problem they’ve been hired to solve. To do so would mean there would no longer be a need for their agency. It would mean layoffs, smaller budgets, even elimination entirely. In fact, there’s a strong incentive to exaggerate the problem, if not even exacerbate it. The agency itself is never going to get blamed for the problem. So exaggerating it helps the agency argue for more staff and a larger budget. (Thus, Milton Friedman’s axiom, “Nothing is so permanent as a temporary government program.”)

It doesn’t even need to be a deliberate thing. When your livelihood, your self-worth, and your career depend on things looking a certain way, there’s always going to be a strong incentive for you to see them that way.

Conservatives have always bought into public choice theory when it comes to paper-pushing bureaucrats. But when it come to law enforcement, they often have the same sort of blind faith in the good intentions and public-mindedness of public servants that the left has for, say, EPA bureaucrats. But public choice problems are as prevalent in law enforcement as they are in any other field of government work. And you could make a strong argument that it’s more important that we recognize and compensate for the incentive problems among cops and prosecutors because the consequences of bad decisions can be quite a bit more dire.

If we reward prosecutors who rack up convictions with reelection, higher office, and high-paying jobs at white-shoe law firms, and at the same time provide no real sanction or punishment when they break the rules in pursuit of those convictions, we shouldn’t be surprised if we start to see a significant number of wrongful convictions. If we reward cops who rack up impressive raw arrest numbers with promotions and pay raises, and at the same time don’t punish or sanction cops who violate the civil and constitutional rights of the people who live in the communities they serve, we shouldn’t be surprised if we start to see a significant number of cops more interested in detaining and arresting people than in protecting the rights of the citizens they encounter on their patrols. We can certainly hope that a sense of civic virtue and veneration for justice will override those misplace incentives, but it would be foolish — and has been foolish — for us to rely on that. Incentives do matter.

Any time I link to an article, it’s assumed that I suggest you read the whole thing. In this case, it’s a very strong recommendation that you read the whole thing.

November 4, 2012

Rethinking software patents

Filed under: Business, Law, Technology — Tags: , , , , , — Nicholas Russon @ 00:01

Software patents are becoming a clear and present danger to innovation:

The basic problem being that there are so many patents, covering so many things, that the system is in danger of eating itself like Ourobouros.

    When Dan Ravicher of the Public Patent Foundation studied one large program (Linux, which is the kernel of the GNU/Linux operating system) in 2004, he found 283 U.S. patents that appeared to cover computing ideas implemented in the source code of that program. That same year, it was estimated that Linux was .25 percent of the whole GNU/Linux system. Multiplying 300 by 400 we get the order-of-magnitude estimate that the system as a whole was threatened by around 100,000 patents.

    If half of those patents were eliminated as “bad quality” — i.e., mistakes of the patent system — it would not really change things. Whether 100,000 patents or 50,000, it’s the same disaster. This is why it’s a mistake to limit our criticism of software patents to just “patent trolls” or ”bad quality” patents. In this sense Apple, which isn’t a “troll” by the usual definition, is the most dangerous patent aggressor today. I don’t know whether Apple’s patents are “good quality,” but the better the patent’s “quality,” the more dangerous its threat.

It’s near impossible to develop new software when there are so many such patents out there. Further, even if you tried to get clearance (or signed up to licenses and so on) to use them it would be near impossible.And we do need to recall what the purpose of a patent system is. No, it isn’t to provide and income to those who create inventions. That’s only the proximate aim: the ultimate aim is to maximise the amount of invention and innovation.

The economics of patents accepts that there is a tradeoff here. Yes, we’d like people who come up with useful new things to make money. Because that incentivises people to work on coming up with interesting new things to all our benefit. However, we also want people to be able to create derivative innovations and inventions. If our protection of the original inventors is too strong then we limit this. What we want is a system that hits the sweet spot, of encouraging the maximum amount of both, original and derivative. The problem of course being that to encourage one we weaken the incentives to do the other, either way around.

April 7, 2012

Rationing is not the optimal solution to shortages

Filed under: Britain, Bureaucracy, Economics, Environment — Tags: , , , , — Nicholas Russon @ 10:36

Tim Harford on the recently imposed “hosepipe bans” in parts of southern England:

But it was chucking down with rain this week. It was snowing, too. How can we be talking about drought?

