Thomas gave voice to an opinion which she then, almost immediately, retracted; no one, in the subsequent debate, defended the substance of her remarks. She was wrong; everybody, including Thomas, agrees on that point, and no real harm was done to anyone but Thomas when the video of her remarks surfaced.

But if you turn out to be wrong, even temporarily, even only once, on a hot-button issue, that’s enough for effective excommunication from polite society. That, to me, is chilling: I’d much rather live in a world where people should be able to change their minds and should be allowed to be wrong on occasion. For surely we are all wrong, much more often than we like to think.

He then points to something Tyler Cowen said on bloggingheads.tv

Take whatever your political beliefs happen to be. Obviously the view you hold you think is most likely to be true, but I think you should give that something like 60-40, whereas in reality most people will give it 95 to 5 or 99 to 1 in terms of probability that it is correct. Or if you ask people what is the chance this view of yours is wrong, very few people are willing to assign it any number at all. Or if you ask people who believe in God or are atheists, what’s the chance you’re wrong – I’ve asked atheists what’s the chance you’re wrong and they’ll say something like a trillion to one, and that to me is absurd, that even if you think all of the strongest arguments for atheism are correct, your estimate that atheism is in fact the correct point of view shouldn’t be that high, maybe you know 90-10 or 95 to 5, at most. So that maybe is my most absurd view. Most things are much more up for grabs than we like to say they are.

I took away different things from these. if there is anything worse than being wrong it is being doubtful. Is this cultural? Or is it just human?

Rationally, Helen Thomas quitting is sort of wrong. She has an opinion which may be reprehensible to many of us, but it is still an opinion. She did not commit a crime. She probably even has an argument for why she is morally correct in holding that opinion. In any case, she recanted. In spite of that, why is it that Helen Thomas has to quit but this racist state senator doesn’t have to?

Expressing an opinion makes you belong to a certain group who hold the same opinion. The strength of that group – in size and the power of its members – and that of the group that holds opposing views – often determines whether you are right or wrong. Which completely explains why in today’s America anti-semitism can get you punished instantly, but racist remarks can be a cold, calculated play for fringe votes.

Politics and big business drive culture, especially, what is acceptable for public figures and celebrities. Investors will punish a CEO for being wrong (Prudential CEO, Tidjane Thiam) or being in the wrong place at the wrong time and then saying the wrong thing (“I want my life back” – Tony Hayward, BP CEO). But if there is one thing worse than being wrong, it is to be unsure of your beliefs.

Tyler Cowen would like people to be rational and admit that their opinions could have a higher probability of being wrong. But do people really want their leaders to not believe that they are 100% correct?

Imagine if President Obama were selling HCR by saying that “I am 100% certain that this bill will pull millions of uninsured into a life of dignity but only 60% sure that it will reduce our spending on healthcare in the long-term.” Which is pretty much the odds the most optimistic economist might give you.

People don’t even like their leaders to change their opinions. We call it flip-flopping. We not only want our leaders to be certain, we want them to have been certain about the issue at hand, since they gained consciousness. It also helps if their parents had the same stand on said issue.

This is not a development that is recent. Replying to a criticism during the Great Depression of having changed his position on monetary policy, John Keynes was pressured enough to burst out:

When the facts change, I change my mind. What do you do, sir?

I believe that this is a universal phenomenon. Human beings desire strong leaders – fearless and without doubt. Leadership, therefore becomes typed with certitude which becomes a desirable trait even for non-leaders. Which is perhaps unfortunate. With a 70% probability, that is.

No related posts.

.. Those who shorted the housing market shorted the country.

There were many things that went wrong with the housing market – people were being given loans who had no chance of repaying it, homeowners were outright lying and the lenders were encouraging them or looking the other way, Wall Street was concocting securities that were several layers of complexity away from the real, underlying assets and the credit rating agencies were designing their models so that they could stamp their approval on these securities. And a bunch of other stuff related to Fannie and Freddie and the absence of any regulatory checks.

But the thing that was not going wrong, enough, was that there weren’t enough people shorting the heck out of these securities. An asset bubble is created when there are too many people in the market willing to buy at higher and higher prices and not enough people betting on the prices to go down.

