Koch "Secret" Meeting Summary of the Transcript of June 2014 Meeting

Well for a while now I have had the Koch transcript from their meeting from June 13, 2014-June 16, 2014 at St. Regis Monarch Bay resort, an agenda of the conference can be found here. It is clear the the people at these meetings are truly dedicated to free markets as the meetings start at 8:45 A.M. and go on until 9 P.M. Some of the meetings included titles like "Saving America: Our Fight to Advance Freedom and Reverse the Country's Decline", and a book discussion with Amity Shales on Calvin Coolidge as the forgotten President, and "Collectivism: Exploring Its Nature and Consequences" by Dr. Victor Davis Hanson. The actual transcript for the meeting fills about 80-90 pages worth of material which is pretty incredible. I have to actually thank Lady Libertine for posting the transcripts on her blog and also providing the audio which can be found here (if you go to the YouTube chanel you can see all of video from the meetings).

Mark Holden Chief Counsel for Koch Industries starts the meeting talking about Democracy Alliance which is the equal on the other political side. Rob McCay heir to Taco Bell fortune, George Soros, Tom Steyer, and Chris Hughes (co-founder of Facebook) are all majors contributors to Democracy Alliance. This is interesting because you generally hear about all the Republican funding even though there is just as much funding on both sides. Mark Holden points out that he will no longer eat at Taco Bell (even though he likes it)  after he learned that McKay was a big supporter of Democracy Alliance. Actually according to Holden, Democrats have 172 groups in the "donor network" which is more than 31 groups within the Republican donor networks. Holden points out if you add in Big Labor (labor unions), Democracy Alliance, PACs, and super PACS, will spend around $2.2 billion (we shall see if this actually happens).

Norman Reimer discusses the criminal justice system and how it is is overly abusive (Charles Koch and Mark Holden wrote this op-ed that was published in Politco discussing the overcriminalization of America). What people on the left forget is that libertarians like Charles and David Koch believe people no matter what race, sex, color, or income should be treated equal in the eyes of the law. Reimer quotes interesting statistics "2.1 million people are in prison..the United States has 5% of the world's population yet 25% of the world's prisons".

Richard Fink who earned a PhD in economics from Rutgers gives a lecture on the current situation of America and how to change this course. Fink starts out by giving some stats on the current debt which currently is $16 trillion however including the present value of the unfunded liabilities is roughly $200 trillion. What Fink stresses is the "middle third" or 30% of voters who don't have any ideological preference. The problem with what "collectivists" do according to Fink is "they take people and tell them that you're a victim and the American dream no longer exists..and if they know anything about psychology and about people who have "victimitis" they are the most depressed, unproductive people. They become depressed, they become addicts, or they become aggressive". He goes on to quote that "90% of alcoholics are not psychologically built. They see their lives as without purpose. Same too with addicts same percentage. 85% of students who attempted suicide said life had [had no] meaning".

Charles Koch is one of the last speakers on the final days. He tries to rally everyone together explaining how the fight for liberty needs more freedom fighters. What many people may not realize is how Charles Koch and his family are at risk (Koch has received hundreds of death threats which he discusses in this article) and David Koch has to have security detail travel seen in this article. Koch Industries according to Charles the company has "10 million malicious hacker attempts on [their] IT systems every month"  What Charles Koch explains that we have two choices for the future of collectivism or freedom. The definition of collectivism to Charles is "based on the belief that people aren't capable of running their own lives, and those in power are capable of running it for them". One great example of this is the war on poverty which since 1954 we have spent $20 trillion. What is even more interesting is that the rate of poverty has virtually been almost unchanged even after spending vast sums of money. Another interesting statistic is that 1 in 3 jobs now require government permission. If you think about it so many professions (doctors, lawyers, accountants, financial planners, dentists, even repair people) have to be certified by some bureaucratic organization saying that they are deemed okay to work with the general public. Also government subsidies like ethanol increase the cost of food about 35% which generally affects the people who generally elect collectivists.

