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Speed limits and traffic deaths June 9, 2008

Posted by Jeff in Economics, Politics.
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With the price of gas rising, there is increased murmuring about legislating a lower speed limit in order to conserve fuel.  I remarked to family this weekend that that seems to be an odd thing to attempt to legislate.  Here’s why:

In 1974, the federal government legislated a national speed limit of 55 miles per hour in response to the fuel crisis of 1973.  The rationale at the time was that fuel prices were high, oil was running out, and our only option was to start conserving what was left.  After the fuel crisis passed, the federal speed limit was kept in place because of safety reasons:  in the first few months of the federally mandated speed limit, traffic deaths actually dropped.  There are two problems with this public policy: the first is economic and the second is ability to deliver on promised results.

The first problem with the federally limited speed is that it is not an economically sound policy.  For example, while it was true that fuel prices were high and it was true that oil was running out, it was not true that oil was running out soon.  Fossil fuels are, and should be treated as, finite resources.  That said, there is so much oil available, that we Earthlings will not use up our supply for decades, if not centuries.  A more economically sound way of expressing the problem is that there’s only so much oil available at a certain price.  If oil costs $20/barrel, there will be less supply than if oil costs $200/barrel, because a the cheaper price restricts the amount of cost that can go into retrieving the oil.  If oil were to reach $200/barrel, it would become feasible to extract oil from places that are not financially feasible to extract from at $20/barrel.  Therefore, legislating a lower speed limit for the purposes of conserving a resource for which plenty of supply exists is bad public policy.  In fact, it turned out that the conservation initiative only resulted in saving about 1% of the oil that otherwise would have been consumed.  (Source:  http://www.heritage.org/Research/SmartGrowth/bg532.cfm)

The second problem with the federal speed limit is that its supposed benefits did not stand the test of time.  The drop in traffic deaths that was reported in the year following the mandated lower speed had actually vanished by 1978 and was really no more than a short term anomaly.  (Source:  http://www.cato.org/pub_display.php?pub_id=1205)  Consider also that when the federal mandate was removed in 1995, the number of traffic deaths per mile travelled began to decline – as of 2006, the most recent year for which I can find data, the NHTSA reports that the number of traffic fatalities per vehicle mile travelled has decreased by 18.5% over their level in 1994, the year before the federally-mandated speed was lifted.  (Source:  http://www-fars.nhtsa.dot.gov/Main/index.aspx)

An interesting question that arises is “How many more deaths could be prevented if we raised speed limits even higher?”  In fact, what if we took the extreme position of having no speed limits altogether?  It turns out that we actually have data that proves that removing the speed limit altogether actually reduces traffic deaths.  When the federal speed limit was lifted in 1995, the state of Montana had effectively no speed limit, a regulation that was ultimately struck down for its “vagueness”.  Nevertheless, before it was struck down, Montana saw its traffic fatalities fall to record low levels.  When the statute was struck down and Montana reinstated numerical speed limits, the fatality rate immediately began to climb.  Similar data exists for the comparison between the German autobahn, where there is no speed limit, and American interstate highways, where there is.  (Source:  http://www.motorists.org/pressreleases/home/montana-no-speed-limit-safety-paradox/)

Legislating lower speed limits as a method of conserving fuel is public policy that endangers the public while not meaningfully reducing fuel consumption.  In order to reduce traffic fatalities, neither the federal government nor state and local governments should impose a maximum limit on highway speeds. 

The price of cheap gas June 3, 2008

Posted by Jeff in Economics.
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Motorists lined up for $1.05/gallon gas in DallasDallas radio station KRNB recently sold gas for $1.05 per gallon as a part of a promotional event at an Exxon station.  The promotion was quite popular – the nearby image shows cars packed into the parking lot of the gas station and even lined up along the street nearby to buy fuel for $2.80/gallon less than the average price in Dallas that day – $3.85/gallon. 



This promotional event is a good lesson in how prices work in the (free) market.  Here’s how it works:  For a lot of reasons which include the increased global demand for oil, the war in Iraq, the whims of OPEC members, the value of the dollar, and the limitations imposed on building new refining capacity or acquiring oil from new sources, the price of oil is at an all-time high.  This means that – government subsidies and taxes notwithstanding – the price most people pay for a gallon of gas is also at an all-time high.  The price of a gallon of gas is determined by the market and in Dallas on this particular day, that price was $3.85/gallon.