Goldman Sachs and Paulson & Co. made money as the sub prime market was collapsing around it. Good for them. There’s nothing wrong with that. Goldman didn’t make much since they were late in the game. Paulson made out like a bandit because he was betting against subprime when no one else was. Unless these deals involved cheating or fraud, there is nothing wrong with making money in a collapsing market.

To the common voter, this won’t make sense. It isn’t fair, it isn’t right to be able to make money off of other folks’ misery. To get huge bonuses when people are losing their houses. You can almost see the special feature on CNN – an interview with an old couple who lost their home and their savings immediately followed by some charts on average bonuses at Goldman Sachs (assuming that nobody at Goldman will be stupid enough to give an interview to CNN on this subject).

This is the narrative that is playing out across the US today. Also perhaps the UK, Iceland, Spain, Ireland and a few other countries where the housing crash was particularly severe. This makes the task of lawmakers very difficult (or very easy, depending upon how you look upon your job as a lawmaker).

If the healthcare debate involved complex issues, financial regulation is almost impenetrable to the voter. If you were a lawmaker and wanted to simply do Joe Blow thinks should be done, you’re going to end up banning short sales and capping banker compensation. Neither is useful and thankfully are unlikely to be implemented.

If lawmakers chose to ignore Joe Blow, and none of them had any scruples, Wall Street would have a field day. They can throw so much money at this thing that the lobbyists will make sure that all that comes out is a bill that sounds ground breaking, but does very little in terms of real reform.

Even if you did want to do the right thing, it is terribly difficult to regulate the market in a way that protects the good stuff while preventing the bad stuff from happening. Always assuming that our legislators really understand the issues at hand. After all, what amounts to the fog of finance for Joe Blow, at the minimum is reduced visibility driving for the Senator.

I am not very hopeful that a good bill can come out of this fog. Another thing that makes me pessimistic is that the most important consequence of this bill, the one that voters really care about, is the avoidance of the kind of crash that would need government bailouts. Whether the bill achieves that or not cannot be determined immediately. Or even in the next three years. If you assume that all politicians want is to be reelected, there is almost no incentive to make a law that really achieves that objective.

On the other hand, punishing Wall Street is popular and the payoff is immediate. So it is in Wall Street’s interest to protest, express pain and anguish and ultimately sullenly take their medicine or appear to do so. And it is in the lawmakers’ interest to appear to be combative and outraged at Wall Street’s excesses while watering down the bill. In this regard the divisions between the left and the right are almost a side show. It might be played up but only to take attention away from a weak bill. Of course there is the matter of the media and experts and what they say about the bill. It’s easy to spin the news networks, especially since they know even less about this stuff than legislators. Experts and financial bloggers are another matter. But then how many voters read Brad Delong?

I will be quite surprised if a good bill comes out of this. There is still some ways to go, and perhaps I should be more optimistic, but politicians as a class are trained to raise expectations and then disappoint.

Related posts:

1. Innovation and Complexity in Finance
2. Why is the Financial Industry this Big?
3. Wall Street Bonuses are Not the Real Issue

…Why should an insurer agree to insure a pre-existing condition? It does not make sense to expect a business to agree to a proposition wherein it knows it will have to pay out 10x on a premium of x….

Insurance by its very definition is protection against the unknown. If the condition and its medical costs are known why take such a customer on board?

Methinks that the reason insurance premiums went up at your small business is because these guys figured out that they will now have to shell out treatment money for everyone and hence they are trying to do a CYA before overall costs go up.

For medical issues, I think either
- a public run healthcare or
- government rights to a percentage of facilities/medicines at institutions that it then distributes among the needy works best.

If there is no government healthcare in the US, it is only logical that average insurance premiums will go up for everyone if the insurance business is expected to mix humanitarian issues with cold-hearted business decisions.

The humanitarian side is actually the governments job. Making money is the private insurance business’s job. Why mix the two?

The main argument the reader makes is perfectly rational. Why should an insurer take on a pre-existing condition when they know they are going to make a loss on it?

They don’t have to today. And that is why we have over 30 million people uninsured.

Health insurance is a system. It needs to be designed to meet certain objectives. Take the internet, for instance. If it is open, egalitarian and free today, it is because it has been designed that way. If we had left it to the carriers to define the rules by which internet traffic is priced, things would have looked very different today.