What seems evident is that the presenters at the Koch seminar don't really say anything that is crazy or evil. What is ironic are the people who often say the Koch brothers are evil, want to pollute the planet, and are just old and rich greedy guys are also the same individuals who want to resort to violence which leads to the death threats. Everyone no matter what political side of the spectrum should be treated with respect. Whether or not you agree with them Charles and David Koch are firm believers in individual liberty and trying to get support from individuals to make sure we can continue being free and prosperous. Society can't prosper when you have few producers and everyone else consuming what the producers create. As of January 2015 close to 93 million people were not working. The economically illiterate usually look the unemployment rate. However, the better measure is the labor participation rate which is near the same percentage as it was in the late 1970's (despite the fact that people can now work at home, some employers offer flexible working  hours, and medical care has greatly advanced). What is interesting is that the Koch brothers are attacked for just wanting to get rich and making everyone else poor. However, allowing people to pursue their own interests given their level of capability and talents and allowing them to create value would make everyone better off. By the government requiring permits, certifications, and training (some of which are not needed) makes it financially prohibitive for the people on the lowest rungs of the economic ladder to move up. Not allowing people at the bottom of the economic ladder to improve themselves increases income inequality since they don't have the financial capital, resources, or time to comply with regulation and rules. Charles and David Koch want everyone to succeed which we should find praiseworthy and laudable.

Koch Brothers: Annual Retreat and Why They Are Decent People

This upcoming week (April 28-29, 2013) Charles and David Koch will be holding their annual retreat in an undisclosed location in Palm Springs, California. Personally I wish I was going.  This will be the 10^th anniversary of holding such retreats. Normally the retreat is held in January however Charles Koch announced he wanted to push it back until April in order to review the election data. I like reading reports about how this is the Koch brothers “secret” retreat. For one the Koch brothers are private citizens and can do as they please. If people want to get together and talk about how to give everyone more liberty, freedom, and in the long run make everyone wealthier I see no problem with that.

ThinkProgress linked the agenda for the 2011 meeting here. I must say I would actually pay to go to this meeting. Speakers include Charles Koch, Peter Schiff, EconTalk host Russ Roberts, AQR Capital Management Cliff Asness. Really this event is more of a free market rally than a secretive meeting. The schedule looks like Monday and Tuesday were filled with free market thinkers that go from 7:30 A.M. to 9:30 P.M.

On the agenda this year is to discuss how to get more Latino voters involved as well as women. Also younger people are also going to be targeted.  At least Charles and David Koch are trying to understand why Republicans lost and figuring out how to fix it. The message of personal responsibility, free markets, and individual liberty shouldn’t be too hard to sell. However, when people get transfer payments from the government in the forms of subsidies, welfare, corporate welfare, or other sources it makes them dependent on government.  

The criticism of the Koch brothers is usually nonsensical. It usually goes something like this…”The Koch brothers pollute, are greedy, and buy politicians government”. Let me take this point by point. If the Koch brothers really did pollute why have they a) been receiving environmental safety awards  (most of these awards were granted by government agencies and not outside parties, b) the pollution data from even the EPA has shown a decrease in pollution for multiple decades. In fact carbon monoxide has decreased 61% (from 1980 to 2009). Sulfur dioxide between the same period decreased 65%. Lead decreased 97% as well. The evidence is against people who claim pollution has rapidly increased. Also do people realize Charles and David Koch breathe the same air as the rest of us? Now let me move on to the next point of greed. Charles and David Koch most likely work more than 60 hours per week based on everything I have seen. As I mentioned in this post David Koch works 10 hour days (it should be pointed out he is also in his 70’s). As I mention in this post Charles Koch was known to work all the time and once had a meeting that started at 4 P.M. and didn’t end until after midnight. Everyone was happy once Charles got married because it meant they had to work less on the weekends. I know people have an image of the Koch brothers as Scrooge McDuck swimming in money. However, they are men that run a multi-billionaire company. For the Koch brothers to say they are for free markets really means even the Koch brothers want more competition (which would actually reduce their profits). However, the reason why I believe the Koch brothers are in favor of free markets is because they understand what creates prosperity and an improved condition for human life. The last time I checked too more countries were trying to orient themselves towards free markets. My post on Market Based Management explains this more.  To answer the last point, no one can purchase a politician. You can give infinite amounts of money to politicians and they can buy the best ads, hire the best consultants, and still lose. People forget Republican Bob Doll in the 1990’s spent an extraordinary sum of money and still lost. At the end of the day millions of people are voting for who they prefer. However, as we saw in this last election cycle politicians are in the business of granting favors. If the 2012 election were held in the 1990’s there would be less of a chance we would have had the same outcome. The rising dependency of government explains the outcome we received.

Personally I hope the Koch brothers each publish an autobiography to explain to people what their lives were really like instead of history writing its own story. The Koch brothers are decent human beings who created  and grew a company, have given hundreds of millions of dollars to the arts, sciences, and cancer research, and have tried to sold their fellow man/woman on why free market capitalism is truly the best path to prosperity. 

