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Thursday, October 29, 2009
Justice Part 3
Rawls idea that we would choose equal liberties and to be treated with respect by government of course assumes that we would choose to have a government. Remember, we are trying to envision what kind of society we would create if we did not know what our situation was...our talents, starting points, etc. I am going to bypass this point, but any anarchists out there might want to challenge this. It seems pretty obvious to me that we would want to have the essentials of any sort of decent life. If we were unlucky in health and could not work, we would want to have at least the basics covered by those luckier. The basics would at least include food and shelter. What if we were too poor to afford necessary medical care? That seems like an essential. Well, our government provides food stamps, housing assistance, Medicare, Medicaid and Social Security disabilty benefits for those who are poor, old or unlucky. Another question is to what extent should we provide these services. With food, the answer is clearer. People need a certain caloric intake to be able to function. How about medical care? As a friend pointed out to me some time ago, we really haven't been addressing what is the basic level of medical care that should be provided. In fact, beginning to do so seems to leads to screaming from various people about rationing. I understand that it is rational for seniors to be worried about this issue, but we cannot afford to give everyone every treatment they want. But what about all reasonable and necessary treatment?
Wednesday, October 28, 2009
Justice and Contracts
The idea that there is a sort of social contract that defines our rights and duties in a society is an old one, tracing back to at least John Locke. But, of course, none of us has actually agreed to such a contract, although immigrants must agree to obey the law in order to become citizens. Locke came up with the idea of tacit consent, if we enjoy the benefits of government we consent to the law and are bound by it. In contract law, not all contracts are enforceable. For instance, to be a contract there must be consideration (something given in exchange for a promise). Likewise, the mere fact that you and I make a deal does not make it fair. In Sandel’s words, the contract must respect autonomy and reciprocity; it must be voluntary and mutually beneficial. He uses the example of an elderly woman who agreed to a contract to pay a contractor $50,000 to fix a leaky toilet (supposedly a true story). Enforceable? Morally binding?
But a contract between parties who were equal in power and knowledge and equally situated would be a perfect contract. The terms of such a contract would be just by virtue of their agreement alone. This explains why Rawl’s idea of the original position behind the veil of ignorance is so powerful. It is the pure form of an actual contract.
Rawls proposes that the first principle that would be agreed upon would be a principle of equal liberties for all citizens, including the right to liberty of conscience and liberty of thought. We wouldn’t want to be oppressed, even if it turned out that we were in the minority. We want to pursue our ends and be treated with respect because we are human beings. What other principles would we choose?
As an aside, thinking about justice and contracts is part of what my friend objected to about changing the terms of the agreement later, such as if I work and pay Social Security taxes based on the promise that I will be taken care of when I retire, then it is unfair if the majority change the rules after I have made the contributions asked of me. The fact that there is not an actual contract doesn’t matter. What matters is our understandings when we made the deal.
Of course, any employer can fire anybody for any reason with no recompense if there is no employment contract. And in this country any remedy for such a breach of contract is not going to be you keeping your job. In companies that haven’t paid back their TARP loans, they are partly employees of the taxpayers. Why can’t our representative lower their salaries or prevent outrageous bonuses? We never had the understanding that these guys could pay themselves whatever they want. So I think the moral argument still fails here. But it also shows why this is an inadequate response even to bank pay. The guys at Goldman Sachs who have paid their TARP money back can give themselves whatever bonuses they want, subject to the wishes of the shareholders, which appear to be inadequately protected by the board of directors.
But a contract between parties who were equal in power and knowledge and equally situated would be a perfect contract. The terms of such a contract would be just by virtue of their agreement alone. This explains why Rawl’s idea of the original position behind the veil of ignorance is so powerful. It is the pure form of an actual contract.
Rawls proposes that the first principle that would be agreed upon would be a principle of equal liberties for all citizens, including the right to liberty of conscience and liberty of thought. We wouldn’t want to be oppressed, even if it turned out that we were in the minority. We want to pursue our ends and be treated with respect because we are human beings. What other principles would we choose?
As an aside, thinking about justice and contracts is part of what my friend objected to about changing the terms of the agreement later, such as if I work and pay Social Security taxes based on the promise that I will be taken care of when I retire, then it is unfair if the majority change the rules after I have made the contributions asked of me. The fact that there is not an actual contract doesn’t matter. What matters is our understandings when we made the deal.