The big question here is what do you want your country’s healthcare system’s objectives to be. And this is where the US departs from almost every other developed country. The US doesn’t even come close to universal healthcare. More than 10% of the country is not insured. And healthcare is 17% of the economy. Canada’s is 7% and they have a longer life expectancy.

But let’s not go into the issue of cost of healthcare, because that is an even bigger ball of wax that the current bill only begins to address. Except to note that in the US, because of the high cost of healthcare, if you are not insured, you may not be able to afford to go to a doctor. And a chronic disease will likely bankrupt you.

Many of my readers live in India. To them, this might be a storm in a teacup. India has no healthcare insurance to speak of. You get sick, you pay for your own treatment. The cost of healthcare is much, much lower, but even then many people can’t afford the cost of their treatment. But India cannot afford to provide its citizens a safety net on health. At this time, its focus, is rightly is on economic growth. There will come a time when these difficult issues will need to be addressed, but that time is not now.

The US, on the other hand, can afford such things. It provides social security which gives you a minimum living income when you are unemployed and after retirement. It provides complete healthcare coverage at the government’s expense after retirement, called Medicare. It provides free public education till high school for everyone.

But the US does not provide universal healthcare. Most other developed countries do. Some like Canada and the UK have government run healthcare. Others, like Switzerland have private healthcare but universal coverage. Their healthcare systems may differ, but the developed world does not let its citizens lose their life’s savings because they got sick. Except, that is, the United States.

Now, if universal coverage is the objective, you must either have a government run healthcare system like Canada’s or insurance companies have to accept pre-existing conditions. If insurance companies didn’t accept pre-existing conditions and the government had to pick up the tab for them, we would essentially be incentivizing the insurance companies to get rid of sick people and send them over for government aid. Eventually, this would be one huge transfer from tax payers to the insurance companies.

On the other hand if insurance companies had to accept everybody, with no other change, premiums would rise, healthy people would drop out of insurance, and premiums would rise further until the system breaks.

The only way to make this work is to force insurance companies to accept pre-existing conditions and at the same time make it unlawful for people to not have insurance which is called the individual mandate.

In my previous post, I may have bellyached about insurance companies. But really, they are products of the system we have today. They use pre-existing conditions to deny coverage because they can. They use millions of dollars to lobby lawmakers to stop healthcare reform because they can. But what Americans can do is put a stop to this. Tell your elected representatives where you stand on healthcare.

Oh, and one more thing. My company’s insurance did not go up because insurers are being forced to accept pre-existing conditions. That hasn’t begun yet, and though some people think that the huge premium increases being reported are because the insurers want to reset the baseline quickly, I don’t think that is why our premiums went up. It was probably because, on our small account, Aetna was losing money. The sum of premiums over the year was exceeded by expenses.

In the late 90s, we had a similar rate hike when I was at Infosys. We were already a sizable employer in the US and so the massive rate hike wasn’t because we were too small and they didn’t care if they lost our account. It was, and we were told as much, because our employees were having too many babies! We had a young workforce, almost entirely H1-B visa employees. There might have been some eagerness to have a baby while they were here with their spouses so that the child got a US passport. Consequently, the pregnancy rate was way over what the insurers pregnancy tables told them. And pregnancies cost a lot. So they decided that they had to lose the account. If you priced it high enough, we would leave. And we did.

That’s what healthcare insurance has become today. Sifting through the population to get to the healthy population. It’s a broken system and needs to be fixed.

Related posts:

1. My Personal Tale of Healthcare Insurance
2. Does Complexity Have Regressive Social Effects?
3. Pay for Performance is Difficult to Implement

Here’s my personal experience with healthcare from this week. Our healthcare insurer Aetna informed the company that our premiums were almost tripling. For a family of four, our premiums would go up from just over $1000 to over $3000. Why?, we asked. That’s just the way it is, they said. We’re going to have to drop our insurance, we said. Yes, they said, we expected that. And that was that. If you are a business with a small payroll, you and your employees are at the mercy of the healthcare insurer.

So, now I have to go out and get insurance for the family. My wife’s employer, also a small business, offers insurance, but I thought I’d go out and see if I could get insurance directly.

