Healthier and Healthier

I posted earlier about how new analysis of health care statistics reveals flaws in some of the dire numbers used to argue for a big change in health care. Greg Mankiw is continuing to post relevant data. If you correct for some factors that have to do with mortality but not health care, the longevity numbers change. I have no idea if the new numbers are correctly compensating for extraneous factors, but I do know that using raw uncorrected numbers is extremely misleading. It’s unwise to consider major changes in health care based on raw, uncorrected, and misleading numbers.

I was at a party last night. Had Bill Gates walked into the room, the average net worth would have shot up. That wouldn’t mean we were any richer! But it’s that caliber of analysis that much of the “health care reform” movement is built upon.

Taxs Taxes Taxes!

The new IRS statistics are out and the commentary starts. This will provoke the usual arguments about who pays a fair share, income inequality, and so on. But these kind of numbers don’t get at the heart of the problem.

Suppose you buy some toothpaste at Target. Target makes some profit and they pay taxes on the profit. The tax is built into the price. In reality, you paid the tax. But Target didn’t make the toothpaste - they bought it from P&G, which made a profit that was taxed. The tax was built into the price that Target paid and built into the price you paid. You paid the tax. But P&G didn’t make the toothpaste tube - they bought it from someone who made a profit, paid a tax, and built it into the price. Again, you paid the tax. And on and on it goes.

And it doesn’t stop with the taxes on corporate profits. Corporations pay lots of taxes: property taxes, Social Security taxes, unemployment insurance. All of those taxes are built into the price you pay for products. And, just to make it perfect, whatever profits the corporations distribute to shareholders are also taxed.

You may not like the income tax, FICA, property taxes, sales taxes, and excise taxes, but they’re only part of your tax burden. The “hidden taxes”, built into the price of everything you buy, is huge and invisible.

When politicians talk about taxing the oil companies, the airlines, the phone companies, or just about any other business, remember who really pays. Think you’re getting your money’s worth?

Black Swans

I don’t often find a Web posting that combines math, economics, and investing insight. The title “Black Swan” comes from philosopher Karl Popper’s observation that only a single black swan is required to falsify the theory that “all swans are white”. The subject discussed concerns the occurrence of exponential distributions (”power curves”) instead of normal distributions (”Bell curves”). The idea is that we expect Bell curves when reality gives us power curves. As a result, we are often wrong in our expectations and surprised by outcomes. It is also problematic that many political agendas are based on trying to force a power curve world into a Bell curve world view.

Scared?

In a former blog incarnation, I sometimes wrote about the way the a poor grasp of math in general, and statistics in particular, led some people to think and do the strangest things. In that light, I enjoyed this article which shares the same subject and has lots of examples.

My Oh My, Statistics Can Lie

Someone else is writing smart stuff about one of my pet peeves - how so many pundits abuse math in general and statistics in particular. Read it here.

Twisted Numbers

This article has a nice exploration of how people can twist numbers to bolster an argument. That’s hardly news, but it got me thinking about alternatives. Clearly the proponents of the “stagnant wages” school have a goal in mind: there should be some minimum standard of living for everyone. Why don’t they just say so?

I suspect it would be difficult to define the minimum in such a way that the vast majority of people were not already included. And then, if you exclude the mentally ill and self-destructive, the number would get very small indeed. I know that many battered women would be included in the group. Wouldn’t it be more effective to target a particular group of true victims for assistance? People might argue about the specifics, but it’s hard to imagine anyone arguing against the principle of helping those truly in need.

Why doesn’t this happen? My guess is that politicians realize that targeting specific groups for help wouldn’t garner many votes, while implying that a large group of people have somehow been cheated has the potential for getting them elected.

Professors Without Borders

If the numbers quoted here are correct, I predict a revolution in higher education. The value of higher education must be compared with the cost, which includes the opportunity cost. Opportunity cost, in this case, includes what else you could have done with the time and money. At some price, a college education must have a negative worth, and we may be at or near that point now. The future of higher ed may indeed lie with Google or Starbucks!

Medical Astrology

Your first reaction to this article may be to laugh, but it points out a serious problem. It’s not just medical research that produces all kinds of bogus results - you can see this kind of thing happening in almost every discipline. It pays to be wary and it certainly pays to be skeptical of the latest medical “discovery”. Alway check the math.

Arborial Carbon Offsets

It’s all the rage these days to talk about carbon offsets as a way to compensate for the carbon load that your energy use places on the environment. But let’s look at the numbers. A tree consumes somewhere between 3 and 15 pounds of carbon dioxide a year. Let’s be generous and say the average tree offsets 10 pounds. The average American’s energy consumption causes 20 tons of carbon dioxide to be released every year. So, to offset your energy use, you’d need to plant 4000 trees every year. I’m not sure you’d have any time left over for anything else! But that’s not the end of the story - when those trees die, they decay, and release their carbon dioxide back into the atmosphere. So, to be carbon neutral, you’ll have to task your descendants with replacing all those trees in the future, in addition to planting their own.

Planting trees as a carbon offset may make you feel good about yourself, but it’s unlikely to help with global warming.

The Economics Of Autism

I read the original story in the WSJ, but this review and critique captures the essence. This seems to be another case of correlation being confused with causation. Oh, the causation might exist - who knows? - but there has been no attempt to prove it. Only correlation has been demonstrated - and indirect causation at that. As I keep repeating, being careless with numbers can cause a lot of misery in this world.