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Tuesday, April 29, 2014

Learning from Washington's Farewell Address

Today David Brooks has a column in the NY Times that discussed American involvement in foreign affairs around the world. How did we get this far into entanglements with the politics of other nations. George Washington would have been appalled. But Washington never met Hitler, Stalin or Mao. It might be time to rethink our need to be involved in every country's internal affairs. So I pulled up the Address on Google. I found the original version here:

Lovely writing. I then found this Cliff Notes version on Wikipedia:'s_Farewell_Address#Foreign_relations_and_free_trade

Below are some summarized ideas relative to the establishment of political parties and advice on foreign relations from Wikipedia:

1.     Political Parties

Washington argues that “political parties must be restrained in a popularly elected government because of their tendency to distract the government from their duties, create unfounded jealousies among groups and regions, raise false alarms amongst the people, promote riots and insurrection, and provide foreign nations and interests access to the government where they can impose their will upon the country.”

2.     Foreign Relations

Washington advocates a policy of good faith and justice towards all nations, and urges the American people to avoid long-term friendly relations or rivalries with any nation. He argues these attachments and animosity toward nations will only cloud the government's judgment in its foreign policy. Washington argues that longstanding poor relations will only lead to unnecessary wars due to a tendency to blow minor offenses out of proportion when committed by nations viewed as enemies of the United States. He continues this argument by claiming that alliances are likely to draw the United States into wars which have no justification and no benefit to the country beyond simply defending the favored nation. Washington continues his warning on alliances by claiming that they often lead to poor relations with nations who feel that they are not being treated as well as America's allies, and threaten to influence the American government into making decisions based upon the will of their allies instead of the will of the American people.
It may be time for us as Americans to reevaluate our need to be a busy body with the rest of the world. To start minding our own business, we may have to examine what the political parties are stirring up.


Friday, February 14, 2014

Inequality – The Income Gap and Spending on Health Care

This morning a friend of mine who owns a small company with 124 employees was told his health care costs are going up 30%. In the past few weeks a lot of attention has been paid to the idea that the "rich are getting richer and the poor are getting poorer." People are rightfully concerned about the "inequality gap" that is growing in America. It appears that the spending on health care and this gap are very much related. David Goldhill in his very informative book, Catastrophic Care discusses this connection:

"In the decade before the recession— 1998 to 2008— the American economy grew by 25 percent and corporate profits grew by 54 percent. Yet average wages grew by only 13 percent. Cast your mind back to those good old pre-recession days. Liberals and conservatives argued furiously as to why the American worker seemed to be doing so poorly. Was it because of tax cuts, declining unionization, deregulation, or globalization? But while the data are difficult to measure precisely, President Obama’s Council of Economic Advisors suggested an alternative leading cause: the explosion of employer health insurance costs. In its 2009 “Economic Case for Health Reform,” the CEA includes a chart which it says shows that the bulk of growth in compensation costs in the decade 1996– 2006 went to employer health premiums; in other words, spending on health insurance crowded out growth in wages. The CEA projected that more than 100 percent of the growth in future compensation could go to higher premiums. In other words, wages could actually decline over time to compensate for higher employer health costs."

David introduces us to one of his employees, Becky. He then goes on to break down her salary and benefits:
"Let’s say Becky’s work would be worth around $ 40,000 a year to us; if we can hire her for $ 40,000 or less, we’ll do it. What does hiring her cost? For simplicity, forget about all other benefits and costs for a moment and just focus on health care. Paying our share of Becky’s health insurance premiums will cost us about $ 5,000 a year. So the maximum salary our company will pay Becky is actually $ 35,000— the $ 40,000 her job is worth to us minus the $ 5,000 cost to us of her premiums. The more health insurance costs us, the less our company can afford to pay out to Becky or to any employee as salary or wages. Of course, all Becky knows is that her salary is $ 35,000."
David then goes on to analyze how much Becky will contribute to health care throughout her lifetime:
"Let’s assume that health care costs grow at only 2 percent a year— half of Becky’s income growth. This hasn’t been true for forty-five years, but we can always hope. Given all those factors, how much do you think Becky will contribute into the health care system for herself and her dependents over her lifetime? I’ll give you a hint: Becky will earn $ 3.85 million over her career.
The answer is $ 1.9 million!  Now also remember that $ 1.9 million was based on an assumption that health costs were somehow tamed below Becky’s income growth. In recent years , per capita health costs have actually increased 2 to 3 percent faster than income. If health costs grow merely equal to Becky’s income, Becky is looking at an additional $ 1.3 million in expenses over her lifetime— almost $ 3.2 million in total. In that scenario, Becky will contribute one out of every two cents she earns to our health care system."
 Back to my friend. At the beginning of the year, he was talking about raises for the people who work at his plant. With this 30% hit on insurance, that pool of money just dried up. So if you are wondering why we have an income gap and you are not getting a raise, I would recommend a discussion with the folks who are paying for health care on your behalf. The rich will have no problem in absorbing these costs. However, for the rest of us, we will all suffer a loss of income to pay for more health care, which is really sick care, but that is another topic.
Reference: Goldhill, David (2013-01-08). Catastrophic Care: How American Health Care Killed My Father--and How We Can Fix It (pp. 54-61). Knopf Doubleday Publishing Group. Kindle Edition.

