The Marijuana Lottery

This morning I read a piece in the Arizona Republic about the County Attorney joining the state's request for a declaratory judgment on medical marijuana. I then made the mistake of reading some of the reader's comments. It is amazing to me that many of these people would put their total lack of critical thinking skills out there for all to see.

One of the complaints is that this only appears to be a problem for Arizona and not for other states. For these commenters this is a clear indication that politicians in the state are illegally impeding the will of the people. After all, a state referendum passed making medical marijuana legal in state law. It appears to be lost on these folks that in Arizona we are still subject to federal law.

The controversy occurs because the US Attorney for the state of Arizona (not California, not New Mexico, not Montana, but for Arizona) has sent more than one letter to state officials noting that although they don't anticipate prosecuting anyone for using medical marijuana, they (meaning the US Attorney General's Office) reserve the right to prosecute under federal law. (The federal law is the Controlled Substances Act also referred to as the CSA.)

The New Times has an article that describes the problem fairly succinctly:

Go ahead, the feds say, invest your hundreds of thousands of dollars in a medical weed-related business. Maybe you'll be a millionaire, or maybe you'll end up serving a few years behind bars. But whether you'll get the prize or prison will be based on a whim. Your operation may be too "large," while someone else's may be just right.

One of the great things about the New Times article is that it also provides a copy of the actual letter sent to the Director of the Arizona Department of Health Services. Go read it for yourself, don't depend on what others say about it.

Attorneys seem to think that one of their responsibilities is to keep their clients from running afoul of the law - local, state and federal. Given that the prosecutor of Federal law in Arizona has said in writing more than once that he might prosecute anyone helping set up and run a medical marijuana dispensary, I can understand why the attorney for both the state and the county would ask for some clarification from the court. I also understand why they wouldn't want anyone they represent to do anything in the meantime.

There is an economic principle involved here. As economists we know that uncertainty about costs and revenues stifles business investment. Jail is a rather large potential cost as is forfeiture of assets and other types of civil penalties. (See US Attorney for Arizona, Dennis Burke's letter.)

So, we're going to get less investment and less economic activity until the uncertainty goes away.

Brains! The Economics of a Zombie Attack

The video of my brownbag talk is up.

Check that Business Plan

Note to everyone thinking about setting up a Medical Marijuana business here in Arizona. Turns out the US tax code does not allow business expenses to be deducted for trafficing in a controlled substance. That means a 35% tax rate on every dollar of revenue.

HT: Ann Althouse

A One Handed Economic Argument

Harry Truman famously said that he wanted a one handed economist. The economists he had were always saying things like, "on the other hand..." However, not having a one handed economist doesn't stop an advocacy group from making the one handed argument. Case in point:

An Arizona State University study estimates that cuts to the Arizona Health Care Cost Containment System would result in the elimination of about 42,000 jobs in 2011, cutting more than $1.7 billion in disposable income among all Arizonans.

The actual study was done for the Arizona Hospital and Healthcare Association by Dr. Matt Croucher and Dr. Tim James at the L. William Seidman Research Institute, W. P. Carey School of Business at ASU. As best I can tell, what they did was run a model of the Arizona regional economy with and without the AHCCCS spending cuts. They then reported the differences which the AzHHA then highlights in their media release.

...the proposed budget cuts will result in a loss of 42,000 jobs, dramatically increasing an already soaring 9.1 percent state unemployment rate. This significant reduction in employment would spread across all sectors, resulting in a reduced level of economic activity throughout the state.

What all of this leaves out is where does the money come from to provide the additional funds for AHCCCS? If it come from taxes or borrowing or another part of the state budget, then someone else is left with less money to do something with. That reduces their economic activity and hence jobs. So it's not clear that this funding would be a net gain or a net loss for the Arizona economy.

In the appendix (A.3) to the report, Croucher and James make it clear that this analysis was left out.

It was assumed that no other change in public policy would occur. Thus, no account of the economic impact associated with reductions in expenditure and/or increases in revenue collection, elsewhere in the economy to solve the state's budget problem instead of reducing AHCCCS funding were included. Thus, we do not include in the discussion any measures of the benefits that invariably would accrue to other government sectors or to Arizona taxpayers of not spending approximately $1 billion in general fund money on healthcare.

Note that doing this sort of analysis would be next to impossible since there are far too many alternatives to contemplate. So AzHHA used two handed economists, but they made the one handed argument.

For a copy of the actual report, go to the AzHHA web page and hit the click here link under Proposed Fiscal Year 2011 Budget: Healthcare Cuts Hurt State's Economy. It will download a zip file that includes the study and the media release among other things.

Buying the Marginal Vote

Economists say that prices are set at the margin. By that we mean that the last one purchased in the market sets the price. Apparently, the price for a vote in congress is falling. In July the price for a vote for the cap and trade bill in the House was $3.5 billion.

When House Democratic leaders were rounding up votes Friday for the massive climate-change bill, they paid special attention to their colleagues from Ohio who remained stubbornly undecided.

