Monday, December 28, 2009

Health Care Reform Lobyists

The Chicago Tribune had an excellent article on the role of lobbyists in the health care reform bill. This parallels the article I found on bribing senators with special benefits for their state. By the way, thanks to Ariela Huffington .com for pointing me at this article.

Sunday, December 27, 2009

Underwater Mortgages and the Share Economy

Twenty five percent are "underwater" on their mortgage or twenty-three percent according to the Core Logic report, which shows that in Arizona and Nevada, it is reaching levels of half the mortgagees. That is the home owner owes more than the house is worth, often having buying with no money down. They are walking away from their mortgage. Seventeen percent of defaults are strategic defaults. Share economy mortgage is the answer, the mortgage is a fixed per cent of their income.

What happens when they sell "under water." Let's say they purchased for $400,000. They agree to pay 25% of their income for the mortgae. They sell for $300,000.00. They pay $75,000 to the bank, keep $225,000.00, but continue paying the 25% of their income to the bank.

This evens the moral playing field between those who do what might financially best for them, and those who feel a moral obligation to continue paying their mortgage.

Saturday, December 26, 2009

Cloture, Bargaining and Bribing Senators

The Peoria Journal Star, December 24th , 2009, Volume 154, Number 29, Page A4 had a great editorial summarizing the places where Senators were given special treatment for their state in exchange for their vote to pass the Health Reform Bill--to get the sixty votes needed for cloture. Extra aid has gone to Connecticut, Louisiana, Montana, North Dakota, South Dakota, Florida, Vermont, Massachussetts, Nebraska. They quotted Harry Reid, Majority Leader, 'I don't know if there is a senantor that deosn't have something in this bill that was important to them. And if they don't have somethin in it--(it) doesn't speak well of them."

Of course, one could argue for more statesmanlike senators. Of course, one could argue against the rule that allows fillibusters to continue until sixty percent vote yes--or you could take my proposal, postulated here in May that fourty per cent of either house is sufficent to put a version of the bill before the American people. Should there be several versions available, the American People would vote by Approval voting.

Friday, December 25, 2009


We have heard much about the evils of deflation. By far the most important issue is that those who have fixed debts find them increasingly burdensome. The share economy And I have heard that the main nation for deflation is Japan. Deflation continues in that country.

Thursday, December 24, 2009

Fosamax Bone Density Machines, A Case Study on how not to incentivize the drug companies

NPR had an excellent presentation on how Merck increased the sales of its Fosamax pill which increased bone density and reduced bone fractures from osteoporosis. Bone density diagnosis machines were expensive and there were thus few of them. It worked with and eventually threated the manufacturerers into reducing the cost so that most Doctor's offices had one. The result was that many women were diagnosed with osteopenia, a milder form of loss of bone. However, although fosamax increased bone edesnisty, one study showed that it did not decrease the risk of fracture, and, in fact, there are anecdotal reports that it might even make the bones more brittle increasing fracture risk. A Rome medical meeting looked at different bone density numbers and arbitarily divsiions between the numbers where a women would be diagnosed with osteoporosis, osteopenia and normal bone density. (My mother and myself also found fosamax could cause problems with dental disorders.)

A pharmacoepidemiologist said that often drug manufacturers would take a drug effective in severe cases of a disease, and market it for those with midler forms. It was not clear that the drug was helpful in these situations and whether the risk of side effects, etc. outweighted any benefit it might provide for those with milder forms.

The problem is that we need to reward drug manufacturers for beneficial results for patients after a long term, and not reward drug companies every time a doctor prescribes the drug, that is for sales.

I spoke about this a little in the fouth part of my four-part participatory plan for health care reform.

Monday, December 21, 2009

China Emission Monitoring and the Sortition Tax

Unfortunately, a sticking point in cliamate change negotiations is monitoring emissions. China has been hesitant to allow this feeling that monitoring all its businesses would be an infringement of its sovereignty.

Yet a sortition based consumption tax would solve the problem. I mentioned this in the first post of this blog. Each item or service sold, whether imported or produced here, would be subject to a tax. It would be applied in a competitive fashion. That is all the car producers would compete as to which is the most environmentally friendly, and takes care of its workers, and produces products that are safe and don't consume much gasoline, or perhaps are not dependent upon gasoline. Similarly, toy producers, computer manufacturers and others would compete to avoid the tax.

The sortition jury would vote to tax them. Those businesses that agree to monitoring would have an advantage. The sortition jury could also allocate up to five percent of the tax collected to both government agencies and non-profits who run monitoring programs. Businesses would be free to decline monitoring programs that it felt were too intrusive. However, they would be at a competitive disadvantage in getting a low tax rate.

The agencies and NGO's would have an incentive to design monitoring programs that are reliable but that companies were willing to accept--otherwise, they would get less of the money available for such purposes.

Seven to one Americans said the Administration should put a higher priority on improving the economy than reducing global warming. Thus, the sortition juries would look at a companies record of providing stable employment to Americans and its environmental record.

Note this is applied to labor standards, providing health care to its workers and above all environmental issues, both conventional and those associated with global warming.

Friday, December 18, 2009

CT Scanners and cancer

CT scans cause 14,500 cancers per year. This is an argument for rating physicians after the fact. Also, some scanners are four times as radiation as others.

Los Angles School System admits not evaluating teachers properly.

The Los Angeles School System said that they should fire weak teachers now so they don't get seniority and they don't get tenure. The Los Angles Times and internal reports. has found that the school system did not meaningfully evaluate teachers. As we reported earlier, the solution is that individuals should be forced to wait to spend, if not receive, the bulk of their pay until we know who is truly deserving and we can tel with twenty-twenty hind sight. Thus faculty (at both the K-12 and college level) should receive a minimal salary with therest going ton a fund. Then, the students, or an independent sortition jury, would evaluate each techer after the stuents, at least have had time to graduate and see how effective their education was.

Friday, December 4, 2009

Green Tech and Financing

Renewable energy sources are suited for debt finance, and with the credit crisis, orders for wind turbines dropped by half. Also, they are a "natural hedge" against prices.

The obviousl implications that something is wrong with our finance system and the financial stimulus system...

Experts judges on jury, italian jury system

I am intrigued about the Italian jury system, where there are two judges and six members of the public. Would this be a model for deciding technical cases, in malpractice cases, a jury of two doctors and six members of the public. In criminal cases such as the recent murder trial involving an American exchange student, would it not be better to have forensic specialists as well.

Obviously, this brings up the whole issue of the role of expertise and that of sortition juries in various cases, an issue in which I intend to explore fully.

In researching this, I found a New York Times article from 1873 pointing out some peculiar decisions by Italian juries in what would be called jury nullification in the United States Today, but also displaying a prejudice against the Italian people, that would not be acceptable today.

Thursday, December 3, 2009

Tarp bailouts badly handled

Rick Ungar has a very good analysis of why Tarp was a bad deal for the American people. Of course, I advocated that sortition juries should control the spending and it should be more finely aimed at preventing unemployment. And to deal with outrageous bonuses, those who ever received more than a million dollars in a single year, should have their spending limited to the median income or have a sortition jury release money. In other words, they can keep their money, invest it in approved investments, more on that later, but they can't live like a millionaire without a check on whether they were a constructive force in society.

Fed and the Financial System

THE FED does not know when to pop "asset bubbles" and its only weapon seems to be rates. The best answer is to control the buying and selling directly, and have people exchange shares in income, whether it be a house or a business. And interest rates at zero are encouraging inflation and complaints that U. S. monetary policy might be contributing to bubbles abroad. And I reviewed Ann Pettifor's book whose prime point is saying that the creation of money should be done to further the public good rather than led banks and others draw the profits.

Monday, November 30, 2009

Sitzerland Minaret Referendum

Switzerland, known for its referendum system, approved by 58 percent a ban on minarets. "One Swiss member of parliament declared "the foundations of Switzerland's direct democracy have failed." How can direct democracy encourage substantive votes and discourage votes that are symbolic? As the Wall Street Journal put it, the ban merely means that the average Swiss citizen will be less likely to see an obvious symbol of Muslim. It does nothing to to address issues that the five percent of Swiss who are Muslem have or any issues they may create.

