Trends in Income From 1975 to 2018
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Health insurance is a weird one because even though people think they want it when "daddy" is paying for it, if they got to trade health insurance for something that cost about as much such as
* two months of vacation a year * free housing for life, etc.
many would pick the later. Michael Foucault, in his "birth of the clinic" points out that rich people who could afford (say) Heart Bypass Surgery couldn't get it unless somehow other people who couldn't afford the surgery could get it, because otherwise the surgery wouldn't be done often enough to not be a death sentence.
That means the actual reduction in income is less than it appears, as a lot of it is just going to far superior but more costly health care. That being said, US health care costs are higher than many other developed nations for a variety of reasons and this could be improved.
What's the other 2/3 then?
I am going to take a wild guess: outsourcing / labor arbitrage, the collapse of unions, and automation reducing labor demand. I would prefer hard evidence though to wild but reasonable guesses.
In the case of heart-bypass the economics have always been ambiguous and are more so now when you put it in competition with angioplasty, statins, aggressive treatment of hypertension and type II diabetes, etc.
I remember Issac Asimov writing about his circa-1970 thyroidectomy and circa-1980 heart bypass and being amazed at how few articles he'd have to write to pay for these services. (I found out 30 years later that he got AIDS from that heart bypass operation and that was why he wrote all of those sequels that he said he wasn't going to write.)
Note though that the surgeon's job is checklistable (Asimov wouldn't have lasted 10 hours if either surgeon had displayed much creativity or had to wrestle with contractions while working) whereas Asimov's monthly essays involved reading maybe ten scientific papers, resolving contradictions, probably rewriting a few times just to get the organization write, never mind catch all of the errors you'll find in a piece like I am writing now where I have neither the time nor the tools set up to do that work.
Although the surgeon seems to be "restoring order" to the body, Asimov's mind was directly engaged in removing entropy -- taking a wide area of scientific information and composing it to create meaning.
My wife works (part time) as an aide for an extraordinarily nice dementia patient and is own the other side of the "cost disease" problem from myself, a computer programmer.
Even distant relatives of the man she works for might think is he high functioning if they saw him most of the time, but left on his own he might "get stuck". Basically my wife and other aides help him get through his daily checklist. This guy is fun to hang out with, but other people get paid the same to do the "same" thing for a person who might not recognize them, think they are a home invader, and try to strangle them. (e.g. don't wear a necklace if you do this job)
Me? Asimov inspired me to study physics and I became a computer programmer and if something is checklistable either my team decides that I'm going to spend my time programming the computer to do it, or it decides that it is going to spend somebody else's time doing the work. So I spend a lot of time seemingly "in a daze" or "going in circles" because I am often in a place where I haven't yet resolved the contradictions in the situation, don't really understand the problem, etc. I do figure it out and then spend some fraction (less than 50%) of my time looking "engaged" in the way that my wife looks "engaged" when she does her work.
The work of all four people are hard to compare because of those differences. Unlike the other three, I'm in the one sector of the economy that seems to be improving in productivity, but even that seems to be questionable.
The spectre of marxism (not leninism, stalnism, maoism, trotskyism ...) is that behind it all our life lacks a dignity of work that makes all we toil for meaningless. That is, the root cause of the heart problem might be in your "other" heart as opposed to the physical organ -- the emotional stress caused by not being engaged where decisions are made about where we spend our time.
We could say that we're getting "half our share" of the produced by our labor, but we might be happier (get more utility) for less currency if we had more choice about what we buy and sell as individuals.
Yup, the thing is the majority of people at any one time are healthy. So the majority never sees the value of health insurance and the real cost of medical treatment.
so 98% of capital income accrues to the 1% who have no monopoly on how best to allocate capital--see irrational capital flight into tech stocks and real estate, and a lack of real innovation, rather than iteration, in the past 50 years.
blind faith in market efficiencies in a profoundly unfair and corrupt marketplace only worsens our economy overall. this must be kept in mind in any discussion of the captured regulatory environment and tax policy.
we're losing economic dynamism to the whims of the rich, and to the detriment of all.
> so 98% of capital income accrues to the 1%
No.
It's not saying that 2% of capital income goes to the bottom 99%. It's saying that 2% of the income of the bottom 99% is capital income.
Real estate offers natural monopolies, enforced by the existing political order. Biggest risk to real estate is climate change and economic conditions, but it typically doesn’t become worthless, and it continues to exist without any work on your behalf.
as for real estate, rents should on average roughly track inflation-adjusted gdp. outsized rents should be a very temporary reward for meeting localized demand, not structural extractions of wealth for the already wealthy in a captured regulatory environment.
But what is irrational with parking it in equity of the highest growth and highest net income companies that can and do obviate entire business lines? What else are you supposed to do with money?