Water isn’t like electricity: it can be stored, within limits. You don’t get a water shortage if you have a dry week and you don’t cure a water shortage with a few April showers. You get water shortages after a couple of years of low rainfall.

And how do you cure water shortages?

Hosepipe bans, apparently.

Is that a good idea?

Probably not. It’s appealing for the water companies because the revenue they receive is capped by the regulator. They can’t make more money by supplying as much water as possible to as many joyful customers as they can reach. It’s easier to just yell at customers to stop watering their lawns. It might be annoying but the water companies don’t lose much as a result.

[. . .]

You’re not suggesting a “flushing the toilet ban”?

I am not suggesting any kind of ban. It’s the idea of the ban that’s problematic. A new article by economists Jeremy Bulow and Paul Klemperer analyses the advantages to consumers of rationing schemes rather than simply raising the marginal price. The bottom line: the advantages are typically illusory. Rationing reduces supply, relative to what could be provided if prices were higher. It also misallocates resources — there’s no reason to expect that the people who get the scarce product are the ones who value it most. And rationing encourages all kinds of fun and games to try to get around the rules.

So you just want water to become more expensive.

I hope water will become cheaper, on average. But I certainly want it to be expensive to use lots of water at a time of shortage. We want everyone to have an incentive to save some water and the obvious way to do this is through water metering.

January 14, 2012

Making the War on Drugs even more dangerous

Filed under: Cancon, Health, Law, Liberty — Tags: , , , , , — Nicholas Russon @ 11:25

Colby Cosh points out that the recent spate of deaths from ecstasy overdoses in western Canada is at least as much a result of the way the so-called War on Drugs is being prosecuted:

In recent weeks, it seems, adulterated ecstasy (MDMA) has left Alberta and B.C. with a sizable heap of young corpses. A tragedy has thus come home to roost in the West: namely, the tragedy of policy that incentivizes adulteration of drugs that, if manufactured in the open and checked for purity, would kill hardly anybody. Pure MDMA has a larger “therapeutic index” — a wider safety margin for overdose — than alcohol. It would probably make a pretty reasonable substitute for alcohol in many settings if we were to sit down and rebuild a drug culture from scratch. But over the past ten years or so, both Liberal and Conservative governments have worked to increase penalties for and monitoring of the flow of “precursor chemicals” used in the manufacture of MDMA.

It has been their goal to make pure MDMA more difficult to manufacture; when precursors are seized it is hailed as a triumph. But illicit drug factories never do put out the follow-up press release announcing that they’re putting less MDMA in their “ecstasy” and replacing it with other party drugs that have much smaller safety margins, or with drugs that interact dangerously with MDMA. And when rave kids die as a result, the RCMP chooses not to pose imperiously alongside the body bags giving a big thumbs-up. They are eager to take credit only for the immediately visible results of their work.

[. . .]

The debate over “harm reduction” in Canada has, for the past year or so, revolved around the Insite clinic in East Vancouver. That debate has been fraught with as much confusion and misinformation as drug moralizers could possibly create, but the core message, I think, has gotten through to Canadians, and certainly to the gatekeepers of their media. The message is this: we have only meagre power to stop people from abusing heroin if they are determined to do that. We do have, however, significant ability to protect people from the problems of a poorly-titrated or actively adulterated supply of heroin. The morbidity and mortality burden from the actual addiction itself, compared to the burden resulting from the drug’s illegality, is both modest and intractable. Insite is basically designed to yield the benefits that allowing heroin to be issued by prescription would bring.

Canada is apparently too under-equipped with libertarians to see that the logic extends to ecstasy, which about a million adult Canadians have used at least once. Yet rave-scene users have already been implementing “harm reduction” philosophy on the dance floor for decades. They react as best they can to adulteration risks by sharing information about dealer reliability, and they mitigate the most important medical peril of MDMA — the possibility of hyperthermia, i.e., internal overheating — by making sure ravers have access to cool rooms and plenty of fluids.

No government of any ideological stripe has ever successfully kept intoxicants away from eager customers: not the US government in Prohibition, not the Soviet government (on-the-job drunkenness was endemic), not even modern day prison authorities (drugs are plentiful behind bars). The “War on Drugs” has — predictably — failed. The question should be how to minimize the harm to drug users and society at large, because drug prohibition is a massive failure.

