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No Blood for Travel! July 31, 2007

Posted by federalist in Transportation.
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One of the best essays I read last month, “My Only Son” by Leon de Winter, contrasted the price we pay in lives for efficient transportation by motor vehicle with the price we are paying to fight terror and build democracy in the Middle East.  An article today provides some interesting statistics on the former.

The NHTSA last week released preliminary figures for highway fatalities in 2006, and heralded a 2% decline in overall motor-vehicle fatalities to the lowest absolute number (42,642) in five years and the lowest rate per 100 million vehicle miles traveled the government has ever recorded.

Motorcycles, on the other hand, have not enjoyed the same improvements in life-saving technology that have permeated the passenger car market.

Adjusted for miles traveled, [motorcycle] riders were 34 times more likely to die in a highway accident than occupants of passenger cars in 2004, according to the NHTSA study.

NB: Motorcyclists can still significantly boost their odds by not drinking and driving, and by wearing a helmet:

[A] majority of riders die with blood-alcohol concentrations above the 0.08 level now designated as the legal limit. … About 66% of riders who died in helmet-optional states weren’t wearing head protection….

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National Education Association Forgets: Those Who Can’t, Teach July 25, 2007

Posted by federalist in Education, Unions.
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Tom Shuford slams Reg Weaver, president of the National Education Association (the public school teachers’ union), in a rejoinder to her recent letter in the WSJ in which she appeared to suggest that the NEA cares about something other than maximizing the power of its cartel for the benefit of unionized teachers.  Worth reading in full:

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Tax Anomalies On Car Sales/Trades July 24, 2007

Posted by federalist in Taxation.
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I just confirmed an interesting anomaly in the taxation of car sales:

[A]ccording to dealers and regional authorities contacted by MSN Autos, when your car is taken in trade you only pay sales tax on the difference in cost between its trade-in value and the price of the new car. For example, if a dealer gives you $10,000 on your trade-in and the purchase price of the car you are buying is $25,000, you’ll only be required to pay sales tax on the $15,000 difference between the two amounts. In states with a high sales tax, this benefit can help narrow the difference between trade-in value and private party price.

Amusingly, if in this example you instead chose to sell that old car to a third party then the state would collect sales tax on $35k instead of just $15k!  That can be quite an incentive to trade-in a car with significant residual value.  And it seems like an odd loophole for the states to have left open.

Tax Policy for Hedge Funds July 19, 2007

Posted by federalist in Finance, Taxation.
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While Congress tries to come up with a rationale for raising the taxes paid by investment company managers, Rick Bookstaber, at his new blog, illuminates the ways in which private equity and hedge funds are just like any other business.

Hedge funds are businesses in which managers are responsible for assessing a set of possible investments and allocating the firm’s capital to the best investments within that set. They are then rewarded according to the results of their decisions. That does not sound a whole lot different than what manager do in any other business. Granted fund managers are compensated for their results in a more formulaic manner than are those in most other businesses, but ultimately they are being compensated based on how well they manage the assets under their control, just as any other business manager is – or at least should be – compensated.

As with all issues of taxation the situation is muddled, but contrary to the insinuations on the left there was no special tax carve-out for hedge funds. Rather (as I understand it) the tax code has two separate rate structures depending on whether money attributed to an individual is a “capital gain” or is “income.” Taxes on the former are almost always much less than on the latter.

Since the occasionally astronomical incentive fees earned by fund managers are entirely contingent on the performance of investments it seems easy to argue that those fees are capital gains. The opportunists in Congress are arguing that the incentive fees are actually “income” that is earned for work performed investing other peoples’ money.

If I were to guess at the “correct” or “fair” interpretation under the currently absurd tax code I suspect the final solution would treat fund manager incentives like stock options, which have both an income and a capital gain component. So hedge fund managers would have to price an at-the-money option of their investors’ capital when they get it, pay income taxes on that, and then take the capital gains or losses on that option depending on their realized incentive fees.

Does Gun Control Work? July 18, 2007

Posted by federalist in Government Regulation, RKBA.
4 comments

Gun control does not reduce the rates of murder or suicide.  The latest analysis of international data is presented by Kates and Mauser in the Harvard Journal of Law and Public Policy.

Whether gun availability is viewed as a cause or as a mere coincidence, the long term macrocosmic evidence is that gun ownership spread widely throughout societies consistently correlates with stable or declining murder rates. Whether causative or not, the consistent international pattern is that more guns equal less murder and other violent crime.

How can this be?  In the August issue of America’s 1st Freedom Kates suggests:

The people you need to control are not going to obey the gun control laws.  And the people you don’t need to control, those are the ones who obey.  So what you get is, you get either nothing, or you get worse results, with gun control.

Transportation Stupidity Administration – Part II July 17, 2007

Posted by federalist in Transportation.
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Today we’re treated to a regular feature of post-9/11 journalism: The “I can’t believe the stuff people try to bring on airplanes” expose. What should be satire is apparently reported in all seriousness:

Steve Ekin pulled out corkscrews, pocketknives and assorted hand tools before finding an electric impact drill as long as his arm. “You’d think people would know better,” he said.