Friday, September 27, 2013

Democracy Is Not Enough

By Michael Maccoby

          As we debate the military takeover of the democratically elected Egyptian government, we should seriously consider the consequences of promoting budding democratic movements. Our well-meaning efforts are based on a profound confusion about our own history and the role of democracy. When did democracy become the end rather than a means toward creating a government that would protect individual liberty? The term democracy does not appear in the Declaration of Independence or in the US Constitution. The purpose of the Constitution, stated in the preamble, was “to form a more perfect union, establish justice, insure domestic Tranquility, provide for the common defense, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity.” The special importance of liberty was emphasized by the first ten amendments to the Constitution. Abraham Lincoln affirmed the principle of liberty in his debates with Stephen A. Douglas and the Civil War against the claims of Southerners that they had a democratic right to choose slavery and succession.
          Democracy is an essential means to safeguard liberty. It provides the means for the people to elect their representatives and also dispose of them. But as James Madison warned in Federalist 10, democracy can threaten liberty. He writes that factions will form with conflicting ideologies and agendas, and if a majority party is not controlled, it may oppress minorities. This is what happened in Gaza and Egypt. To avoid this result, Madison proposed and the framers of the Constitution agreed that this government should be a republic, not a democracy, with checks on democracy.
          The American republic is structured to further the purposes of the Constitution by establishing a balance of authority between executive, legislative, and judicial structures. The president and members of Congress are elected democratically, although it took many years to enfranchise all adult Americans. The Supreme Court, appointed by the president and confirmed by a majority of Senators, cannot be voted out of office unless they are proved to have made an egregious offense. Although their decisions are by majority, they are the least democratic of the federal decision making groups because they can’t be voted out of office by the people.
          We seem to forget that this country is a republic formed to further specific purposes when we promote democracy for other countries without clarifying that it is a means, not an end. We fail to warn others that without checks and balances and protections for justice and liberty, democracy can produce autocratic dictators, as it has done time and again from Hitler to Hamas.
          The idea of democracy as the end rather than a means was promoted by Woodrow Wilson in his address to Congress, April 12, 1917. He asked for a declaration of war against Germany, stating that “the world must be made safe for democracy”. The context was his belief that the autocratic and unelected Kaiser Wilhelm II was responsible for the war and attacks on US ships. He believed that “free and self-governed people” would maintain peaceful relations. Even if this is so, democracy by itself including elections does not guarantee a free people. That also requires protective laws, controls of authority, and an uncorrupted system that administers justice.
          Why then do public officials and editorial writers advocate democracy as a goal rather than a means for developing a more just society? Is it because Libertarians wave the banner of liberty against an interpretation of the general welfare supporting government attempts to build a more equal society? Is it because the gun lobbyists have hijacked the concept of liberty? Or is it because unlike the founders of this country who were independent farmers, craftsmen and professionals, who had suffered under the yoke of Britain, most Americans now work for organizations and have already accepted limitations of their independence? Liberty has lost some of its original meaning for many Americans.
          Even with our Constitution, liberty is sometimes constrained and threatened by decisions to favor national defense, the administration of justice, or the general welfare. And recently, extremes of NSA spying on citizens and threats to freedom of the press seem to awaken fears of losing our liberty. However, when the purpose set forth in the preamble of the Constitution conflict, our democratic processes should facilitate debate within the republican framework.
          So before we cheer democratic elections in other countries, let’s caution others that democracy is not enough and use our influence to help them frame constitutions that protect liberty and further the common good before they hold national elections, just as we did in 1789.
Michael Maccoby’s most recent book is Transforming Health Care Leadership, A Systems Guide to Improve Patient Care, Decrease Costs, and Improve Population Health with Clifford L. Norman, C. Jane Norman, and Richard Margolies.

