Monday, October 28, 2013
Now that I am nearly eligible for Medicare, I guess I will have to be very nice to my doctor. Perhaps you’re thinking that I’m worried that my doctor will not be excited about getting the bargain-basement reimbursement that comes from having another Medicare patient. No, I’m thinking that if I’m very nice to my doctor he can help me get a lot of free stuff!
I’ve already written about the scooters and such devices that may be paid for by Medicare – at no cost to me. Now I learn from a newspaper ad that an “easy-to-use, high-tech back brace is now covered by Medicare.” Relief from back pain can also be mine “at little or no out-of-pocket cost.” If that doesn’t work, my Medicare plan will also cover chiropractic or acupuncture treatments. Good news for my back!
When considering these products, the government warns: “Review all the factors that affect how much coverage you will receive. Make sure all paperwork is completed correctly and that you buy your equipment through an approved supplier that accepts assignment.” This information is not included in the sales pitch, but it came to light earlier this year that: “Government inspectors say up to 80 percent of the scooters and power wheelchairs Medicare buys go to people who don't meet the requirements.” You just have to be in good with your doctor or get the company’s help to apply pressure. This sales tactic is so common that it has recently gotten Senate attention.
But it’s not just Medicare. A few days ago on the radio, I heard about a test and treatment for low testosterone for men who are not feeling as young as they used to be, (and apparently are not wanting to admit that they are, in fact, not as young as they used to be). The ad ended with the increasingly common statement: “covered by most insurance.” How many of these items are really medical necessities? We have moved from saving lives to trying to eliminate any sense of discomfort, and continue to expect it all to be paid for by someone else.
How can anyone bring down the cost of healthcare when interest groups, lobbyists, senior citizens and others, either directly or through the government continue to pressure insurance companies to cover more and more drugs, devices and treatments? Applying insurance only serves to make shoppers less careful, which leads to price increases. More items are added to the list of covered services also push up the price of insurance. Then we wonder why we end up paying more for premiums. Do we really expect to get more for less? This is just another example of that magic-money-tree thinking that is so common, so dangerous, and leads to so many of our societal problems.
Friday, October 25, 2013
What does “economic understanding” mean? Simply put, there is no magic money tree, no source of funds that somehow doesn't affect each of us as a consumer or a taxpayer. Corporations spend money they get from customers. Governments spend money they collect through taxes – or money they borrow based on the promise of future tax collections. (Those federal funds that contribute to or pay for so many local projects are not free money.)
Another timely example comes from the Indianapolis airport where they have completed a large solar farm. Panels collect sunlight and convert it into electricity, which is sold to the local utility. It is expected to generate enough power “to supply the electrical needs of about 1,800 average-sized houses.”
Here’s the catch. “The sun-generated power will cost three to four times more than IPL can sell it for, so the utility will subsidize the difference by raising rates to its customers, a utility official said. The increase in electric bills to subsidize the solar farm amounts to several cents a month on the average customer bill, the utility has said.” It's right there in the article for all to read: The utility will spread the cost of the higher priced power across the bills of all its customers. Those who live near the privately-owned solar farm should remember as they drive by that they are helping to build and run it every time they pay their slightly-higher electric bill.
The article goes on to say: “Solar farms also benefit from federal tax credits.” That really means that those who live in other parts of the country and never benefit from this three-to-four-times-more-expensive electricity also have contributed through their tax dollars.
Perhaps this (Taiwanese-owned) solar farm is a good idea in light of concerns about pollution and other disputes about wiser, more sustainable sources of electricity, but never forget that theses decisions are made with our money but without our input.
Economic understanding allows us to recognize, and sometimes question, the link between public or corporate spending and our wallets. Too often we take these things, especially the benefits, for granted and expect them to continue and grow without having to personally worry about the cost or where the money comes from, but ultimately we are all contributing.
Monday, October 21, 2013
The problem with typical news stories is that they present a problem without any attempt to analyze or question underlying causes. They introduce a problem, e.g., the government shutdown. Then they try to make it personal by telling the story of one or two people who are affected by it. Later they talk about how no one is working to solve the problem, leaving us feeling sad for the victim and personally helpless. In the case of the government shutdown, an underlying intention seemed to be to get us even angrier at whomever we blamed for the situation. This approach never solves anything. The only way to get to a workable solution is to apply critical thinking, but reporters let us down, instead getting us emotionally involved, playing on our pity, our fear, or our morbid curiosity, just to sell us their news along with their personal biases.
