Putting the tax debate into historical perspective

One difference between the Democrats and Republicans is whether to let the Bush II tax cuts expire. From the graph above we see the Kennedy tax cuts (from 91% down to 70%) in 1962; the Reagan tax cuts (from 70% to 28%) in the early 1980's; the Bush I (28% to 35%) tax increases; the Clinton tax increases (from 35% to 39%); and the Bush II tax cuts (from 39% to 35%).

Some economists predict a big negative effect on tax collections because elasticity of tax receipts with respect to marginal tax rates is big for high income taxpayers; but small for low income tax payers. This means that the tax cuts for low and middle income workers will produce a big drop in tax receipts and the tax increases on high income workers will produce a small increase in tax receipts.

Historical note: no Republican's (not Goldwater, not Bob Dole) supported the Kennedy tax cuts. How things have changed.

Will they ever learn?

George Washington tried to reduce the cost of the food he purchased at Valley Forge by imposing price controls. Predictably the supply disappeared. Now, the WSJ reports similar efforts are underway in developing markets to combat high food prices caused by the demand for biofuels.

Economists warn that price controls encourage hoarding and can lead to supply shortfalls, fueling unrest. Faced with persistent food shortages, the government of Venezuela last week warned it could "expropriate" any food company necessary to ensure the nation's "food security and sovereignty."

Perhaps the biggest disadvantage of price controls, however, is that they short-circuit potential changes in behavior by producers and consumers that might damp the underlying causes of inflation

Aligning physician incentives with goals of patients

This is the most difficult, some would say "only," issue in health care management. Physicians have the information necessary to make good decisions, but their decisions are influenced by their incentives. Now some companies with big health care expenses are trying to change physican incentives. From WSJ:

...reward primary-care physicians significantly more than that, but they would be required to make much bigger changes and adopt a more integrated approach to coordinating patients' care. Such steps include following up on referrals to other physicians, systematically tracking tests, flagging abnormal results and adhering to widely accepted medical guidelines to monitor and treat diabetes and other chronic conditions.

By using such processes to improve and better coordinate care, doctors can receive $125 annual bonuses for each patient covered by a participating employer, up to a maximum $100,000 a year. Based on previous work with doctors' practices, Bridges to Excellence executives estimate such improvements in quality save $250 to $300 per patient in the first year.

Biofuels worse than gasoline

From NY Times:

Almost all biofuels used today cause more greenhouse gas emissions than conventional fuels if the full emissions costs of producing these “green” fuels are taken into account, two studies being published Thursday have concluded.

Biofuel Follies

Latest column from George Will:

The environmental argument for ethanol and other biofuels is... refuted by the need to mandate and subsidize the fuels. The argument that biofuels are important for reducing our energy dependence on unreliable or dangerous Middle Eastern nations (the two largest sources of U.S. oil imports are turbulent Canada and militant Mexico) is mocked by the 54-cents-a-gallon tariff penalizing Brazilian ethanol. The theory behind that tariff is as old as American history. It is that "infant industries"—in this case, the ethanol industry that the government has ordered into existence—require protection. But protection permanently infantilizes industries.

Newspapers sinking fast

from NY Times:

In 2007, combined print and online ad revenue fell about 7 percent. In the last six decades, only one other year — 2001, when there was a recession — had a steeper decline, according to the Newspaper Association of America. Adjusted for inflation, 2007 ad revenue was more than 20 percent below its peak in 2000.

Circulation revenue has declined steadily since 2003, and the number of copies sold has been slipping about 2 percent a year. Some of the largest papers — including The San Francisco Chronicle, The Boston Globe and The Los Angeles Times — have lost 30 to 40 percent of their circulation in just a few years.

Jumping without Incentives

I was sitting at my computer working Monday night when I heard the doorbell ring. My wife answered the door and I heard a squeaky little voice asking my wife if she would be willing to sponsor the young girl in her school's participation in Jump Rope for Heart.

Perfect, I thought. Here's a chance to support a good cause while teaching kids about the benefits of incentives. I waited to hear how much per jump my wife would be willing to pledge. To my utter horror, she went looking for her wallet and gave the young lady a cash donation. "Whoa, whoa, whoa," I said to my wife, "what exactly are this young lady's incentives? She gets the same payment from us whether she jumps once or 1,000 times. Think of the horrible inefficiencies created by the need to monitor her performance. For her benefit and for the overall welfare of society, we should have put her on a per-jump incentive plan!

As you might imagine, I didn't get too far with this argument.

Physicians paid to prescribe generics

From WSJ:

Health plans are drawing scrutiny for offering financial incentives to entice doctors to prescribe cheaper generic medicines, including paying doctors $100 each time they switch a patient from a brand-name drug.

Incentives and Prescriptions

See this week's issue of Business Week for an interesting article on efforts to educate medical school students on the effects of drug company perks. While many believe that they won't be swayed by pitches from pharmaceutical reps, the statistics would seem to indicate otherwise.

The article quotes Dr. Adrian Fugh-Berman who says that a doctor who spends one minute with a pharma sales rep prescribes 16% more of the product than he or she was previously prescribing. A four-minute interaction is associated with a 52% increase. I am a little skeptical of the causality here (we might expect that doctors who are interested in a certain drug are more willing to meet with a sales rep; their interest in the drug causes both the meeting and the increase in prescriptions), but it's something to think about. Fugh-Berman's web site features some interesting videos from drug reps describing their marketing tactics. In this one, a rep compares free samples to crack.

Michael Porter updates his 5 forces

January 2008 issue of Harvard Business Review includes an article by Porter "updating" the five forces model:

Porter here reaffirms, updates, and extends the classic work. He also addresses common misunderstandings, provides practical guidance for users of the framework, and offers a deeper view of its implications for strategy today.