The Health Care business

This is an enormously complex problem, overall.

My experience is not extensive, but I have had to use several "providers" over the last 40 years.

Kaiser Permanente was superior. Also, the most expensive. KP is the most computerized HC provider that I am aware of. This means that their knowledge and planning and efficiency is highest, and that they can be proactive about various things, like telling you when it's time to do this or that (just like the Ford dealer sends you an email when it's approx time for an oil change).

The rest of the industry seems a lot less data-efficient. There's no good reason for that, other than lack of willingness to spend the money to be better, and a fear on the part of some employees that computerization will put them out of a job. That is of course, true, but is like a buggy-whip manufacturer in 1910 saying "automobiles will never replace horses" -- yet here we are.

So today I have read an announcement that Warren Buffet (of Berkshire-Hathaway fame), Jeff Bezos (creator of Amazon), and a guy from J P Morgan Chase (CEO?) will team to create a brand-new Health-Care service to tackle the US HC-provider cost issue.

This is great.

I have no idea who the JPM guy is, and let's not pretend that the banking/financial industry in the US has a good reputation (the seemingly endless parade of scandals based on the industry being greedy goes back as far as you can read).

But we know who Warren Buffet is, perhaps the epitome of good guy who is really wealthy.

Jeff Bezos is the guy who is revolutionizing the retail industry. Amazon is the business to be afraid of if you are in retail sales--aka brick-n-mortar stores. He bought Whole Foods last year, and while we haven't seen "organic food delivered by quad-copter drones" yet, we will.

So this combination is really interesting: you won't go to CVS for prescriptions, NewCO-HC will delivery them via drone. Well, KP sent me pills in the mail, so this isn't too far-fetched at all. The only reason to use CVS is when you get a prescription and need the pills immediately. KP had its own pharmacy in-house, so you could see a doc and then go downstairs for the pills. Refills I always got in the mail.

The initial story on this is that the service will be for their employees, but of course 20 years ago Amazon only sold books.

This will be interesting.

Economics lessons, part 1

It shouldn't take an Advanced Degree(™) in Economics to figure out how the economy works, but it sure seems like it does.

"We're going to bring back coal" -- what a ludicrous thing to say. Does anyone think this is going to happen ? Why? It's not. Coal is nearly dead. And you don't want it to come back. Those are nasty dangerous jobs, with illness and reduced life expectancy for everyone involved or nearby. Mine collapse, black lung disease, polluted drinking water. Where coal is burned, polluted air. No good.

Why is coal going away?

Basic lesson: old business models are replaced by new ones that are more efficient in some way. Old tools are replaced by new ones. You could call this economic Darwinism if you're aren't afraid of evolution. If you are, well, you're going to get rolled under by those who aren't, and no amount of stupid from the current federal government/administration will stop it.


Cases in point:

1) Horses. up to 1900, personal transportation was either on foot or on horse. Neither goes very far or very fast, so your travel is very limited. Well, okay, since 1840 there WERE places you could go on a train. But not to the grocery store.

A horse is more efficient that walking, if for no other reason than something besides YOU is doing the work, and the cargo load is greater.

But what's worse is the pollution aspect of horses. Imagine that you are in 1890 New York City. Four million people live there. There are a LOT of horses. Horses poop everywhere. It's probably less bad in the winter than the summer, but it's still bad. And you can't turn it off. (Imagine if the car you drove in the 1950s, 5mpg and high-pollution, could never have the engine turned off…not then an improvement over a horse.) Horses drop dead in the streets; then they rot: flies and disease. You can't hook a horse on the back of a tow-truck and take it to the dealer for repair.

So the revolution here is when an automobile becomes possible, and priced right, it eliminates horses as transportation almost overnight.

(Remember a good Henry Ford quote here: "If I'd asked people what they wanted, they'd have said 'better horses'" because most people's vision extends only just beyond their front door. Well, he gave us a better horse, and a better business model along the way. (Yes, I know Ford didn't really say that.))


