Michael Lewis on 60 Minutes

Michael Lewis talks about the Wall-Street bailout, the culture, and executive bonuses. Update: "The Big Short" went from #11 on books on Amazon to #1 on books after the 60 Minutes interview aired.


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Nip and Tucked

More than a week ago marked the 100th and last episode for one of my favorite shows Nip/Tuck. I believe I started watching the show in high school and continued on throughout my college years. The show actually started in 2003. I was a little late in the game watching it but really didn't miss much. Although, the show was always edgy, interesting, and somewhat dark I think the thing I will miss most are the characters. I have to admit however the show did seem to get bizarre and weird after the second season. I will miss tuning in every Wednesday night to watch what Dr. Troy and McNamara are up to. What I think really drew in the viewer was looking at how two plastic surgeons and their lifestyles. I loved how Christian's has no concern for money. He always bought Ferrari's, Lamborghini’s, expensive houses, and having idea if he was broke or rich. Of course this is a fantasy world created by TV writers and does not mirror reality (or if it does to a very small degree). One of my favorite episodes was this past season where they showed Sean and Christian in their college years. I wonder however, what is ahead for both of these actors. Will they just be remembered for their appearance from one show or be known for other roles?

Nip/Tuck spawned off many reality shows such as Dr. 90210. What is really interesting is how much people spend a year on plastic surgery. According to the American Society of Plastic Surgeons 12.1 million cosmetic procedures were performed. This number does underestimate the total amount of surgeries since there is another board just for just facial plastic surgery. I have a feeling that the popularity of Nip/Tuck increased not only the awareness of plastic surgery but made it more socially acceptable. Hopefully, people realize that plastic surgery is a serious procedure and understand that there are risks with any surgery. Also finding a board certified surgeon either by the American Society of Plastic Surgeons or American Board of Facial Plastic Surgeons is important. Many doctors can take a weekend course and be an “expert” in plastic surgery. For example, Dr. Robert Rey and Dr. David Matlock (seen in Dr. 90210) are not board certified in plastic surgery. Although, they perform plastic surgery procedures they are not certified to do them which should make wonder about what kind of quality they can provide. Plus, you have to wonder about the doctors you see on television. Usually, you people that have to advertise because they “aren’t” good doctors or surgeons. Maybe their commercials should discount their quality by at least 25%. People have to remember you get what you pay for.

EconTalk

I am very fortunate to have discovered EconTalk. EconTalk is usually a one hour podcast with Dr. Russell Roberts, professor of economics at George Mason University. Recently EconTalk celebrated its 200 episode. I must confess I have listened to nearly half of these podcasts. The podcasts usually focuses on an economic issue, current book, or current issue that can be related to economics. Some podcasts can be technical but nearly all of them can be listened to by the average learner. I say average learned because I don't necessarily think that the average person always wants to learn. What is really interesting is how Dr. Roberts has a clear and concise way of shorting out the information and making it digestible to the listener.

When I was trying to research information about Dr. Walter Williams I came across an old EconTalk podcast and immediately became hooked. One of my favorite EconTalk guests has been Richard Epstein. Epstein has the ability to talk for very long periods of time in complete sentences and paragraphs. Other fun guests have included Mike Munger, John Cochrane, and Bryan Caplan.

Some guests I would like to see on EconTalk would be Niall Ferguson (history of money), Jeffrey Miron (legalization of drugs), and John Lott Jr (crime and economics). The show does a great job of applying economics to many categories and is very informative. I could see very practical application of EconTalk to any economics class. Let’s not forget knowledge is power!

CEO's and The Tradeoffs

Many people complain about how much CEO's or "fat cats" make. According to the AFL-CIO "A chief executive officer of a Standard & Poor's 500 company was paid, on average, $10.9 million in total compensation in 2008". The same article talks about how CEO's are paid 10 times more than the average full-time worker. Let's examine this statement. Yes, CEO's are paid 10 times what the average full-time worker is however the average CEO is most likely 10 times more productive than most employees in the company. Goldman Sachs in 2009 doled out $700,000 in bonuses to the average employee. People demonstrated public outrage when they learned how much people at Goldman Sachs were getting paid. Anywhere between 1,500-2000 MBA students interview for a first round interview at Goldman Sachs. Usually there is between 4-6 interview before someone is offered a job. Out of this pool of candidates around 200 people are hired. Clearly, this shows a very small percentage of candidates are accepted into the Goldman Sachs culture.