Dr. Devi Shetty: Higher Quality Heart Surgery, Low Prices, and Making a Profit

I was thrilled to see this article showing for only $800 you could get heart surgery in India. However, the article is a little misleading since the average price people pay is $2,000. The average cost for doing a heart bypass operation varies around the world. In the United States the cost is $144,000, while in Mexico the cost is $27,000, and just $14,000 for the same procedure in Colombia.  You might be surprised to know that an actual individual entrepreneur doctor is able to do this. His name is Dr. Devi Shetty. Dr. Shetty runs a hospital named Narayana Hrudayalaya in India. The hospital has 5,000 beds and Shetty wants to expand this to 30,000 beds.  What is interesting is that the hospital performs more surgeries than first rate hospitals in the United States and still maintains high quality. For instance Narayana performs twice as many surgeries as the Cleveland Clinic. The mortality rate is very low at 1.4% which is less than the United States rate of 1.9% (and even less since the hospital doesn’t adjust for risk factors like the United States does). The heart facility in Bangalore does 30 cardiac surgeries a day (more than any place else). The same place also handles 1,000 walk in patient per day.

What is really interesting is that the hospital is for profit. The company has a profit margin of 7.7% profit after tax which is higher than the average profit margin in the United States of 6.6%. It always amazes me that people claim hospitals are greedy. If hospitals are so greedy why are they only making profit on less than 7 cents out of every $1? Dr. Shetty finds ways of reducing his costs like using cheaper sutures which saved him $50,000. He points out that you have to find many different things to cut.  He pays nurses to watch over patients in 8 hour shifts but doesn’t allow them to sit down. He claims that nursing efficiency decreases 30% if a nurse is provided a chair. He even hires people with a college degree to read radiology charts. What is fascinating is that Shetty has real time performance measures. Every day doctors can see the profit and loss statement from the prior day which would be unheard of in an American hospital. Not only can Shetty see the profit and loss statement he can also see how many surgeries were done the prior day in addition to how many surgeries were done for the month. If earnings fall below a certain amount they tell the people with free surgeries to come back until they get more paying customers.

It is too bad that Dr. Shetty couldn’t set up shop in the United States. For one his hospitals don’t have air conditioning in most parts of the hospital which would not even be allowed in the United States. Shetty plans on building a hospital in the Cayman Islands.  The United States would greatly benefit from hundreds of hospitals like the one Dr. Shetty has created. The cost of heart bypass in the Cayman Islands will only be $10,000 in the Cayman Islands.

The United States should recruit Dr. Shetty on how to reduce healthcare costs. I actually think many people would be open to business model of charging people with money for surgery and using that money to provide for those that can’t don’t have the means to pay for surgery. While at the same time on the whole the hospital would be making money which would allow them to grow and provide care to even more people in the future. I have feeling some people would still object to this.

The Case For A Simpler Tax Code

After studying the personal income tax code for a couple of years now I believe that the U.S. tax code is insanely inefficient, gives benefits to people that don’t need it, and ends costing taxpayers not only money but countless hours.

If you look at the tax code and just look at the deductions it is pretty easy to tell what things are deductions. Nearly everything that is a deduction is only a deduction because the government has made it expensive. Take for instance education costs and medical expenses (which are deductible). You never see deductions for things like cell phones, computers, or areas where the free market is involved. People can deduct interest on their home (which leads to bigger houses than we would otherwise have without the deduction).  The charitable deduction leads to people to give to charity, however as Dan Mitchell points out here that history shows that the deduction itself does not lead people to give more to charity since giving has historically been the same (even before the deduction was put into place). The charitable deduction generally benefits people with high income as they can deduct up to 50% of their (Adjusted Gross income). Also if property is donated to a charity over a certain amount it has to be appraised which requires more forms and paperwork.

What is really sad is that Social Security benefits are taxable. So essentially people are paying taxes Social Security taxes when they work and when they collect their benefits (double taxation).

Currently the tax code is 3.8 million words long (2010). Since 2001 there have been 4,428 changes to the tax law in addition to filling out 893 forms to fill out. The complexity of the tax code can be found in this Forbes article. According to this Laffer Center report the cost of tax compliance is $431.1 billion. I would think both parties would agree this is a waste of both time and money. The biggest problem I see is that the tax code makes it hard for even honest and decent people to figure how to file out their taxes. Many of the tax laws exist to benefit certain people while disadvantaging others. Did you know for instance if you rental out a home less than 14 days per year you don’t have to report it as income. This actually came about because during the Masters Golf tournament and Atlanta summer Olympics politicians and others would rent their homes out to people and didn’t want to have to pay tax on it so they created a tax law saying you didn’t have to. 

What is strange is that let's say you invest in a stock and when you sell the stock it is worth less than you paid for it. This loss can be used to reduce your taxes. It seems troubling/odd that the government is giving investors a benefit for investing unwisely. However, the maximum amount is only $3,000 per year.