Sometimes we are expected to feel compassion for a victim based on a brief description of the situation. We then feel duty-bound to demand action that relieves the victim of the pain, sorrow or inconvenience. Compassion is defined as a “feeling of deep sympathy and sorrow for another who is stricken by misfortune, accompanied by a strong desire to alleviate the suffering” (Dictionary.com). The focus on merely bailing out victims is what I referred to last time as dealing with the symptoms; without analysis problems don’t get fixed.
An example of such analysis would be the five whys technique used in industrial quality programs. The process involves asking why multiple times instead of accepting the problem at face value. Asking why “helps you to get to the root of a problem quickly. Made popular in the 1970s by the Toyota Production System, the 5 Whys strategy involves looking at any problem and asking: 'Why?' and 'What caused this problem?'" In society we must also ask questions before reacting.
During the government shutdown, no one asked the furloughed workers, why they were not prepared, given the recent track record of the government and the doom-and-gloom news coverage leading up to it. Haven’t we been badgered by self-help books and financial planners for years about the need to have six-months savings for just such emergencies? Yet news articles portrayed them as being one step away from financial ruin when a single check was delayed. In a related story we hear of a young mother, whose access to baby formula for a 4-month-old may be cut off. They don’t ask why she is not breastfeeding her baby. Later we find out that she is an unemployed single mother of three. This leads to a whole host of other “whys” having nothing to do with government funding, but with individual choices. One is more of a “where,” as in, where is the father’s financial contribution?
In another story unrelated to the shutdown but similarly lacking details, we learn that Chase Bank is discontinuing their Payment Protector plan. One of the people affected will be a 95-year-old woman who signed up for the plan “around 2007 and paid less than one percent of her credit card balance as a monthly fee.” The program provides a benefit similar to term life insurance that would pay up to $25,000 of her $38,000 credit card debt upon her death. She is portrayed as a victim because when the plan expires at the end of May 2014 (after a 12-month notice), she and her estate will become responsible for her debt. Is there something wrong with a person of any age accumulating a debt and then being responsible for the payment of that debt? Has she become a victim because a program she freely signed up for is being (legally) discontinued leaving her once again responsible for her full debt? Why do she and her son think she should not have to pay her credit card debts? It seems the LA Times and ABC chose this most extreme example purely to stir up an emotional response, to muster sympathy for yet another victim without ever asking these simple questions. But why consider personal responsibility, when we can blame the big, bad bank for victimizing a 95-year-old?
When called upon to show knee-jerk compassion, I think we must step back and wonder about circumstances. Were the so-called victims “stricken by misfortune,” as the definition says, or are they experiencing the consequences of earlier, unwise behavior? Don’t ask me to walk a mile in your shoes, if you have spent your time filling them with pebbles. In other words, is it compassionate to temporarily alleviate the suffering of others if the suffering was caused by their own bad habits or poor decisions? Does that ever fix the problem? How long will we allow ourselves to be emotionally manipulated by the media and politicians in the name of compassion?
In some cases the real motive may not be compassion at all, but a disguised sense of superiority, a feeling that we are OK and can take care of ourselves while others can’t make it without our assistance. We are urged to consider the plight of the weak, the poor, the elderly, without analysis, then expected to demand that someone step in to relieve their symptoms while the underlying problems continue to worsen.
Friday, October 18, 2013
Many years ago I noticed that every opinion poll I saw reported that Americans were overall dissatisfied with the direction of the country. For example, this Hart Poll shows that on over 40 occasions over the last four years when that question was asked not once did the percentage thinking the country was headed in the right direction exceed those with the opposite view. For over 20 years results from many different polls are consistent with this finding.
It didn’t matter which political party was in charge or who was asking the question, with few exceptions America’s opinion has been that we were headed the wrong way. The last 249 essays are based on a theory that we, not the government or some other advocacy group, hold the solution to our dissatisfaction. We can make America better, but we must change our approach to defining the core problems and not continue to deal with the surface symptoms. When we look deeply, we find that our behavior, not a failure of government caused most of our problems. Changing behavior, not electing a new crowd of politicians is the answer. The only thing politicians do is blame each other for problems and look for painless, quick-fix relief for these symptoms.
