Hi all,
I promised a lesson in Econ 201 which will hopefully enlighten and educate you like never before. This comes from one of my favorite books, "Unleashing the Killer App", by Downes and Mui.
Most people have heard of what we call a "transaction cost" - now we think of it as an ATM fee or similar. However, it is not a one shot deal, there are many parts to a transaction cost and they are all important. Leaving any one part out would be like a genetics expert saying, "Oh heck, we don't need that stinking chromosome!".
There are six parts to a transaction cost - (there will be a quiz later)
1. search costs - trying to sort and filter the right product or service.
2. information costs - learning the particular product and company info as the results of your search
3. bargaining costs - pretty obvious, this can be simple like eBay or very complicated like a federal contract
4. decision costs - weighing the risks , features and benefits of your choice.
5. policing costs - making sure you got what you paid for according to your earlier agreement and,
6. enforcement costs - what happens when you get a short ship or a deviation from the original agreement, not uncommon.
Ronald Coase studied economics in 1931 and published his findings (above) in 1937!!!
The article "The Nature of the Firm" earned him the Nobel prize, but over 50 years later!
His conclusion - firms are created because the additional cost of organizing and maintaining them is cheaper then the transaction costs involved for individuals to conduct business directly. (think eBay, Amazon). I can buy life and car insurance over the web, why not health insurance? How hard can this be?
Conversely, when was the last time you explored for and refined your own gasoline? Would you be comfortable buying your own surgery equipment on the Net? "Hey doc, don't use that expensive hospital stuff, I got a deal on eBay! I'll bring my own scalpel and anesthesia."
When I was a Bid/RFP manager at Unisys, later DG, it was not uncommon for our government and health care bid responses to be over 500 pages long, we often had to use two binders to fit it all.
By now if you are savvy, you know where this is going.
Question - Who is going to police the government if they also operate the system? D'oh! Let's create another layer of bureaucracy - yeah, that will make things better.
If the government gets involved in operating the health care system, they will DOUBLE their (our) transaction costs. They are set up to do oversight, we already have contract laws regarding commerce, police, courts, FBI and Secret Service to manage the oversight of our economy. These fixed costs are built in over decades (amortized, for you accountants). What accountant ever got promoted by saying - "let's double our fixed costs immediately and then hopefully we'll save money over time!" I think that firm was Abbott and Costello CPA, LLC.
Based on my 20 plus years of experience I can add a BONUS education moment - that there is an extreme cost in health care based on #4 and #6. In order for a health care professional to change their habits, the decision cost (using a web based EMR,CPOE recent studies indicate only 15% of all docs use them! even now.) The "switching cost ROI" (my term) must be multiples (5x to 10x!) in order to justify the retraining of everyone in the delivery chain. Also, no one will stick their neck out with a new system because they are afraid of getting sued. They need legal cover.
I am not a smart guy, Mr. Coase won the Nobel prize, maybe we should listen to him. It would be foolish to ignore this reality. This Nobel prize winning economist just proved to me that our transaction costs would double with a government run plan.
There is another, better way; credit goes to my good friend and mentor, Dr. Bob T. He said the best choice for all is to head in the direction of "consumerism", or an individual-based health care system. Again, I can buy an IRA, 401k, life and car insurance over the web, why not health insurance? Create a duplicate system.
The web will enable the best of our collective intelligence to refine and improve the current system, without any transaction cost increases. I like simple.
copyright M. Ryan 2009
Monday, August 24, 2009
Friday, August 21, 2009
Cash for Codgers
Hi all,
I know this was supposed to be Econ 201, but let's consider an intermission. Since the government thinks Cash for Clunkers was a success and the Health Care reform is a lead balloon, they are trying to combine the two to get health reform passed - from my good (retired) friend Ed:
Nice to know there is something new for us now that the anti-seniors part of Bama's Healthcare Deform program isn't being widely accepted.
Democrats, realizing the success of the Obama's "Cash For Clunkers" rebate program, have revamped a major portion of their National Health Care Plan.