Of course, any employer can fire anybody for any reason with no recompense if there is no employment contract. And in this country any remedy for such a breach of contract is not going to be you keeping your job. In companies that haven’t paid back their TARP loans, they are partly employees of the taxpayers. Why can’t our representative lower their salaries or prevent outrageous bonuses? We never had the understanding that these guys could pay themselves whatever they want. So I think the moral argument still fails here. But it also shows why this is an inadequate response even to bank pay. The guys at Goldman Sachs who have paid their TARP money back can give themselves whatever bonuses they want, subject to the wishes of the shareholders, which appear to be inadequately protected by the board of directors.
Justice
I am reading Michael Sandel's book Justice and last night Tita asked me about it and said I should talk about it on the blog. So here goes. Sandel's class on justice draws 1000 students at Harvard each time it is taught and this book is easily understandable, although like all good philosophy it is not casual reading. One problem in deciding what our societal institutions should do is that we reason from our particular situations. If I come from a rich family and am healthy I will look at the world differently than someone who is born poor with a disability. John Rawls, one the most famous modern philosophers, came up with a way to think about the issue more objectively. He uses the idea of a social contract but with some twists. Imagine that you make judgments behind a veil of ignorance, that is you do not know what talents you have, what your social standing is, etc. You could end up on either end of many spectrums that do not result from anything you are responsible for, but are just a matter of luck. How would you have our institutions function?
Tuesday, October 27, 2009
More on health care costs
As much as I loved the discussion of costs with Atul Gawande on the New England Journal of Medicine site that I posted on Facebook, Ezra Klein asks some very good questions after his discussions with the head of Kaiser Permanente. Why haven't they taken over the market? The short answer is employer-based health care. Before you get too excited by the idea of single payer government health care, consider that Canada spends a greater per cent of GDP on health care. Do they have better care? He also notes that we pay much more for a unit of service than people do in Europe, which doesn't have a Canada-type system. For instance, a CT scan there costs a couple hundred dollars and here it costs over $15,000. Why? Below is the abstract for a paper dealing with this issue, which you can access through Ezra.
ABSTRACT: This paper uses the latest data from the Organization for Economic Cooperation
and Development (OECD) to compare the health systems of the thirty member countries
in 2000. Total health spending—the distribution of public and private health spending
in the OECD countries—is presented and discussed. U.S. public spending as a percentage
of GDP (5.8 percent) is virtually identical to public spending in the United Kingdom, Italy,
and Japan (5.9 percent each) and not much smaller than in Canada (6.5 percent). The paper
also compares pharmaceutical spending, health system capacity, and use of medical
services. The data show that the United States spends more on health care than any other
country. However, on most measures of health services use, the United States is below the
OECD median. These facts suggest that the difference in spending is caused mostly by
higher prices for health care goods and services in the United States.
ABSTRACT: This paper uses the latest data from the Organization for Economic Cooperation
and Development (OECD) to compare the health systems of the thirty member countries
in 2000. Total health spending—the distribution of public and private health spending
in the OECD countries—is presented and discussed. U.S. public spending as a percentage
of GDP (5.8 percent) is virtually identical to public spending in the United Kingdom, Italy,
and Japan (5.9 percent each) and not much smaller than in Canada (6.5 percent). The paper
also compares pharmaceutical spending, health system capacity, and use of medical
services. The data show that the United States spends more on health care than any other
country. However, on most measures of health services use, the United States is below the
OECD median. These facts suggest that the difference in spending is caused mostly by
higher prices for health care goods and services in the United States.
The Future
What will the world be like in 50 years? Here is an ongoing fun discussion at Marginal Revolution...a good example of why Tyler Cowen is my favorite blogger. As another blogger remarked, Tyler not only has an opinion of everything, he has thought about everything. Of course, not true, but still...
As many of you know, I am a huge Nassim Taleb fan. Check out his website at www.fooledbyrandomness.com/ There is a discussion there with Daniel Kahneman that I have to watch sometime. Apparently Nassim thinks we ought to nationalize the banks.
What do I think? I think we are pretty clueless because of the existence of Black Swans. Maybe the Great Disruption will be December 21, 2012. Whatever the black swans are, do not assume they will all be bad. Who in 1960 predicted the internet?