As someone who regularly flew with a 3.5″ pocket knife before 9/11, I’d think the TSA would know better. What is somebody going to do with an electric drill — find a 112VAC receptacle and start making small holes in sheet metal at 35000 feet? Corkscrews, bats, saws, scissors, nail guns — we’re supposed to be scared that these tools are going to somehow facilitate a massacre of civilians? Or that they could breach the reinforced door of a cockpit before the flight crew can employ any countermeasures?

For every banned item I’m sure we could think of ten that are permitted that would be at least as effective in achieving whatever nefarious objective was imagined. Box cutters are forbidden? Well what about one of those aluminum cans from the beverage service torn open to form a lethal cutting blade? Bludgeoning instruments like bats and golf clubs are forbidden? What about a large man with the ability to clench his fists or fire off an elbow strike or head butt?

I’ve said it before: The failure on 9/11 wasn’t our screening policies. It was our assumption that terrorists would not try to use heavy aircraft as weapons. Securing the cockpit was an appropriate response. Arming pilots was a good idea. Arming passengers to provide suicidal terrorists with a quick means of meeting their maker would also be appropriate. This charade that imagines that we can remove every means of mischief from human beings by searching and harassing them is absurd.

Hedge Fund Characteristics and Analysis July 16, 2007

Posted by federalist in Finance.
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Today’s readings in the industry literature turned up some salient research with important results:

Brown, Goetzmann, and Liang conclude that it is improper to buy a Fund of Funds that only layers fees (typically 1%-and-10%).  In that structure an investor can end up paying incentive fees even when he loses money!  But it does make sense to both an investor and a FoF to pay a 28% incentive fee if the FoF absorbs the sub-fund incentive fees and charges the investor only on the overall performance of their portfolio.

Harry Kat suggests that “there’s no free lunch” in hedge funds — i.e., that hedge funds are not trivially beneficial diversifiers in an efficient-portfolio sense.  More practically, he demonstrates that it is not fair to compare investments based on Sharpe ratio only, but rather that we must also consider the skewness of their returns when making a comparison.

Mysterious Charity Utility Functions July 15, 2007

Posted by federalist in Human Markets, Open Questions, Social Politics.
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In regards to personal consumption I am rarely baffled by the choices people make: I may not agree with their priorities, but I can usually imagine some combination of values (and ignorance) that lead to, for example, spending into debt to acquire name-brand apparel that will only be used for a season.

But when it comes to large charitable donations I am often at a complete loss.  When someone has seven, eight, or nine figures to donate to any cause of their choosing I assume that they give careful thought to all of the possibilities and then select a subset that has the greatest utility to them.  But why do so many millionaires value things like sports, higher education, or the arts more than basic human welfare?

Michael Linton in the weekend WSJ explains that symphony orchestras are increasingly surviving — and thriving — primarily on the donations of patrons.  I previously wondered why the world needs more than a handful of performing orchestras.  This news also leaves me wondering why someone with substantial charitable capital would spend it to maintain a large group of perfoming musicians?

What leads someone to think that it is better to spend millions of dollars paying disciplined people to play instruments instead of say, building potable water infrastructure in Africa, providing basic education in the third world, or sequencing a genome?

Elite Driver License July 14, 2007

Posted by federalist in Government Regulation, Transportation.
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Frequent readers know that I don’t believe we should impose speed limits on divided roadways.  Europeans already have experience with highways that actually lack speed limits, or that effectively allow many drivers to speed with impugnity.

I have never heard a totally satisfactory explanation of why this can work in Europe but not in the United States.  Arguments against often dead-end with something like, “American drivers just aren’t as good as European drivers.”  Even if that is true, on average, I actually have a full-fledged plan for allowing speeding in the United States:  I call it my Elite Driver Licensing program.  Whereas:

  1. Not every person or car is capable of arbitrarily high speeds, and
  2. Not every person wants to speed, but
  3. Current speed limits are determined by the lowest common denominator – i.e., every driver is by law supposed to follow a speed that is considered safe for the most impaired driver in the most marginal vehicle, yet
  4. Modern highways and cars are designed for speeds that far exceed current limits, and
  5. There are people who are capable of both safely negotiating high speeds and also accepting the higher liability for accidents at those speeds.

Therefore we should provide an Elite Driver Licensing (EDL) program whereby individual drivers can speed if they prove that they are competent.  The EDL program could include more intensive and frequent testing than that required for regular licensing.  It could include medical and performance criteria.  And it could impose a fee that more than covers the cost of administration so that it is a source of income for the public.

The EDL could be administered by the federal government, which could then require that all federally-funded highways respect the terms of the EDL.  States could then adopt the EDL for local roads as they see fit.

