Death of a Business Model

October 5, 2009 at 3:02 pm (By Maxwell James)

Ezra Klein notes the passing of an old media icon, Gourmet, first by acknowledging that he’s “been meaning” to get a subscription, then by posting links to some of their best articles and a video from their YouTube channel.

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Repent, or Repentance Will Find You

September 29, 2009 at 11:01 am (By Maxwell James)

Which is to say: I think it’s pretty sweet that Roman Polanski was arrested during Yom Kippur.

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Make Of It What You Will

September 15, 2009 at 1:14 pm (By Maxwell James)

The progressive blogs are aflutter over this RWJF-sponsored poll (H/T Klein). I’m not a big believer in the public option but I found the results interesting.

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In the future, everyone will be the target of populist rage for 15 minutes

August 17, 2009 at 2:10 pm (By Maxwell James)

Which is about how long I give this nonsense.

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Letter From A Dairy Farmer

August 14, 2009 at 11:45 am (By Maxwell James)

I have no idea what (if anything) should be done about this, but it’s hard not to be concerned. Thoughts?

Addendum: Here’s some background.

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On Wyden-Bennett

August 13, 2009 at 4:38 pm (By Maxwell James)

Like President Obama, if I could wave a magic wand and create an all-new healthcare insurance system for the United States, I would probably choose single-payer. Yes, it can create rationing problems, but with proper incentives to expand supply this can be managed reasonably well (as it is in Canada, France, and the Netherlands). It is inherently more cost-efficient – as Nate Silver argues, health insurance competition, particularly the sort of mini-monopolistic competition we have here, does little to control costs or improve services. It would cover everyone. And it has the attraction of being simple and easy to understand.

But, that’s not the world we live in. Most Americans don’t agree with me; they don’t want single-payer healthcare. And increasingly they don’t seem to want the “public option” either, either because they think it will constitute single-payer by stealth, or that it will turn into another Fannie Mae. So it goes.

And yet healthcare reform remains necessary. Healthcare costs have been rising at an unsustainable rate for decades now. Those costs will bankrupt Medicare in just a few years if nothing is done. We also have de facto rationing by the market, along with priviliged care for the wealthy who can jump lines the rest of us cannot. And for all that we spend on healthcare – 17% of our GDP – we don’t get quality of care that is especially good when compared to peer nations.

So with all that said, I’d like to put in a few kind words for the other healthcare bill floating around Congress – the Healthy Americans Act, or Wyden-Bennett.

Wyden-Bennett strikes me as a definitive example of radically moderate legislation. It’s radical because it breaks the key feature of our current insurance system for people under 65: the tax break on health insurance when it’s paid for by your employer. It’s moderate because it achieves near-universal health insurance while actually increasing market competition. And according to the Congressional Budget Office, not only would it be budget-neutral by 2014 (as of 2008), but in time it could actually reduce our government’s expenditures.

How does it work? Wyden-Bennett mandates that all Americans and permanent residents (other than the elderly and the military) must purchase private health insurance  through a state-based pooling system. This purchase would be facilitated by a large tax exemption ($6000 for individuals, up to $15,000 for families) that decreases as income rises, eventually disappearing for earners in the top tax bracket. People under a certain percentage of the poverty line would be eligible for a voucher on top of that. The premiums you would pay for your insurance would be community-rated on the basis of your pool – i.e., sicker people would not have to pay higher premiums.

For most people this would replace their employer-based insurance; it would also replace Medicaid and SCHIP programs, as well as the individual insurance market.This is of course the most radical aspect of it, since the conventional wisdom is that most Americans like their current insurance and want to keep it. Of course, that conventional wisdom was formed in 1993 during the Clinton attempt at healthcare reform; things have changed since then.

For example, portability of healthcare insurance, has become far more important. Very few of us keep the same job our whole lives. And very few of us remember the last time our country approached 10% unemployment. If you would resist Wyden-Bennett on this basis, it’s worth asking: if you were to lose your job, how quickly do you think you could get a new one in this economy? What kind of job could you replace it with? The simple fact is that for anyone who does not have tenure, relying on your employer for your health insurance is considerably more risky than it used to be.

Wyden-Bennett would establish standards for the new plans offered through the pools that would be actually equivalent to the Blue Cross/Blue Shield plan that is currently the standard for federal employees. It would control costs by offering incentives for insurance providers and healthcare providers to improve efficiency, and for purchasers to engage in preventive care. It’s not perfect by any means – and it desperately lacks a constituency to get behind it. But it’s the best option currently on the table.

For further reading:

Here is a balanced analysis of Wyden-Bennett by the Center on Budget and Policy Priorities.

Here is a tool from the Kaiser Foundation that allows you to compare the current health care reform plans side-by-side.