 The IRS seems to be proud of answering 68% of calls in 2012 (average wait time was 17 minutes). If a private business took 17 minutes to answer phone calls they would be out of business. Part of the reason why so many people call the IRS is because the tax code is pretty darn complicated.

Many people have an interest in the tax code being complicated. Upon a little research I discovered that there are around 1.2 million accountants (this includes auditors as well). 68,000 professional financial planners, tax accountants, and other professionals that have a direct interest in the complexity of the tax law. Also there are other indirect professions that are related to the tax code such as home relators (mortgage interest deduction), insurance industry, and others.

The opportunity costs is not only 6.1 billion hours for the people that do taxes but the amount of useless knowledge accountants, financial planners, and tax attorneys are required to know adds little value. If we had a flat tax they wouldn't be required to remember so much nonsense and could be free to add value in other ways. 

The Case For More Nurses and Physician Assistants

With much people still talking about healthcare reform I thought there was one area thing people were not talking about: nurse practitioners (NPs) and physician assistants (PAs). I see both of these professions doing mountains of paperwork and it seems as if they are not being put to their highest valued use: helping and serving patients. States like Texas nurses practitioners are required to have a doctor sign off on 10% of the charts. However, 34 states don’t have this requirement. Not only does this waste time for the nurse practitioner but also takes time away from the doctor who is trying to help patients. There is an expected shortage of doctors (expected to grow to 130,000 by 2025) however there are some issues with this.  Why not add 155,000 nurse practitioners and over 83,000 physician assistants? So let’s assume that only 90% of nurse practitioners and physicians assistants are working with patients. If they on average see 8 patients a day that means 1.7 million more people per day could see a medical professional! Every week that would be close to 11.99 million who would have access to someone who could help them.

Much of the criticism comes from people who say things like “Nurse practitioners and physicians are not as qualified as doctors”. Sometimes things that seem true are not true once you look at the evidence. What is fascinating is this article in The Journal of the American Medical Association from January 2000 entitled “Primary Care Outcomes in Patients Treated by Nurse Practitioners or Physicians a Randomized Trial” the study concluded that even when patients were randomly assigned to either a nurse practitioner or doctor the outcomes were comparable. What is even more fascinating is that the patients with hypertension did better under the care of the nurse practitioners than doctors.

Perhaps the real icing on the cake is that the American Medical Association would publish this considering it has a vested interest no one other than doctors see patients. A 2000 RAND study found no evidence that nurses provided lower quality care than their counterparts and actually could reduce office visits by 35%. This case study showed that in the late 1990's when nurse practitioners were introduced to Loyola University for their cardiovascular program the mortality rate decrease from 3% to .9% in only 4 years, complication rates decreased, and the costs also decreased. This study in a 2 year follow up found that there was no difference between the care physicians provided and that of nurses. This study showed that nurses and PAs provided similar care as HIV experts and even better care than non-HIV experts.

Women’s right activists should embrace more this since nurses make up 92% of all nurses. By giving the women in this field more responsibilities it will increase their pay which I see as positive. The elitist view view that only doctors can help people is such utter nonsense.  Medical information is more dispersed now than ever before. States and the AMA should allow nurse practitioners and physician assistants to provide care. As I mentioned the level of care is similar to that of a physician, healthcare costs would be reduced, statistically speaking women would be given more responsibilities and in turn make more money. I see all of these things as positive. The only people who wouldn’t like this are people who would have to compete with these “new” medical professionals. 

Case for 24/7 Stock Market

So recently I have been thinking about markets and how they operate. One thing that seems strange is why the stock market is not open 24 hours a day, 7 days per week, 365 days per day. You might think this is odd however in the financial industry many people are at work a little before the market opens 8:30 A.M. and are done by 3:30 P.M. Of course there is other work that has to be done by trading can only be done in these hours. This is odd considering currency markets are open 24 hours a day 6 days per week (has been going on since 1995 too). I found this article from 1985 that talked about 24 hour trading (commissions back then were over $100 and a far cry from the $4 now paid by investors). Also since 1985 trading hours have been from 9:30 A.M. to 4 P.M. Eastern Time. However despite this after-hours trading can go on between 4-8 P.M.

Simple economics should suggest that a 24 hour stock market is a no brainer  If we had a 24 hour market then we would have less volatility because we would have more transactions. For some odd reason I believe people might get worried about the market taking a tumble at 3 A.M... However, nearly every other market is open 24 hours per day. Wal-Mart, McDonalds, and IHOP, are a few that are open 24 hours a day. People buy goods online all day and night. So it is really strange how anyone would argue against a 24 hour market. As long as there is a willing buying and seller we should have there always will be a deal to be made. 