President Obama, Speaker Pelosi, and Sen. Reed are expected to
make this major announcement at a joint news conference later this week. I have obtained an advanced copy of the proposal which is named....
"CASH FOR CODGERS" and it works like this... Couples wishing to access health care funds in order to pay for the delivery of a child will be required to turn in one old person. The amount the government grants them will be fixed according to a sliding scale. Older and more prescription dependent codgers will garner the highest amounts.
Special "Bonuses" will be paid for those submitting codgers in targeted groups, such as smokers, alcohol drinkers, persons 10 pounds over their government prescribed weight, and any member of the Republican Party.
Smaller bonuses will be given for codgers who consume beef, soda, fried foods, potato chips, lattes, whole milk, dairy products, bacon,Brussels sprouts, or Girl Scout Cookies.
All codgers will be rendered totally useless via toxic injection. This will ensure that they are not secretly resold or their body parts harvested to keep other codgers in repair.
Editor's note: Notice that they waived the legal requirement of an environmental impact statement first because that would just slow things down!
I know this was supposed to be Econ 201, but let's consider an intermission. Since the government thinks Cash for Clunkers was a success and the Health Care reform is a lead balloon, they are trying to combine the two to get health reform passed - from my good (retired) friend Ed:
Nice to know there is something new for us now that the anti-seniors part of Bama's Healthcare Deform program isn't being widely accepted.
Democrats, realizing the success of the Obama's "Cash For Clunkers" rebate program, have revamped a major portion of their National Health Care Plan.
President Obama, Speaker Pelosi, and Sen. Reed are expected to
make this major announcement at a joint news conference later this week. I have obtained an advanced copy of the proposal which is named....
"CASH FOR CODGERS" and it works like this... Couples wishing to access health care funds in order to pay for the delivery of a child will be required to turn in one old person. The amount the government grants them will be fixed according to a sliding scale. Older and more prescription dependent codgers will garner the highest amounts.
Special "Bonuses" will be paid for those submitting codgers in targeted groups, such as smokers, alcohol drinkers, persons 10 pounds over their government prescribed weight, and any member of the Republican Party.
Smaller bonuses will be given for codgers who consume beef, soda, fried foods, potato chips, lattes, whole milk, dairy products, bacon,Brussels sprouts, or Girl Scout Cookies.
All codgers will be rendered totally useless via toxic injection. This will ensure that they are not secretly resold or their body parts harvested to keep other codgers in repair.
Editor's note: Notice that they waived the legal requirement of an environmental impact statement first because that would just slow things down!
Thursday, August 20, 2009
"Collective Intelligence"
Hi all,
This is a lesson in Economics 101, hopefully a different kind of lesson. It seems our country is in a lot of turmoil over health care, cash for clunkers, etc. I know why and I know the solution. The beginning of the solution is to understand economics, but specifically, HOW people respond to economic issues.
I know you have heard of the law of supply and demand, yada yada yada... but HOW does it work?
Let's assume you are a politician and (here's the part where suspension of disbelief takes over) you are the smartest person in the world! by any measure - Ivy league degree, an attorney or MD, (funny how few business people are politicians, maybe there is no profit there). You try to make a law and all of a sudden there are unintended consequences, which occur frequently. That is because our politicians are making a fundamental mistake of assumption. They assume that since they are so intelligent they can make a law which everyone will follow because it is "good for them". My argument with this logic - it is a non-sequitur - (Latin for "it does not follow").
It is impossible to assume that because you are so smart that your law is also smart enough to apply to all circumstances, so somewhere, someone will be losing out. When that happens, they will not comply and try to go around the law in their own self interest. It may be true that a few of our politicians are truly very bright paople and, one-on-one, they may win a battle of intelligence against the average American. I grant that.