Here is an interview between liberal health care policy wonk Ezra Klein and conservative senator Lindsey Graham on Wyden-Bennett.

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August 12, 2009 at 2:55 pm (By Maxwell James)

What E.D. Kain said. I don’t think I’ve seen a blog post on healthcare reform that I agree with more.

I am increasingly of the opinion that the president made a major mistake when he came out swinging for the public option. The core problem for the insured and uninsured alike in this country is that quality health care is increasingly unaffordable. Universal coverage is important, but more for its portability than for the myth of efficiency that surrounds it. Obama should have come out for any health care plan that a) rewards innovation and efficiency in the delivery of healthcare services, b) disentangles coverage from employment,  and c) provides an affordable subsidy to support the unemployed or otherwise uninsured. He decided to name the means instead of the ends, and that was a serious unforced error.

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On Marshmallows and Willpower

August 12, 2009 at 10:01 am (By Maxwell James)

Amba’s recent post on the elements of a successful life, along with Pat HMV’s response, put me in mind of this New Yorker article I read while at the doctor’s office.  Here’s a taste:

In the late nineteen-sixties, Carolyn Weisz, a four-year-old with long brown hair, was invited into a “game room” at the Bing Nursery School, on the campus of Stanford University. The room was little more than a large closet, containing a desk and a chair. Carolyn was asked to sit down in the chair and pick a treat from a tray of marshmallows, cookies, and pretzel sticks. Carolyn chose the marshmallow. Although she’s now forty-four, Carolyn still has a weakness for those air-puffed balls of corn syrup and gelatine. “I know I shouldn’t like them,” she says. “But they’re just so delicious!” A researcher then made Carolyn an offer: she could either eat one marshmallow right away or, if she was willing to wait while he stepped out for a few minutes, she could have two marshmallows when he returned. He said that if she rang a bell on the desk while he was away he would come running back, and she could eat one marshmallow but would forfeit the second. Then he left the room . . .

Carolyn was in the thirty percent of the test subjects able to hold out until the researcher returned fifteen minutes later. But most of the kids couldn’t. They either ended up ringing the bell, or scarfing down one or more of the pieces of candy outright.

The initial goal of the experiment was to identify the mental processes that allowed some people to delay gratification while others simply surrendered. After publishing a few papers on the Bing studies in the early seventies, Mischel moved on to other areas of personality research. “There are only so many things you can do with kids trying not to eat marshmallows.”

Well, so he thought at the time. Actually, it turned out that there was a lot he could do with the kids trying not to eat marshmallows. In 1981, Mischel began to follow up with his test subjects of old, and found that the “high delayers” who were successfully able to hold out for two treats were also largely more successful than the “low delayers” in terms of academic and career achievement, and were considerably less likely to have suffered from behavioral problems. Self-control, it turns out, is significantly more important than even raw IQ in predicting success in life. Score one for M. Scott Peck.

Since then, he and his collaborators have continued to track them through their adulthood, for a while relying on self-reporting, but recently also adding MRI’s and brain imaging technology to the mix, in the hope of producing a neurological map of the parts of the brain involved in self-control. Even more interestingly, their research has already begun to hint at what the essence of self-control actually is:

At the time, psychologists assumed that children’s ability to wait depended on how badly they wanted the marshmallow. But it soon became obvious that every child craved the extra treat. What, then, determined self-control? Mischel’s conclusion, based on hundreds of hours of observation, was that the crucial skill was the “strategic allocation of attention.” Instead of getting obsessed with the marshmallow—the “hot stimulus”—the patient children distracted themselves by covering their eyes, pretending to play hide-and-seek underneath the desk, or singing songs from “Sesame Street.” Their desire wasn’t defeated—it was merely forgotten. “If you’re thinking about the marshmallow and how delicious it is, then you’re going to eat it,” Mischel says. “The key is to avoid thinking about it in the first place.”

In other words – to have willpower is to have some knowledge about how your brain works, and to be able to effectively distract yourself from being overwhelmed by desire or fear. The journalist likens this to Odysseus, tying himself to the mast of his ship in order to hear the Sirens’ song without committing suicide.

The implication of this is that what we think of as “willpower” or self-control may not actually be a force of mind so much as a kind of creativity that relies on self-knowledge and shows itself under duress. If true, I think this thesis would go some way towards reconciling liberal and conservative views over the importance of, and effective approaches towards, teaching ourselves and our children how to self-discipline and delay gratification.

The article ends by noting that the researchers have begun a partnership with KIPP, arguably the most successful of the charter schools, to see if such an approach to self-discipline can be effectively taught in the classroom. Read the whole thing.

UPDATE: I neglected to mention that the article is by Jonah Lehrer, who has a nifty science blog. Thanks, Donna!