As many of you know, I am a huge Nassim Taleb fan. Check out his website at www.fooledbyrandomness.com/ There is a discussion there with Daniel Kahneman that I have to watch sometime. Apparently Nassim thinks we ought to nationalize the banks.
What do I think? I think we are pretty clueless because of the existence of Black Swans. Maybe the Great Disruption will be December 21, 2012. Whatever the black swans are, do not assume they will all be bad. Who in 1960 predicted the internet?
Monday, October 26, 2009
Executive pay cuts (and Social Security)
A good friend writes:
The president's comments on executive pay. While it seems true that shareholders should have a voice in how their "employees" are paid and most shareholders would agree that they are being decidedly overpaid, there is a problem with the government limiting pay in this particular event. The government made a contract with the banks and car companies (which I did not and do not agree that they should have). Then after agreeing to the terms of that deal comes back and unilaterally changes the terms apparently for political purposes IE: the taxpayers deserve better. A notion that should have occurred to our politicians long before now but still flies in the face of contract law. Done properly, it should have been part of the original contract's terms not an afterthought. Worse, the decision to do this is not being made by Congress but by appointees of the current administration. By the way, this is not entirely without precedent as they did it to social security recipients by adding a tax to their benefits and are trying to be more egregious by trying to means test social security benefits. That would mean that in spite of paying premiums for forty plus years some bureaucrat will just decide that you already have enough retirement funds so you won't need any from your social security "insurance" fund.
http://online.wsj.com/video/obama-comments-on-executive-pay-caps/909115ED-8E6A-4195-B7D5-75363F247869..html
Was there a contract between the government and the banks? I don’t know. If so, you may have a point. I doubt that there was time to draw up contracts when Paulsen began bailing out the banks. The meltdown was occurring.
Let me address Social Security first, where there clearly is no such contract. Retirees’ benefits are paid for by current workers. It is an ongoing pay-as-you-go system that is already hugely welfare-oriented. That is, those who put in the most get a far lower return than those who put in little. Those who first got benefits got an even better deal; they didn’t pay in anything, which leads some to call it a ponzi scheme. However, I think Social Security has been a great idea. I think that those who can work ought to pay for our elders when they get old. The problem becomes that people live longer now and as boomers retire there are going to be fewer workers paying for more retirees. You have to raise the retirement age, lower the benefits or raise the FICA taxes. Geezers like me might think it is unfair to do either of the first two, but I imagine younger workers would think it is unfair to raise the taxes they pay (for a system they doubt will continue to exist because we can’t face our problems as a society).
My biggest beef about the pay cuts is that they will do little to change the incentives on Wall Street. John Cassidy had a good piece called Rational Irrationality about this. And I believe Henry Blodgett originally made the distinction between the risky deals that were being made and the career risk of a trader who wasn’t in on the action. So if people were being rational and taking these huge risks that almost melted down the economy and made the current recession much worse, then something needs to be done about the financial system from a regulatory or structural point of view. Does banker pay even matter?
A panel of business bigshots at the Aspen Festival this last year had some interesting thoughts on the short-term thinking that has become too common in the boardroom. Below is Steve Pearlstein’s take on its history (the link to the Aspen Festival report is here, too).
The roots of this short-termism go back to the 1980s, with the advent of hostile takeovers mounted by activist investors. This newly competitive "market for corporate control" promised to reinvigorate corporate America by replacing entrenched, mediocre managers with those who could boost profits and share prices. In theory, the focus was on increasing shareholder value; in practice, it turned out to mean delivering quarterly results that predictably rose by double digits to satisfy increasingly demanding institutional investors. Executives who delivered on those expectations were rewarded with increasingly generous pay-for-performance schemes.
As fund managers grew more demanding of the short-term performance of corporate executives, investors became more demanding of the short-term performance of fund managers. To deliver better returns, managers responded by moving money from bonds and blue-chip stocks to alternative investments -- real estate, commodities, hedge funds and private equity funds -- where there was more risk, higher leverage and bigger fees. In time, the managers of these alternative investment vehicles began looking for new strategies to improve their results, and Wall Street was only too willing to accommodate with a dizzying new array of products.