Here’s how it works. Behavior generally has corresponding consequences. Call it Karma, God’s justice or whatever, but eventually bad or negligent behavior leads to trouble, while positive behavior leads to favorable outcomes.
Behavior, however, is such as broad term. It includes all our words and actions, the decisions we make. How do we track and classify it? To make sense of a long list of possible actions, I have chosen five categories or dimensions. A wide range of behavior can be condensed into these five areas. Whenever I cite an example, I also specify which dimension it falls under. As I give examples, it becomes clear that weaknesses and errors in the five dimensions are really the source of many of our so-called crises, as individual choices build into societal consequences. The long list of problems we hear about every day, from obesity to healthcare to education to discrimination to retirement insecurity and many more, are really the accumulation of faulty individual decisions.
An immediate advantage of this approach is that when you talk about behavior, you are barred from labeling people. You can’t say someone has a bad attitude or someone is an extremist or someone is worthless or uncaring or hateful or attach any other name or description. It serves no purpose to criticize motives; just deal with the behavior. Behavioral observations deal with words and actions – he said this or did that. See how different this is already from the way our politicians (and many private citizens) act today. Without this approach all we get is a firestorm of insults and accusations without any real progress. No wonder Americans think we are headed in the wrong direction!
Now I have 250 essays on this theme and will continue to present examples of behavior in the key dimensions. The news is dominated by political disputes, but I don’t comment on politics. The answers are not to be found in Washington. The answers are in our behavior, and I don’t expect to run out of examples very soon.
My objective of these short essays is to inspire a group of people to think about the problems in a different way, to show you what to look for, to get more people to adopt a behavioral approach. Look at what we and our neighbors are doing to make the situation worse. I know that tolerance is very trendy these days, but must we be tolerant of behavior that is sure to lead to problems? Remember, it’s not about beliefs and attitudes; it’s about actions and decisions, behavior that has consequences, consequences that add up to societal crises, the same crises that keep the media and politicians stirring us into a panic to distract us from the real answer.
It’s not time to panic. It’s time to join the team and spread the word that improving behavior is the only real solution.
Monday, October 14, 2013
When you talk to some people about investing, they compare buying stocks with a trip to Las Vegas. This is understandable as huge dips in the stock market always make the news, whereas a gentle rise over time or even a large surge gets less attention. Looking at investing and gambling over the long run shows one significant difference.
Gambling, on average, is a losing proposition. Most lotteries are set up to pay out about half their revenue. Buy a pick-3 ticket for $1 and get a 1 in 1000 chance to win $500. Those are terrible odds. You know this when you hear the states boast about how much lottery funds contributed to schools or property tax relief or another chosen cause. That funding comes from the dollars of the losers who far outnumber winners.
At a casino lay down a dollar on a roulette number and win $35 if you happen to choose the right number out of 37 or 38 possibilities. Those odds are better than the lottery, but over the long term the house keeps a few cents for every dollar bet. Those pennies add up quickly and pay for those big, impressive buildings. Slot machines pay a little to keep you playing and a large jackpot just often enough to keep everyone hoping, but over the long term the casino always wins. On average gambling is a losing proposition.
The stock market does have some wild swings and looks like a gamble, but the difference between traders and investors is important. Traders play the market trying to anticipate these swings. Investors pick a stock or, less risky, a diversified fund and stick with it. Investors are not as exposed to wild swings, because they are patient and ride out the peaks and valleys. A good example (not a recommendation) would be the Vanguard Life Strategy Fund, which is very diversified – in fact it’s a fund made up of other funds. Anyone investing $1000 in January 2003 would have around $1700 by now. That includes all the scary economic problems over the last 10 years. Over its 19-year history, it has yielded over 7% per year on average. That’s so much better than money in a savings account or CD. Of course, during that time anyone who tried to time the market, acting like a trader by buying and selling, could have gotten burned as badly as a Las Vegas gambler, but the history of positive gains is similar for almost any diversified fund from a reputable company. They are easy to look up on line.
Now past performance does not guarantee future results, as they always say, but unlike gambling, investing – real investing and not trading and timing – has not been on average a losing proposition. There is still risk, and emergency funds do not belong in stocks or any other volatile investment, but over the long term the stock market differs in this important way from gambling. If the comparison to gambling has worried you in the past, it might be interesting to do some research or talk to a trusted advisor.