Tuesday, January 1, 2013

The Uniqueness of America: People in the media and politicians often discuss the idea of "American Exceptional-ism." Many Americans have a real problem with the idea that we are different from other nations. When President Obama was asked about American Exceptional-ism, he said he felt no more exceptional than a Greek would think themselves exceptional. The great American Philosopher, Eric Hoffer had a unique take on the roots of our differences from other nations:

The Uniqueness of America – Eric Hoffer – Taken from Ordeal of Change
…Though the masses have been with us from the beginning of time, we know little about their creative potentialities. In all the fifty centuries of history, the masses had apparently only one chance to show what they could do on their own, without masters to push them around, and it needed the discovery of a new world to give them that chance. In his Last Essays, Georges Bernanos remarks that the French empire was not an achievement of the masses but of a small band of heroes. It is equally true that the masses did not make the British, German, Russian, Chinese, or Japanese empires. But the masses made America. They were the vanguard: they infiltrated, shoved, stole, fought, incorporated, founded, and raised the flag—   

And all the disavouched, hard-bitten pack
Shipped overseas to steal a continent
With neither shirts nor honor to their back.

It is this fact which gives America its utter newness. All civilizations we know of were shaped by exclusive minorities of kings, nobles, priests, and the equivalents of the intellectual. It was they who formulated the ideals, aspirations, and values, and it was they who set the tone. America is the only instance of a civilization shaped and colored by the tastes and values of common folk. No elite of whatever nature can feel truly at home in America. This is true not only of the aristocrat proper, but also of the intellectual, the military leader, the business tycoon, and even the labor leader.
The deprecators of America usually point to its defects as being those of a business civilization. Actually they are the defects of the mass: worship of success, the cult of the practical, the identification of quality with quantity, the addiction to sheer action, the fascination with the trivial. We also know the virtues: a superb dynamism, an unprecedented diffusion of skills, a genius for organization and teamwork, a flexibility which makes possible an easy adjustment to the most drastic change, an ability to get things done with a minimum of tutelage and supervision, an unbounded capacity for fraternization.
So much for the defects and the virtues. What of the creative potentialities? My feeling has always been that the people I work and live with are lumpy with talents…

Reference: Hoffer, Eric (2006-06-06). The Ordeal of Change (Kindle Locations 513-517). Hopewell Publications. Kindle Edition.

Sunday, July 22, 2012

The Righteous Mind -- A Reflection on a Very Good Book

Recently, I had the pleasure of reading the book The  Righteous Mind: Why Good People Are Divided by Politics and Religion by Jonathan Haidt. In the excerpt that follows Jonathan provides an example that explains the spiraling costs of healthcare in the United States. To have a market in which consumer/patients are making informed decisions it is essential that they have access to information that composes the Value equation: Value = Quality/Total Cost. Total cost includes the price paid + the cost to use the product or service. If you pay for an operation in a hospital a price is paid. If you are unfortunate and attract a staph infection as part of your stay, this increases the total cost. If you have paid your taxes in another country for healthcare and then are told that you have to wait 8 months for that knee operation, this increases the total cost in pain and suffering from your vantage point as the patient in waiting. You may also have to purchase support from others to help with driving and other help around the home while waiting. This also increases the total cost. 

In the United States it is next to impossible to understand what the total cost will be before agreeing to care. We are doing a better job on the transparency of measures for the quality of care delivered, but much more is needed for patients to choose wisely. 

Jonathan Haidt focuses on the US healthcare situation. He draws his inspiration from another great article entitled, "American Healthcare Killed My Father" by David Goldhill. This article can be located at this link:

Haidt boils down the complexity of our healthcare system and costs with an analogy to a can of peas. Enjoy!