December 9, 2011

Basic rule of political economics: subsidies result in higher costs

Filed under: Economics, Government, USA — Tags: , , , , — Nicholas Russon @ 00:03

Virginia Postrel explains how federal funding to university students has created price inflation among universities:

As veteran education-policy consultant Arthur M. Hauptman notes in a recent essay: “There is a strong correlation over time between student and parent loan availability and rapidly rising tuitions. Common sense suggests that growing availability of student loans at reasonable rates has made it easier for many institutions to raise their prices, just as the mortgage interest deduction contributes to higher housing prices.”

It’s a phenomenon familiar to economists. If you offer people a subsidy to pursue some activity requiring an input that’s in more-or-less fixed supply, the price of that input goes up. Much of the value of the subsidy will go not to the intended recipients but to whoever owns the input. The classic example is farm subsidies, which increase the price of farmland.

[. . .]

This doesn’t mean that colleges capture all the aid in higher tuition charges, any more than capital-equipment companies get all the benefit of investment tax credits. But it does set up problems for two groups of students in particular. The first includes those who don’t qualify for aid and who therefore have to pay the full, aid-inflated list price. The second encompasses those who load up on loans to fill the gaps not covered by grants or tax credits only to discover that the financial value they expected from their education doesn’t materialize upon graduation.

That’s the situation many young people find themselves in today, which is one reason for their anger. The other is a widespread feeling, which the recession has intensified, that higher education is unfairly insulated from the everyday competitive pressures most people have to cope with. Instead of having to find ways to operate more efficiently and deliver ever-more value without raising costs, the way private-sector managers do, college administrators seem able to pass higher and higher bills on to their customers and the public.

October 21, 2011

Incentives matter, police edition

Filed under: Law, Liberty — Tags: , , , , , — Nicholas Russon @ 10:00

Jonathan Blanks explains that the incentives provided to police officers clearly do influence their behaviour:

Last week, former undercover police officer Stephen Anderson told the New York State Supreme Court that planting drugs on innocent people was so common that it didn’t even register emotionally to him. The story is starting to get traction in the media as an egregious example of police corruption, but it’s notable only because of the admission to the practice in open court. Each year, there are hundreds of cases in which police officers are caught stealing, using, selling, or planting drugs or pocketing the proceeds from drug busts. Despite the obligatory PR protestations that any given instance of corruption is an isolated case, the systemic, legal, social, and economic incentives in every law enforcement agency in America combine to make police corruption virtually inevitable. And with no other category of crimes are these incentives stronger than with drug crimes.

Anderson testified that drugs would be seized from suspects at a given bust, divided, and then used again as evidence against other people on site (or at a time later) who had nothing to do with the initial arrest. This was, in part, due to established drug arrest quotas the officers needed to meet. As public servants, police departments face the same budgetary pressures as any other government entity and thus their officers are required to meet certain benchmarks set by the powers that be. Added to the normal budgetary justification, however, many police officers are in the position to confiscate cash and property that can be sold at auction thanks to civil asset forfeiture laws. Many departments across the country keep a percentage or the entirety of forfeiture proceeds, so pressure to maintain a certain level of drug arrests is something straight out of Public Choice: 101.

October 12, 2011

The “Ontario education system [is] a remarkably clean and ongoing experiment in the effects of school choice”

Filed under: Cancon, Economics, Government, Liberty — Tags: , , , — Nicholas Russon @ 08:22

Stephen Gordon explains why Ontario’s two parallel school systems are helping to prove the efficacy of school choice:

Public funding for the Ontario separate school system is sometimes a controversial topic for reasons I won’t get into here. But by offering one set of parents with the choice of which school they can send their children, the Ontario education system has set up a remarkably clean and ongoing experiment in the effects of school choice. Catholics have the choice of sending their elementary-school aged children either to separate or to public schools, and non-Catholics do not have this choice.

Elementary school administrators in the two systems face very different constraints:

  • Public schools have a monopoly on non-Catholics who can’t afford private school.
  • Separate schools face a clientele that always has the option of switching to the public school system.