2) Shopping. about the time I was born, your standard shopping experience was to go to a department store, let's call it "Sears", and you could talk to someone who actually had expertise/knowledge about how to do something and what tools to use, and they could sell you those tools.

Now, well, Sears is slowly going out of business. With the increased competition that Sears faced, and the willingness of stores to compete on price, the American consumer reached a point where purchase price was the critical aspect. That resulted in a need to cut costs at Sears (and everywhere else), and one of the costs that got cut was labor. Reduced pay because of cheaper workers means reduced purchase prices which means customers don't go elsewhere. It also means that workers are less knowledgeable. Turning those workers into part-timers to avoid paying benefits also keeps costs low, but you still only get the lesser workers. And those workers are the ones that interact with customers. Retail customers don't like trying to deal with dumb employees, but it's not like that's not true everywhere else too. And because aggregately we have decide that cost beats all, this was inevitable.

When you are forced to compete on price, rather than product or service quality, you get a race to the bottom. That always results in a shakeout where some close, some are bought, and a couple limp along getting slowly worse and worse.

As Sears has gone downhill, so have others, putting people out of work.

What's the business model that accelerates this? Well, Sears itself started it back in the 1800s. Remember the "wish book" ? Yeah, that was it, combined with Wells Fargo wagons (remember the song from The Music Man?). The model: send a catalog to a customer, let the customer place a written order with a paper check, box items and put them onto a Wells Fargo Wagon, wagon delivers to customer. Customer doesn't have to visit a store, in fact CAN'T because it's too far away. The process isn't fast, but it means you have access to thousands, millions of customers who don't live in town, or live on the other SIDE of town. Remember that transportation back then was horseback.

Back in the day, you could even buy a house, as a kit, from Sears.

So what was that? It was a new and more efficient business model. Enabled because of reasonably efficient postal service, banking service, and transportation service. Those things were, of course, still fairly limited, but still a giant leap over 100 years before.


3) Amazon. Now the equivalent model is Amazon.com + Paypal + FedEx/UPS. Instead of a turnaround time of weeks, it's now days, and perhaps only hours if you live near an Amazon distribution center. So those Sears jobs are turning into Amazon jobs. At least you don't have to interact with dumb employees or customers.


A theoretically perfect market is like this: you as customer have access to the advertising service, which has access to the payment service, and the delivery service, and all of that can turn around with minutes to hours. That sounds like today, with one exception: in a perfect market ALL possible goods and services are available for purchase at all times. I want to buy an "X" and the advertising service shows me who has that for sale. Our current market is imperfect in that some things are not for sale when you want to buy and go looking, but it's awfully damn close.

The old business model of "brick-and-mortar" stores is just about dead. Yes, there are still a lot of stores around. But that's going away. an old business model that is no longer efficient enough. One of the other reasons why the newer model is more efficient is that if you buy pants that don't fit you can just send them back and order a different size. Soon as you know you wear 34x32 pants, that's the only size you order. No need to try them on at at store.


4) 3D printing. This is going to replace a bunch of manufacturing flavors, over time. You will do it yourself at home. It will be more efficient to own a printer, and order a design, which it then makes for you. There is ZERO shipping cost, beyond raw-material refills. Eventually this is the Star Trek synthesizer. Make-on-demand. No need for a store, because there's no need for inventory.


5) Delivery via drones. Amazon is working this. It will have limited range, but be more efficient for small things, and nearly fully automated: this will reduce vehicle traffic at ground level. Just wait until the air is full of these things, tho.


Back to why coal can't come back…it's an old business model. It worked at the time because it was very low-tech, and because of that there weren't any competitors. You could dig it out of the ground with a pickaxe and haul it home with a horse-cart. But it was still nasty. At large scale, it was also dangerous. Oil is high-tech, but there aren't any mine collapses or explosions. (well, you get oil spills, those are nasty too.)

The coal competitors involve a bit more advanced technology, in varying amounts. Oil/etc require special transportation, special processing, special handling at your house. Natural gas is similar. Electricity puts the most dangerous parts far from your house, and you can do a lot more with it. Solar can bring power generation right back to your house again, and the fuel source is free, but the tech to create solar panels isn't trivial.