However, there is NO WAY that the smartest person in the world can possibly compete with the "collective intelligence" or "collective consciousness" of the 1,000 average people standing next to him or her. The laws of large numbers favor the group of 1,000 average people. Can you imagine any game in which one smart person would compete against 1,000 others like Trivial Pursuit? They would fail miserably.
from Wikipedia- the law of large Numbers-
The LLN is important because it "guarantees" stable long-term results for random events. For example, while a casino may lose money in a single spin of the roulette wheel, its earnings will tend towards a predictable percentage over a large number of spins. Any winning streak by a player will eventually be overcome by the parameters of the game. It is important to remember that the LLN only applies (as the name indicates) when a large number of observations are considered. There is no principle that a small number of observations will converge to the expected value or that a streak of one value will immediately be "balanced" by the others. See the "Gambler's fallacy". (I bet if you research this you will see why politicians are fools). Think of "levelling the playing field".
Note that the LLN speaks of a "guarantee" and "stable" results - NOT beneficial results, in fact, it guarantees an AVERAGE result. It is impossible to get 100% compliance (wins) using this method. The LLN does not apply to "outcomes" or results because my definition of success or prosperity is most likely very different from my neighbor's. There is no specific single result that is considered a win, but politicians don't think that way. They want a specific defined outcome for all. Health care is unique, not because of the "outcome", we all want to be healthy, but because of the mechanisms required to achieve that outcome.
A brief history lesson - Adam Smith, a very famous economist wrote a book in which he said there was "an invisible hand" controlling the world's economies. This invisible hand is the action part of how people respond to economic conditions.
This collective consciousness or collective intelligence is HOW capitalism works. The actions of this invisible hand are guided by the collective intelligence of the large numbers. This is what our founding fathers meant when they wrote "pursuit of happiness". This is HOW we achieve it. We search for different outcomes using a common part of humanity. Another reason why the government needs to create the environment for the pursuit of happiness and not operate it - it is mathematically impossible. My inner geek is happy.
my next post will be Econ 201 and the mistakes car dealers made in the cash for clunkers program.
This is a lesson in Economics 101, hopefully a different kind of lesson. It seems our country is in a lot of turmoil over health care, cash for clunkers, etc. I know why and I know the solution. The beginning of the solution is to understand economics, but specifically, HOW people respond to economic issues.
I know you have heard of the law of supply and demand, yada yada yada... but HOW does it work?
Let's assume you are a politician and (here's the part where suspension of disbelief takes over) you are the smartest person in the world! by any measure - Ivy league degree, an attorney or MD, (funny how few business people are politicians, maybe there is no profit there). You try to make a law and all of a sudden there are unintended consequences, which occur frequently. That is because our politicians are making a fundamental mistake of assumption. They assume that since they are so intelligent they can make a law which everyone will follow because it is "good for them". My argument with this logic - it is a non-sequitur - (Latin for "it does not follow").
It is impossible to assume that because you are so smart that your law is also smart enough to apply to all circumstances, so somewhere, someone will be losing out. When that happens, they will not comply and try to go around the law in their own self interest. It may be true that a few of our politicians are truly very bright paople and, one-on-one, they may win a battle of intelligence against the average American. I grant that.
However, there is NO WAY that the smartest person in the world can possibly compete with the "collective intelligence" or "collective consciousness" of the 1,000 average people standing next to him or her. The laws of large numbers favor the group of 1,000 average people. Can you imagine any game in which one smart person would compete against 1,000 others like Trivial Pursuit? They would fail miserably.
from Wikipedia- the law of large Numbers-
The LLN is important because it "guarantees" stable long-term results for random events. For example, while a casino may lose money in a single spin of the roulette wheel, its earnings will tend towards a predictable percentage over a large number of spins. Any winning streak by a player will eventually be overcome by the parameters of the game. It is important to remember that the LLN only applies (as the name indicates) when a large number of observations are considered. There is no principle that a small number of observations will converge to the expected value or that a streak of one value will immediately be "balanced" by the others. See the "Gambler's fallacy". (I bet if you research this you will see why politicians are fools). Think of "levelling the playing field".