Retail Clinics Grow

Interesting chart showing how more and more people are using retail clinics. No doubt we need more of these doctors with a future shortage of doctors and with more people to take care of. Don't people realize retail clinics are actually a free-market solution?

H/T-John Goodman

Lowest Blood Supply in 15 Years and How General Blood Can Help

I saw this recent headline that the blood supply was at its lowest level in 15 years. This is quite interesting because our population has only grown dramatically since 1996. The article blames the low supply on the weather and the fact that Fourth of July fell in the middle of the week which of course is utter nonsense. Donations of blood have been increasing at 3% per year while demand has been increasing closer to 6%-8% per year.

What the article failed to mentioned was how the American Red Cross has a monopoly on the supply of blood. I go back to one of the basic principles of economics: when there is a shortage look to incentives to determine the cause. A few weeks ago while waiting in a doctor’s office I read this article about how a company called General Blood is trying to change that. General Blood buys blood cheap from blood centers and then distributes them overnight to hospitals all over the United States. Blood is also worth different prices in different markets. For example a pint might be worth $210 in Wisconsin while $265 in New Jersey.  

The market for blood is a $4.5 billion business and currently the Red Cross controls 44% of this. As a result every year 1.3 billion pints of blood go to waste (between 5%-14%). Apparently 1 pint of blood can save three lives. So in theory the amount of wasted blood adds up to 3.9 billion people. Surgeries One thing the blood market doesn’t have is an exchange which would make it much more efficient to match types of blood, what areas need blood first, and the best way to get blood to where it needs to go in the shortest amount of time possible.  The federal regulations with blood are burdensome ridiculous and should be scaled back since real people are suffering and even in some cases dying because they are unable to get blood in a timely fashion.

One hope this is on the horizon is artificial blood. This article claims that artificial blood could be here within the next decade or so but I won’t hold my breath. The blood would just be a temporary place holder for people in emergency situations which would be positive.

The position the government takes on regulation the sale of organs, blood, and everything else under the sun causes more harm than good. As I mentioned in this post about bone marrow, this post about kidneys, and this post about organ donation the government only gets in the way of people making voluntary choices about their own body. As economist Dr. Walter E. Williams would say the true test of whether you own something is whether or not you can sell it. According to the government we do not own our own body since we are able to be compensated for our own body parts or organs and create a market for them. 

Jordan Flynn: The Case for Bone Marrow Compensation

On Rock Center with Brian Williams there was a story about a young girl named Jordan Flynn who suffers from fanconi anemia an incurable disease that requires the patient to have a bone marrow transplant. People like Jordan not only suffer but thousands of people die every year because they can’t find a bone marrow donor.

Currently due to a 1984 law (National Organ Transplant Law) it is against the law to be compensated for organs. “Do-gooders” like Michael Boo of the National Marrow Donor Program worry that compensation would make donating bone marrow unsafe because people may not disclose all their information. Mr. Boo needs to first take an economics course to realize that compensation will not only lead to more bone marrow but higher quality bone marrow. If people were paid for bone marrow based on the quality they would have every incentive to make sure they were donating the highest quality so they could get the most money (being self interested can work wonders). Also companies could be created to check the quality of the bone marrow before it was used. In addition to this the process would improve which over time would reduce the risk and make it safer. Also this could lead to new discoveries in other areas as well given most things are discovered by accident.

Data shows that only 2% of the entire population is on the national registry for bone marrow. One problem is that people can back out at any time and face no penalty. If people were paid a few thousand dollars they might be more willing to roll up their sleeves and let the blood flow out and money flow into their bank account.

It is bizarre why people would object to selling bone marrow when people sell things like sperm, hair, eggs, and essentially rent other body parts. Of course politicians and “do-gooders” pay no price for the harm done. Innocent people are in pain and may die because of a law that essentially doesn’t even benefit anyone. Is there anyone who has been saved or helped because of the 1984 National Organ Transplant Act?

End The FDA Monopoly

As I have mentioned here here and here about much of the FDA does not only stifle innovation but more people die because the FDA does not allow drugs on the market that could save lives. What is interesting is today there is even more drug regulation than ever before despite we now know more than ever about the human body and how it operates.