Counterpoint #1: Markets Are Miraculous

Taken from Haidt, Jonathan (2012-03-13). The Righteous Mind: Why Good People Are Divided by Politics and Religion (p. 311). Random House, Inc.. Kindle Edition.

In 2007, David Goldhill’s father was killed by an infection he caught while in the hospital. In trying to make sense of this unnecessary death, Goldhill began to read about the American health care system, which kills about 100,000 people annually by such accidental infections. He learned that the death rate can be cut by two-thirds when hospitals follow a simple checklist of sanitary procedures, but most hospitals don’t adopt the checklist.

Goldhill, a businessman (and Democrat), wondered how it was possible for any organization to pass up a simple measure that yielded such massive payoffs. In the business world, such inefficiency would soon lead to bankruptcy. As he learned more and more about the health care system, he discovered just how bad things get when goods and services are provided without a properly functioning market.
In 2009, Goldhill published a provocative essay in The Atlantic titled “How American Health Care Killed My Father”: One of his main points was the absurdity of using insurance to pay for routine purchases. Normally we buy insurance to cover the risk of a catastrophic loss. We enter an insurance pool with other people to spread the risk around, and we hope never to collect a penny. We handle routine expenses ourselves, seeking out the highest quality for the lowest price. We would never file a claim on our car insurance to pay for an oil change.

The next time you go to the supermarket, look closely at a can of peas. Think about all the work that went into it— the farmers, truckers, and supermarket employees, the miners and metalworkers who made the can— and think how miraculous it is that you can buy this can for under a dollar. At every step of the way, competition among suppliers rewarded those whose innovations shaved a penny off the cost of getting that can to you. If God is commonly thought to have created the world and then arranged it for our benefit, then the free market (and its invisible hand) is a pretty good candidate for being a god. You can begin to understand why libertarians sometimes have a quasi-religious faith in free markets.

Now let’s do the devil’s work and spread chaos throughout the marketplace. Suppose that one day all prices are removed from all products in the supermarket. All labels too, beyond a simple description of the contents, so you can’t compare products from different companies. You just take whatever you want, as much as you want, and you bring it up to the register. The checkout clerk scans in your food insurance card and helps you fill out your itemized claim. You pay a flat fee of $ 10 and go home with your groceries. A month later you get a bill informing you that your food insurance company will pay the supermarket for most of the remaining cost, but you’ll have to send in a check for an additional $ 15. It might sound like a bargain to get a cartload of food for $ 25, but you’re really paying your grocery bill every month when you fork over $ 2,000 for your food insurance premium.

Under such a system, there is little incentive for anyone to find innovative ways to reduce the cost of food or increase its quality. The supermarkets get paid by the insurers, and the insurers get their premiums from you. The cost of food insurance begins to rise as supermarkets stock only the foods that net them the highest insurance payments, not the foods that deliver value to you.
As the cost of food insurance rises, many people can no longer afford it. Liberals (motivated by Care) push for a new government program to buy food insurance for the poor and the elderly. But once the government becomes the major purchaser of food, then success in the supermarket and food insurance industries depends primarily on maximizing yield from government payouts. Before you know it, that can of peas costs the government $ 30, and all of us are paying 25 percent of our paychecks in taxes just to cover the cost of buying groceries for each other at hugely inflated costs.

That, says Goldhill, is what we’ve done to ourselves. As long as consumers are spared from taking price into account— that is, as long as someone else is always paying for your choices— things will get worse. We can’t fix the problem by convening panels of experts to set the maximum allowable price for a can of peas. Only a working market can bring supply, demand, and ingenuity together to provide health care at the lowest possible price. For example, there is an open market for LASIK surgery (a kind of laser eye surgery that removes the need to wear contact lenses). Doctors compete with one another to attract customers, and because the procedure is rarely covered by insurance, patients take price into account. Competition and innovation have driven down the price of the surgery by nearly 80 percent since it was first introduced. (Other developed nations have had more success controlling costs, but they too face rapidly rising costs that may become fiscally ruinous. Like America, they often lack the political will to raise taxes or cut services.)