Tuesday, November 17, 2009


Corruption, of course, is a well-known widespread problem. And it is getting worse. It certainly affects Afghanistan! where one expert said that part of the problem is focusing on particular individuals and not on the process.

Could participatory democracy be the answer? The ancient Greeks used randomly chosen large juries; five hundred people randomly chosen by lot the day of or day before are difficult to bribe. Decisions made by sortition jury, when chosen truly randomly, when the numbers int he jury higher are much less likely to be corrupt than those made by a single minister, judge or other government official.

In an age of portable cameras, it is possible to capture images and sound from officials. MyLifeBits, a project of Microsoft, puts a camera on individual and allows them to record what they doing. It is intended to augment one's memory. (Who did I speak to in Front of the Empire State Building a while back?) However, countries concerned with corruption can put these on government officials, and perhaps company officials as well to help prevent an Enron, and these can be reviewed by citizen juries, perhaps chosen from the unemployed. Afghanistan, for example, has fourty percent unemployment which many have blamed for the problem with violence and instability.

Health Care Cost Control

Health Care Reform has now become Health Insurance Reform, putting "the squeeze on insurance companies." But it does nothing about lowering health care costs and the incentives on physicians and others to do more and more procedures, and to salami slice the health care activity and bill to make more money.

Our participatory democracy plan is to make the insurance companies and other large payers spend a certain amount of money. The health care providers would provide the best care they possibly can, and on the basis of same, after the fact, the participatory democracy juries in collaboration with experts and computer software provided by the insurance companies decide how to allocate the fixed pot. For group plans, the sortition juries are selected from the premium payers, the group covered. For those plans subsidized or completely paid for government, the sortition juries are chosen from the general population.

In other words, fix the costs, but leave the autonomy to the doctors on how to practice!

Monday, November 16, 2009

Health Care Poll

The Associated Press polled Americans on health care. Eighty-two percent are in favor of a ban on insurance companies discriminating against those in poor health. However, when told that this ban would cause most to pay more for health insurance, 31 per cent of Americans are now against it and only 43 percent support it.

The questions should have been Would you support a ban on insurance companies not insuring those with pre-existing conditions who had an opportunity to buy health insurance, could afford same, but chose not to do so?

Would you support an insurance company not insuring someone with a pre-existing condition who lost their insurance through no fault of their own (e. g. got laid off)?

A bureaucracy might not be able to distinguish between the two but a sortition jury could have. It is also the premise of my alternative to a public insurance plan, a sortition plan. That is, there is no public "insurance" but there is a public "pool" of money to which both the person covered and the public (as part of general taxes) would pay for. When an individual got sick, they would petition for approval to have the public pool pay for this. A sortition jury would look at both the illness and treatment involved. It would also look at how much the person contributed to the public pool and their income in comparison to the contributions made. Thus, the eighty dollars that the proverbial washer-women contributed might have more weight than the eight hundred dollars that the YUPPIE contributed.

Sixty-seven percent agreed that everyone should have "at least some health insurance" with only 27 percent opposition. However, sixty-four percent are opposed to a tax penalty for not having insurance. And even half of Democrats oppose fines to enforce the requirement to get insurance.

I proposed a broader requirement of financial responsibility and this, obviously ambiguous one, be interpreted by sortition juries.

Sunday, November 15, 2009

Health Care Rationing Board

Congress bills will create in "global rationing" board on Medicare which will fix the amount to be spent for all procedures starting in 2019. The Board will choose how much to pay for each procedure. (Until then, it will only change Medicare Advantage and prescription drug plan.)

The Wall Street Journal article was against such rationing. They pointed out that the Washington board does the same thing and has elimited knee arthroscopy and is set to ban knee replacements and MRI's for cancer.

The alternative to a rationing board is sortitioning juries and to prevent the agony of rationing, they should not make the decision until after the care is rendered.

Miscellaneous Rants against the Financial MisSystem

What is the purpose to society of the Currency Carry Trade? Individuals borrow money in a country that has a low rate of interest such as Japan or the United States. They then lend in some other place where interests rates are higher as the interest rates go up.

Donald Tsang, chief executive of Hong Kong, and Liu Mingking chairperson of China's Banking Regulatory Commission expressed concern about the low interest rates that the United States Central Bank is targeting.

And the Maverick Economist has been questioning problems when the Central Bank borrows against something other than Treasury bonds and the European Central Bank is facing risk from some of the other banks with which it dealt with. And the Maverick Economist sparked quite a debate by asking whether gold is a bubble as so much is either in vaults or in jewelry. This creates economic costs as cyanide or mercury is used in mining. Sometimes the companies go bankrupt before they clean up the mess; and the executives get paid as well. The Maverick economist says that half of the gold we have mined is available as jewelry and the other half as central stores, but the New York Times says that eighty percent of new gold is going to jewelry, often in China and India. Using figures from the Earth Encyclopaedia and the Wikipedia Article on world Wide Energy consumption, it looks like Gold mining is one tenth of one percent of worldwide energy consumption. And often mining companies do not disclose the environment liabilities to their investors. One of the problems of having a financial system where people can trade stocks before the firm pays the damages. And we should make executives at firms hold on and invest in approved investments and not spend them until we know for sure whether their decisions help either the company or the world in general. And the World Trade Bank has been financing environmentally dangerous gold mines. And often those in the area receive no benefit from the gold mines as they create few jobs and displace far more people.. All investments should get approval from a sortition jury that they perform a real function.

And I just heard that a local restaurant in my town went out of business. It was making its payments, but it was obligated to buy out the land lord after ten years. It did not have the cash. Three Buildings including the restaurant are sitting unused for which the landlord is asking $400,000.00.

Ludwig von Mises

The Wall Street Journal had an opinion piece by Mark Pitznagel on Ludwig von Mises, I remember trying to read him as a child or teenager when I was on a libertarian phase. He argued that half baked investments will liquidate in a free economy, but if the government creates cheap credit, one is likely to have a banking collapse. And, he like, Taleb says the banking system is then dramatically likely to have errors. That is why we should have a share economy.

Ludwig von Mises turned down a "lucrative job offer from the Viennesse bank Kreditanstalt" proclaiming, 'A Great crash is coming, and I don't want my name in any way connected with it.' The calendar had said it was mid 1929.

Friday, November 13, 2009

Stimubucks, Share Economy, targetted spending

Germany promoted a share the work scheme where they gave subsidies to firms who did not lay off workers but rather reduced their hours. Germany had little increase in unemployment. (But he did not add that all Europe has had high unemployment in general.) He also argued in favor of a Works Progress Administration Krugman has made clear that he prefers a conventional stimulus. I have argued that a target fiscal stimulus, targeted by sortition juries, should be aimed specifically at reducing unemployment.

Calories, Fast Food Restaurants, and the Badness tax

We found that requiring fast food chains to post calories on their menus does not reduce peoople buying the fattening foods. This editorial argues that the poor are extremely price sensitive and that one should provide "proper incentive" I suggested replacing our tax system with a "badness tax" on items which would include the healthfulness or lack thereof as well as other factors like global warming, conventional pollution, and labor standards.

Nassim Nicholas Taleb, Black Swan, On Debt

My alma mater, Polytechnic Institute, now Polytechnic Instiute of New York University, hired Nassim Nicholas Taleb, of Black Swan fame. He said, "a complex financial system cannot tolerate debt" because debt "doesn't allow someone to make mistakes."

Of course, here I advocated the share economy, an economy without debt, and without nonlinearity as everything is a percentage of everything else.

Source, Polytechnic Cable, Spring 2009, page 7 to 8, Volume 36 No Two.

Thursday, November 5, 2009

Cash for Clunkers

Another article on the problems with the cash for Clunkers Program

Stimulus Bill and Protectionism

A Problem with the Stimulus bill is that the money might go to build a wind farm. That is good, but the windmills will be manufactured in China, which angers at least one Senator.

No Layoff Share-economy companies

I wrote about the share economy, where companies share their revenue with their employees. During recessions, their employees make less; but there are no layoffs.