I will leave discussion about what should be done about Wall Street for another day as I barely have a clue other than making derivatives and hedge funds more transparent (and current proposed legislation seems be giving companies huge loopholes). Even if there was no contract, you may have a moral point. But it gets way harder to make. In the first place, the bankers had the information. Maybe the most critical thing I can say about the pay cuts is that many of the people who got the cuts have left and the rest just may go somewhere else. If the American public thinks these cuts are really going to solve any problems, then maybe that just shows how uninformed we are.
The president's comments on executive pay. While it seems true that shareholders should have a voice in how their "employees" are paid and most shareholders would agree that they are being decidedly overpaid, there is a problem with the government limiting pay in this particular event. The government made a contract with the banks and car companies (which I did not and do not agree that they should have). Then after agreeing to the terms of that deal comes back and unilaterally changes the terms apparently for political purposes IE: the taxpayers deserve better. A notion that should have occurred to our politicians long before now but still flies in the face of contract law. Done properly, it should have been part of the original contract's terms not an afterthought. Worse, the decision to do this is not being made by Congress but by appointees of the current administration. By the way, this is not entirely without precedent as they did it to social security recipients by adding a tax to their benefits and are trying to be more egregious by trying to means test social security benefits. That would mean that in spite of paying premiums for forty plus years some bureaucrat will just decide that you already have enough retirement funds so you won't need any from your social security "insurance" fund.
http://online.wsj.com/video/obama-comments-on-executive-pay-caps/909115ED-8E6A-4195-B7D5-75363F247869..html
Was there a contract between the government and the banks? I don’t know. If so, you may have a point. I doubt that there was time to draw up contracts when Paulsen began bailing out the banks. The meltdown was occurring.
Let me address Social Security first, where there clearly is no such contract. Retirees’ benefits are paid for by current workers. It is an ongoing pay-as-you-go system that is already hugely welfare-oriented. That is, those who put in the most get a far lower return than those who put in little. Those who first got benefits got an even better deal; they didn’t pay in anything, which leads some to call it a ponzi scheme. However, I think Social Security has been a great idea. I think that those who can work ought to pay for our elders when they get old. The problem becomes that people live longer now and as boomers retire there are going to be fewer workers paying for more retirees. You have to raise the retirement age, lower the benefits or raise the FICA taxes. Geezers like me might think it is unfair to do either of the first two, but I imagine younger workers would think it is unfair to raise the taxes they pay (for a system they doubt will continue to exist because we can’t face our problems as a society).
My biggest beef about the pay cuts is that they will do little to change the incentives on Wall Street. John Cassidy had a good piece called Rational Irrationality about this. And I believe Henry Blodgett originally made the distinction between the risky deals that were being made and the career risk of a trader who wasn’t in on the action. So if people were being rational and taking these huge risks that almost melted down the economy and made the current recession much worse, then something needs to be done about the financial system from a regulatory or structural point of view. Does banker pay even matter?
A panel of business bigshots at the Aspen Festival this last year had some interesting thoughts on the short-term thinking that has become too common in the boardroom. Below is Steve Pearlstein’s take on its history (the link to the Aspen Festival report is here, too).
The roots of this short-termism go back to the 1980s, with the advent of hostile takeovers mounted by activist investors. This newly competitive "market for corporate control" promised to reinvigorate corporate America by replacing entrenched, mediocre managers with those who could boost profits and share prices. In theory, the focus was on increasing shareholder value; in practice, it turned out to mean delivering quarterly results that predictably rose by double digits to satisfy increasingly demanding institutional investors. Executives who delivered on those expectations were rewarded with increasingly generous pay-for-performance schemes.
As fund managers grew more demanding of the short-term performance of corporate executives, investors became more demanding of the short-term performance of fund managers. To deliver better returns, managers responded by moving money from bonds and blue-chip stocks to alternative investments -- real estate, commodities, hedge funds and private equity funds -- where there was more risk, higher leverage and bigger fees. In time, the managers of these alternative investment vehicles began looking for new strategies to improve their results, and Wall Street was only too willing to accommodate with a dizzying new array of products.
I will leave discussion about what should be done about Wall Street for another day as I barely have a clue other than making derivatives and hedge funds more transparent (and current proposed legislation seems be giving companies huge loopholes). Even if there was no contract, you may have a moral point. But it gets way harder to make. In the first place, the bankers had the information. Maybe the most critical thing I can say about the pay cuts is that many of the people who got the cuts have left and the rest just may go somewhere else. If the American public thinks these cuts are really going to solve any problems, then maybe that just shows how uninformed we are.