Question:  of all the gas stations in the DFW metroplex that are roughly the same size and located in similarly trafficked neighborhoods as the one pictured above, which one probably sold the largest number of gallons of gas on the day of the promotion?  The answer, of course, is the one where the price was artificially reduced to $1.05/gallon.  However, selling the largest number of gallons does not mean that this station also had the largest profit.  In fact, it’s almost certain that this station had the biggest net *loss* on gasoline for the day (the subsidy from the radio station notwithstanding, of course).  So in this case, the station that moved the most product also lost the most money.  This is because the price of a gallon of gas was $3.85, not $1.05.

On the day of the promotion, the market was willing to pay $3.85/gallon for a certain number of gallons of gas.  That same market was willing to buy many, many more gallons of gas, if it only had to pay $1.05.  It doesn’t matter how that price was artificially reduced, it just matters that an external force caused it to be reduced.  If KRNB had not reduced the price to $1.05 by paying a subsidy to the gas station but the government had imposed a “price cap” of $1.05 for that same station, the outcome would’ve been the same:  cars would be lined up all afternoon to buy as much gas as possible for this impossibly low price.

Of course, in the latter scenario (the government-imposed price cap), the gas station would not have been able to make a profit, so they would have simply opted not to sell gas.  This means that some of the supply of gas would have been taken off the market and that the people that wanted to buy gas at the market-determined price of $3.85/gallon would have had to buy it from another station.   What may escape the notice of some is that the imposition of the price cap would have actually *increased* the price of gas.  This is because the demand from people that needed gas would have stayed the same, but the supply would have been restricted, so the stations that were still selling gas would have had to charge a higher price.

What if the government imposed a price cap on all stations, though, instead of just on one?  The lower the price, the more stations would choose not to sell gas.  Sure, some might be willing to break-even (or even take a small loss) on gas in order to drive sales of in-store items like sodas and candy, but many would not be able to pay their employees and rent if they lost too much money on gas.  With the price cap removing the stations’ ability to make a profit on gas sales, the stations would simply opt not to sell gas, so that they’d not impact the profits they were making on other items.  Every time another station decided to take their supply of gas off the market, the market-driven price of gas at other stations would go up. 

It is an economic certainty that artificially controlled prices yield negative unintended consequences, not the least of which is higher prices.  The way to fix the problem is not through price controls, but rather through increasing supply (such as drilling for new sources of oil or increasing refining capacity), reducing demand (such as bringing quality, low-cost, fuel efficient vehicles to market), and/or adjusting an independent variable (such as the value of the dollar) that makes the price you pay at the pump seem less expensive because your purchasing power is greater.

The Rules of the Half Birthday May 27, 2008

Posted by Jeff in Uncategorized.
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  1. You are entitled to call a celebration of your Half Birthday, which occurs exactly 6 months after your regular birthday.
  2. You must remember your own Half Birthday, plan your own celebration, and invite those you wish to attend with plenty of time for them to make arrangements to come.  Parents/guardians can perform this duty for minors.
  3. Those invited are obligated to attend.  If any invitee does not attend, he forfeits his right to his next Half Birthday celebration.  He may, however, communicate his reason for non-attendance to you, who have sole-discretion to accept or to reject this excuse.
  4. No gifts are to be requested and no celebrant is obligated to provide one.
  5. The Half Birthday celebration cannot be unreasonably costly, and all celebrants are to pay their own way.  The celebrants are not obligated to pick up the tab for you, either, per rule #4.
  6. If anyone in your circle of invitees has an actual birthday that falls on your Half Birthday, you must defer your celebration to the following day.
  7. If you forget your Half Birthday or forget to invite sufficiently in advance of the party, you must forfeit your Half Birthday celebration until the following year.

If you don’t pay May 19, 2008

Posted by Jeff in Uncategorized.
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If you don’t pay your bill for internet access and the cable company cuts your service off, can you still pay online?

Truth in Advertising May 14, 2008

Posted by Jeff in Uncategorized.
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This truck has been parked outside our neighbor’s house for 2 days now…Busted!

Comments enabled May 13, 2008

Posted by Jeff in Uncategorized.
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I changed the blog settings to allow comments from people who are not logged in (you!).  Since I post to this blog at least twice per year, I’ll be expecting you to do the same now.

Medical insurance – easier, cheaper, and better than I thought May 13, 2008

Posted by Jeff in Uncategorized.

Switching to my own business means that I’ve had to purchase medical insurance on my own, and because any post on insurance is bound to be a crowd pleaser, I thought I’d share my learnings with you.

