Category: Technology and Regulation

screen-shot-2013-07-02-at-5-02-09-pmBoth the working poor and small businesses got some welcome, albeit temporary, news yesterday: the Treasury Department announced it is delaying what’s called the “employer mandate” under the Affordable Care Act until January of 2015.

That mandate requires companies with more than 50 full-time employees to offer health insurance or pay a $2,000 penalty. Most businesses with more than 50 employees already offer insurance, but smaller companies and startups often cannot afford the cost.

Even some supporters of Obamacare admit this mandate was a bad idea. As the Washington Post‘s Ezra Klein says, “it creates an incentive against hiring more full-time workers, and for cutting the hours of some of the full-time workers you already have. This was obvious from the day it was introduced.”

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Health_Shetty-MainIndia’s best-known heart surgeon was interrupted during surgery to make a house call. “’I don’t make home visits,’ ” said Devi Shetty, “and the caller said, ‘If you see this patient, the experience may transform your life.’ ” The request came from Mother Teresa, and the experience did change his life. Shetty’s most famous patient inspired the cardiac surgeon and healthcare entrepreneur to create a hospital to deliver care based on need, not wealth.

In 2001, Shetty – who the Wall Street Journal has given him the title of Henry Ford of heart surgery — founded Narayana Hrudayalaya (NH), which Fast Company magazine describes as “Walmart meets Mother Teresa.” Today, NH is one of India’s largest multi-specialty hospital chains and has created a record of performing nearly 15,000 surgeries on patients from 25 foreign countries. The hospital group believes it can soon cut the cost of heart surgery to a mere $800 per procedure.

If it can be done in India, why can’t it be done in the U.S.?

It could — maybe — but we’d need to learn the following lessons from India’s most innovative hospital:
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Red-TapeA new study estimates the cost of regulation in the U.S. at $14,768 per household:

For two decades, Wayne Crews of the Competitive Enterprise Institute has tracked the growth of new federal regulations. In his 20th anniversary edition this week, he’ll report that pages in the Code of Federal Regulations hit an all-time high of 174,545 in 2012, an increase of more than 21% during the last decade.

Relying largely on government data, Mr. Crews estimates that in 2012 the cost of federal rules exceeded $1.8 trillion, roughly equal to the GDP of Canada. These costs are embedded in nearly everything Americans buy. Mr. Crews calculates these costs at $14,768 per household, meaning that red tape is now the second largest item in the typical family budget after housing.

There are numerous government regulations that are beneficial to human flourishing and are worth the cost we pay. But many—perhaps nowadays even the majority—of federal regulations are a drain on our economy and an unjustifiable restriction of freedom.

While it would difficult to determine the value of worthy regulations, let’s say that we could reduce it in half. Households wouldn’t get the money directly, of course, but since the cost of regulations is embedded in almost everything we purchase, living expenses would be reduced dramatically. Imagine the effect of an economic surplus equal to $7,000 per household. Although $900 billion may not seem like much in an economy of $15.7 trillion, it’s more than we spend each year on Medicare/Medicaid ($802 billion), Social Security ($768 billion), or Defense ($670 billion).

Because we live in such a heavily regulated country we tend to forgot that regulations come with a price. Some regulations are worth the cost, while others are not. Determining the good from the bad is therefore not just a duty of good governance but a moral obligation. We aren’t merely wasting money on bad regulations, we are wasting resources that could be used to improve the lives of all citizens. And that’s too high a price to pay for waste.

There are currently two sets of laws in America: laws that apply to everyone and laws that apply to everyone except for friends of the Obama administration.

In January I wrote about how the executive branch had argued that the Migratory Bird Treaty Act of 1918 should be broadly interpreted in order to impose criminal liability for actions that indirectly result in a protected bird’s death. The administration used that reasoning to file criminal charges against three energy companies.

american-bald-eagleThe U.S. District Court of North Dakota rejected this sweeping interpretation of the MBTA and dismissed the charges, noting that the words “kill” and “take” in statute should be interpreted narrowly to mean actions taken with the intent to kill or take a bird, not actions that merely happen to kill or take a bird. The ruling seemed fair-minded but the Department of Justice appealed to the Eighth Circuit Court of Appeals.

While one section of the Obama Administration is arguing that they should be able to prosecute energy companies (oil and gas) for killing birds another section of the Obama Administration is arguing that energy companies (wind) should be exempt from prosecution for killing birds.

According to the Associated Press:
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bitcoinLast month, in my series on Bitcoin, I wrote that for the crypto-currency to succeed it will one day have to become trusted by more mainstream consumers, which requires adding such features as regulatory oversight and a centralized monetary authority—the very features of other currencies that Bitcoin was created to avoid.

That day may be coming sooner than later:
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obamacareIn 2010, FactCheck.org, a project of the Annenberg Public Policy Center, attempted to debunk a rumor that the pending Obamacare legislation exempted members of Congress and their staffs from its provisions. They snarkily replied, “No. This twisted claim is based on misrepresentations of the House and Senate bills, neither of which exempts lawmakers.”

Members of Congress are subject to the legislation’s mandate to have insurance, and the plans available to them must meet the same minimum benefit standards that other insurance plans will have to meet. “All plans would have to follow those requirements by 2019,” Aaron Albright, press secretary for the House Committee on Education and Labor, told FactCheck.org. “People actually believe we wrote in the bill that Congress exempts itself from these requirements. That falsehood has been going around since the very beginning.”