Continuation Day
I am having a fine anniversary of birthday, or as one of my buddhist friends says, continuation day. Tita took me out for dinner last night at a terrific restaurant www.log-haven.com and has something going in the crockpot while she is at work. I had curried pecan cauliflower soup and bison rib-eye steak. We have a snowstorm coming in early tomorrow so I got all the deck furniture stored in the garage yesterday. I couldn't stand watching the end of the Bears game they were so bad so I decided to accomplish something outside instead. Saturday we got in some golf but quit after nine holes after we got hailed on. Don't know how many days we have left of golf. One nice thing about this time of year is that Tita really gets into cooking. She has already planned what we are having Tuesday!! This is a new first in planning ahead meals. Usually we just go with the flow day by day (one of the traits I did not pick up from my dad). But she loves to cook and I love to eat...a win-win situation. Every time I buy her a new cookbook I get rewarded many times over. She says that when she retires she is going to become a gourmet chef and take classes. I don't think that this is just a means to get out of working anymore but you never know. Luckily, she also likes her job.
I have decided that I am going to be even lazier than usual today. My boss says I have to go in for a few minutes this afternoon but I don't have much to do (other than a brief that isn't due for four weeks). I might even go out and use the raincheck (or hailcheck) to finish my round of golf. Tom and I were chatting so much that I didn't bother to keep score, but then I know I didn't really do well enough for it to matter, so I didn't go back and figure it out.
I have been wasting an inordinate amount of time trolling the internet and now have a bunch of blogs I read. I really am going to start reading books again and even finished one on the misuse and abuse of history that I mentioned here earlier. I am actually reading a philosophy book called Justice by Michael Sandel, a famous philosopher. It is very clearly written and so far takes me through some of my own adventures in ethics and political philosophy. Also have a book called The Good Soldiers about the lives of a unit in Iraq that has gotten great reviews. Of course, I have many other unread books lying around, too.
We had a wonderful time in San Francisco and I learned some more very good stuff on VA law and ERISA. Looking forward to helping vets but not so much dealing more with insurance companies. We had incredible dinners every night and hung out for two days with my old friends Vern and Jennifer K. Pesces, Campton Place and R & C Lounge in Chinatown stand out. They had a car so we took a drive to Muir Woods north of the city on Saturday missing the turnoff and taking a scenic drive down highway one before we figured out we were lost after ending up in a hippie village called Bolinas. Luckily, we were able to find a gas station and then found Muir Woods where we did a great hike amongst the 250 foot redwoods and other beautiful plantlife.
Every day is a coninuation day so if you want to goof off, go ahead. You are adults and don't need permission.
I have decided that I am going to be even lazier than usual today. My boss says I have to go in for a few minutes this afternoon but I don't have much to do (other than a brief that isn't due for four weeks). I might even go out and use the raincheck (or hailcheck) to finish my round of golf. Tom and I were chatting so much that I didn't bother to keep score, but then I know I didn't really do well enough for it to matter, so I didn't go back and figure it out.
I have been wasting an inordinate amount of time trolling the internet and now have a bunch of blogs I read. I really am going to start reading books again and even finished one on the misuse and abuse of history that I mentioned here earlier. I am actually reading a philosophy book called Justice by Michael Sandel, a famous philosopher. It is very clearly written and so far takes me through some of my own adventures in ethics and political philosophy. Also have a book called The Good Soldiers about the lives of a unit in Iraq that has gotten great reviews. Of course, I have many other unread books lying around, too.
We had a wonderful time in San Francisco and I learned some more very good stuff on VA law and ERISA. Looking forward to helping vets but not so much dealing more with insurance companies. We had incredible dinners every night and hung out for two days with my old friends Vern and Jennifer K. Pesces, Campton Place and R & C Lounge in Chinatown stand out. They had a car so we took a drive to Muir Woods north of the city on Saturday missing the turnoff and taking a scenic drive down highway one before we figured out we were lost after ending up in a hippie village called Bolinas. Luckily, we were able to find a gas station and then found Muir Woods where we did a great hike amongst the 250 foot redwoods and other beautiful plantlife.
Every day is a coninuation day so if you want to goof off, go ahead. You are adults and don't need permission.
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