Category Archives: Economics

Busy

The next house project (not counting landscaping, which we may be hiring someone to do) is molding, both replacing base and installing crown. It was a nice excuse to go out and buy a nice Craftsman 10″ compound dual-bevel laser miter saw, because Sears was having a sale. I thought about getting a 12 inch, because it wasn’t that much more, but it took up more room, and the blades were a lot more (though with carbide, it might have been a one-time purchase, given my low usage level). And I couldn’t really justify it–the ten-inch will do just fine for almost anything I need to do in terms of beveling or mitering. If I need to bevel bigger things, a table saw will do the job. I guess I’m not Tim the Tool Man, even though I am from southeast Michigan.

I continue to be amazed at how low cost good tools have become–particularly tools (and power tools) that didn’t even exist when I was a kid. I suspect that this isn’t factored into inflation much, but it really does add to the national wealth when people can improve their productivity at little cost. In California in the nineties, I did some base molding with nothing but a circular saw, but it was a pain in the ass, and I’m sure that this will do a much better job. Anyway, if blogging seems light, that will be one of the reasons.

The Problem With Health Insurance

It’s not insurance.

Nothing new here to people familiar with the situation, but many don’t seem to understand the problem. But this is the origin of it:

Health insurance started to change, though, during the Truman administration. (I hasten to mention that I wasn’t actually there: I was born during the Eisenhower administration, when the process had only gotten started.) Truman wanted to implement the progressive new notion of a national health care plan, but couldn’t get it through; at the same time, post-war wage controls were still on, so employers bidding for new workers had to find other ways to compete.

Through a sequence of compromises, what came out of it was a system in which companies and only companies could buy health insurance and health care for their employees, and deduct the cost as a business expense. My father’s music store and the steel mill across town could buy health insurance, basically, at a discount. (My uncle the butcher couldn’t; he wasn’t a “business.”)

Years pass. (Insert visual of wind-blown calendar leaves here.) Medical care becomes more complicated, legal conditions change, and a lot of things that used to be major medical issues that mostly affected the life insurance rates become things that could be cured, or at least managed. Increasingly, what was “major medical” insurance became, simply, health insurance; we expected the insurance companies not just to pay for unexpected events, but for the normal sort of day-to-day maintenance we all need.

People will pay to repair their car, or their pets, or appliances out of pocket, but somehow, over the past decades they’ve come to believe that it’s a fundamental human right to have someone else pay for your doctor visits. Until we cut off this disastrous government policy of tying health insurance to employment, and allow everyone to deduct medical expenses on a level playing field, and get people to understand that we have to return to the model of health insurance the problem will not be solved.

Super Sizing

Elizabeth Karmel has some thoughts on barbecue:

Restaurateurs don’t necessarily want you to eat the whole thing; they are giving us what we’ve asked for. Americans don’t like restaurants that serve small portions. Whether they eat it all or should eat it all is another matter; consumers vote with their dollars and like it or not, American consumers love and buy big portions.

I’ve discussed this before, but the reason that restaurants serve so much food is related to the reason that the Space Shuttle (and space launch in general) cost so much. How’s that for a topic segue? It always comes down to marginal cost.

The Space Shuttle is expensive per flight, because they have to support all of the overhead in Houston and the Cape, but fly very few times. But the marginal cost (the cost of flying the next Shuttle flight, given that you’re already flying) is probably about a hundred fifty million or so (the cost of the expended hardware, basically, and specific crew training) which is much less than that average cost (typically well over half a billion). Same thing applies to the space station. Back in the nineties (before Freedom became ISS) they were trying to cut five billion dollars out of the projected thirty-billion dollar development budget. Joe Talbot, the man at Langley who was tasked with coming up with a plan to do so, told me (in an exasperated tone), “that’s the cost of the hardware.” In other words, they could cut out the hardware, and only spend twenty-five billion, and have no station at all. Or they could spend a little more money (thirty-five billion instead of thirty billion) and double its size. Being a government program, the budget cutters tend to make more of the former sorts of decisions than the latter ones.

It’s different for a business, even though the economic issues are exactly the same, because they’re driven by actual customers.

Even if a restaurant served you no food at all, if all you did was come in and take up table space and staff time for a certain period of time, they’d still have to charge you quite a bit, because much of the cost of a restaurant meal is overhead to cover costs of rent, utilities, staff salaries, etc. The cost of the food itself (unless it’s a very high-end restaurant, where you’re eating lobster, and filet, and larks-tongue bisque with a truffle reduction) isn’t all that much. They could cut the portions in half, but they wouldn’t be able to cut the price of the meal by half. Conversely (and this is what the market drives, as Elizabeth says), they can double the portions while adding very little to the price. That’s the economics behind “super sizing” soft drinks and fries–you’re simply adding a little sugar and spuds, which are very cheap, to the meal whose overhead has already been covered by the basic order.

And of course, I think that one of the (many) causes of the obesity epidemic in the country is the fact that as we’ve grown wealthier, we go out to eat a lot more. When the portions are large, you’re going to have a tendency to eat it. A lot of us would be better off simply sharing a meal with our dinner companions, but the restaurants discourage this, for obvious reasons–they don’t get enough to cover their overhead costs if everyone does it. When you’re cooking for yourself, you not only have a better idea of the cost of the meal, because you’re using food that you purchased, but it’s also easier to quit eating and just put the leftovers in the fridge, rather than have to ask for a doggie bag and hope that you get it home soon enough.