Note that the LLN speaks of a "guarantee" and "stable" results - NOT beneficial results, in fact, it guarantees an AVERAGE result. It is impossible to get 100% compliance (wins) using this method. The LLN does not apply to "outcomes" or results because my definition of success or prosperity is most likely very different from my neighbor's. There is no specific single result that is considered a win, but politicians don't think that way. They want a specific defined outcome for all. Health care is unique, not because of the "outcome", we all want to be healthy, but because of the mechanisms required to achieve that outcome.
A brief history lesson - Adam Smith, a very famous economist wrote a book in which he said there was "an invisible hand" controlling the world's economies. This invisible hand is the action part of how people respond to economic conditions.
This collective consciousness or collective intelligence is HOW capitalism works. The actions of this invisible hand are guided by the collective intelligence of the large numbers. This is what our founding fathers meant when they wrote "pursuit of happiness". This is HOW we achieve it. We search for different outcomes using a common part of humanity. Another reason why the government needs to create the environment for the pursuit of happiness and not operate it - it is mathematically impossible. My inner geek is happy.
my next post will be Econ 201 and the mistakes car dealers made in the cash for clunkers program.
Friday, August 14, 2009
Healthcare updates
well.... the healthcare debate intensifies, what did the politicians think would happen?
I have a much better idea - remember Forrest Gump - stupid is as stupid does.... well, how about a positive spin on that note - Simple is as Simple does! Use the KISS principle-
Maybe if we tried a 10 or 20 page bill instead of a "comprehensive" elephant bill, we could get real reform. Everyone wants reform, very few in the minority want government control. A brilliant news report interviewee said a few days ago, "the government should design the system, not OPERATE the system."
I am still upset about the fact that I have money in my FSA from my former employer that I cannot use - so suggestion #1.
1. make FSA accounts personal and portable, delete the "use it or lose it" provisions. simple.
I have a big problem with using tax policy to promote any social issues at all. The government should not be in the business of modifying individual behaviors. So, suggestion 2
2. treat all Americans equally (shocking). All healthcare benefits should be tax free for all or none. It should not matter how you are employed or not. Big firm or self employed or even not employed. Make it a tax free issue for all. Simple.
3. do NOT add on multiple amendments, congress is like a bunch of drug addicts, they can't leave well enough alone. An MD friend of mine once said - "the perfect is the enemy of the good." Try a simple bill and STOP before you hurt yourself.
Treat all Americans equally - it is an old concept often forgotten - and here's why it is the only solution:
I know for a fact that certain cancer treatments/therapies are now being designed genetically for a specific individual. Custom tailoring a cure is as personal as it gets. Therefore, it is impossible to make a law which covers all citizens if their circumstances are unique. That is why we have an elephant of a bill. What was that old saying - "you can't be all things to all people"?
I will have more over time, this will do for now. maybe my next post will be about economics - I have a lesson or two for our politicians about how things really work. Hopefully you will not have heard these concepts before, they will be new and interesting.
p.s Redhed Fred (copyright! maybe even a trademark coming soon) is making progress, maybe I should print t shirts and run him in parades. Here'a a website with a similar pic for a good idea of what I hope he will look like after his plastic surgery. www.diecastdirect.com/asp_modules/add_item.asp?ProductCode=DCP50748
I have a much better idea - remember Forrest Gump - stupid is as stupid does.... well, how about a positive spin on that note - Simple is as Simple does! Use the KISS principle-
Maybe if we tried a 10 or 20 page bill instead of a "comprehensive" elephant bill, we could get real reform. Everyone wants reform, very few in the minority want government control. A brilliant news report interviewee said a few days ago, "the government should design the system, not OPERATE the system."
I am still upset about the fact that I have money in my FSA from my former employer that I cannot use - so suggestion #1.
1. make FSA accounts personal and portable, delete the "use it or lose it" provisions. simple.