And what real estate should or shouldn’t be is unrelated to what the rational course of action is. It’s one of the essential pieces to diversify one’s personal wealth to ensure one’s security.
the marginal utility of the next dollar tends to zero as an investor's wealth increases (assumed to be someone above the median in wealth/income), both to the individual and to the economy, but the economy has no signal to indicate that. it's assumed that more is better, greed is good, but that's clearly not the case from the many other, sometimes indirect, socioeconomic signals we have around us. those low-utility dollars tend to be less well-invested than higher utility dollars, even if the returns are net positive. for an economy, especially one predicated on the idea of being highly efficient at allocating investment, that's problematic.
further, washing otherwise fundamentally sound businesses (including tech and real estate) in too much money distorts their ability to discern the next best, positive-NPV (and sometimes counterintuitive) investment. in fact, studies show that managers will time and again allocate capital to negative-NPV investments if it provides personal gain (both economic and non-economic) at the expense of others.
That’s...not a significant finding by any means.
Secondly, I would take these psychological studies with truckloads of salt. In what is possibly the most damning indictment of the social sciences: they have among the lowest replication rate of any of the sciences, and even after retraction (due to replication failure), the vast majority of positive citations continue after retraction, specifically in the social sciences: https://fantasticanachronism.com/2020/09/11/whats-wrong-with...
This is like watching the nightly news and coming to the conclusion that it’s really likely that you’ll be murdered if you go outside. It’s a common and understandable conclusion from watching the news, but it’s also totally wrong.
> We find that mobility increased from 1950 to 1980 but has declined sharply since 1980.
“Eighty-four percent of Americans have higher family incomes than their parents had at the same age, and across all levels of the income distribution, this generation is doing better than the one that came before it.”
[1] https://www.pewtrusts.org/~/media/legacy/uploadedfiles/pcs_a...
[1] https://slatestarcodex.com/2017/02/09/considerations-on-cost...
Therefore, any solution proposed through the (long, compromised, imperfect, special-interest ridden, full-of-holes) government legislative process will be relatively easy to bypass by motivated rich people with the means to pay professionals to structure their assets accordingly, as has been the case for centuries. And the rich won't necessarily do it with sinister intent - they may still give a huge amount of money to causes they support, but simply disagree with giving it to the government as a blank check. Or maybe the rich are just greedy and self-interested. But either way, the government will be unable to take this money.
I don't think any redistribution mechanism implemented by the government can attack the rich long-term. They may get snagged initially, then quickly reorganize their assets to avoid such issues. The true people who get snagged are the middle class, who actually do pay taxes (while the poor often have negative-taxes and receive the redistribution), but do not have the means to restructure themselves to avoid the taxes.
So we are left with 2 options - the first are broad, universal tax increases (which no one advocated for in the US election except Bernie Sanders) rather than (inevitably-failing) soak-the-rich taxes, and the second being to restructure society to provide the same or more services to people using less taxes.
I prefer the latter - we should be adding efficiency to the state, while giving people more choice on how to help each other. I don't want to delve into the details in this comment. But my overall point is that taxes targeting the rich and super-rich will fail, as they always have and always will, so we need some other solution if we desire to reduce inequality.
Agreed. The state has become much too inefficient. Sadly, much of that is the state’s own doing by continuously adding layers of bureaucracy and complexity. Many of the problems could be solved with technology at scale. We could use software to measure government like we measure every other business process.
We can and must enforce checks and balances.
Another example, inflation adjusted per-pupil education expenditure has seen a constant increase over time: https://nces.ed.gov/programs/digest/d19/tables/dt19_236.55.a...
This is frequently stated as fact, but no evidence is provided.
> We could use software to measure government like we measure every other business process.
Perhaps we could get SoftBank to measure government efficiency. They seem to be trusted with vast sums of money so they must be particularly good at evaluating business efficiency.
SoftBank is a good example; as long as they continue to lose money, they lose the confidence of shareholders. If their track record continues, they risk going the way of other big banks (Bear Stearns, Lehman Brothers).
Ask yourself how many companies from the 20th century are now defunct vs government programs. Efficiency is a byproduct of change & evolution. Inefficiency is a byproduct of institutional sclerosis.
This is different from saying an organization is inefficient. From my experience in the corporate world, some businesses can be VERY inefficient compared to other businesses and still be getting enough done to move the ball forward to the satisfaction of stakeholders. As much as people complain about bureaucratic government organizations being too inefficient, I'm not convinced that they are less efficient than many "successful" large corporations. The difference is that they are essentially like a non-profit and complaints are made without sufficiently measuring the value of their work (especially in comparison to massive for-profit organizations). I'm not saying more nimble organizations cannot produce more per-capita value, but there are disadvantages with size and also sometimes advantages such as economy of scale.