First, I’m looking for a policy that covers the 5 of us, ages 31, 30, 5, 2, and infant.  No one is a tobacco user or has any major medical problems.  Because we are pretty healthy, we decided to look for a high deductible health insurance policy that included some preventative care coverage.  

This is a pretty big change for us, because when I was working in the corporate world, I was used to the company-subsidized plans that were essentially socialized medicine: it cost me a total of $30 to have each of my first two kids because the insurance picked up the tab.  Of course, the monthly premiums for that kind of coverage were pretty insane – well over $1000/month for the family.  The part of it that was deducted from my paycheck was a lot smaller (more like $150/mo), but the part that the company picked up ($850/mo) was a cost to them and can be understood as the portion of my salary that I never saw.  (That’s equivalent to more than $10,000/year in salary that was disguised as the “employer’s portion” of my insurance.)  I never really got a positive return on investment.  In exchange for losing $10,000 in salary, I got medical coverage that would allow me to pay for any problem for just $30 out of pocket.  But because we are pretty healthy, we don’t abuse the insurance, and we can only have so many $30 babies, we paid a lot more in premiums than we ever took out.  I cannot say the same for some of my coworkers who smoked, who went to the ER with every little problem, and who otherwise engaged in behavior that drove up my premiums.  In the corporate world, every family was paying the same amount for the same plan, regardless of how much they used the plan.  Because a $30 copay is so affordable, the obvious reaction for the more hypochondriacal among us was to seek medical assistance, even when it wasn’t needed.

My goal in seeking insurance now that I’m on my own was to save some money on premiums and buy insurance that would cover the family for things that we truly need insurance for:  catastrophic events that we would not be able to pay for out of pocket.  If I get the flu, either my body will heal itself or I will need to see a doctor and get some medicine.  The former costs me nothing out of pocket.  The latter has a small cost, which I’d be willing to pay out of pocket in exchange for saving more money on my monthly premiums. 

I did my shopping through the plans offered by Extend Health, which I found out about on the Sam’s Club website.  You don’t have to be a member of Sam’s to buy these plans.  I called Extend Health and talked to one of their advisors who explained the differences in the high deductible policies – which ones were “hospital only”, which ones were compatible with health savings accounts, etc.  I decided on a plan from Humana that has a $10,400 deductible each year for the family and pays 100% after that.  This means that if I get in a car wreck and have $6000 of medical bills, I will have to pay that $6000 myself.  If I get a major illness, I will have to pay $10,400/year and the insurance will pick up the rest.  Yes, those seem like big numbers, but consider the following:

  • Insurance is a bet I make with the insurance company.  I’m betting that I’m not going to get a major illness any time soon.  Yes, it could happen, but in all likelihood, it won’t.  If it does, I’m covered  for everything beyond $10,400, so my liability is limited.
  • My monthly premium for the entire family is only $225.  That means that I’m saving nearly $800/month off of the premium my former employer was paying for me.
  • The amount that I save on premiums can be saved in a Health Savings Account, which belongs to me and allows me to put aside money for medical expenses tax-free.  Note that if I’m saving $800/month, I can save $10,400 in just 13 months, and I do not expect to have a major illness every 13 months.
  • Our medical plan covers preventative care (up to $300 each, per year, before the deductible), so I don’t have to pay for annual physicals or well baby coverage out of pocket
  • Any medical expenses that I do have must come out of pocket, and these can be paid for from the HSA.  For these expenses, I am a “cash payer”, which means that I can shop around to different doctors and hospitals and find those who are willing to give me better deals.  Note that it is not uncommon for doctors to give a 50% (or more) discount on service fees to cash payers, simply because they do not have to deal with the insurance companies…therefore, my out of pocket liability drops even further.  (Quick story:  one friend on a similar high-deductible plan told me that when he planned to have a baby, he called around to the nearby hospitals, told them he was a cash payer and asked them for rates on baby deliveries.  He found that the rates were about 1/2 of what they were had he been using insurance to pay.)
  • If I’m not feeling intrepid enough to do this kind of shopping around, I can always take advantage of the pre-negotiated rates offered through another Sam’s Club program.  This program doesn’t cost anything beyond being a Sam’s Club member, and that membership is something we’d have anyway.  Therefore, if I go to a doctor who is in the network of the Sam’s Club pre-negotiated rates, I can take advantage of the lower costs for cash payers without having to do my own shopping around.

So, at the end of the day, I’m going to pay $225/month for catastrophic coverage and preventative coverage for the 5 of us.  I’m expecting to pay for everything else out of pocket, but since I can put what I’m saving on premiums into an HSA and use that only when necessary, we will quickly build up the amount of money needed to cover the $10,400 deductible *if* something major does come up.

