Careening Down The Road To Stupid

It's been a long time since a New York voter got to have some real say in a presidential election, so I suppose that I should celebrate that somebody may actually notice that I voted this morning.  Still, all the polls seem to be indicating that on the Republican side Donald Trump is way ahead in New York, and indeed may for the first time in any primary receive more than 50% of the Republican vote.  Meanwhile, on the Democrat side, although Hillary seems to have a reasonably comfortable lead in statewide polls, believe me, in our neighborhood you would barely know she is running.  All the energy is on the Sanders side.  Our local newspaper (The Villager) has endorsed Sanders.  If you went to a fancy college and got a fancy job in New York and moved into fancy and expensive Greenwich Village, it is now just a given that you believe that the government is an infinite source of free money that can and should be passed around by those in power to solve every human problem and create perfect fairness and justice.  Hey, we all know it!  Feel the Bern!  

Back to the Republican side.  Readers here will not be surprised to learn that I don't think much of Trump.  Yes, I don't naturally take well to people who are obnoxious and insulting to everyone else; but I could learn to live with that if I agreed with the person on major issues.  In Trump's case he's just completely at sea on the issues.  It's not so much that I disagree with him as that when he's not contradicting himself I often can't even figure out what he's talking about.  In this post last month I commented on Trump's endlessly-repeated line that running a trade deficit with another country means that we are "losing" some kind of trade war with that country, and that the situation can be fixed by having some really good negotiator as President to negotiate better government-to-government "trade deals."  Then we'll be "winning."  It just doesn't make any sense, and shows complete ignorance of the subject matter.  I could even live with ignorance on a complex subject like this, if the person was willing to be humble and show a willingness to learn.  Obviously, that's not Trump, who has made the subject of his greatest ignorance into his signature issue.

And then there I was last night watching a video clip of Trump at a campaign rally in Buffalo.  In the particular clip that somebody had chosen, Trump was saying that "nobody here can vote for Ted Cruz."  And the reason?  Because Ted Cruz had dissed New York by voting against the Hurricane Sandy relief bill at the end of 2012.

Now, as anyone who can do basic arithmetic will immediately recognize, the Hurricane Sandy relief bill was a terrible thing for New York.  Not for the then governor and mayor, who got big wads of free money to pad their budgets for a couple of years; but for the people of New York it was a terrible thing.  The Hurricane Sandy relief law passed out a wildly-inflated $60 billion, mostly to New York and New Jersey, to pay for everything that anybody could think of to put on a wish list at an emotional moment, without the slightest consideration of whether particular expenditures made sense or were justified.  This was a terrible thing because it established the precedent that the federal government after a natural disaster will pay whatever it takes to restore everything to perfection in any amount, reasonable or unreasonable, that anyone can think to claim.  This precedent was terrible for New York because, Hurricane Sandy notwithstanding, New York is not very subject to natural disasters.  Therefore, under a regime where the federal government provides complete no-limits relief and recovery aid for every natural disaster, over time New York will pay out in disaster relief to other parts of the country a large multiple of anything that it ever receives, likely ten or twenty or more times as much.  

New York rarely gets a serious tornado or earthquake.  And while it does get a hurricane occasionally, it gets far, far fewer of them than the South Atlantic states and the Gulf coast.  Just look at a map, and you will realize how difficult it is for a hurricane coming up the East coast to score a bulls-eye on New York.  For this post written at the time of the Hurricane Sandy relief bill, I did some research and discovered that in the 50-year period from 1961 to 2010, some 27 "major" hurricanes (categories 3, 4 and 5) made landfall in the United States.  Of those, 23 hit the Gulf coast or Florida, 3 hit the Carolinas, and just one (Gloria in 1985) hit the mid-Atlantic.  By demanding and taking the Hurricane Sandy money, we have put ourselves securely on the hook for the cost of recovery from the twenty or thirty or more serious hurricanes that are sure to strike the South for every one that we get over the coming decades.  Take a look some time at the dozens of miles of multi-million-dollar mansions and condos lining the oceanfront north and south of Miami in Florida.  A good cat-3+ hurricane strike in the middle of them would cause losses a multiple of those from Sandy.  The oceanfront mansions and condos wouldn't even be there except that the Floridians are secure in the knowledge that New York and the rest of the country are going to replace everything when the big hurricane comes through.

And then give some thought to tornadoes in Kansas, earthquakes in California, and floods along the Mississippi.

I don't know about you, but for me, the first thing I would expect from a negotiator negotiating on my behalf would be that he/she can do the basic arithmetic to figure out which position in the negotiation benefits me and which position costs me.  If you lack that basic skill, you will promptly get taken to the cleaners by your negotiating counterparties.  From the evidence I can see, Trump seems to lack that skill.  And supposedly, negotiating skill is his big selling point.  Lord help us.  