NPR had a section today about manufacturers who produce high-tech goods and have highly skilled and trained work force, do not want to lose their loyal employees. Frank Koller wrote a book, Spark about no-layoff companies. Of course there are reasons that companies are reluctant to cut wages rather than lay people. Truman bowley discussed this many years ago in Why Wages don't fall during a Recession They are reason more than the inertia of organizing a busines s differently, or management taking on a different set of headaches, or even labor unions, as mentioned in the story.

Wednesday, November 4, 2009

Cash for Clunkers is a Clunker;

The Cash for clunker problem didn't really accomplish anything! Most of the trades got marginally better gas mileage.

As I have advocated before, each stimubuck should be approved by a sortition jury as being beneficial, whether it be mortgage help, a new energy project, or helping someone buying a new car or house. The question to the sortition jury is simply, does this make real world sense?

Prosecutors framing innocent men for murder; Wait to reward them.

I spoke before about rewarding important government officials and those running companies or investment banks many years after they work, e. g., when they retire. Here is a reason why. Prosecutors and framed a man for murder. Twenty-five years, they finally discover the records of this frame-up. The Iowa Supreme Court released him and exonerated him. Iowa does not permit people to sue prosecutors. So they sued under Federal Civil Rights provisions and this is a Supreme Court Case.

A sortition jury should review the pension amount for major public officials. Those who were wrongfully convicted would present their information. Those who were victimized by criminals could also present the case--that the persons were brought up on charges before hand. But the prosecutors might have declined to prosecute--or flubbed the trial.

They would look at groups of prosecutors and compare the good and the bad of each and distribute the income from the pension pool accordingly.

Thursday, October 29, 2009

Stealth Democracy by John Hibbing and Elizabeth Theiss-Morse, Thoughtful Thursday

In this blog, I tackle what might be its greatest critic. "The processes people really want would not be provided by the populist reform agenda they often embrace; it would be provided by a stealth democratic arrangement in which decisions are made by neutral decision makers who do not require sustained input from the people in order to function," a democracy that is visible when the people want it to be, but otherwise does the work of forming and executing policies in the background. Hence the title, Stealth Democracy

Most Americans are moderates, they perceive the government to be moderate as well. As Figure 1.3 on page 28 shows, the United States government is at approximately the same place in the left-right spectrum as the voters.

They asked the following question:
"Some people say what we need in this country is for ordinary people like you and me to decide for ourselves what needs to be done and how. Other say ordinary people should allow elected officials to make all political decisions. Still others say a combination should be best. Imagine a 7-point scale with "1' being ordinary peple making all decision on their own and '7' being elected official s makeing elected officials making all the decisions on their own, while '2,' '3,' '4'H,' '5,' or '6' indicate opinions in-between the two extremes. Which number from 1 to 7 best represents how you think government should work. (See Figure One, scanned in from Page 47, Thier Figure 2.2) This is in contrast to the policy space where the people perceive themselves to be 4.4 on the scale from one (liberal) to seven (conservative). (See Figure Two, scanned in from Page 28, Figure 1.3)

In Chapter Six, they say that the American people do not want to be more involved in politics and Americans want are "Empathetic non-self-interested decision makers." First of all, perhaps Americans and many other countries and cultures, would choose to be governed by friendly space aliens like the Taelons in Earth: Final Conflict or the Quozl in Alan Dean Foster's book, or some kind of intelligent robot. But this is science fiction. We only have humans or as I advocate letting humans cast decisions and computer systems finding ways of combining them.

Yet the poll questions belie that notion. When asked, should we leave "decisions to successful business people" (This was a Gallup Poll in 1998 before Enron and many other business scandles), 59% disagree and only ten percent strongly disagree. 28% Agree and 4% disagree. (Their Table 6.2 on page 138). When asked if decisions should be left to nonelected experts, sixty percent disagree and nine per cent strongly disagree. Only 31 percent agree or strongly agree. (48 percent agree with at least one.) They found a correlation between the decisions to leave decisions with non-elected experts and a desire for more participatory democracy.

Thus, I am looking at mechanisms to combine experts and participatory democracy. One of these, is based upon Courteous Logic Programs. Also, such questions are abstract, people haven't truly tried any participatory democracy except maybe some referendum in their state or locality. Muhl07 experimented with online deliberation in their work and found that Americans became more interested in participatory democracy as the result. They found that online deliberation on a contentious issue of school consolidation reduces Vertical Collectivism. However, it had no effect on the two questions, "Should government be run by experts?" and "Should government be run by business leaders?" But this group like Dr. Theiss-Morse and Hibbing's had a very low agreement level with these. (I found that Dr. Muhlberger wrote a very long article on deliberation which cited this, so Dr. Muhlberger will get a Thoughtful Thursday posting some time.)

IN another survey by the Gallup report, they found that Americans said 77% of the time they were proud of the American People and only 41% were proud of the Federal Government. And to show that people can be angry and proud at the same time, they found that 52% were angry with the American people and 71% were angry at the Federal Government.

(Of course, Dr. James Fishkin and others have experimented with conventional face-to-face deliberation".

Stealth democracy is an additive index based on the following questions:

  1. Elected officials would help the country more if they would stop talking and just take action on important problems
  2. What people call 'compromise' in politics is really just selling out on one's principles
  3. Our government would run better if decisions were left up to successful business people
  4. Our government would run better if decisions were left up to non-elected independent experts rather than politicians or the people.
  5. (And in focus groups)
And they asked, among many other reforms, "People should be allowed to vote directly on policies through ballot initiatives and the like much more often than they do now."

In focus groups, they asked,

  1. "First what do you see as the strengths and weakness of ordinary Americans in terms of their ability to make good political decisions?
  2. Are they smart, informed energetic, interest in politics or are they dumb, uninformed, lazy, politically naive, uninterested
  3. Some people advocate moving toward a total direct democracy where people vote directly on import political decisions and we wouldn't even need to have elected officials anymore. Much like a large New England town meeting, the American people would be making all of the decisions themselves. What do you think of this idea?
  4. Would the decisions be better or worse in a direct democracy that they are in?
  5. Finally, we get the sense that people are really upset with our political system, but rarely are they asked what they think needs to be done to make an improvement. Do we neeed something major done to get the government back on track? Or do you think the changes just need to be small - like campaign finance reform?


MUHL07 Muhlberger P. Should E-Government Design for Citizen Particpation? Stealth Democracy and Deliberation. In Proceedings of the 2006 national Conference on Digital Government Research ACM Press. New York, NY 2007 53-61.

Monday, October 26, 2009

Tyranny of the Majority, Helping the World's Poor

Dr. Fishkin points in that there should be some mechanism for preventing a majority from oppressing a minority. Dr. Fishkin wrote a separate book on Tyranny and Legitimacy which I will review for another Thoughtful Thursday. A veto such as that from the Supreme Court declaring a law unconstitutional only preents tyranny of commission. But what happens when the people ignore suffering that they could relatively cheaply solve. Or when a group with a veto, uses it to preserve "an unjust status quo." One of the ultimates of this is helping the poorest in the world, the 1.4 billion that earn less than the World Bank Povery lnie of 1.25 dollars per day. Peter Singer writes with many cogent facts about this in Chronicle Review, March 13, 2009, B6 to B10 and about how Americans could spend more money to help alleviate this suffering and the low percentage of their incomes that Americans spent on this type of foreign aid.

Sunday, October 25, 2009

Wage Stickiness

I have been long aware of the problem with sticky prices and wages. That is why we have Keynesian economics, fiscal stimulus and the like. I said the solutionw as to make wages a share of revenue and I found that someone else already had this idea, L. Weitzman and his book on the Share Economy. He said wages shoudl be a percentage of gross revenues. I also read a book, Why Wages don't fall during a Recession by Truman Bewley. He interviewed employers and simply asked thim a simple question: Why don't you just cut everyone's wages during hard times rather than lay them off?

AS I heard the Savings and Loan Crisis of the 1990's I came up with the idea of the share economy, where all payemnts are simply a share of income. This is a cure for all sorts of financial crises.