Here, too, tho, coal itself displaced a predecessor: trees. Much higher energy density, same transportation methods. Problem: non-renewable. You can grow trees in your yard.

Coal is nasty from the get-go. Oils is too. NatGas not so much. Solar is nasty only at manufacturing time (I imagine that disposal time will be too, but I haven't heard about much of that going on, the wear out age of solar panels is still probably well into the future).

But very little of that involves human work any more. And that is why coal is going away.

Automation.

All of these advances are the result of automation. Improved tech is a kind of automation. Both are better business models.

Which all result in job losers. Job winners, too, but the jobs are different, and the people are too. 50 years ago cars were still largely hand-made. Assembly lines, yes, but human workers. Now they are almost fully automated. Competition and therefore cost pressures forced this to be true. You want to buy a human-made car? Who still does that? Rolls Royce. Bentley. Morgan. Ferrari. Lamborghini. What's the sales price? Yeah: quarter-mil+

(look here: http://www.madehow.com/Volume-1/Automobile.html for a fascinating explanation)

Coal production, such as it still is here in the US, is not guys in mines with pickaxes. It's giant earth-moving trucks scraping a mountain flat out west. The mining jobs are gone. Automation has killed them. Not coming back. Waiting for them to come back because some knucklehead presidential candidate says they will is foolish in the extreme.

Automation has already killed a lot of jobs here in the US. Cost pressures moved a lot of jobs outside the US, and automation will kill them too.

Winners and losers. Economic Darwinism. Survival of the adaptable.

Inevitable. And scary.

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An afterthought or two:

1) the coming "AI" revolution is already changing things, and that will accelerate. I don't know how or where. I used to work in that area, when it was still primitive. It was great fun, but inevitably came the pullback of "this is still too hard".

2) electric cars. If I live another 30 years I will see the end of the internal-combustion-engine-driven car. Gasoline will go away. What is currently a gas station hasn't been solely a gas station for years. It's a convenience store where one product is gasoline. Don't plan on keeping your current car forever. Or your antique.

3) self-driving cars and the Uber/Lyft equivalents will eliminate private ownership of vehicles for the most part. Self-driving trucks are in the near future (test vehicles are already in use). This will be one disruptive use of AI. Taxis are doomed; well, the ones driven by humans are. Uber service with self-driving cars will be the new thing--you won't even own a car.

4) There are plenty of historical occasions where the upheaval of new tech replacing old tech causes social unrest and rioting/vandalism.

The Congressional Budget Battle

and the debt ceiling...man what a psycho episode.

Made worse by the spineless president. That was not what I voted for. I would agree with a post I saw online today, where someone wrote that Obama should have acted more like LBJ would have, by saying something more like: "You want cost of gov reduced? I'll halt all the projects in your district tomorrow--that'll reduce the cost of government." Which can be done...USG can issue a stop-work order at any time, on any contract, and you as contractor cannot bill any further. The executive branch makes those kind of decisions regularly.

Which means that of course the executive branch can always turn off expenditures anywhere, at any time--so even if the President can't make the budget law, he can simply not spend all of what's allocated.

What continues to amaze me is that so many folks are complaining about how we can't raise the retirement age on Social Security--it has been clear for years that the eligible retirement age needed to go up. It really ought to be 70 *now*, rather than sometime next decade. *I* expect to have to work until I'm 70 (or die at my desk, whichever comes first). The economic downturn over the past several years I think pushed back my retirement opportunity a few years.

Recall when SS started? 1935? The retirement age was set at 65 because that was the actuarial expected lifetime for someone in America at the time. So you could retire at that point, and start getting $, until you died, which probably wasn't all that far off (not to suggest that folks couldn't live longer, IIRC both John Adams and Ben Franklin lived to be 90, more than 100 years earlier). Now, thanks to all the medical improvements, we can now expect to live well past that, the actuarial average death age is about 80 (from USG website). Which means that you are likely to be able to collect 15 years worth of payments. Or more. That really isn't sustainable.