You can almost hear the exasperation in Mr. Albright’s voice. How could anyone think that the same members of Congress who believed the legislation was good for America would exempt themselves from its provision? Do we think lawmakers and their staff are a bunch of hypocrites?

Well, yes. Yes we do.

Is anyone (other than Mr. Albright and the folks at FactCheck.org) really surprised that Congress is now trying to find a way to exempt themselves from the law they foisted on the rest of America?
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Finding solutions for feeding the world’s poorest is about as non-controversial a mission as you could imagine for someone pursuing a religious vocation. Yet, the investors belonging to the Interfaith Center for Corporate Responsibility put politicized science ahead of that mission in their opposition to genetically modified organisms (GMOs).

The ICCR’s approach to GMOs leans more toward anti-business political activism than any concern for producing plentiful crops that are resilient against pests, diseases and extreme weather events such as drought or excessive precipitation, which, in turn, would benefit those endeavoring to provide inexpensive foodstuffs to the economically and ecologically disadvantaged.

Judging from ICCR proxy shareholder literature, feeding more people less expensively is secondary to a politicized agenda. This from the ICCR’s “The Right Solutions to Hunger:”

“In recent years, several weeds have built up resistance to the herbicides used on GE [genetically engineered] crops, driving the use of more, and multiple industrialized herbicides to kill them. Who is looking long-term, for the protection of the consumer and the food system and who will bear the risk?” asked Margaret Weber of the Congregation of St. Basil. “These issues are critical and it is apparent that the regulatory system is not adequately addressing them,” she continued.

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Sen. Max Baucus (D-Mont.) was one of the key architects of Obamacare and one of the legislation’s greatest champions. But now he fears a “train wreck” as the Obama administration implements its signature healthcare law. In a recent hearing he asked Human Services Secretary Kathleen Sebelius for details about how the Health Department will explain the law and raise awareness of its provisions, which are supposed to take effect in just a matter of months:

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Joe has done us all a real service in putting together his three part (1, 2, 3) primer on Bitcoin (full PDF here).

I am curious, though, what the justification is for referring to Bitcoin as a “commodity” currency. Consider this from Izabella Kaminska at the FT Alphaville blog:

For those who insist that the term “fiat” refers exclusively to government-issued fiat currency, it’s perhaps better to interpret our use in the evolutionary sense.

Meaning that Bitcoin (and other virtual currencies) represent not commodity money, not managed money, nor even old fashioned government-issued fiat money, but a whole new type of super fiat that is rendered valuable by the issuing crowd (made up of independent entities) rather than the state.

The idea is that Bitcoin isn’t “declared” to be valuable by the state, but that it is “declared” to be valuable by common consent of the community of Bitcoin users. Consider this a kind of communal rather than governmental fiat.

This is why I wondered earlier about Bitcoin as “merely fiat money without the pretensions.”

But then again, isn’t this kind of communal agreement or declaration of value what money has always really been? Isn’t that, as Joe relates, what we learn from the example of the rai of Yap? (Their real innovation seems to be that they anticipated something like the “virtualization” of money exchange.)

Here again I’ll invoke the insight of Richard Whately: “It is not that pearls fetch a high price because men have dived for them; but on the contrary, men dive for them because they fetch a high price.” People are mining Bitcoins because they fetch a high price…at least for now.

[Note: This is the third entry in a three part series. You can read the introductory post here and part two here.]

The Disadvantages of Bitcoin

For people who are not obsessed with anonymity and are not waiting for the U.S. to return to the gold standard, the reasons for avoiding entering the Bitcoin market are numerous:

1. Convertibility – Whereas other currencies are convertible into other financial instruments (dollars to checks to certificates of deposit, etc.) and through numerous third-party services (e.g., Visa, PayPal, Citibank), commodity currencies like Bitcoin can only be exchanged for fiat currencies—and then only through an online exchange. Indeed, unless your computer is working overtime on Bitcoin mining, the only way to acquire the currency is to buy it from one of the 30 online exchanges.

These exchanges are completely unregulated and are subject to problems that do not affect other financial markets. For instance, in 2011 the largest Bitcoin exchange, MTGox, had a security breach that resulted in the theft of nearly $9 million worth of Bitcoins. The theft caused the value of Bitcoins to crash from $17.50 to one cent before the market was able to recover.

2. Instability – The MTGox breach—and the subsequent market crash—taught Bitcoin owners a harsh lesson about commodity currencies: they can be wildly unstable. Over the 8 month span from October 1 2010 to June 9 2011, the market value of Bitcoins skyrocketed 9667-fold from a value of $0.06 to $29.

The rate had dropped in 2012 and at the end of last year a Bitcoin was worth only $13.51. Last week, though, Bitcoins were trading as high as $266 before plummeting to less than $100. Anyone who had bought $1,000 worth of currency in October 2010 would theoretically have $4.4 million worth of Bitcoins. However, the convertibility problem would make it nearly impossible to extract that money without crashing the market and devaluing the entire currency. A gradual sell-off over an extended period of time would be necessary to take advantage of increase in valuation.

Still, being the seller of the overvalued currency is preferable to being the buyer. The Winklevoss twins, millionaires famous for their legal battle with Facebook, claim to own around one percent of all Bitcoins currently in existence (around 108,000). They began buying the currency in 2012, making some early Bitcoin holders very rich.
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