Dr. Krugman cites this stickiness of prices in his proposal to rebalance the American Trade Deficit, let the dollar fall, beautiful in his citing of evidence about stickiness and relative real exchange rates. But he doesn't look at the alternatives,

  1. removing the stickiness of wages
  2. a consumption tax, particularly one aimed at badness

Health Care

This American Life had a special on Health Care . This illustrates many of the problems in our current health care system. The first is the cost and stress of the billing process.

They featured a Four-physician office has four people in the billing department. There are 20 to 25% on billing department and bad code that don't go through. And part of the problem is that the coding system is inconsistent. There is a code for for a spacecraft accident but no code for someone coming in with a complaint of "weak arms." 200,000 medical coders in United States and BLS expects that this will rise.

I have recomemnded that sortition juries look directly at the medical records to determine what doctors, and hospitals should be payed.

How do we pay the pharmaceutical industry? Obviously, we want to pay those who manufacture the drugs and those who develop new drugs. The latter should be proportional to the benefit of new drug over previously-discovered drug. But the system we have doesn't work well. Each pharmaceutical company encourages doctors and patients to demand their new drugs even if the difference is marginal. Meanwhile, the insurance companies charge copayments so that the patient would demand the cheaper generic drug. Example is a drug which can be taken once a day instead of twice a day whcih costs much more expensive. (That is, a time release version of the drug is four hundred dollars a month more. The show emphasized an acne patient with "pimples.") There is also a question of whether insurance companies increase expenditures on health care and making individuals responsible for their own health care reduces expenditure. If it is coming out of your pocket, presumably, one will spend more carefully, than if it is coming out of the health insurance industries pocket. They talked about the veterinary medicine industry where pet insurance is just developing. They featured a couple who spent a lot of both their money and a lot of their veterinary insurance companie's money on Harriet, a hedgehog. So how do we make a payment system where the patient helps control costs without scrimping on things that would truly make them more healthy and perhaps save money in the long run? They had economists who talked about how insurance is driving up costs by separating the consumer from the payment for the services they provide. Yet, Paul Krugman can state, "Serious students of health care have known for a long time that the magic of the marketplace doesn't work in health care..." As a side note, his blog led me tot he article that Massachusetts REsidents support their new health reform by 59 percent to 28 percent. But there is a concern about cost.

I propose that sortition juries allocate the 9.6 per cent, now higher, of the health care budget that is spent on pharmaceuticals. Each pharamaceutical company would get ap ayemnt based upon the improvement they made in the health compared to their competitors. This would encourage them to spend money on research and not on marketing.

The next issue is the war and race to consolidation among both insurance companies and hospitals. Aetna dropped eight million patients/policy holders. (Bill Potters talked about this first on Bill Moyers show and also to a U. S. Senate Committee.) Aetna dropped out of the markets where it was not the top insurer, so it could not negotiate good contracts with the providers. Fragmented insurers are not be able to negotiate the prices. Their health care economics expert compared insurer market share with the hospitals considilated. Thus, there is a race to of monopolists vs. monopsonists.

He advocated the system in Maryland, where there is a standard price for each procedure, regardless of the size of the insurance company or if the person is uninsured. (But what do we do about individuals whose diagnosis, symptoms or treatment just doesn't fit any of the predefined categories. This is replacing the coding problem for insurance companies with a coding problem for the bureaucracy that sets these rates.) I should add in fairness that John Hopkins Hospital, in Baltimore, Maryland, has been number one in the US News and World Report top hospitals ranking since 1991.

And we can bring the group back to group insurance. The group would have a pool of money from premiums. There would be groups that would handle catostrophic cases, cancer, transplants and unfortunate accidents and other groups tht would handle the routine stuff ( a simple broke n leg or a appendectomy). The latter group would make referrals to the other hand. They would bargain with the hospitals, or as I pointed out earlier, pay after the fact so the individuals can deal just with their doctor about the health care. What was the insurance company would be paid for their expertise in organizing information, not for apparently heartless acts like dropping out of markets?

Although not relevant to participatory demoracy, I enjoyed their historical presentation. At 1900, some doctors were still using leaches. There were no hospitals as we know them. They were for the ill. Recall that President McKinley recovered from his wound at the home of the president of the Pan American exposition, where he was to die. (Source, wikipedia, and Complete Life of William McKinley and Story of his Assassination by Marshall EVerett.) Then, the average person spent five dollars a year on health care, $100 a year in today's money. 1909 was the first drug that cured an illness. Salvorsen cured syphillis.

Hospitals started curing things and not a poorhouse for the sick house. In the 1920's Baylor Hospital had unfilled beds due to the price, but people spent more money on cosmetics that on the health care, but the president remarked that a person would have to save up twenty years to cover a hospital bill. So they started the first insurance, $6.00 a year for up would pay for up to twenty-one days. They sold this policy to teachers in Texas. Blue Cross came out of this and started marketing to employers. By World War II, only nine percent of Americans were insured.

In 1943, an unknown bureaucrat at the IRS, made a routine ruling, employers don't have to pay taxes on the health insurance premiums for their workers. This was included in 1954 Tax Code unambiguously.

Saturday, October 24, 2009

Miscellaneous Jury Information

Some miscellaneous reports on the jury system:
  1. Some states require that after the juror comes back with a verdict, that someone checks with each juror whether they agree with the verdict. If one of them says no, they can be sent back for further deliberations. After this process, one jury changed from completely acquit to finding the defendant guilty of a lesser charge.
  2. Lord Judge, "the most senior judge in England and Wales" says that conventional trials should be replaced by the opportunity to sift through the evidence. I would argue that this should be true for sortition juries, as well. Thus, a sortition jury deciding on a tax situation might listen to some of this on the car or public transportation and click around the information provided at their own pace and in little bits of time.
  3. And there is a proposal to try using expert panels instead of juries to resolve malpractice cases. The Obama administration plans to test this idea. I would argue the jury is the cheapest part of the civil litigation and one should get rid of the lawyers and judges.
Thanks to the Blog by Professor Hoffmeister who led me to these links.
Another tale of two professions talking about whether theoretical economics is math or a science in the "falsifiable" sense of Karls Popper. They mention that a theorem such as the Arrow theorem is simply true, not falsifiable. And there is a discussion of whether one should study for the real world for its value or its inherant beauty.

I remember a Herbert Simon quote that computer science is the queen of the artificial sciences like mathematics is a queen of the physical science and economics is in that sense a branch of computer science.

I believe and think I remember a quote that computer science/informatics is a branch of knowledge as different from the sciences and the branches of mathematics and social science, as those three are from each other.

United States of Africa

I reported from the Economist that there is a move to unite the countries of East Africa. A Board Game entrepreneur has a game to help promote the vision of a United States of Africa. Unfortunately, the board game says nothing about how the country should be governed, its constitution, etc. It is part chance and part "Trivial Pursuit," answering questions like "Which country in Africa was never colonized?" and identifying the President of the Ivory Coast. We need to simulate this process so people can learn about how it would actually work, which is the proposal of my Constitution Construction Kit.

Thursday, October 22, 2009

Do we need a financial System?

Do we need a financial system?

Many people think we do. Martin Sloan was very critical of the problems in our financial system. He said that low interest rates may be better than high interest rates. "Because I don't want to see the financial system collapse." And in the next sentence, he says there has been a massive transfer of wealth from the savers of America to the spenders of America.

But do we need a financial system? First of all, this is not an argument for a total barter system. Money would still serve as a medium of exchange.

One of our best computer science students went on to earn an MBA from a prestigious University and work at a hedge fund in Connecticut. I asked her what social value the hedge fund gives us. She was unable to come up with one. Another Computer Science students has gone on to a financial engineering degree. After over a year there, I asked what purpose a financial system serves. Does leverage have a value to society? He could not give one; he just said that it is a way that some people can make more money than following natural growth.

I asked one of our finance students the same question on the need for all the financial markets and products? And he conceded that it was reasonable and could not argue with me either. I of course am in favor of a share economy with no debt or derivatives. The only financial instrument is a share of the revenue. One is not allowed to sell it, only enjoy the income stream as it comes in. but as I argued elsewhere, firms could sell new shares and bonds directly to the consumer without intermediaries. There would be no secondary market; what you bought you own and gets passed on to one's heirs.