While it sounds good to say "well, let's index the retirement age to follow the actuarial numbers", it's a near certainty that your work years past 70 aren't going to be as productive as those just before. We all are starting to slow down at that point, so 80 isn't really a feasible date. I think 70 is good, now, however, because we can all do better at living healthy lives to that point. That said, I know folks age 80 who are pretty active, but not like they were at 60.

If retirement age rises, that should let SS be stable for any foreseeable future.

Means testing is critical on this, too. If you believe what you hear, most folks will face retirement with only around $50K in savings--which means that SS is critical for them, the only thing separating them from poverty.

Of course the Republicans, for all their scare talk of Death Panels, would prefer that anyone who can't take care of themselves just die, that no "social safety net" even exist in such a way that they are taxed for any of it.

Economics

I had a shitty economics class in college. Engineering econ, it was called. Textbook written by the prof; class was Sept 27 to Dec 17 or some such, book did not actually get printed and to the Univ until Thanksgiving.

and on top of that, what it covered was essentially useless. Only thing I got out of that class was the trivial knowledge of how to calculate compound interest. We're talking 1978 (or was it 79?), so this was before advanced math calculators could to that, and before Excel or 1-2-3.

Class *could* have covered real valuable content, like how to cost and budget a engineering proposal, estimate manpower needs for a project, how to manage costs over time. But no.

and now it's 2008. Dec 2008. The economy is in a slump. Big time. Well, the economy was in a slump when I graduated from college. So it will come back.

But what's the deal? There's a really simple explanation you won't ever hear.

Economics, the world economy, our capitalist model, is basically a pyramid scheme. It requires that there be new products and new customers ALL THE TIME.

ok, so as long as the population is growing, there are new customers. But businesses have to keep growing lest the competition take their customers away. Which leads to the need to borrow money--and if there's a hiccup in that, the pyramid turns out to be a house of cards, and starts to collapse.

In addition to the greed. This is the essential flaw in Greenspan's thinking: it doesn't account for criminal behavior by the participants. Like this: when someone thinks up the "derivative" idea of bundling mortgages into a package that can then be "securitized" and resold to investors, the thing you most want to do is resell quickly--i.e., fast turnaround, with a sliver of profit in the sale. You can claim that the risk is low, because the securities are backed by real estate, which always has solid value. But there isn't anyone in the chain, other than the homeowner, who actually *wants* to own the property. The problem there is that once you put enough distance between the homeowner and the ultimate holder of the securitized loan bundle, the investor doesn't know whether the homeowners can actually pay the loans. What's worst is that the mortgage maker who originated the loan doesn't care, ultimately. Said maker wants to make loans, and resell bundles of loans, the fast the better. So you make it as easy as possible to get a mortgage loan, which leads to more people bidding on houses, prices going up, and eventually people being unable to really afford their houses, but have them anyway. The mortgage maker makes a little money from originating the loan, and more when it is resold. The faster that can be done, the better--and they can make new loans as soon as previous ones have been sold. So much for needing due diligence on the buyer's being able to afford the thing, why do you care? You're going to pass the risk on to someone else, that someone isn't likely to investigate the buyer.

But there is going to be a sort of ceiling in prices on houses. They can only go so far upwards before people just can't buy.

As soon as there's a hiccup...those loans turn out to be non-performing. Then you have to wonder about the value of the thing. Housing prices being cyclic, at some point they will be going back down, and maybe then you have the value inversion.

Which is why the screwup in how Treasury and Congress are handling this is happening. They aren't dealing with the loans issue. Banks have asked for money, but are paying operating expenses with it.

And this happens this way because it's a pyramid scheme. As soon as there stop being new customers (or customers able to pay), things start back downward.

A way to solve this for the future: require that mortgage originators hold the loan for a minimum of three years before they can sell it. You know that if the originator knows it has to hold the loan, it is going to be very careful about knowing the buyer can pay. As opposed to recent years, where that absolutely did not matter.