When people hear about executive payouts they hear the rewards, but never hear anything about the costs. Being a CEO does have costs. An executive works long hours, is usually away from his/her family for long periods at a time, and generally has a high stress level. CEO’s and executives also process traits that very few people have. Often times CEO’s are very great communicators, good at delegating, and can take complex situations and simplify them. Since only a small percentage of people have these characteristics it makes them highly valuable. People don’t understand that CEO’s and paid so much because of their productivity. Companies have alternatives when hiring CEO’s. The board of directors or some type of committee is placed in charge of what executives and CEO’s are paid. These groups have a vested interest since they usually own stock in the company.

What seems to be evident is that CEO’s are paid the market value for their services. Board of directors and committee members are not stupid. The excuse that people are greedy doesn’t make any sense. Since greed has existed since the beginning of time and since greed can’t increase an executive’s salary it’s hard to say greed is the reason. If a CEO’s job pays so well why doesn’t everyone want to be a CEO? Clearly, there are costs and benefits to everything.

Current Healthcare Debate

With President Obama and the recent healthcare summit it seems clear that nothing will get done in terms of healthcare. Although, this may seem bad it could be good for several reasons. I had not read the enormous bill is 1,990 pages long filled with 400,000 words. I don’t know about you but I don’t know how any politician has time to read that (I guess that’s what interns and aides are for). The House bill has an estimated cost of $894 billion over a 10-year period. My gut tells me the cost will be more than this but we can put that aside for now.

The problem with healthcare insurance is that it isn’t a consumer driven market. The problem with health insurance is that it covers everything that can happen to an individual which leads people to overuse it. For example, if the cost to go to the doctor is only $30 with insurance then people will continue to go to the doctor whenever they feel sick even if it really isn’t an emergency. One solution for this would be to just have insurance for catastrophic events just as a serious illness, surgery, or cancer. Car insurance works relatively well. Our car insurance doesn’t cover the cost of gasoline rising or allows us to change the color if we don’t like it.

Another serious problem is competition. State mandates don’t allow Americans to buy health insurance across state borders. I really don’t understand the logic behind this. If consumers were allowed to buy health insurance in different states it would bring down the cost of health insurance.

Many people talk about how many people die due to lack of healthcare coverage. A Harvard study, estimated that 45,000 people a year die from this. This is around .00148% of the entire population. More people die from fatal car accidents than die from lack of medical coverage. Why not make the speed limit 5 mph? Clearly, something has to be done about the uninsured. I would be in favor of a voucher system that would allow “qualified” people to get healthcare wherever they choose. This would create competition and force doctors to compete on costs and quality of service.

Speaking of doctors why are we limiting the supply of doctors. I mean why does the American Medical Association have a cartel on who can practice medicine? Why not have a voluntary system of people who want to help other people. We have voluntary associations for other professions.

In a related note why not decriminalize all prescription medication. If someone wants to take 10 Vicodin are they really hurting me? The only problem I could see with this is if there were any externalities (if the drugs cause them to be impaired which led them to hurt someone). I have a feeling many doctors appointments are solely just to get a refill on prescriptions. People have more information than ever in today’s society about how effective drugs are and their side effects. The Federal Drug Administration (FDA) claims that they want to help save lives. If they were so concerned about saving lives why do they block the approval of drugs that could save hundreds if not thousands of lives? People are not as ignorant as government officials believe they are. Decriminalizing drugs would also bring down the cost of drugs as well since they would be sold in many more places. Also more research could be done by scientists which would lead to more breakthroughs and discoveries than currently take place. The problem with healthcare is free markets it’s because of the lack of free markets.

Libertarians The Real Elitist?

Reading a recent quote from Dr. Bryan Caplan a professor of economics at George Mason University I was wondering if libertarians truly are elitist. Here is the quote from Dr. Caplan, “In a modern democracy, not only can a libertarian be elitist; a libertarian has to be elitist. To be a libertarian in a modern democracy is to say that nearly 300 million Americans are wrong, and a handful of nay-sayers are right.” I am pretty sure I agree with this quote. What really is interesting is how the libertarian view seems to be the best of both worlds (economically conservative yet socially liberal). However, the mainstream does not seem to embrace this viewpoint and writes off libertarians as crazy or nuts.

I use to think Republicans were into cutting spending, lowering taxes, and having a strong defense system. However, after President George W. Bush I really don’t understand how this is the Republican message. Libertarians want to have a balanced budget, low and fair taxes, and not be at war. Yet people still seem to think that this ideology of setting things free can be dangerous.

Dr. Caplan’s quote is very true since libertarians are telling everyone else they are wrong (expect for libertarians). This is most likely why the libertarian party isn’t very large. It would be hard to get elected if you told everyone else they are wrong. Most elected officials get elected because they perform favors or tell people they can assist them in some form. With the growing deficit, political unrest, and a continued war the libertarian party might see a rise in membership since the Republican and Democratic Party have had issues. Can anyone say Ron Paul?