And I asked one of our accountancy faculty. He said that people just expect there to be a financial system, but he could not say that we could not do reasonably well with out one.

Kornai, Soft Budget Constraints, Do We Need Money? Thoughtful Thursday

Businesses that run out of money should go out of business. That simple statement is not true in "bailouts." This was pointed out in the nineteen-nineties for banks which were outlined. "It is quite rare these days for a large bank in severe financial trouble to go out of buisiness" (James Kornai, Eric Maskin, Gerard Roland, "Understanding the Soft Budget Constraint" Journal of Economic Literature Deember 2003, Volume 41(4) Pages 1095 to 1136.

Dr. Kornai looked at shortages and constraints in his two volume set, Economics of Shortage And he points out that a producing firm has both real-world constraints and man-made constraints. And he uses the analogy and terminology of linear programs. The real-world constraints are technological or chemical or physical. If one is making Sulfuric Acid, one needs a mole of Sulfur and a mole and a half oxygen2 and a mole of water. And other technological and manufacturing processes need specific amounts of energy or other input. This is a hard constraint and no amount of cajoling or lawmaking or begging other humans will change that. But the constraint that a firm must make as much money as outgo can be soft. Loans can be extended in a capitalist country, or it can be simply allowed to write checks without any balance--that is, to effectively print money. And, of course, we know that sovereign nations do the latter. And in general a firm does not produce more than it can sell. Although that too can be waived, at least until it runs out of room to put its output. In a capitalist country, the demand constraint is usually the issue for a firm. In a socialist country, it cannot get enough input goods to produce as much as it could sell to its customers.

Kornai talked movingly of the effect of shortages in Chapter Two. A firm that cannot get enough of a part for a given output, might produce something else, might use a substitute and produce a lower quality good. It might attempt to make the missing part in its own shops with idle workers. It has slack, resources that it woudl normally use, but it cannot because of the shorting of one material. These Mr. Kornai refer to as slack. Companies hoard things they may need so as not to be shortdown when there is shortage. And a chronic shortages of goods, means that one of the slacks is labor. Thus, workers are in the demoralizing situation of coming in day after day and not being useful. In Hungary, Dr. Kornai's home country, most workshops will sell up to whatever resource is the bottle neck. And, "it is rather exceptional for the producer to refrain from expanding production solely because the product is unsaleable." If there are buyers who obviously want the product, are queueing up for it symbolically or for real, it is hard to resist their 'voice.' And buyers can complain to top management or government officials when businesses appear to be hording and not producing up to their limit. And each workshop is itself queueing up for resources it needs so it is empathetic with the above. A business adjusts its technology and manufacturing methods in response to frequent shortages of input X instead of a business buying a new machine in response to the increase of price of something, say labor. A money economy is more impersonal. It "presumably" means managers are under less stress and find it simpler in a money economy. Managers making a decision don't look at the relative frequency of hitting resource constraints. They look at cost calculations and expectations. And I would add they may use the signals from financial products like corn futures to make those decisions. But Dr. Kornai does not cite any evidence that looking at actual resource limitations is not more meaningful than looking at prices. From the Computer Science literature, one can look at the ability to approximate the optimal via a market mechanism both with and without money. And is the "shock" of not being able to get Input A a better or worse method of deciding on buying a new machine than looking at an increasing cost and having the shock of not being able to pay a bank loan or having a bank call a loan that you had for thirty years.

And this concern about soft constraints is true in socialist governments transitioning to Market Reforms, Japanese Keiretsu and Korean Jaebol which bail out divisions that are making losses, now in the context of a soft constraint on a budget or money or bail out or government loan.

And he mentions the phrase "too big to fail" there. Recently, Dr. Kornai provided a list of bail outs from 1980 to 2008, from Indonesia to the United States.

Empirical evidence from countries transitioning to the market economy such as Russian, China and Bulgaria showed that firms with hard budget constraints (HBC's) mean that firms layoff workers ("shed suplus labor") and restructure in bad times. And he cites studies from developing countries and problems of SBC on enterprises.

And the article discusses when a central bank such as the Federal Reserve should lend or bail out banks. The rules say they should loan to solvent but illiquid banks. This theory goes back to 1873. And they show that such policies of bailing out large institutions may even be efficient.

Would participatory democracy harden or soften budget constraints. A juror chosen randomly wouldn't have the prestige or "cover-your-ass" reasons mentioned in the article. They won't have an incentive to hide a bad decision extending credit to a company many years ago. However, the human concern for the people who would be laid off if the firm failed would definitely be there. And the human concern for the economic dislocation for a large firm going out of business. Should we allow these to influence our economic decisions. And in some sense, the share economy belies the need for budget constraints, hard or soft. Firms don't have debts; they simply pay to their workers and their investors a certain percentage of their income. They go out of business when all their workers leave them because they can get better income elsewhere.

The article says that the soft-budget-constraint problem is caused by the government not being able to credibly to say that it will not bail out projects that turn out to be poor. They note that possibly when the project was started, it appeared to make sense. The question is what to do when they see later that it wasn't profitable. They could say with twenty-twenty hind site that they would not fund it again. However, money was already put into pouring a foundation for a building, starting a SynFuels corporation or a Superconducting Supercollider., a Eurotunnel or a huge steel plant. Dr. Kornoi, said that the concerns is the desire of a 'parternalistic' government to avoid socially and politically cost of layoff. Will a representative government be more or less likely to pull the plug than a sortition jury? Would a sortition jury be better able to make decisions that lead to layoffs than politicians that answer to public opinion and of course elections?

What are the reasons to avoid Soft Budget Constraints:

  1. Investing in poor enterprises crowds out the production of goods for consumption. This is a bad thing if consumers truly don't have the things they "need." On the other hand, it might make sense to invest more in socially useful enterprises, especially if many of these are into particular projects than for consumers to consume frivolous goods. In other words, idle woerkers could insulate buildings, even if the return on their time would be very low, as long as the energy to make the insulation itself is less than the energy that it saves.
  2. If the government expects to keep many inefficient enterprises afloat, that makes it will be less likely to take a risk on an innovative project. The government would be unable to stop it (That reminds me of employers who won't hire, or won't hire a possible risk, because they know they won't have the stomach to fire a poor employee.)
However, models show that Hard Budget Constraints can have troubles as well: Firms that have bad projects cannot pay their suppliers, trade debts. The suppliers start to go out of business, rippling, causing the bank and society to have to have problem problems. This problem, which came to a head with the GM bankruptcy, was identified in 1993.

The authors close with a caution. "The SBC literature may give the impression that hardness is 'good' and softness is 'bad'" "Neverthless, a responsible decision about whether, say an indebted corporation should be rescued can be reached only after consideration of all direct and indirect consequences. And what combination of traditional government, traditional market forces, rules and regulations for government, and sortition can best do this.

Monday, October 19, 2009

Fiscal Stimulus Transfer Money from Savers to Spenders (and Wall Street Investment Bankers )

Governments are flooding the economy with money to create monetary and fiscal stimulus. This lowers interest rates and Wall Street hedge firms and others use this to make money. As Martin Sloan says, they use leverage or "borrowed money." The result is that savers get little interest if they keep their money in prime money market fund or treasury bills. But it is not just Wall Street Investment Bankers with their big buck bonuses. It is a transfer of wealth from savers to spenders, that is individuals who borrowed big for the too-large home. And much of this has been going for a long time, and one of the problems is that government officials such as the fed did not do anything about asset bubbles, thinking that just reducing inflation sufficient. A share economy eliminates asset bubbles as people make their money off the revenue from their investments not by buying and selling them.