When libertarians talk about the miracle of “spontaneous order” that emerges when people are allowed to make their own choices (and take on the costs and benefits of those choices), the rest of us should listen. Care and compassion sometimes motivate liberals to interfere in the workings of markets, but the result can be extraordinary harm on a vast scale. (Of course, as I said above, governments often need to intervene to correct market distortions, thereby making markets work properly.) Liberals want to use government for so many purposes, but health care expenses are crowding out all other possibilities. If you think your local, state, and federal governments are broke now, just wait until the baby boom generation is fully retired.
I find it ironic that liberals generally embrace Darwin and reject “intelligent design” as the explanation for design and adaptation in the natural world, but they don’t embrace Adam Smith as the explanation for design and adaptation in the economic world. They sometimes prefer the “intelligent design” of socialist economies, which often ends in disaster from a utilitarian point of view.

Haidt, Jonathan (2012-03-13). The Righteous Mind: Why Good People Are Divided by Politics and Religion (p. 311). Random House, Inc.. Kindle Edition.

Wednesday, February 22, 2012

What do we mean when we use the word “rights?”

The following quote has often been attributed to Benjamin Franklin. I am not sure who said it, but it certainly fits with the aim of the founders relative to our rights:

The U.S. Constitution does not guarantee happiness, only the pursuit of it. You have to catch up with it yourself." --

Lately this word has been thrown around quite a lot. What do we mean by the word “rights?” Who has them? Who is obligated to see that the right is fulfilled and not infringed upon? Many of us first heard the word “right” as it was used in the Declaration of Independence; we have the right to life, liberty, and the pursuit of happiness.  Let us consider this word “right” as we use it in four ways:

Claim right:  A claim right is a right which entails responsibilities, duties, or obligations on other parties regarding the right-holder. If I hold the “mineral rights” to my property, then I must be paid by someone who expects to extract these minerals. 

A liberty right or privilege, in contrast, is simply a freedom or permission for the right-holder to do something, such as freedom of speech, press or assembly. There are no obligations on other parties to do or not do anything. I can show up at “Speaker’s Corner” in London and talk about anything from the demise of the earth according to the Mayan Calendar to monetary policy in the US. 

Natural rights: Natural rights are rights not contingent upon the laws, customs, or beliefs of any particular culture or government, and therefore universal and inalienable; are rights which are "natural" in the sense of "not artificial, not man-made.”[i] They're sometimes called moral rights or inalienable rights.  John Locke (1632–1704) proposed that there are three natural rights[ii]:
  • Life: everyone is entitled to live once they are created.
  • Liberty: everyone is entitled to do anything they want to so long as it does not conflict with the first right.
  • Estate: everyone is entitled to own all they create or gain through gift or trade so long as it does not conflict with the first two rights.
Legal rights, in contrast, are based on a society's customs, laws, statutes or actions by legislatures. Legal rights are sometimes referred to as civil rights; the right to vote, serve on juries, etc. 

Many people in politics and government routinely refer to healthcare as a right. If healthcare is a right, who is obligated to give you healthcare? How did you earn this right? What are you giving in return? In 2009, John D. Lewis, PhD, at Duke University wrote:[iii]

“…the very idea that health care -- or any good provided by others -- is a 'right' is a contradiction. The rights enshrined in the Declaration of Independence were to life, liberty, and the pursuit of happiness. Each of these is a right to act, not a right to things...”
Professor Lewis elaborates further: 

These two concepts of rights -- rights as the right to liberty, versus rights as the rights to things -- cannot coexist in the same respect at the same time...To reform our health care industry we should challenge the premises that invited government intervention in the first place. The moral premise is that medical care is a right. It is not. There was no 'right' to such care before doctors, hospitals, and pharmaceutical companies produced it. There is no 'right' to anything that others must produce, because no one may claim a 'right' to force others to provide it. Health care is a service, and we all depend upon thinking professionals for it. To place doctors under hamstringing bureaucratic control is to invite poor results."

So if healthcare is not a right in term of rights as defined by the four above, is healthcare a moral obligation on the part of the population who can provide help? Many people would answer “no” and feel that they have given at the office through their taxes. After all, isn’t the government taking care of healthcare now with Medicare and Medicaid? Did we not pass legislation in 1986 that requires hospitals to provide care to anyone needing emergency healthcare treatment regardless of citizenship, legal status or ability to pay[iv]? So what is the problem? 