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A Few Notes on Cooperatives

June 15, 2009 at 1:50 pm (By Maxwell James)

Amba brought up Kent Conrad’s alternative to the so-called “public option” in healthcare reform, which is to have the government charter a large healthcare insurance co-operative that might compete with the private insurance market. Having read a few articles now, I think the most helpful thing I can do is offer a few resources and clarifications as to what this would actually mean.

First, it is essential to understand that at root, a cooperative is an alternative approach to financing a business. Every business is financed through some combination of equity and debt, with the equity provided by the owners  and the debt provided by lenders. Lenders receive regular interest payments in return for their financing of the business; in the case of bankruptcy, they also usually get their money back before equity holders do (and therefore get more of it back)*. Owners have a right to the residual profits of the company, i.e. profits after all interest and taxes have been paid. They also can exert control over the company’s decisions through shareholder vote, with each owner enjoying a vote in proportion to his or her shares.

In a cooperative, every owner receives one vote regardless of how many shares they own. This is the core difference between cooperatives and other business forms, and it leads to many other differences. First, it generally leads to a much more equitable distribution of ownership shares, as there is no incentive to purchase more than the minimum number. Second, it means that a co-op is generally going to have less financing than an equivalent private or public enterprise, because a) wealthy investors who could invest more in a co-op have no reason to do so, and b) co-op shares cannot be traded to increase their value through speculation, as that would inevitably erode the one person – one vote rule at the heart of the model.

A corollary implication is that to be viable, co-ops need to make up in numbers what they lack in dollars. So even a very small co-op, such as the one where I used to work ($7 million in annual revenues), will have a large number of shareholders (in that case, over 3000). This means that that their products have to have broad appeal and that they have to be built on business models that are clearly understandable to most people (i.e., meet the Warren Buffet test). Hence, co-ops tend to focus mostly on providing highly essential and universally desired products or services, such as agricultural goods, electricity, banking, or healthcare insurance.

The main criticism of the cooperative model is that it doesn’t facilitate growth, because it offers no incentives for wealthy investors to pony up. Which is true, but it’s worth noting that there are some pretty large co-ops around the world. The main argument in favor of the co-op model is that it is more democratic than other models; the barriers to investing in a co-op are very, very low, and compared to other models the level of shareholder involvement tends to be fairly broad. But that can be overstated: most co-ops see voter participation levels between 10-20 percent, which is about on par with public companies.**

Now, one way that a co-op can scale up on the level of a large corporate entity is through government intervention, which is what the Conrad proposal would accomplish. I would expect this to be the main point of contention coming from conservatives over the co-op, if it indeed turns out to be the compromise of choice. The numbers I’ve seen floated around for this year’s healthcare reform bill have been around $600 billion or so; that would constitute some pretty significant seed funding for any organization. I am skeptical whether such an entity could even be fairly called a co-op.

If denied such levels of funding the organization could be troubled by adverse selection problems, with the people most eager for membership being those people whose healthcare would probably cost the most. If that is the case, the co-op could find itself unable to actually compete on cost – supposedly its entire reason for being. It’s worth noting that in many ways this co-op idea resembles Obama’s campaign proposal of a public option without mandated use.

Finally, it has frequently been argued that the “public option” would amount to single-payer by stealth, especially if it were funded by said $600 billion or so. Well, a “co-op option” could potentially amount to the same thing if it were large and competitive enough; in fact, Canada’s system of single-payer health insurance very much grew out of the efforts of a number of large, regional co-operatives there (PDF). The northern Italian province of Emilia-Romagna – once a Communist bastion and still very Leftist – has a local economy dominated by cooperatives, including many social service cooperatives. Interestingly, in recent years it has also been one of the economically robust regions in all of Europe, although I don’t know how the recent downturn has changed things there.

* Unless, of course, they are forced by intrusive government to give up their claim, as was recently the case with some of Chrysler’s debtholders.

** My own argument for the co-op model is this: it gives people of limited means a very low-risk investment option that can actually provide very good returns, especially if they are committed to actually using the service or product being financed.

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Monetizing Thrift

June 10, 2009 at 4:34 pm (By Maxwell James)

You might remember that back in 2007, a couple of Democratic congressfolks tried to “survive” on $1/day so as to better understand the eating habits of the underprivileged. It was kind of a silly experiment, but led to some memorable blog posts – see for example here.

Well, a couple of enterprising Americans have come up with pretty thorough, healthy meal plans that come close to meeting that standard – and are making money off of it. Cook for Good is the more prominent of the two, but the Manhattan-based Three Dollar Dinner (written by a producer of Queer Eye for the Straight Guy) seems to be coming on strong.

~ Maxwell

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