They finally secured the vote of one Ohioan, veteran Democratic Rep. Marcy Kaptur of Toledo, the old-fashioned way. They gave her what she wanted - a new federal power authority, similar to Washington state's Bonneville Power Administration, stocked with up to $3.5 billion in taxpayer money...

Yesterday, in the Senate, they only had to pay $300 million for the last vote.

To help secure her vote, Reid included a provision in the bill sought by Landrieu to provide increased Medicaid funds for states recovering from major disasters such as 2005’s Hurricane Katrina that devastated New Orleans and parts of Louisiana, Mississippi and Alabama. When the bill is closely examined, however, the provision provides immense financial support for only one state: Landrieu's Louisiana.

Landrieu defended the inclusion of the provision and said Republican critics who accuse her of selling her vote for $100 million are wrong and that she has the support of Louisiana Gov. Bobby Jindal (R) and Health and Human Services Secretary Kathleen Sebelius.

Then, in a statement sure to be repeated by Republicans endlessly over the coming weeks of Senate health care debate, the senator flaunted the inclusion of the provision. “I will correct something. It’s not $100 million, it’s $300 million, and I’m proud of it and will keep fighting for it,” Landrieu told reporters after her floor speech...

Economists debate whether deflation is a good thing or a bad thing. They tend to think it is a bad thing.

Best Blogs for Economics Students

I read several of these (no where near all) on a daily basis. If you want to know what economists are currently talking about, this is a great place to start.

HT: Marginal Revolution

Free Market versus Government Provided

One definition of economics is that it is the study of the allocation of scarce resources. Scarce simply means that we don't have as much of something as we would like. Because we don't have as much as we would like, we have to make choices in order to allocate what we have.

There are a number of different ways to allocate stuff. One way is to use the free market and let the pricing system and people's incentives take care of it. Another is to have the government provide the stuff, and then allocate it another way, usually by waiting.

A John Stossel video report (start at about 5:40) presents the difference between the two systems when it comes to CT scans in Canada. If you want one for yourself, it is government provided, but you get to wait a month. If you want one for your pet, you get to pay for it, but it's next day service. Pick one.

Update: Apparently when it comes to health care, it's better to be a dog than an human in the UK as well.

The Microeconomic Foundations of Macroeconomic Policy

My preference has always been to have students take micro prior to macro. The reason is that I find most macro issues to be rooted in the microeconomics. The recent activity around health care reform is an example.

On June 2nd, the CEA released their report on The Economic Case for Health Care Reform. Economic bloggers and others actually read the report and commented on it. Virginia Postrel at the Dynamist blog has several posts related to the report.

In one she notes that the CEA assumes a reduction in health care expenditures without showing how this would come about. Indeed in an interview with Ezra Klein, CEA Chair Dr. Christina Romer says that she is coming at this from a macroeconomic standpoint - but BTW there are lots of things we could do to lower health care costs, without talking about or advocating any of them specifically.

Ms. Postrel opined that we ought to try all of this with Medicare first which apparently got a response from Peter Orszag at OMB. A couple of his points were:

1) The administration does have big Medicare changes planned, both immediate cuts in reimbursements and "game changers" to impose more scientific management, potentially realizing savings down the road.

2) "I hope I’m not making anything sound like they’re painless." There are going to be "hard, CBO-scored cuts" in Medicare, "mostly involving provider payments." The administration is proposing cutbacks in home-health care and Medicare Advantage payments, for instance. It isn't expecting to get its initial savings from better management.

What this tells me is that the wonderful macro stuff that may happen if we slow the growth in health care spending is dependent upon the micro stuff like lowering individual prices (reducing reimbursements) and rationing care (scientific management.)

Said another way, you can't do the macro stuff without first doing the micro stuff.

(Summer I Macro Students - as they say, read the whole thing. There will be a quiz on where the phrase "assume a can opener" comes from.)

Medical Market is Changing

The market is reacting to the changing economics of healthcare in the US.

In this story from the Arizona Republic, some primary care physicians are moving to a "concierge" model for their practice.

Dr. Neil J. Sapin wooed his patients last week with a wine-and-hors d'oeuvres reception at his Glendale office. Next month, the doctor plans an encore bash at Arrowhead Country Club.

Such receptions are an unusual way for a doctor to mingle with patients, but Sapin has an unusual request for his patients. He wants them to pay an annual retainer of $1,500, a fee that will buy these patients better access and more attention from the busy doctor.

Sapin is among a handful of Arizona doctors who are so frustrated with the pressures of being a primary-care physician that they are striking a new, more exclusive path known as concierge medicine. The practice typically involves charging an annual fee in exchange for better access, longer appointments, more emphasis on preventive care and other medical perks.

As they say, read the whole thing.

At the same time, over at Carpe Diem, Mark Perry notes that medical associations aren't too happy with the proliferation of low cost clinics.

Translation: The family doc cartel is worried about increased competition.

Again, read the whole thing.

What these stories tell me is that the industry is changing yet again as both suppliers and customers adjust to costs and benefits. I suspect that both types of changes will be beneficial. Low cost clinics will take care of the more mundane stuff and doctors will focus on the people and things that really need their attention and expertise.

As with most transitions in industries, it will be a bit messy as things get sorted out.