Cruz?  Whatever else you may think of him, he definitely had this one figured out.

Well, I take heart from realizing that as bad as Trump's basic arithmetic skills seem to be, he's not in the league of Bernie and Hillary and their supporters.  Disaster relief is a question of some tens or maybe hundreds of billions of dollars every now and then.  Not being able to figure out that Social Security and Medicare and Obamacare (and single payer healthcare for all, and free college, etc., etc.) are ponzi schemes is more like a $100 trillion issue.  I guess Bernie and Hillary have the excuse that they are old enough that they can dupe the suckers for now and they're likely to have died as heroes by the time everything comes apart.

UPDATE, April 20:  Who says that my Congressional District (NY-10) is good for nothing?  Our district covers the West Side of Manhattan and some pieces of Brooklyn, and is known for loopy left-wing thinking, Columbia and New York Universities, Greenwich Village, and the highest income inequality of any district in the country.  According to election results here, we gave enough votes to John Kasich yesterday to take a delegate away from Donald Trump.  But we were bested by our cross-town rivals NY-12, where Kasich actually took a plurality of the votes and 2 of the 3 available delegates.  Outside Manhattan, Trump swept all but a couple of delegates.  If you are looking for an explanation, I don't have it.     

There Is Nothing Like Going On "Disability"

Back in December 2012 I wrote a post titled "Who Could Be Against Disability Pensions?" pointing out the sad truth that the New York disability pension programs are riddled with unbelievable levels of fraud:  for example, 75% of New York City firemen retiring with supposed "disabilities"; 97% of Long Island Rail Road workers retiring with supposed "disabilities."  It seems that the temptations of a free check every month for life without having to do anything are just too great for many people.  The post concluded, 

I wonder if it's actually possible to have a government-run program for disability payments without having it explode because of endemic fraud.

Now comes along Chana Joffe-Walt at NPR (of all places) to write what promises to be a four-part series on the Social Security disability program.  Here is the first part. ​

Please read the whole thing.  Literally every line is a warning of how badly wrong good intentions can go.  ​

The concept behind Social Security disability is that if you are sufficiently disabled that you are unable to do productive work of any sort, you are an appropriate candidate for the safety net, in the form of "disability" payments, to sustain you at a minimum level for the rest of your life.  At first consideration, almost no one would disagree with the concept.  But the designers of the program seem to have given almost no thought to the problems that perverse incentives can cause.   

The result is a program that sucks people in, and from which almost no one escapes.  The number of beneficiaries continues to explode in good times and bad.  Rolls have about doubled during the Obama administration, increasing by some 5.4 million people over the past 4 years according to Investors Business Daily.​

Let's consider a few examples of perverse incentives and how they play out.  It turns out that the costs of welfare (now known as TANF) are shared between state and Federal governments; but SSDI is all on the Federal dime.  So states can save a buck by transferring people from TANF to SSDI.  How does that play out?  From NPR:​

PCG is a private company that states pay to comb their welfare rolls and move as many people as possible onto disability. "What we're offering is to work to identify those folks who have the highest likelihood of meeting disability criteria," Pat Coakley, who runs PCG's Social Security Advocacy Management team, told me.  The company has an office in eastern Washington state that's basically a call center, full of headsetted women in cubicles who make calls all day long to potentially disabled Americans, trying to help them discover and document their disabilities:  "The high blood pressure, how long have you been taking medications for that?" one PCG employee asked over the phone the day I visited the company. "Can you think of anything else that's been bothering you and disabling you and preventing you from working?"

Of course, welfare/TANF has time limits, but disability is a lifetime entitlement where nobody so much as checks up on you once you qualify.  It's the ultimate poverty trap.​

Then there's the story of Charles Binder, SSDI attorney extraordinaire, whose firm in 2012 represented some 30,000 clients and earned some $68.7 million (!) in fees, in each case seeking SSDI benefits.  How much of an effort does the government put up to be sure that those seeking benefits are actually "disabled" in the sense commonly understood?  The answer is, when a claimant seeks a hearing to get benefits, the government does not even put on a defense, no matter how poor the claimant's case:​

Who is defending the government's decision to deny disability?  Nobody.  "You might imagine a courtroom where on one side there's the claimant and on the other side there's a government attorney who is saying, 'We need to protect the public interest and your client is not sufficiently deserving,'" the economist David Autor says. "Actually, it doesn't work like that. There is no government lawyer on the other side of the room."