The basic idea is that someone who coughs up a hefty licensing fee and insurance and proves they are sufficiently competent gets an Elite Driver License that allows them to speed with impugnity on divided highways, subject to the following constraints:

  1. Their car must be certified for a given speed also.  This is nothing new: Europeans post vehicle-specific speed limits as stickers on the back of all trucks and commercial vehicles.  Modern production cars have speed governors that prevent them from exceeding unsafe speeds based on the ratings of their tires, aerodynamics, and other components.
  2. They can still be arrested for “reckless driving,” which could include conditions like passing another vehicle at a relative speed of more than 30mph or speeding in a construction zone.

FAQ

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Europeans Make a Mockery of Speed Limits July 13, 2007

Posted by federalist in Transportation.
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Nanny states in Europe have been cracking down on highway speeders with radar-triggered cameras, which everyone would dismiss as just another revenue-generation scheme if not for the fact that they have also instituted a “points” system that quickly results in suspended licenses for speeders.  Every driver gets 12 points, which he loses for speed violations.  When he runs out of points his license is suspended.

Amusingly, because the speeding tickets are issued by mail it is easy for speeders to tap the points of other drivers, many of whom (especially older drivers who drive infrequently or who never speed) are willing to sell a few of their own to those in need.  Points are not cheap, but at least the wealthy can afford to continue to speed.  Which I suppose is the way it should be, since those who have the most to lose, and the greatest capacity to cover their liabilities, can be most trusted with risky behavior.

Medical Justice Services Deters Tort Abuse July 12, 2007

Posted by federalist in Healthcare.
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Doctors tend to be an entrepreneurial group, so I’m not sure why this didn’t happen sooner: A company by the name of Medical Justice Services is selling active “insurance” to doctors against medical malpractice abuse.

One of the big problems of current medical malpractice law is that there’s a potential for enormous payouts when a case is won, but no penalty to plaintiffs for losing a case.  Since the risk-adjusted return for filing a suit is always positive there are lots of ambulance-chaser attorneys out there willing to buy a lottery ticket for the cost of filing a medical malpractice suit.  Just defending against all those frivolous suits has exacerbated medical insurance costs.

Medical Justice promises that it will countersue anyone filing a frivolous suit against a member.  Thanks to current law, this is apparently sufficient to make the expected return of a frivolous suit negative.

After five years of collecting data, we know that Medical Justice plan members are sued at a rate of under just 2% a year. The average doctor is sued at a rate of 8%-12% per year. And the company is top heavy with physicians in “high-risk” specialties.

FDA Snuffs Out Smokeless Tobacco Alternatives July 11, 2007

Posted by federalist in Government Regulation, Healthcare.
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Kevin Helliker shows that Congress and the FDA lack any sense of proportion on the public health issue of tobacco use.

Among other hurdles, a company would have to prove to the Food and Drug Administration that touting the lower risks of smokeless tobacco would make the product an appealing alternative to smokers without attracting new users from the population at large.

Current nicotine addicts dose themselves by intentionally inhaling lungs-full of smoke … and then blowing it back out to envelope hapless bystanders. They casually carry and dispose of burning stubs of paper and flammable tobacco, which cause fires that directly kill hundreds of people each year and destroy $billions of property. Now tobacco companies are ready to market alternative nicotine delivery systems that everyone agrees are safer than cigarettes, but the FDA has muzzled them lest in the process they entice non-smoking adults to take up an addiction to nicotine (which depending on the delivery system poses relatively small but quantifiable health risks).

Have they no perspective? I am sure that an overwhelming majority of Americans will gladly tolerate any number of smokeless nicotine addicts as long as it means we no longer have to traverse clouds of rancid tobacco smoke to get in or out of public buildings. And given the known current costs of 20% of Americans smoking cigarettes it seems likely that we would be a healthier nation even if every adult took up a smokeless nicotine habit instead.

This myopic regulatory thrust is futher proof that Congress and the FDA are incompetent to adjudicate public access to drugs.

QOTD: Constitution Not Socialist July 11, 2007

Posted by federalist in Government, Healthcare.
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Mark Fuller in today’s WSJ letters:

[O]ur government is to “provide” for the common defense and “promote” the general welfare. I cannot find in any of the early documents that government is to “provide” for our welfare. Our Founders gave us a blueprint for a republic, not a blueprint for socialism.

Also noteworthy from today’s letters: Uwe Reinhardt asks whether American conservatives are consistent in their opposition to socialized medicine.

Why do I never hear any Republican political candidate, or the editorial page of the Journal for that matter, openly advocate the abolition and privatization of the VA health system? Why are even the staunchest American conservatives, and the veterans themselves, so protective of the VA health system, if socialized medicine is so bad?

Since veterans indeed seem very protective of the VA system it seems fair to assume it “works,” i.e., it provides quality service in a reasonably timely fashion.  The classic formulation, “Speed, Quality, Cost — pick two” leave me to wonder if the VA system is cost-effective, or if it’s just that nobody is willing to scrutinize the costs because it’s politically untenable to short-change veterans.  Or maybe it is cost-effective and it only “works” because the bureaucrats and doctors are dedicated to the mission of serving veterans so it enjoys some sort of altruist rents that aren’t available in a generic instutition.