Of course, the money transfer should go directly to the businesses. This is what Ann Petifor and the New Economics foundation would say. Mark Warner advocates allocating some of the TARP bailout to small businesses. He beleives that the banks provide a due diligence. If Congress directly allcoated the money, there would be political pressure to lend to certain businesses in certain districts... John Edmund's book, Brave New Wealthy World excoriates the inefficiency in the developing world when government connected banks make loan decisions to crony capitalists. The reporter pointed out a business that had the same loan for thirty years and has been paying each payment on time. The bank is now calling the loan, apparently to shore up its balance sheet. Yet obviously, he never paid it off. Would not that business be better off with a share loan, the bank takes a share of gross revenue.

But government stimulus can be distributed by sortition juries. They would check and watch each dollar, each business receiving a government loan, to ensure that the money is put to constructive purposes.

Friday, October 16, 2009

Maverick Economist takes on Global Macroeconomics

To what extent is capital and fiscal stimulus better allocated by sortition juries than conventional financial sector? Ann Petifor and the New Economics Foundation argue that the public sector should distribute the free money that is now generated by fractional reserve banking. And I wrote that fiscal stimulus, or stimubucks, can be tightly controlled by sortition juries, tighter than either a conventional financial system or government that sways in the winds of political interests. He proposes fiscal stimulus works when there is idle resources, which clearly is true in the United States. He points that monetary policy tools such as expanding base money by purchasing government only works when the problem is illiquidity, not bank insolvency. And the money support to the banks is not going to individuals and businesses.

The Maverick Economist also tooks about the issues of global fiscal stimulus. He talks about Islamic mortgages and cases of mortgagors sharing in upside opportunities--that is if the mortgagee sells the house for more than they paid for it, the mortgagor get ssome of the benefit. And he points out the problems for the unemployed or undemployed. But he misses a true share-economy mortgage, replace the mortgage with a fixed payment and interest with a share of the person's income and let this get propagated.

Wednesday, October 14, 2009

James Fishkin, Democracy and Deliberation, Thoughtful Thursday

James S. Fishkin is of course known for his work in deliberative poling. His book, Democracy and Deliberation, of course discusses this; but more important is his work on classifying democratic thought and the references to different political thought and critics of democracy.

We should compare this quadrant system and set of two axis to that of Dr. Hibbing and Dr. E. Theiss-Morse. They hypothesized an axis where American's were asked how much direct democracy they wanted and on the other direction, the familiar left-right dichotomy. They pointed that there was a bell-curve with a centrist opinion of people's opinions in both axis. But in America, we have no direct democracy but the government is right in the middle on the conventional left and right political spectrum.

Aemrican Constitutional evolution has been pushing the direction of quadrant four. Obvious examples are the ammendments to the constitution:

  1. Ammendment Seventeen that provides for the people to elect the Senators.
  2. Ammendment Ninteen provided for women sufferage
  3. Ammendment twenty-four disallowed the poll tax
  4. Ammendment twenty-six allows eighteen years old to vote.
He points out that president and legislatures pay more attention to public opinions. This was termed the "plebiscitary President" Our electoral College simply votes as the individuals who selectd a slate for a particular party wanted them to. Similarly, delegates to political convetions vote for whom they want. (This was a shift to quadrant four.)

And now all States use primaries and the officials and elders in political parties have little power to select the individuals running for high office. Dr. Fishkin points that we have not had a series of ballots in a Presidential party convention since 1952 and the primaries started in the 1920's. And he despairs about the horse-race mentality, one lamented specifically by Dr. Krugman in the health care debate. Dr. Fishkin cites that sixty percent of presidential campaign coverage was to "horse race convention."

Yet our system is representative. On the federal level, there has never been a national referendum on any topic. We may write to our legislator about our opinions on a health care reform; we may threaten to vote the ... out of office, but ultimately, we are powerless to control what the reform will be.

But systems can vary in the amount of dleiberation they allow. Dr. Fishkin hypothesized a system like QUBE. This was the system that first had Pay-per-view and video-on-demand. It allowed the system to collect answers to a multiple choice question with five answers Dr. Fishkin hypothesized that the remote coudl be used for voting. But he despaired that people would quickly make a click on an important national issue without thinking about the consequences. And of course demagougery is an issue that Dr. Fishkin mentions and I discussed when I reviewed Paul Woodruff's book on Athenian democracy. Dr. Fishkin cites the famous argument in Federalist Number Ten that "was designed to show how impediments tto majorities could prevent tyranny" and also to find "representatives" that will protect the true good of the nation that puts us in quadrant one.

Dr. Fishkin, of course, studied deliberative polling. The goal is to get the same percentage results that would be gotten if the entire population could be forced to deliberate and think about an issue before voting or answering a poll. A group is selected randomly, as they would for conventional polling. However, they are given briefing materials and then meet, often telievised. They meet for a weekend and discuss the issues with experts and with trained moderators. Parts are televised As an experiment, they look at the opinions of the participants before and after the deliberative polling exercise and the Center for Delibrative Democracy reports on these differences. The Intelligence Squared Debate system has the audience give their opinion before and after the debate and reports the difference in the votes.

As one would expect, Dr. Fishkin talks about first democracy. And he mention the "graphe paranomon" It was literally a trial of a person who made an illegal proposal before the main assembly. It was 500 people. But it mentions two things I raised earlier in this blog: that the committee had little or no guidelines as to what to consider and they considered the whole life of the person.

Again, I look forward to chasing all the wonderful references in the back of the book which provide a good guide to political theory relevant to this blog.

Sunday, October 4, 2009

Citizen Juries, Financial Responsibility and Health Insurance

Obviously, there are those who choose not to have health insurance. They may prefer to save money. Perhaps, they just want a catastrophic health insurance plan. Certainly, as Ms. Robinson points out, she would like the health insurance plan to give her a discount because she is like the care. And she prefers to deal directly with the doctor for payment and uses alternative care such as chiropractors and naturopaths.

And, of course, there are other ways to be financially responsible, saving, and other insurances one should have. One of my students dropped out of their Ph.D. program because he did not get the insurance on a rental vehicle which got stolen--and he was stuck with the cost of the car.

Rather than a mandate, citizen juries could look at each individual and determine whether they are being financially responsible. That includes the combination of savings and insurance as well as investing in one's own business and one's education. I think one would have more sympathy for the person who uses the money they would have paid for premiums to pay for a college degree in a field with good job prospects than those who use it to party hardy.

Medical cooperatives

Medical Cooperatives

This idea has come up in the health care debates recently. Many people poo-poo it; I heard a legislator saying that coops can work well for grain elevators and the like but not for health care. There are two successes, Health Partners in the Twin Cities of Minneapolis and the Group Health Cooperative of Seattle. There have been failures. My mother was a member of HIP which merged into Group Health Insurance which apparently is oging to health. They claim that one needs 600,000 members in the same location. This enables the coop to have its own physicians and buildings.

NPR had a presentation on this, in response to the Senate Finance Committee having approved this Unfortunately, the difference between medical cooperative and a non-profit insurance company like Blue Cross Blue Shield is that in a medical cooperative, one has the opportunity to vote for a board of directors. In the Seattle one, only one percent of the members vote. Minnesota does do better at one third. I belong to several professional societies; we get to vote for directors, the president and maybe a few other officers. Although, the members do have their "say" through a yearly vote, and the organizations seem to do a fine job, their costs do seem high and we really don't have a meaningful voice in the day-to-day running of our organization. Similarly, the Cooperatives have less complaints than regular insurance companies but costs are at best comparable.

In China, 726 million people in rural areas are members of a "rural cooperative insurance system," but where the government pays eighty percent of the costs. article does not discuss other people who might be living in rural areas such as hte medical providers), are coverd by a rural cooperative system. Yet, there are problems with theft, $100,000.00 out of about five billion in one county alone.

The real challenge is to make them particpatively run, where each decision is made by a randomly chosen subset of the members, from how much each person is paid and whether they are going to get. Also the amount of premiums or membership fees should be voted on by the group and should be a median of the amount selected.

Monday, September 21, 2009

Options for Participatory Democracy and Sortition for Taxes

Possible Mechanisms for Participatory Democracy for Taxes

I proposed and our group at Western Illinois University are implementing techniques for peole to vote on the laws that constitute the tax code. The tax code could be represented as a decision tree which in the end leads to the amount of tax or a simple formula such as a linear function of income that gives one tax. A decision tree is a set of divisions, each of which will have other divisions. For example, we might vote to divide people on the basis of the number of children. Thus, we would look separately at those having zero children, one child, two children, three or four children, five to eight children, etc.