Writer Doug Bandow echoes this same message. The FDA nor politicians pay no price if a drug fails to get passed that may save lives. There might be outrage from people who could benefit from the drug like in the case of Avastin where people were outraged when the FDA panel ruled that the drug was not effective for breast cancer. I wonder how many individuals on the FDA panel currently have a family member, friend, or loved one with breast cancer. Perspective of course matters. People who often have serious illnesses are not only informed about their particular illness but have more knowledge than politicians and in some cases more knowledge than individual doctors. The time people and family members have to wait to get approves comes at a cost. The length of time to approve drugs has increased from 7 months in 1962 to 10 years by 1970. Now it takes between 10 to 20 years. Waiting a decade or so for a drug that could help people with life threatening and chronic illnesses is undue pain that no one should go through. By the FDA waiting to approve drugs people not only suffer in pain but some die. The Competitive Enterprise Institute found that when the FDA waited to approve beta-blockers cost 100,000 lives. This was because the drug was already approved in other countries yet the FDA waited three years to approve the drug.

Getting rid of the underlying monopoly would do a wonder of good. I think there might be an analogy to the FDA and financial services industry. If the FDA were in the financial services industry it would like something like this...An investor wants to purchase a new security, however  first the individual has to go to an individual certified by the state to practice financial advising (parallel to AMA). Once with the financial advisor the financial advisor can only recommend products that the (FPA-Financial Products Agency or FDA equal) approves. However, not only does the security have to be approved, but the security has to be related to the risk tolerance of the individual client. Clearly, as you can see people would be up in arms if this process were true. More choices, means more freedom, which means better outcomes whether it is in medicine or financial services.

It would be best to abolish the FDA all together and allow the underwriting laboratories or third parties to independently test the drugs. There would even be competition because drug companies could use more than one lab to test whether or not their drug was effective and to run the experiments. By the FDA limiting how many drugs are on the market limits the choices. Not only does it limit choices it leads to few drug companies since so much money is required to create just one drug. Drug companies have so many failures that the only drugs people talk about are the blockbuster ones. This is why drug prices are so high because consumers pay for the drugs that the FDA doesn’t approve (company passes along costs to consumer). More drugs will lead to more experimentation which is a good thing because no two people are alike. Not even the greatest scientist possesses 1/10^th of 1% of the total knowledge of the human body.  What makes us believe politicians will do any better?

The Case for Legalized Organ Sales: Kidneys

    

Something I have been thinking recently about is the organ transplant market which limits the amount of organs that can get to people. More than 92,000 people are waiting for a kidney in the United States but there are less than 17,000 that were made available for transplant last year. In the world there were less than 65,000 kidney transplant operations in 2007. More than 5,000 people die waiting every year waiting for a kidney. The chance that people will get a kidney has also been decreasing over time. In 1992, there was a 50% chance of getting a kidney on the waiting list. These days that percentage is down to only 20%. People who have to wait have to be placed on dialysis which is not only time consuming but also usually have to go three times a week for many hours. People who have a kidney transplant live on average 10 to 15 years longer than if they were on dialysis.  The cost of dialysis is not cheap either. Dialysis alone consumes 10% ($17 billion per year) of the Medicare budget.

Due to the 1984 law entitled the National Organ Transplant Act (NOTA) it is illegal to except payment for organs. This is interesting because people accept payment for donations like blood, sperm, and we all sell our brains on a daily basis. Due to this act it has lead to the underground system of illegal organ donations. According to Havoscope the average price paid for a kidney buyer is $150,000. This recent article talks about how in China, India, and Pakistan people are paying $200,000 for kidney even though they only offer the donor $5,000. The high price of what someone would pay for a kidney signals that there are not enough kidneys to go around. Economist Gary Becker has done some work on this subject and in this paper estimates that at a price of $15,200 per donor there would be a large supply of available kidney donors. Iran has actually paid people $1,200 along with some health insurance and no longer have a shortage. 

In a market system people who donated their kidneys would be rewarded if they kept their kidneys in pristine condition. This would allow them to get a premium which would increase the quality of the kidney that was donated which I would predict increase the quality of life the donee would have. The risk of dying in a kidney transplant is 0.1% and if we legalized it would decrease even further as transplant surgeons figured out how to make it not only better but safer. People who are against organ sales or “do-gooders” argue that people who want to donate their kidney  are of course not rational, have no idea what the consequences are, and left to their own devices would not be able to make a decision unless a bureaucrat decided for them.  If someone regardless of their financial position wants to sell something that they own who are we to tell them what they can or can’t do? If a person is offered $20,000 for their kidney which they could use to pay down debt, go to college, or start an investment fund what is the harm in that?