So what are the things that qualify you as "disabled" and entitled to a monthly check for life?  Of course, they are largely subjective things that depend almost entirely on the claimant's word and cannot be objectively verified.  Number 1, at 33.8% of cases in 2011, is "back pain and other musculoskeletal problems."  Number 2 at 19.2% is "mental illness, developmental disability, etc."​

The incentives of this program are as thoroughly perverse as it is possible to imagine.  Absolutely no one involved with the system has any incentive to keep costs under control; rather, everyone has every incentive to milk the program for every cent possible.  Once on disability, virtually no one leaves -- the departure rate is barely 1%. Everyone involved -- the consultants like PCG, the lawyers like Binder, the states, the administrative law judges, and most of all the beneficiaries -- make lots of free Federal money.​  If you're curious, the annual cost of the program is currently running about $124 billion, according to Bloomberg here.  Real money.  Another 4 years of Obama are likely to add at least another 5 million to the rolls.

​The answer to my question, unfortunately, is that it is not possible to have a government-run disability program without having it explode with an epidemic of fraud.

​

Ponzi Schemes

Are social security, Medicare, and Medicaid Ponzi schemes?  (And how about Obamacare?)

It depends on how you define the term "Ponzi scheme."  Defenders of the entitlement programs say they are not Ponzi schemes because Ponzi schemes are  illegal whereas the entitlements are not; and because in Ponzi schemes the investors are deceived about the true nature of the investment, whereas with the entitlements it is all laid out right there in the statute books.

I'll concede both of those points, but those points are not really important.  The important aspect of the Ponzi scheme is its mathematics.  The key characteristic is that the liabilities of the scheme increase at a geometric rate that is faster than any possible ability to attract new money into the system.  In that sense, Medicare and Medicaid are clearly Ponzi schemes.  Social security has Ponzi scheme aspects, although not beyond cure by fixes that are at least theoretically possible.  For Obamacare it's too early to tell, but the odds that it will prove quickly to be a Ponzi scheme are exceedingly high.

Medicare spending in 1990 was $107 billion according to this article.  By 2011 it reached about $563 billion per a chart here.  That's a compound annual growth rate of over 8%.  The economy is growing at around 2%.  In a good year it grows at around 4%.  In a spectacular year it grows at around 7%, and we may never see one of those again.  Medicare grows at 8%, compounded, year after year after year. 

Here's a not-too-hard math exercise:  if Medicare is currently about 4% of the economy, and grows at 8% per year, and the economy grows at 3% per year, how many years until Medicare is larger than the entire economy?  The answer is shorter than you might think:  around 70 years.  At that point everyone works all the time, but we have no food, no housing, no clothes, no vacations, and not even any medical care except for old people.  Everyone works just to provide the medical care for the old people.

That scenario won't happen because Medicare as currently structured will fall apart, just like the  Madoff scheme fell apart, well before we get there.  But how soon:  10 years, 20,or 30?  Nobody knows.  But it will happen because there is no way around the math.  And by "Medicare falls apart" I mean the Federal government falls apart, unless they have somehow separated themselves from paying for Medicare in the meantime.

You ask, why can't we just slow it down, say to the rate of inflation or slower?  Good luck with that.  The reason is that the incentives are perverse and every one of the millions of people working in the healthcare system has the incentive to try to get as much money out of Medicare as possible.  With Medicare, every provider tries to raise his price every year by inflation or more, but that is only one of several factors at work.  A second factor is that people live longer, so there are more and more beneficiaries.  And then there are the new treatments.  If you come up with a new treatment, you don't charge just last year's price plus 3% because there was no last year's price.  You can set a new price at whatever you think you can get away with.  The government has no ability to push back because you will be able to show that somebody died when they refused to pay.  That's how we end up with new cancer treatments costing $100,000 for a course of treatment.

But you ask, with every good sold in the private economy, the producer has the same incentive to get as much money as possible out of the consumer.  So why don't sales of every consumer good turn into a Ponzi scheme?  The answer is that private individuals can't afford the price.  If Apple tries to price the new iPad at $100,000 the way a pharmaceutical company prices a new drug, it will sell about six of them and lose money.  That's why you see new electronic products coming out at high prices ($10,000 for a flat screen TV) that then drop quickly over time.  The rich buy in the first round and the increasingly less rich in subsequent rounds at lower prices.  In Medicare, every course of treatment is sold to the richest buyer of all, the one with the infinite credit card who can't say no when someone is dying.

I can confidently predict that until Medicare is reformed in a way that it must meet a budget and people cannot just get whatever treatment they want, then it is a Ponzi scheme (in the mathematical sense) and it will collapse.