Take It To The Limit

I recently watched a documentary on Netflix called “MaxedOut”. The documentary was about how Americans are in debt and are struggling to pay their bills. The film shows different people from different backgrounds and follows their story of how they got themselves into debt. The documentary also shows debt collectors and I believe tries to label them as the bad guys for harassing people that don’t pay their bills. Let’s remember debt collectors harass people that are not responsible. Elizabeth Warren (then Harvard law professor) and now Chair of the Congressional Oversight Panel talked about the dire situation of how people simply can’t make their ends meet. I think the more important question is what kind of ends are they trying to meet? People don’t have to buy a larger house, nicer car, or a boat they really didn’t need. What happened to people being self-reliant and prudent?

If you tried to explain the concept of a credit card to an alien it could get complicated very fast. A credit card is normally used when people don’t have enough cash on hand to pay for certain items. In the past credit cards where used to purchase big ticket items. However, now people are usually credit cards to pay for a coffee at Starbucks or something on the 99 cent menu at McDonalds. Why don’t more people go on a cash diet? This could be quite simple. Every month you allocate money for certain purchases like transportation, food, clothing, and entertainment and put that money into an envelope. The rule would be you can only use how much is in that envelope and couldn’t use ATM, debit or credit cards. Another caveat would be you couldn’t mix and mingle funds from different envelopes. Whenever you bought something you could physically see and feel that money coming out of your pocket which might encourage savings. However, people don’t think like this. I guess people feel a sense to entitlement or just simply can’t defer gratification. Although, statistics show that in rough economic situations people do in fact become prudent. Data from the Bureau of Economic Analysis shows that savings rates are much lower in boom periods and much higher in recession periods. In the middle of 2005, when the economy was doing quite well the savings rate was around 1.5% of disposable income. Contrast this with the second quarter of 2009 when the savings rate reached 5% of disposable income due to the economic uncertainty. What we don’t know is much people really should be saving. Perhaps even saving 5% of disposable income is too low. Some of the reasons I think people might be “maxed out” is because they really don’t understand the full implications of paying interest if they miss a credit card payment. True, credit cards companies can charge 30% on a balance that isn’t paid but aren’t you the one that took out the credit card?

One criticism I had when watching “MaxedOut” was how the story was one sided. The documentary failed to show the reason people where in debt. The film sort of took the premise “Oh poor us and let’s condemn all these evil credit card companies”. A sad story was told in the film how two mother’s children committed suicide over mounting credit card debt. Clearly, this is tragic but where was the communication process between the parents and children that could possibly have prevented these tragic events. I do not believe credit card companies are evil. Credit card companies are there when people need them to buy things that people can’t afford. The idea that you can stick a little piece of plastic into a wall anywhere in the world and get cash is quite interesting and novel. People should understand that getting a credit card is voluntary. People should be responsible with a credit card just as they are with alcohol, food intake, or anything else that could be harmful. We have to remember there is no such thing as a free lunch.

Becker, Prostitution, and Crime

Recently I have been thinking about how crime and economics are related. Dr. Gary Becker is known for his work within crime and economics. Dr. Becker has also won a Nobel Prize in Economics for using economics to understand how criminals think. Becker argues that criminals like the rest of us are rational. Criminals have to weigh the benefits with the cost of robbing, stealing, or whatever other criminal activity is involved. If you were a criminal you have to divide your time between criminal behavior and legitimate behavior. Also, if crime is profitable criminals will continue to engage in theft, robbery, and other types of deviant activity. However, if a criminal could become harmed or killed in the act of performing a crime then they are less likely to commit a crime. John Lott Jr. has done extensive research in gun right and has shown that more guns do equal less crime. Becker believes that the crime rate can never be 0% however. Clearly, it would be very expensive to have cops and surveillance cameras on every corner.

Although, I would like to point there are some simple things America could do to reduce the crime rate. First, why not get rid of the minimum wage? If the minimum wage was repealed then more people would be working and making money which could impose opportunity costs on criminals since they could have a job (even if it was low paying) as opposed to committing crimes. Secondly, I would decriminalize all drugs (even prescription drugs). Since there is a black market for drugs the prices are artificially pushed up. According to the Druglibrary.org “the costs of marijuana, cocaine and heroin are about 100 times what they would be in a free market”. If these drugs were legalized the price would be pushed down which would decrease the incentive people to steal the drugs since they wouldn’t be worth as much. Prescription drugs should also be legalized. True, we might have more drug users but if these illicit drugs were legal we could study how to cure people that are addicted to these very drugs.