I called Anthem Blue Cross. Nice lady at the other end. Took down all the details. Then we came to pre-existing conditions. I said my son had one and described it. She said that she’d have to put me on hold. She was back in less than 10 seconds. Anthem Blue Cross could not offer any insurance at all. Sorry.

I then called Kaiser Permanente. My wife’s employer offers Kaiser and I thought I’d see if I could something directly with them. Kaiser doesn’t decline on the phone, you have to put in an application, which may be declined (it’s more polite, but everyone spends much more time making and reviewing applications). The guy on the phone was helpful. If you get Kaiser at your wife’s company, take it, was his advice.

Now, we have options. Even if we didn’t have my wife’s insurance, we wouldn’t be out on the streets, if something were to happen. But for many Americans (over 30 million of them) there are no options. If they don’t have a job or they have a job that doesn’t offer insurance, and they have a pre-existing condition, they won’t get insurance. Hospitalization in this country can cost $20,000 and up. Which means that they could be just one major illness away from bankruptcy.

Now, about this bill. It’s a very, very long bill. If you really want to understand the issues it tackles, go read Ezra Klein. But basically it boils down to a few things. Health insurers should not be able to deny insurance based upon pre-existing conditions. It also bans recissions (kicking an insured person out) and life time caps (another cute trick to limit payouts). To make this work for insurance companies there has to be an individual mandate (everyone must get insurance).

Six months after the bill is passed, denying insurance based upon pre-existing conditions for children will become illegal. That’s when I’m going to call Anthem Blue Cross again. I can only imagine how many people are waiting with far more desperation for that six month boundary to be crossed.

Here’s where you find out who to call http://www.congress.org/

If you are calling right now, call your Congressman. If you read this blog, and you live in the US, you probably have a nice job and healthcare at work. If I were you, here’s what I would say to his or her aide on the phone:

Congressman (or Congresswoman) I have a nice job and healthcare insurance. I am calling you in spite of the fact that I have nothing to gain if this bill passes. That’s because I feel for those people who do not have insurance today or can’t get it. We cannot be a great country if we let our people sink into misery because we’ve let healthcare become the monster it is today.

Please fix healthcare by voting yes on healthcare reform.

Related posts:

1. Here’s How You Manage Healthcare Costs
2. Pay for Performance is Difficult to Implement
3. Does Complexity Have Regressive Social Effects?

There are a whole host of problems facing the school education system in the US. Teacher training is just one of them.

The sheer number of teachers required and the low pay almost ensures that the average school teacher will not be anywhere near the best that American colleges turn out. If you think about it, isn’t a school teacher’s job, in whose hands we leave our children’s education, much more valuable to society than a lawyer’s or a banker’s. Unfortunately, society puts a really low price on it.

So we have the teachers we have. Can we do a better job of teaching with the lot we have? Clearly, teacher training can be effective, as the NYT article points to. But to improve any system, you need to be able to measure performance. That’s how you know, as you make changes to the system, if they are being effective or not.

Unfortunately, school teachers’ unions in most states vehemently oppose the validity of measurement systems and common sense changes like tying teacher pay to performance. So you have a public school system, which is what most Americans use, which is not delivering the goods and resisting all efforts to change.

HBS Professor Clayton Christensen and colleagues have written an interesting book Disrupting Class: How Disruptive Innovation Will Change the Way the World Learns. The lecture/classroom model of teaching was a response to society’s need to provide an increasing level of education to every American citizen. It wasn’t always this way. As the number of students in the school system started shooting up (both number of years and number of students being educated was going up) the school system responded by adopting a mass production system, on the lines of the changes going on in manufacturing at that time.

The biggest theme of that mass production of education was standardization. Put more students in the class, teach them the same way, at the same pace. Standardized text books, standardized tests – everything was based on the assumption that in order to scale up the throughput of the school system, we had to standardize.

And they were absolutely right. By any metric of success, the school system in the US, rose to the challenge of educating Americans in much larger numbers. The system delivered. Until the 70s.

Once the challenge of scale was met, American educators started worrying about the quality of education. But try as they might they haven’t been able to improve that over the last two decades. The monolithic school system was designed very well for mass production of education, but was resistant to change.