> There are disadvantages with size and also sometimes advantages such as economy of scale
This is absolutely correct, but the market system ensures that whichever corporation becomes large enough to deliver on those economies of scale is selected as a function of their ability to deliver (for the most part). Ask yourself what would happen if we democratically granted Sears a legally authorized monopoly to essentially exist in perpetuity like states and state programs exist today. Would they have been able to efficiently continue delivering value as the world changed? Would we have allowed them to die and be replaced? The fact that they were defeated to the point of bankruptcy by Amazon et al is a feature of the system that is notably lacking in state institutions.
In fact, the state institutions that perform the best are the ones that are the smallest/most decentralized: https://www.reuters.com/article/us-health-coronavirus-podcas...
The Soviet Union will be glad to hear that.
You’ll need several people to tabulate the set of corporations that have gone bankrupt, defunct, or M&A’d out of existence over the same timespan, in the US alone.
First of all, Medicare is only “more efficient” on account of price controls. “Legal inability to negotiate pharmaceutical prices” is just a euphemism for “inability to force pharmaceuticals to charge anything other than a defined amount of money”, or in other words: price controls. If a law was passed today that forced private insurers to use the Medicare fee schedules, they would be just as “efficient”. Whether price controls are an efficient way to run an industry is a separate issue entirely.
Second of all, Medicare is separated into “original Medicare” (which is the government-run insurance program), and “Medicare Advantage aka Medicare Part C” (which is private insurance offered to Medicare beneficiaries). The data we have right now shows that Medicare Advantage is actually the part of Medicare that’s working the best in terms of raw efficiency and outcomes[1]. 34% of Medicare beneficiaries have elected Medicare Advantage instead of “Original Medicare”, and that number has been growing[2].
[1] https://freopp.org/medicare-advantage-a-platform-for-afforda...
[2] https://www.kff.org/medicare/fact-sheet/medicare-advantage/
Every payer (public & private) has “fee schedules”, which is just the list of prices for all treatments and/or drugs (in the case of PBMs), and Medicare’s fee schedules are often (but not always) lower than those of private payers. The “Medicare is more efficient” argument is essentially predicated on the idea that physicians would be forced to accept the lower fee schedules for everyone, which essentially amounts to “price controls”.
Re: Medicare Part D, the federal government is actually not permitted to negotiate drug prices directly (unlike the VA), and that’s a really contentious issue on its own. Medicare doesn’t actually pay for Part D drugs. Ironically, with Part D, the opposite happens: Medicare doesn’t do the negotiating, and Part D providers rely on private insurer leverage.
If doctors/hospitals were forced to accept Medicare's lower fee schedules for private insurers, too, that would mean Medicare is not more efficient. Efficiency would lie partly in the ability of Medicare to negotiate lower prices because of its size. If private insurers could free ride and get the same prices, then Medicare would not have an efficiency advantage. I think the complaints back when this was set up (i.e., when Part D was created) were that George W.Bush gave up the farm and could have negotiated much lower prices.
It’s also worth noting that Medicare Advantage carriers use their own fee schedules, not the Medicare ones. You might think that this means that Medicare Advantage plans cost more per capita than Original Medicare (the core thesis behind “Medicare is more efficient because monopsony price controls), but...the results have been complicated/unexpected: https://www.commonwealthfund.org/publications/issue-briefs/2.... It’s sometimes cheaper (depending on the geography), and that’s without the forced use of Medicare fee schedules.
As I mentioned earlier, Medicare actually largely relies on private insurance leverage to determine drug prices, BUT there is an incentive baked into Medicare Part B that has a really underrated impact on some of the high prices, known as "ASP plus 6".
When an Original Medicare beneficiary visits a physician and that physician prescribes drugs, the drugs are paid for differently from the actual services (which follow the standard fee-schedule model). Rather than operating on a fee-schedule structure, Medicare decides that the cost of a drug that it will pay to a physician is the "average selling price plus 6%". Medicare basically takes the average selling price for a drug that a doctor prescribes, and pays that amount + 6% margin (it's actually 4.3% after some budget sequestration, but that's not important). 6% margin to the doctor is fair, right? The issue is that it introduces an incentive for physicians to try and prescribe the most expensive drug to the patient, because they know that Medicare will cover 80% of the cost (plus 6%), and the doctor stands to make the most money. Pharma companies know this, and for drugs that are predominately used by seniors, they market the price as high as possible since Medicare will just pay for (most of) it.
Fortunately with the Medicare Advantage plans, the private payers have their own rules for how much they will pay for a drug, and they are incentivized to pay as little as possible because the private Medicare Advantage payers get to pocket the cost savings as profit.
More info on ASP plus 6, and how it favors higher-price products:
https://www.healthaffairs.org/do/10.1377/hpb20171008.000171/....
https://www.healthaffairs.org/do/10.1377/hblog20190611.58590...