Of the two, separate school administrators have the greater incentive to provide higher-quality education: if the separate system were widely known to be dysfunctional, it would likely disappear.

Basic economics would predict that the competitive pressures on separate school administrators would provide stronger incentives to provide better education outcomes. And that seems to be just what is happening. A recent study (pdf) by McMaster University economists Martin Dooley and Abigail Payne in collaboration with UC-Berkeley’s David Card that examine these effects finds “a statistically significant but modest-sized impact of potential competition on the growth rate of student achievement.” In a related study using similar data, a CD Howe study done by Wilfrid Laurier’s David Johnson finds that of the 13 ‘above-average’ school boards, 11 are in the separate school system, while none of the 10 ‘below-average’ school boards are.

June 26, 2011

Skype’s PR problem over their sneaky options plan

Filed under: Economics, Law, Technology — Tags: , , , , , — Nicholas Russon @ 13:35

Over my career in the software industry, I’ve worked for several companies who provided a stock option plan as part of their employee compensation scheme. Exactly one of those companies’ programs ever provided me with any actual tangible benefit (the company was bought, and the options were bought back at market rate). It netted me a couple of thousand dollars. Options may have been a way to get rich in the early 1990s, but they’re pretty much a longshot lottery ticket now.

Skype has found a sneaky way of making that longshot chance even more unlikely to pay off:

Employees aren’t even able to keep the vested portion of their stock options. The vast majority of stock options granted to startups have a vesting period, typically four years, with chunks of those options becoming vested during that four year (or whatever) period. If options are vested you can exercise them, pay for the stock and own that stock. At least that’s the way things have been done over the decades.

Skype did things differently. With Skype stock options the company has the right to not only terminate unvested options, but also vested ones. And any vested options that you’ve exercised (meaning you paid cash for them) that were turned into actual shares could simply be bought back by the company at the price you paid, regardless of their current value.

Turning your potentially lucrative stock holdings (if the value was higher than your strike price) into a mandatory zero-interest savings account. Nice.

The fact that Skype adopted this plan in the first place isn’t in itself “evil.” But they’ve done two things wrong from what I can tell.

First it appears that employees had no idea what they were signing and they probably expected it would be a normal stock option type deal that everyone in Silicon Valley has done for decades. If Skype wasn’t crystal clear with them, and explained it in normal human language that they understood, then these employees were intentionally misled. Skype had an incentive to make things unclear, because employees would demand far more compensation if they had understood. The fact that employees are so surprised that this is happening suggests that they didn’t understand the agreement. This is what lawyers call fraud.

The second thing Skype did wrong was not to waive this clause with the looming acquisition. The company can deny all day long that they fired these employees for cause, not to save a few dollars on stock options. But the appearance is the exact opposite.

May 26, 2011

Here’s a different way to pay for socialized medicine

Filed under: Economics, Government, Health, USA — Tags: , , — Nicholas Russon @ 09:35

Kevin Drum has an interesting proposal in Mother Jones:

So here’s an idea: why not reform Medicare by means testing it? Conservatives should love this idea.

Here’s how it works. Basically, we leave Medicare alone. Oh, we can still go ahead with some of the obvious reforms. Comparative effectiveness research is a no-brainer for anyone who’s not part of the Republican leadership. Ditto for some of the delivery reforms on the table. Or allowing Medicare to negotiate for lower prices. It would be great if that stuff works. But if it doesn’t, then people will need to pay more for their care. So why not have dead people pay? They don’t need the money any more, after all.

So Medicare stays roughly the same, but every time you receive medical care you also get a bill. You don’t have to pay it, though. It’s just there for accounting purposes. When you die, the bill gets paid out of your estate. If your estate is small or nonexistent, you’ve gotten lots of free medical care. If it’s large, you’ll pay for it all. If you’re somewhere in between, you’ll end up paying for part of the care you’ve received.

Obviously this gives people incentives to spend all their money before they die. That’s fine. I suspect they wouldn’t end up spending as much as you’d think. What it does mean, though, is that Medicare has first claim on their estate, not their kids. But that seems fair, doesn’t it?

It has the virtue of acknowledging that free healthcare isn’t actually “free” at all.

Older Posts »
« « There is no right to privacy, unless you’re a police officer| The Danish Marmite affair thickens » »

Powered by WordPress