Allowing people to sell their kidneys would work wonders for all the people that have to suffer and worrying about waiting for a kidney. What do politicians tell to the families of the 5,000 people that died waiting for a kidney?  The donors will be better off because they will be compensated and the donee will be better off because they will not have to go on dialysis which is time consuming and expensive. By doing this the amount of government support for dialysis would be reduced which I think is highly desirable. As Walter E. Williams would say the true test of whether one owns something is whether or not he can sell it. By definition according to the government individuals do not own their own kidneys. 

The Case for For-Profit Hospitals: Why We Need More

With the Supreme Court expected to make a decision about Obamacare this summer it will be interesting to see how healthcare unfolds in this country.  One of the major problems is that the government has intervened so much with the practice of medicine that real free market solutions are not possible. For instance, we all see McDonalds, Starbucks, and Wal-Marts on every corner but it takes a little while to see a hospital.

The number of U.S. registered hospitals is 5,754. The number of nongovernment not for profit community hospitals is around 50% of the total. Less than 18% are for profit community hospitals. Why don’t we have more of a percentage of for profit hospitals? Why don’t we have hospitals on every corner like other for profit institutions like Wal-Mart and McDonalds. The average hospital doesn’t make any money. One of the most profitable hospitals according to Forbes is Flowers Hospital in Dothan, Alabama which brings in around $389 million in revenue with a 53% operating margin. One of the problems is that there are only a few for profit healthcare hospitals. For example, the three major companies in the industry are Health Corporation for America, Tenet, and HealthSouth. I think it is desirable to have more of the companies opening up hospitals to increase access. Also trying to move away from the third-party payer system and moving to a single-payer system (people paying out of their own pockets is always desirable). 

                As I have mentioned one of the problems with health care is that health insurance covers too many things. It would be if we bought insurance for groceries and only had a $30 co-pay every time we went to the store. As consumers we have no incentive to care about what the prices are and are encouraged to consume more.  Insurance should be for catastrophic circumstances (cancer, chronic illness, or something live threatening). The idea of insurance is to protect against unforeseen events that will cost a lot of money. Another large problem is too little competition from insurance companies. The insurance companies are regulated by states which is ridiculous. Could you imagine if the food industry was regulated by each state how many more limited choices we would get? The idea is to get away from insurance companies, Medicare, and Medicaid paying and allowing individuals to pay for their own healthcare. At the same time it would be wise to break the American Medical Association cartel of deciding who can practice medicine and allowing anyone to practice medicine including nurses. Also limiting drugs to only Phase I testing just to check the safety of a drug would dramatically bring down drug prices since in essence consumers pay indirectly for all drug companies failures when the FDA fails to allow a drug on the market. This in addition to this, I would also let anyone open a hospital without regulation. Heck there is even a trend in at home hospitalization as mentioned here. All of these things would reduce the overall costs of healthcare while at the same time increasing quality. Remember the Peter Rule: If over time prices increase while quality decreases look to government intervention as the culprit. 

The Rich: Why We Need Them

I enjoy when people say we should try to "soak the rich" and try to extract money from them since they have so much. People forget that the only way people get rich in this lifetime is by creating value. The only way you can create value is by building companies that provide products and services that people like. The only way to build these companies is by hiring employees.

Looking at the 2010 Forbes 400 list and seeing who the richest people are it seems evident that these uber rich people have to hire people if they want to create more value.

1. Bill Gates- Microsoft (89,000 employees)
2. Warren Buffett-Berkshire Hathaway (260,519 employees)
3. Larry Ellison (108,429 employees)
4. Christy Walton (Wal-Mart 2.1 million employees)
5. Charles Koch (70,000 employees)
5. David Koch
7. Jim Walton
8. Alice Walton
9. S. Robson Walton
11. Sergey Brin and Larry Page (24,000 employees)

(Note I didn't include Bloomberg number 10 because it’s hard to figure out exactly how many employees Bloomberg has because they have so many subsidiaries)

The richest people in America create over 2.6 million jobs. If you think about it for a moment though it would make sense that some of the wealthiest people in society would have to manage large organizations. Companies can only grow if they hire employees that add value. CEOs and executives of large companies are compensated so well because they are overseeing tens of thousands of employees. Managing means more responsibilities means longer hours which means more stress and misery for executives and CEOs. Businesses create more employment than any government agency could dream of. A capitalist creates a job for someone who didn't have a job. I have yet to see a poor person give a rich person a job or even a middle class person a job.