The biggest problem in today’s schools is standardization – a teaching paradigm of one size fits all. Students have different learning styles and capabilities. A classroom, even if the teacher is great, pushes the onus of adjusting learning styles on to the children.

The authors then go on to say that technology will change all that. Computers can enable what they call “Student centric learning” – where the path and pace of the lessons adjust to the student’s learning style. In addition, the online content can reflect the best teaching out there. To use a music analogy, today’s classrooms are the equivalent of hundreds of thousands of live performances done by artistes, some good, some bad, some average. Online education can be like digital music – the rendition isn’t as life like as a live performance, but everyone is listening to the original composition.

The authors believe that student centric online education will disrupt the classroom education paradigm. At first this will happen slowly, but soon it will become this irresistible flood that will forever change our education system. By 2014 online courses, they predict, will be 10% of all high school courses in the US. By 2019 that number will be 50%. Today it is just 1%.

Christensen has written a management classic – The Innovator’s Dilemma. I was deeply influenced by this book and its successor Innovator’s Solution because they related so well to how Offshore Services were disrupting the IT Services industry. He applies the same principles to predict how online education will disrupt classroom education.

I find online education a fascinating study. I just registered my daughter for some online supplementary courses from Johns Hopkins CTY Online. As I learn more about it from her experience, I am sure I’ll be returning to this subject here.

Related posts:

1. Make Work Homework
2. English Medium Education Can Lead to Poorer English
3. Paper Problems

A French fast food chain’s decision to serve only halal meat in eight restaurants with a strong Muslim clientele has sparked a wave of criticism from politicians decrying the step as unacceptable.

Quick, the restaurant chain, is also not serving any pork products in these restaurants.

Right wing politicians are making hay out of the incident. But to anybody not blinkered by religious prejudice, there is absolutely no logical argument that you can make against Quick’s decision. Quick is free to tailor their product to suit individual or group preferences. Customers who don’t like halal meat, even though it tastes identical, are free to go elsewhere for their meals. Customers who would like pork in their meals could also follow suit.

I would spend a little more time on searching for a grain of logic in the arguments of the critics, but that would be a waste of time. What is clearly happening is that Europe is seeing growing pressure against its secular principles. Switzerland’s minaret ban vote is another case in point. France itself is pretty close to banning the burqa, which I have to admit is not as illogical as the tirade against halal only restaurants, but is fueled largely by political calculations and an anti-minority sentiment.

When jobs are scarce, people turn against immigrants. Most of the Muslims in Europe are immigrants from North Africa or South Asia. Add that to the fact that some people can’t separate terrorists from the religion itself and you have a situation ripe for exploitation by politicians like Jean-Marie Le Pen.

This movie still has a few reels left.

No related posts.

But, if you leave aside the fact that one is pernicious but lawful (the US) and the other is illegal and pernicious, there is little to choose between the two forms of corruption. The Indian version enriches the politician and his family. The primary use of that money is to fight elections (where the funds are used to buy mixer-grinders for the electorate, not TV ads). Money therefore becomes the means to stay in power.

In the US, it is the other way around. Campaign funds are used to fight elections. Once you win there are other legal ways to make money. Like through your spouses.

Ultimately, money and power are both means to ends and ends in of themselves. Whether special interests provide money to the politician or his campaign fund, they corrupt government and weaken democracy.

Related posts:

1. Corrupt Congress
2. Insider Trading
3. Wall Street’s Chickens Come Home to Roost

Larry Lessig has an important article in The Nation about how campaign fund-raising has corrupted Congress.

This is corruption. Not the corruption of bribes, or of any other crime known to Title 18 of the US Code. Instead, it is a corruption of the faith Americans have in this core institution of our democracy. The vast majority of Americans believe money buys results in Congress (88 percent in a recent California poll). And whether that belief is true or not, the damage is the same. The democracy is feigned. A feigned democracy breeds cynicism. Cynicism leads to disengagement. Disengagement leaves the fox guarding the henhouse.

Read the whole article. You’ll hear a lot about this in the coming weeks (I fervently hope).

Here’s where you can sign the petition to Change Congress.

Related posts:

1. Money Begets Power Begets Money