Then, we might look at the ratio of earned (wages) to unearned income (bank interest, dividends, bond coupons). Thus, the tree might have a division for those having no children and eighty to one hundred percent income. Another branch for those having no children and sixty to eighty percent income, etc.

Then for each of these divisions, we would have a formula or graph relating income to division.

At each stage in the process, individuals would vote on what divisions to make and eventually the ratio of income.

Another student is working on applying genetic algorithms to determing a tax code.

But do we need rules? Do we need a tax code?

We simply could say that each individual and each entity would go before a jury which would determine the tax they pay. How can we make it less arbitrary?
  1. Tax rates would not vary by more than ten percent year to year without a supermajority. To transition to that system, we would start with whatever tax the entity paid under our complicated tax code. Thus, if a firm paid four millions in taxes the previous year, their tax this year would be between 3.6 million and 4.4 million. However, sixty percent of the jury could vote to change it by twenty percent, in the example from 3.2 million to 4.8 million. Seventy percent could vote to change it by fourty percent, etc.
  2. Several entities could be grouped together for comparison. One possibility is to group them randomly. Thus, a jury would see a disparate group of entities, say
    1. a middle-class individual
    2. a working-class individual
    3. a financial institution
    4. a factory
    The jury would vote on a tax rate for each entity. It doesn't follow that the corporations would pay a higher rate than the individuals. The jury might find that the corporation truly is a public-spirited organization committed to sustainability. And it might find that the individual is a fuel hog in taking unnecessary trips, and not taking care of self. (See my blog entry on the badness tax.)
  3. The above scenario assumes no attempt to group elements. One certainly could group members. This can done by rules. That is, we could vote as discussed at the beginning for classifications. We could vote on dividing by corporation, partnership or individual. We could vote to divide by their net income, gross income or number of employees.. Thus, one would not be comparing small businesses with large businesses. But we wouldn't vote on a tax rate for each category, simply a total amount of revenue to be collected from each group.

    A sample of let's say twenty individuals or entities or juries would go before the tax jury. The tax jury would know that they have to collect a specific amount revenue from each individual. (The computer would divide the total to be collected in each category by the amount of revenue).

    Example, we vote that we want to group all those married individuals earning between sixty-thousand dollars and eighty-thousand dollars and having two children in one group. We would look at the total income earned and decide that gather all such people should pay twenty billion in revenue. Assume this group was two-million families. Thus, on average each family would pay ten-thousand in taxes. And thus, each group of twenty would pay $200,000 in taxes. The jury would tnen adjust the $10,000 that each should pay based upon all kinds of other factors: how much have they given in charity, which have high medical bills or suffered other disasters this year, etc. etc.

    Each family would be given a chance to explain their financial situation and any reason why they should be given special consideration.

  4. The alternative to rules for categorization is clustering. This would introduce a second type of jury. This jury would be given pairs of individuals. They would get financial information for the two individuals in the pair. These jurors would indicate how similar they are; not how much taxes they should pay.

    There are many algorithms available that cluster items into similar groups icnluding Self-organizing maps. In two or three spatial dimensions, this would be groups of points that are very close, forming a clump on a scattergraph. This could be extended to a tax situation in that the software would treat numbers such as number of children, incomes, as spatial dimension and place each taxpayer as a point in the "n-dimensional space." The clustering algorithm would find groups of tax payers that are similar in input characteristics.. The taxpayers would go before groups of the first juror types to explain those special tax considerations that would be lower than individuals that are similar.

  5. We have many algorithms to take sets of example data and create a function out of them. Thus, the jurors could rate several tax payers as to how much tax they should pay. This, of course, assumes that the characteristics that determine how much tax an individual or entity should pay are all quantitative or captured by the collected parameters (income, medical expenses, etc.) Are we better off allowing people to present these issues and construct the rules interactively and collaboratively, or merely say what the tax should be for various tax payers and construct the rules mechanically.
Computer scientists and statisticiians have developed many different ways that one could learn functions from example data. These relate from such standby's as multiple regression to the new methods such as neural networks, and machine learning techniques. Thus, assume that we have juror ratings of one thousand tax payers. We can apply these techniques to generate a function between the parameters and the tax assigned. Obviously, one could replace the jurors by the formula or alternatively, people could use such capabilities to estimate how much tax they would have to pay and when.

(This is similar to the various services that report jury verdicts in tort litigation to help trial lawywers decide when and for how much to settle their cases.)

In simulations, one can compare the results to a Lindahl Equilibrium, which I will present later in a Thoughtful Thursday and discussed earlier in the discussion of Genetic Algorithms.

Sunday, September 20, 2009

Frank Luntz, What Americans Really Want

Frank Luntz presented his survey of 6200 Americans and his book on CSPAN today. Americans trust people more than business or the government. In discussing health care, he said Americans hate both insurance companies and government involvement--which echoes a statement by President Obama. Why don't we just do it--particpatory democracy, including health care.

Do outrageous jury awards negative the power of sortition?

Article that juries often award a ridiculous amount of damages to a patent holder when a big company infringes their patent. and asks the questions of whether a jury is appropriate in determining such amounts. I believe sortition jury verdicts would become more reasonable if they have to award a large chunks of them, but this is an empirical question.

Thursday, September 17, 2009

Thoughtful Thursday Book Review or Literature Review Weekly Series

I will have a weekly series, Thoughtful Thursdays, which will be a review of a book or older literature.

The first episodes were:

  1. This Thursday, Genetic Algorithms, particularly David Goldberg's book
  2. People's Bicentennial's Commission book on Voices of the American Revolution
  3. Paul's Woodruff book on Athenian democracy, First Democracy
  4. July 23rd, Sortion, the Random Selection of Juries to make the decisions that are now made by legislatures, bureaucrats, judges and laws
  5. July 16th Ann Pettifor's book, The Coming First World Debt Crisis as a theme in this blog is alternatives to the Financial Missystem
  6. June Eleventh, Wisdom of Crowds by James Surowiecki

Genetic Algorithms (Thoughtful Thursday Post)

In genetic algorithms, one represent information as a Chromosome, a series of values. E. G., assume we are optimizing a gas pipeline, that has five pumping stations each with a pressure differential and we have five pipe diameters between them. Thus we would have for two possibilities. I will refer to them as Configuration A and Configuration B.
P(1) P(2) P(3) P(4) P(5) D(1) D(2) D(3) D(4) D(5)

300  200  150  75    80   1.2  1.5  1.3  2.2  3.3

P(1) P(2) P(3) P(4) P(5) D(1) D(2) D(3) D(4) D(5)

275  300  125  140   140  1.8  1.2  1.4  2.1  3.1
This might represent the following real world configuration where the p(1)..p(5) in boxes are the pressure of the pumping stations and the d(1) to d(50 are the diameter of the pipes:
_____      ______    _____   _____     _____
|    |d(1) |    |d(2)|    |  |    |d(4)|    |d(5)                               
|P(1)|==== |p(2)|=== |p(3)|==|p(4)|=== |p(5)|===
|    |     |    |    |    |  |    |    |    |                             
_____      ______    _____   _____     _____
The most important operation is crossover, where two possible pipleine configurations "mate" and produce two offspring. The system randomly chooses a point in the chromose, and the two mates get switched at that point. Assume the random number generate says cross over after D(2). The two children in the next set would be:
P(1) P(2) P(3) P(4) P(5) D(1) D(2) D(3) D(4) D(5)

300  200  150  75    80   1.2  1.5  1.4  2.1  3.1

P(1) P(2) P(3) P(4) P(5) D(1) D(2) D(3) D(4) D(5)

275  300  125  140   140  1.8  1.2  1.3  2.2  3.3
The second important operation is fitness evaluation and preferring high fitnesses. In the pipeline scenario, this fitness would probably the inverse cost. Thus, assume the two original configurations had costs of $100.00 and $75.00. Assume that there were two other configurations, call them Configuration C and Configuration D, with costs of $300.00 and $150.00.