The FDA (Federal Drug Administration) regulates monitors, and controls, what drug and food companies say about their products. However, part of the problem is sometimes the FDA declines a drug due to certain side effects. Some of these drugs can be lifesaving however. Plus, people are not as dumb as the government believes. Legalizing prescription drugs would allow more drug testing and research and development to be performed which would lead to even better drugs. In addition to this, the price of drugs would also decrease because if drugs were sold in stores such as Walgreens or CVS the stores would have to be competitive driving down the price as opposed to insurance companies that decide what they should pay (if they pay at all) for certain types of drugs. Third, I would legalize prostitution. Recent research I have done has shown that the countries that have regulated legalized prostitution all have lower rape rates when compared to the United States. Prostitutes would also be less likely to be harmed since they could have legal protection if they went to the police. Also legalized prostitution would result in lower STD rates along with lower HIV and AIDS rates. Let’s assume prostitutes had to get a blood test ever month it would be widely known who had certain diseases and who didn’t. Right now this doesn’t exist because prostitution like the drug industry is an underground economy. Therefore, there isn’t perfect information. Some of these ideas I believe could work wonders in not only reducing crime but could also raise much needed revenue.

Economics can clearly be used for more than forecasting future GDP or what future interest rates might be. What is interesting is that economics can be used as a framework when dealing with type of issue that involves logic and critical reasoning skills.

McFat?

I first have to apologize for not blogging in quite some time. I have been busy with grad school and with all these ‘little” assignments. In the past few weeks I have thinking about of a lot of different things. One of them is health. It is widely known that Americans are overweight and/or obese. According to the CDC, in 2006 67% of Americans were overweight. What this also would say is that only 33% of Americans are not overweight which seems like a reasonable number but I have a feeling that the percentage of people becoming overweight has been increasing since the 1970’s. I recently watched Supersize Me (for the third time… in college you are pretty much forced to watch it in any type of nutrition class). I thought Morgan Spurlock had an interesting idea of going on a McDonalds diet for 30 days. In the end he gained around 25 pounds and had a total cholesterol level of 230. His cholesterol before he started the McDiet was relatively good. Also his liver was in bad shape toward the end as well. I thought one of the highlights of the movie was Dr.Siegel (the cardiologist) who told Morgan not to eat McDonalds for another year after this experiment. In the movie they said Morgan had consumed as much McDonald’s food as someone should in 8 years. The first point of the story is obviously not to eat fast food every day. Sometimes I wonder though about working professionals who eat out a lot or don’t make their own lunch. Not only all those extra calories will pile on but the cost of all those meals adds up. Making a lunch is not only healthier, but could save you close to $1000 per year ($4 per day in savings x 5 days per week x 50 working weeks per year).

What I find really interesting is that people spend so much on trying to lose weight without wanting to do any work. Liposuction, diet pills, and weight loss books were all created to seduce people into thinking that they could get obtain a healthy body without having to lift a finger. Clearly, losing weight takes hard work, consistently, and dedication. What I find really intriguing is that people make millions of dollars per year selling ideas on weight loss even though the concept of taking less calories than you consume is quite simple. The same principal can be applied to those that want to accumulate wealth. As long as you save more than you spend you will have a surplus and if you do this over many years than you can create wealth.

So what can people do to lose weight? The first thing people can do is stop drinking soda. A recent study showed that drinking soda can lead to an increase in pancreatic cancer. Water seems like a good alternative and doesn’t contain any calories. Also using a bowl to measure out to be able to physically see how much you are eating is important. Working out too is a great too. The American Heart Association recommends working out at least 30 minutes a day to decrease the risk of heart attack, stroke, and other heart related diseases. Hopefully, if we all make little changes in our diet/exercise program we can feel better, live longer, and enjoy all the fruits life has to offer.

Superman Spending

It looks like Shaquille O'Neal is not only a super star basketball player but also a superstar spender. Last year, it was reported that O'Neal spent his money on the following items:

$156,116 in mortgages on three homes
$31,299 in homeowners insurance
$3,345 in phone bills
$1,610 in lawn and pool maintenance
$12,775 in food
$1,495 in cable TV
$24,300 in gas
$6,730 in dry cleaning
$17,220 in clothing
$2,305 for pets
$110,505 in vacations
$26,500 for childcare

-It should be noted that Shaq also has property taxes, state taxes (he pays tax on more than one state because sports stars have to play tax in the state where the game occurs). Shaq’s salary is around $1.8 million per month. Right now he is spending close to $875,000 per month. The good news is that Shaq is probably making $200,000 a month even after spending all this money. Even though he is making over $20 million a year now my question is what will he do after he retires? Clearly, he can't keep up this type of spending. His accountant and financial advisor must be pulling their hair out when they see he is spending this much money.

Source:
http://www.theinsider.com/news/604990_Shaq_s_Personal_Spending_Habits_Obtained_My_Media