I have a big problem with using tax policy to promote any social issues at all. The government should not be in the business of modifying individual behaviors. So, suggestion 2
2. treat all Americans equally (shocking). All healthcare benefits should be tax free for all or none. It should not matter how you are employed or not. Big firm or self employed or even not employed. Make it a tax free issue for all. Simple.
3. do NOT add on multiple amendments, congress is like a bunch of drug addicts, they can't leave well enough alone. An MD friend of mine once said - "the perfect is the enemy of the good." Try a simple bill and STOP before you hurt yourself.
Treat all Americans equally - it is an old concept often forgotten - and here's why it is the only solution:
I know for a fact that certain cancer treatments/therapies are now being designed genetically for a specific individual. Custom tailoring a cure is as personal as it gets. Therefore, it is impossible to make a law which covers all citizens if their circumstances are unique. That is why we have an elephant of a bill. What was that old saying - "you can't be all things to all people"?
I will have more over time, this will do for now. maybe my next post will be about economics - I have a lesson or two for our politicians about how things really work. Hopefully you will not have heard these concepts before, they will be new and interesting.
p.s Redhed Fred (copyright! maybe even a trademark coming soon) is making progress, maybe I should print t shirts and run him in parades. Here'a a website with a similar pic for a good idea of what I hope he will look like after his plastic surgery. www.diecastdirect.com/asp_modules/add_item.asp?ProductCode=DCP50748
Wednesday, August 12, 2009
I noticed Rustoleum has introduced new automotive paints. I am a grad of General Motors Institute and a car nut. I am currently building a 1933 Ford hot rod and restoring a very rare numbers matching 1940 Ford one ton pickup. I was wondering if they would be interested in using the pickup for a commercial or marketing promotion. I have used these products for years and would like to paint it entirely with Rustoleum paint to see how it turns out.
So here's my bit of creativity for today - The truck is named Fred, it has the original flathead engine, wait for it..........and I want to paint it red, so we can call him Rustoleum "Redhed Fred" for fun. I intend to chronicle the progress on my blog. My Dad found a picture of a 1940 Ford firetruck very similar to what I am restoring, so I am posting that here for my look-alike challenge. I am going to try and get as close to this picture as possible. Wish me luck!
copyright M. Ryan 2009
So here's my bit of creativity for today - The truck is named Fred, it has the original flathead engine, wait for it..........and I want to paint it red, so we can call him Rustoleum "Redhed Fred" for fun. I intend to chronicle the progress on my blog. My Dad found a picture of a 1940 Ford firetruck very similar to what I am restoring, so I am posting that here for my look-alike challenge. I am going to try and get as close to this picture as possible. Wish me luck!
copyright M. Ryan 2009
Friday, August 7, 2009
Fred
It has been a while, and the healthcare debate rages on..... I am glad to see so many "average Americans" (if there is such a thing) getting involved, demanding more choice and less government reliance.... I have been preaching self reliance since I can remember. My children are all taught to hunt, fish, play sports, swim, even change a flat tire on the car. It is essential that all our citizens become more actively involved in our government, or it will overrun us. Even though these times are perilous, there is much hope that the "average" person will prevail.
To that end, I have decided to take a positive approach to my situation, I bought an old truck! It turns out I got lucky, my neighbor is moving out of town for a new job (there is hope again) and he needed to get it off his property. What I wound up with is an ambitious project, but my kids want to help me! The title said 1950 Ford, but I did research (love the Internet!) and it turns out I have an all original, numbers matching 1940 Ford one ton (tonner) pickup, aptly named "Fred". Only 2850 were ever made, I even have the seats, engine, all windows, and the original gauges! It needs alot of tlc, but there has to be a story behind it. The old title says Harris County Sheriff dept, so it was probably in storage for years with a mislabeled title.
My mornings are filled with job search activities and afternoons with becoming a cracker jack body man, welding, grinding, sanding, etc. It is a hobby which will keep you in shape for sure! I will post a few pics for those who are car nuts. L8tr.
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