But wait, there’s more!  Although we don’t expect any of us to get some major illness, we do recognize that we could be in an auto accident that could result in medical bills in the thousands of dollars.  To account for this, we turn to our car insurance.  Car insurance (at least in Texas) includes PIP coverage, which pays for the medical expenses you have as a result of an auto accident.  Our auto insurance company, Progressive, tells me that we can increase our PIP coverage to $10,000 for $3/month.  That’s not a typo.  What this means is that if we are in an auto accident, we will be able to cover up to $10,000 in medical bills with our PIP.  Our medical insurance would then kick in for everything over $10,400, which means that even for a bad accident, we’re only out $400.  

If I count that $3/mo. PIP coverage as a part of my medical insurance premium, my total monthly premium  becomes $228, and it covers the following:

  • All preventative care 100%, no deductible
  • All medical expenses resulting from auto accidents 100%, no deductible (ignoring, for the moment the $400 difference in the PIP and the medical insurance deductible)
  • All other catastrophic events 100% after the deductible (an event we are betting doesn’t happen)
  • All other non-catastrophic events 50% (assuming that’s the discount we get by being cash payers.

I haven’t talked about prescription drugs here, but I would point out that all of the drugs that any of us have been prescribed over the last 10 years, plus any drugs we expect to be prescribed in the next few years, are all on the list of drugs that Walmart and several other retail pharmacies are offering for $4.  Again, it is a wager on our part that we will not face expenses for drugs that are much more expensive, but for this stage in our lives, it’s a pretty safe bet.

All told, my medical insurance is going to cost me $228 per month, plus whatever out of pocked expenses we have each year, typically on the order of a few hundred dollars per year.  Let’s say that that brings my total cost of medical coverage for our family of 5 to around $300/month.  That’s less than some people spend on a monthly payment for a new truck or home entertainment system, and sometimes, those are the same people that claim that medical insurance is too expensive.  I would say that for us, it is not too expensive – that it’s actually very reasonable.  With a little bit of shopping around and with the decision not to smoke or do other things that result in major medical expenses, we give ourselves a raise with the money we save and we get rid of most of the stress and hassle of dealing with insurance companies.

A management classic: The “Open Door Policy” April 15, 2008

Posted by Jeff in Work.
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Here’s an excerpt from an actual email I received from a company executive on his “open door policy”:

I also want to encourage all of you to use our open-door policy to communicate any concerns or positive feedback you have.  I know that my door is often closed, and I have heard the same of other VPs.  Please realize that this is because I am constantly on the phone or in meetings…


You may be eligible for up to $2,000 in compensation! November 26, 2007

Posted by Jeff in Uncategorized.
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I received a call this morning from some doctor’s office informing me that I may be eligible for up to $2,000 in compensation and asking if I’d like to schedule an appointment.

The salesperson made the following points on the call:

  • I was involved in an accident
  • I was not at fault
  • I may have suffered injuries
  • I may be compensated up to $2,000

If I agreed to schedule an appointment, they agreed to provide a free medical examination. 

All of this, even after I’ve communicated both to my insurance company (Progressive) and the at-fault person’s insurance company (Traveler’s) that I had not suffered any injuries and did not desire medical attention.  The person on the phone told me she’d gotten my information from the Austin Police Department’s report of the accident.

I think this type of solicitation is spurious and fraudulent.

Update 1:  Edited $20,000 -> $2,000.

Update 2:  Marcus Mitchell from San Antonio leaves a voice mail that says I may be eligible to receive PIP!

One more thing to be thankful for November 20, 2007

Posted by Jeff in Uncategorized.
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While we’re at it, let’s add another reason to be thankful – that neither I nor any of the other people involved in a 5-car collision this morning seem to be badly hurt.

 I was running an errand this morning when I got stuck in traffic on Mopac.  I came to a complete stop and the second car behind me plowed into the rest of us.  There were five cars involved all together.

The wreck happened around 9:30am.  Since then, this has gone smoothly:

  • The police showed up within 10 minutes and had the report filed within another 30.
  • I drove back to the office a little after 10, called Progressive, and gave them all of the details of the other cars.
  • I came back to my desk at 10:30 to find that Progressive had already emailed me to let me know my claim was viewable online.
  • A local Progressive agent called at 10:45 and set up a time to come look at my car at 1:00.

Not the way I want to spend every morning, but I’m glad no one was seriously injured, and I hope the dealings with Progressive continue as smoothly as they’ve been so far.