Something has happened. My wife’s grandfather was a doctor during the depression. When people could not pay they would bring him a chicken or other food from the farm. Recently, my wife had a two hour stay in the Emergency Department with a kidney infection that resulted in an $18,000 price tag. Of course we were happy that our bill was only $500.00. We will be happy until our insurance goes up once again to pay for a healthcare system that is out of control. Every test known to the medical profession was run. What is worse, this was all predicted to me by a nurse as I was driving to pick my wife up. He told me, “Given the symptoms you have described she probably has an infection. They should call the family doctor for history and give her the required antibiotics.” Instead, he said, “they will run a CAT scan that will add another $3000 to the bill.” So we were more than shocked when the CAT scan test was listed at $8000 as part of the total $18000 bill!

What can we do to bring the patient and healthcare professionals closer together in the service exchange to minimize the influence of structure that is adding cost but not value? Reducing the costs will allow us as a society to better meet our moral obligations to those who cannot pay for care. This will be the focus of our next topic on this blog.

[iii] Aug. 12, 2009 Huffington Post article "Health Care, Why Call It a 'Right'?" by John David Lewis
[iv] Emergency Medical Treatment and Active Labor Act

Thursday, February 9, 2012

Should any nation be poor?

Dr. W. Edwards Deming posed this important question often in his many four-day seminars; should any nation be poor? Deming’s solution was to focus on the improvement of quality and set off his famous chain reaction[i]:
  •  Improve Quality
  • Costs decrease because of less rework, fewer mistakes, fewer delays, snags, better use of machine-time and materials
  • Productivity Improves
  • Capture the market with better quality and lower price
  • Stay in Business
  •  Provide jobs and more jobs
Over the last three decades, I have been privileged to help organizations set off this chain reaction as an improvement advisor. It is one of the principle joys in my work. However, the structure that must exist for individuals to contribute to their organization and society depends on the view of private property and the rule of law in that society. 

The idea of private property and the protection of individual rights for that property had the unintended consequence of establishing the rule of law. Individuals were now separated from the masses. Violating the law could result not only in being thrown into prison, but losing your property and adversely impacting the livelihood and security of your family. 

The rule of law and private ownership of property enables the owner to “bet the farm” and invest capital into a business. Too many underdeveloped countries and massive poverty have made it difficult for the average person to buy a home, a task that many of us in the West take for granted. Facing this challenge, many people are not allowed to build on the land they are occupying. In Egypt it takes between 6-14 years to secure a deed. If, during this process, you tell the bureaucrats that you are occupying the land, you can be fined and arrested. The government bureaucracy becomes a barrier to the people using their property to build and to improve the quality of life for themselves and their children.  

Hernando De Soto[ii] has observed that many of these nations have large percentages of land that is “dead capital,” dead meaning it cannot be used to create wealth. In Haiti, 68% of the urban land and 97% of the rural land are not formally registered. It takes 4,112 days and 111 steps to get land ownership. Until this problem is resolved, Haiti will probably remain poor no matter how much money is provided by the developing world. Unfortunately, tourists will continue to wonder why the housing looks so temporary and shoddy. 

F.A. Hayek[iii] has described the connection of private property and freedom:

What our generation has forgotten is that the system of private property is the most important guaranty of freedom, not only for those who own property, but scarcely less for those who do not. It is only because the control of the means of production is divided among many people acting independently that nobody has complete power over us, that we as individuals can decide what to do with ourselves. If all the means of production were vested in a single hand, whether it be nominally that of "society" as a whole or that of a dictator, whoever exercises this control has complete power over us.
Once the governments of emerging nations establish private property and protect the rights of the individual with the rule of law, their citizens can use the capital to build better lives instead of just sleeping on it. These free citizens can exercise their talents and creative potential to unleash Deming’s Chain Reaction, improving the quality of life for their community and nation.

[i] W. E. Deming, Out of the Crisis MIT, Cambridge, Mass., 1986, p. 3
[ii] Hernando De Soto, The Mystery of Capital – Why Capitalism Triumphs in the West and Fails Everywhere Else (2000), Published by Basic Books, NY. The reader may also be interested in visiting a web site dedicated to helping countries establish the structure necessary to succeed. Please visit the Institute for Liberty and Democracy at:
[iii] F. A. Hayek. The Road to Serfdom: Text and Documents--The Definitive Edition (The Collected Works of F. A. Hayek, Volume 2) (Kindle Locations 1764-1767). Kindle Edition