People might argue that the rich people really don't create jobs and just count their money. The only way people can continue to be rich is by investing their money in productive assets (stocks, bonds, real estate) or working. Investing money in a company gives that capital which allows them to build more factories, buy more equipment, and or hire more people. In addition to this the rich also do spend money (in fact some rich people spend so much money they end up being broke). According to Moody's, the top 5% of income earners account make up 37% of all consumer spending. If 70% of GDP is based off spending then in theory close to 24% of the GDP comes from the top 5% of income earners. Note to be in the top 5% one would have to earn a little over $160,000. If not only are these super rich people creating jobs they are also spending money! Also an important point to consider is that the richest people pay the most taxes. According to the Tax Foundation, the top 1% of income earners in 2008 paid 38 percent of all federal income taxes. The top 1% paid more in federal income taxes then the bottom 95%.

The rich are not only creating companies that make products that people enjoy, but employing many people to help create that product or service people want or need. In addition to all of this the rich are paying a large share of taxes. To say we don't need the rich is just utter nonsense. The top 5% of income earners earned close to 35% of the nation’s adjusted gross income yet paid close to 59% in federal individual income taxes. Clearly, the rich are a net benefit to a government that wants to continue to spend money.

Health Care: Problems, Solutions, and Cures

Recently, I have been thinking a lot about markets and how healthcare really isn’t a free market. When I think about free markets I think about people buying goods and services. In any free market people decide what products and services they want. Healthcare does not work like this. According to the U.S. Department of Health and Human Services in 1960 close to 50% of total health expenditures were out of pocket. In modern times this percentage has dropped to 10%. However, other people picking up the tab (insurance companies, government, third parties) has skyrocketed from 55% in 1960 to close to 90% in recent years. Clearly, this is not a free market when someone else is paying. One problem is that insurance covers too many things. I can understand a market for catastrophic insurance (getting cancer, a serious illness or disease), but for everything else we should let free markets reign.

One argument you hear a lot is “Insurance companies are just greedy”. Insurance companies profit margin are just a little above 3%. Software companies, oil companies, and even telecom companies have higher profit margins. Health insurance companies are highly regulated.

Another problem I see is one of barriers to entry in medical care. The American Medical Association (AMA) restricts who can and can’t become a doctor. The AMA is in charge of granting medical schools. What is very interesting is that today there are around 129 medical schools which is less than the 166 medical schools we had a century ago. This is all despite the fact that the number of medical school applications has increased exponentially in the last 100 years! I am perfectly okay with allowing nurses to do some of the duties of doctors. A lot of ailments that people have (sinus infection, aches, and sore throat) nurses could easily handle. In 2008, there were around 2.6 million nurses. Nurses would be paid more since they would be engaging in more valuable activities. The other major problem is the FDA (Federal Drug Administration). The cost of developing one drug in 2008 was $993 million. If you are one of the major drug companies you are going to be very sure you have a product that can make it to market. The FDA requires that companies go through a clinical trials and a four step process. The drug has to first be evaluated for safety, then the drug has to be evaluated to see if it effective, then people have to actually take the drug and double blind tests with placebos have to be in place. This process takes many years. Meanwhile people with the ailments that the drugs are trying to cure or help are suffering. The number of patients required to conduct a clinical trial have also increased. In the late 1970s only 1,600 people were required for a trial. By the mid 1990s this number increased to 4,200. The number of drugs getting approved every year by the FDA is not in the hundreds its only a couple dozen. In 2009, the FDA only approved 25 new drugs. Yet in that same year more black box warnings were issued than the amount of drugs approved. The black box label warnings are warnings for people who may misuse the drug even though there are directions and a list of possible side effects already on the prescription. Could you imagine if iTunes was in charge of approving new songs and only approved 25 songs in one year? Consumers would be outraged. People could argue “Well songs are one thing but health is another issue”. I think I care more about my life then even my own doctor. There are times when consumers are more informed than even their own doctors because people do actually seem to care about living. When people are dealing with decisions that have huge consequences they will seek information. The icing on the cake is prescription drugs which I mentioned in a previous post. There are close to 4 billion prescriptions written a year. What doesn’t make any sense is requiring a prescription for harmless things like benzyl peroxide (face wash) which I don't believe anyone has ever died from. Drugs like this should just be moved to over the counter which would free up time for the doctors writing the prescription and the consumers who have to waste their time going to the doctor. Also consumers would save money because if you got CVS and Walgreens competing for prices they would drive down prices instead of insurance companies trying to figure out how much they would cover. Moving hundreds of prescriptions from back of the pharmacy to over the counter would improve healthcare.

People are often mad because of the prices they pay for healthcare, but often see what are causing the high prices. Getting rid of the AMA would allow more people to become doctors which would bring down the cost of medical care. Also bringing more drugs over the counter would decrease the cost of prescription drugs since they would be sold in free market places like CVS and Walgreens which would have to sell the drugs for what consumers would pay.