Alon Levy has an ongoing study into US construction costs in particular, which are almost entirely focused on government funded and executed infrastructure projects: https://pedestrianobservations.com/2019/03/03/why-american-c...
> This is frequently stated as fact, but no evidence is provided.
an in-depth analysis is beyond this particular computer nerd, but does it not suffice to observe that, dollar-for-dollar, US public services seem to do much worse than elsewhere in the world? education is a good example. per-student, the US spends roughly the same amount as or more than other OECD countries, yet seems to get much worse outcomes.
Indeed.
Last I heard on the subject, government does a great many things people don't think of at first, for example facilitating R&D that wouldn't otherwise occur, and large scale administration and maintenance of infrastructure, and much of its activity is ludicrously efficient as a multiplier for the economy compared with how people think of it, and cost effective or at least competitive with the private sector on many things that it does.
I was referring to the U.S.; if you don’t live here I could see how you might come up with the conclusion That the state here is efficient. If you do live here it is more than apparent that there is no equilibrium of supplies and demands.
Come spend a month in San Francisco, pay our taxes then tell me if you think the state is anywhere remotely close to efficiency.
>Perhaps we could get SoftBank to measure government efficiency...
Lol, or we could from the private sector build the tools necessary for the public sector as sort of a public good. This would be a great way for companies like Google and Facebook to have some positive PR when it comes to privacy.
SoftBank is less a company but more of one man’s ego with capital. “Businesses” like that never last from generation to generation unless they have dumb luck. Again, I don’t think I need to cite lots of sources here for you when common sense makes things apparent.
New York City charges its residents almost 4% tax from salaries over $50,000. It's huge money. What do the citizens get in return?
Clean streets? Nope.
Free museums? Nope. (Hello, London!)
Best in class public transportation? Good joke.
Effective homeless rehabilitation programs? Affordable healthcare for everyone? State of the art digital services for the citizens? Low crime rate? Bueller? Bueller?
No it isn't, compared with the scale of the things you want to spend it on.
In places that deliver even a half-assed version of the things you described (e.g. London - no effective homeless rehabilitation), the tax rate on salaries is much higher than 4% to pay for what they do provide.
That's not inefficiency. You have listed a bunch of things that cost more than that to provide at the scale implied in "for everyone".
And you effectively cherry-picked. You haven't listed hundreds of other "hidden service" things that the money is really needed for which are actually being provided, but people don't think of, yet are essential to the health of the place. For example collecting and processing the garbage, recycling, street signs, police, fire service, food vendor safety inspections, child welfare services, those sorts of things tend to be well run in the ways meant by "efficient". And many services need to be paid for that not every individual needs at every stage in their lives, and people just don't realise how much of it there is. E.g. the schools for kids with learning difficulties? They are needed, and sure aren't being paid for out of every parent's personal money, and anyway some of those kids don't have living parents.
Then at some point you realize that other places which do not collect 4% tax still have street signs, garbage collection, police, fire service and all "those sort of things". Often of a higher quality than those in NYC.
I think it's also worth noting that attempting to compare nearly any other city in the world to New York City in terms of "but they can provide XYZ" is going to have problems. NYC is staggeringly large in terms of population—and particularly in terms of population density. For goodness' sake, it's got more people in it than all but a dozen states in the US. It's got a larger population than the bottom eight states combined plus the District of Columbia.
And it's a single city. Less than 500 square miles. Less than 1/3 the size of Rhode Island, the smallest state. Smaller than Guam.
And you whine that it has to charge more taxes than, say, Syracuse.
Maybe think about it in perspective.
So if anything, I'd expect there to be an economy of scale. High population density means there are less streets to clean and less trees to groom.
Is that true though? Not long ago taxes on the wealthy were much higher and income inequality was lower.
Personally I have a kinder eye towards government; it’s A) not efficient by design, it’s meant to be comprehensive, and B) less wasteful then I think most people believe it to be.
I'm not sure everyone here understands exactly what I'm saying. If you can sometime, talk to a tax accountant / estate planner who specializes in tax minimization. If you are a W2 employee with some equity compensation, none of this applies to you. But if you were worth Nx millions of dollars there is a lot that can be done fairly easily.
I may or may not agree with your details, but I love the goal.
I don't think this a fair statement at all.
Imagine you polled Scandinavians and asked if they would prefer their government abolished socialized healthcare and returned the money to them, with the caveat that it must be given to charity. Do you really think they would support this idea, on average?
I would much rather the US offer a public healthcare system, and I would gladly pay a disproportionate amount of money out of my own pocket to fund it. It's desperately needed but far beyond any charity's ability to provide.
It's not like it would be adding a new tax where you end up with less take home pay.
One way or another, you'd end up with more take home pay. Even if you don't currently have private healthcare insurance.
It's effectively free money.