Bottom line, if you really want to lose weight (and save money) don’t eat out.

[Update]

There’s a good point in comments:

I have these same problems cooking for myself. It’s hard to buy things in quantities for one or two portions. You end up with three or four servings…. (Re: try to cook a real meal for one).

Yeah, that’s another overhead problem. Unless you’re making something fancy where individual items are being created (e.g., home-made ravioli) or labor intensive (peeling/deveining shrimp) it doesn’t take much more effort to cook for two, or four, than for one. The basic overhead of meal preparation is the same. It takes me about half a minute to clean/cut a potato, so adding a couple more for a lot more mashed potatoes, all done in the same mixing bowl, is no big deal, and baking a chicken is baking a chicken, whether for one of four. This is one of the benefits of marriage (or at least cohabiting).

I cook dinner almost every night, but interestingly, I rarely cook breakfast, because it seems like a lot of work, (frying bacon, making coffee, sectioning grapefruit, hashing browns, frying eggs, making/buttering toast, most of which all has to come out about the same time) for not that great a meal. I would never do it just for myself, and with the two of us, I still generally reserve it for weekends.

Another good point, from the same comment:

…the combo of A and B has been sending me to fast food format restaurants. I can pay little and buy by the item (re: any portion size I want). If I only want one chicken taco… I can buy one chicken taco (probably for $1-$2)… If I want two or three, they can do that too…

I’ve been noticing that, too. I’ve never ordered a “meal” at a fast food place, because they don’t have anything I want to drink (I don’t do soft drinks, and don’t like iced tea–in restaurants, if I don’t have beer or wine, I drink water). I generally order a sandwich a la carte, and sometimes a small fry. But I’ve seen that Taco Bell has a lot of individual, reasonably priced items, and other places have “dollar menus” as well, so perhaps they’re also trying to satisfy that end of the market. One of my favorites is Checker’s (around here, anyway, also known as Rally’s in some parts of the country), where they sell a double fish sandwich for a little over two bucks. There are enough customers that they can afford to sell them to those who want them without fully amortizing the overhead, or if they do, at low margin, and it expands their potential customer base.

One other point. It used to be that Mexican restaurants were one of the best ones to have for exactly this reasons. You could charge a low price for a meal with very cheap ingredients (corn meal, ground…meat, rice and beans), but still have great margins. A lot of them have started to get greedy lately, though. You used to be able to find a really cheap, decent hole-in-the-wall Mexican place, but it’s getting harder and harder, at least in my experience. Of course, since moving to south Florida, I don’t have as much variety to choose from as I did in LA.

[Update at 5:20 PM EST]

This is another good point from a commenter:

Cooking for one or two can be done, but it involves cooking for four and freezing for three.

Yup. I’ve made a big pan of lasagna for myself (used to do it a lot in college). Eat some, put some in the fridge, freeze the rest. And this was in the pre-microwave (at least for struggling students) days.

[6 PM update]

One other point, that I should have made in the original post. The things that get supersized (high-glycemic carbs) are not just the cheapest things to add to the meal, they’re the worst things for us to eat, from the standpoint of weight gain, inducement of diabetes and increase in artery risk. And the things that we need more of (proteins) are relatively expensive. The basic economics of food (at least at the current state of technology) militates against a healthy diet. This is also one of the reasons that the “poor” in this country are both overweight and malnourished (scare quotes because “poor” is relative. No one in the US is truly poor, compared to much of the world).

Idiot Alert

Over at Reason, the sad tale of a free-loader wannabe:

The group was now “out of food, hadn’t slept in days and were really cold,” and decided, in a grubby version of Dunkirk, to abandon the mission and head back to England. Boyles is disappointed-but not deterred. He is, the BBC reports, planning “to walk around the coast of Britain instead, learning French as he goes, so he can try again next year.” At which point the cycle begins anew, when, upon reaching Baden-Baden, the poor lad will realize that he should have also studied German.

As Wilde said in another context, one would have to have a heart of stone to read this and not laugh out loud.

Stagflation?

Rich Karlgaard thinks that’s what’s going on, and the cure for it is supply-side tax-rate cuts. He doesn’t call them that, though–he makes the mistake of calling them “tax cuts,” even though it’s clear that he knows that’s not what they necessarily are:

Conservatives generally avoid the class warfare talk, but they do fall into two other traps about supply side tax cuts. One trap is that tax cuts add to the federal deficit. There is no evidence of this. The evidence is either neutral or points the other way. Government tax receipts after supply side cuts have been enacted go up, not down.

I’ve kvetched about this before.

By definition, if revenues went up, it’s not a tax “cut.” It’s a tax increase, achieved through lower rates but faster economic growth and an increase in GDP. Sloppy language like this is one of the things that makes it hard to sell the concept.

Fascism In America

As described by Lileks:

As for the NRA logo, it’s a reminder of the happy days of FDR’s attempts to revive the economy by pouring a bowl of alphabet soup over its face. The NRA, among other things, was intended to prevent the depredations of competition, and “allowed industry heads to collectively set minimum prices,” as this rather scant wikipedia entry notes. (The same page relates the story of the tailor who was arrested for charging 35 cents to press a suit; the NRA rules specified the price at 40 cents. So he was arrested. Consider that the next time someone complains that liberty and civil rights have been eliminated in the last 7 years.)