The genetic algorithm uses random number generators to determine the chance of each configuration mating and thus contributing to the next set of chromosomes, the population in the terms of the Illigal algorithms. Then configuration B would have four times the chance of mating as C and D would have half the chance of mating as configuration C.

Application to taxation and budgeting

In our project, the chromosome will include the various tax rates. These are the marginal tax rates for each quintile of income (with a few special ones for the richest.

R(1) - tax rate for those in the bottom twenty percent of income
R(2) - tax  rate for those in the twenty to fourty percent of income
R(3) - tax rate for those in the fourty to sixty percent of income
R(4) - tax rate for those in the sixty to eighty percent of income
R(5) - tax rate for those making between eighty to ninety-five percent
       of income
R(6) - tax rate for those making between ninety-five percent and
       ninety percent of the income
R(7) - tax rate for those in the top one percent of income
And then, we have the budget amounts, how much to be spent on:
R(8) - social security
R(9) - defense
R(10) - education
R(11) - medicare
R(12) - transportation
R(13) - agriculture
R(14) - aid to low income families
R(15) - training labor and unemployment
R(16) - international affairs


David Goldberg's book very nicely explains schemata (Genetic algorithms in search, optimization, and machine learning / by David E. Goldberg. Published: Reading, Mass. : Addison-Wesley Pub. Co., 1989, which is where I got the information in this article ). Schemata represent that we have chosen several fields. The other's have not been chosen yet. In our first example, the schemata
P(1)=300 * * * * * D(1)=1.2 * * * * *
represents a specific value for the pressure in pumping station one and a specific value for the pipe to its right. The schemata,
P(1)=300 P(2) = 200 * * *  * * * * *
represents all the possible configurations with pumping station one having pressure of 300 and pumping station two having pressure of 200.

In crossover, which schemata is most likely to be disrupted by the crossover which occurs each cycle, it is the first with about a fifty percent chance of getting disrupted. The second schemata has only a ten percent chance of getting disrupted as of the ten possible divisions only one will disrupt the schemata.

(These are approximations as most genetic algorithms use scaling to get better performance to prevent random variations that happenn to fit from dominating in the early stages and to magnify differences for fine tuning at the end of the optimization, but that doesn't concern the main idea of what we are doing in social choice.)

In taxes, schemata might represent

R(1) = 0.1 R(2) = 0.2 * * * *  * * * * *  * 
The tax rates forthe two lowest income quintiles thus constitute a schema, and since they are next to each other on the chromosome, they would be most likely preserved. On the other hand, a relationship between the tax rate on the lowest quintile and the money for welfare (aid to low-income persons) would not likely to be preserved. , e.g.
R(1) = 0.1 * * * *   * * * * *  * * * R(14) = 10.0E6 *  *
That is because the first is on R(1) and the second is on R(14). Practically every cross-over will ruin this connection.

There are two other operators, mutation, which is randomly changing one value in the chromosome and inversion which is changing the order of operations. In this space, we could allow individuals to make proposals of new chromosomes or changes. Mutations thus introduce new possible budgets into the mix.

An interesting twist would be to proceed the genetic algorithm by a process where individuals give their degree of associativeness between two characteristics. This would be a pseudo-inversion.

MR. Lessard, a graduate student in our department, has started two programs in that direction: He implemented a web system for the above genetic algorithm.

  1. After logging in and do "informed consent" stuff, the participants enters their ideal budget. Thus, the initial population consists of everyone's ideal budgets.
  2. When the system has everyone's ideal budget (or at least from enough people), it will cross them over. Each of these will be presented for rating.
  3. The users will rate five budgets each.
  4. The system will do cross over on the results. These will be based on the fitness ratings in step three.
  5. Return to Step Two
Simulation of the strategic behavior will start from the software provided The second step will be a simulation starting from the University of Illinois Library. I have marked the modifications so that we can test strategic behavior. What happens if one or two sets of raters don't give their honest rating, but attempt to give (strategic behavior in the game theory and algorithmic mechanism design literature) a rating that is more likely to have them end up with a budget more to their liking.

Of course, a more basic question is whether the genetic algorithm will converge to a Lindahl Equilibrium. Thus, the first experiment will be to run the genetic algorithm with no strategy. The fitness chromosome will simply the taxation for each group. Each group will have a linear fitness function to give the d U / dTax = M * Tax + b where U is the utility. Each group will be assumed to rate the tax level proportional to the total benefit it receives from the total tax revenue. Thus, the benefit is the integral of the above function up to the total tax on all groups. Then, we will try strategic voting and a genetic algorithm where the chromosome represents a tax which is a piecewise linear function of the Income.

(I really appreciated the lecture of Dr. Warren Jones of this University on Lindahl Equilibrium when I took his Summer Public Finance course. It is on my to do list to write a more detailed Thoughtful Thursday piece on Lidnahl Equilibrium. The next best is the presentation in David N. Hyman, Public Finance, Fifth Edition page 136 to 144,)

Tuesday, September 15, 2009

Uncertainty in Environmental Decisions

Paul Woodruff talked very eloquently over uncertainty among experts should be decided by democracy and not representatives. His example was the decision by Athens to attempt the invasion of Sicily and Syracuse in his book about Athenian demoracy.

The Oil Drum is talking about uncertainty in environmental decisions and the Precautionary principle.

Michael Pollen "Big Food versus Big Insurance"

Many people have advocated that something be done about American diet and the costs of health. Mr. Pollen says that the insurance industry will go after food consumption and diet. Of course, in my very first posting, I proposed a badness-based consumption tax, with food being taxed on the basis of its healthiness for both the consumer and the environment.

Monday, September 14, 2009

Jury News

Another reference on juries not doing their own research ont he internet regarding the case. Should sortition jurors be encouraged to do their own work, possibly sharing it with the other jurors.

Embodied Energy in Imports for Carbon Tax

One of the problems with most carbon tax or cap and trade systems, is that they allow imports that have a high carbon foot print or embodied energy. The carbon tax must be applied to imports, otherwise that favors imports from those countries that do not regulate their greenhouse gasses. This is just part of the pollution haven factor which I cited in my first blog post.

Some people recognize this, including the Mine worker's Union President, Cecil Roberts complained about China and India which are producing a coal-fired power plant every week.

Sunday, September 13, 2009

Ann Petifor blog

I reviewed Ann Pettifor's latest book, a prescient book on the First World Debt Crisis. She also has a good blog on finance at Huffington Post. I particularly like her article about the problems withthe financial missystem that are, if anything, only getting worse. But she is unwilling to replace the whole system.

Cap and Trade Alternative

An alternative to Cap and trade for reducing climate change gasses is a Participatory Democracy Consumption Tax. One advantage is that it allows for one to determine the amount to cap by letting businesses compete to see how low they can reduce carbon emissions.

It is important to protect vulnerable consumers, e. g., those who already have a large house in a city served by a coal-burning power plant. Or those who might have good reason to do extensive driving, e. g. a married couple who cannot find jobs in the same city or an those who have relatives in a tertiary care facility. Individuals can apply to participatory juries for the ability to purchase electricity, gasoline, etc. free of a carbon tax.

Towards Share Participatory Democracy Economy

Yesterday, I heard a telecast of the Jerry from Ben and Jerry who spoke at Western Illinois University, my University. He pointed out that they raised their capital by an /IPO directly to Vermont residents. This was under an "obscure" Vermont law that allows this. One out of one hundred Vermonters bought some shares.

And I just heard on NPR, Debora Spar who talked about risk in the Economic Meltdown and argued that had women been involved at crucial junctures, there may have been less risk and a better outcome. She noted that there was a correlation between risk taking and testosterone levels.

The implications for a participatory share economy is obvious.

Saturday, September 12, 2009

Psychology of Belief Systems

This is a great article on some of the issues of what people believe and do. It is a concern in electoral systems of any kind, whether participatory or not.

Global Tobin Tax

The German Social Democrat Party including the German finance minister called for a Global Tobin Tax.

Friday, September 11, 2009