Thursday, October 1, 2015

Does Immigration Make US Healthier?

There are two common barriers cited in discussing what prevents Americans from eating healthier: cost, and convenience. This issue takes an interesting twist in the face of immigration reform and who is allowed to work in the United States. It's possible that migrants play a positive role in the consumption patterns of Americans, and limiting their presence would make us an even larger (waist-wise) nation.

While the statement "they do the jobs Americans won't" is largely correct, it requires an addendum: Americans won't do those jobs at the wages those jobs offer. If picking cherries offered $15/hour and health insurance, college graduates would be sending in their resumes to the orchards of northern Michigan. But that's not what menial farmwork pays. And if it did, the cost of produce would rise. This is a second-level consequence of further constraining immigration we generally recognize.

Low-cost produce obviously doesn't help with the convenience issue - supersodium frozen dinners and fast food meals will always be more convenient than steaming your own vegetables. But as long as those vegetables are affordable, more people will buy them.

Would the Great Trump Wall and tightening of legal immigration actually make the county less healthy? Probably not any more than a marginal degree. It's still an interesting unintended consequence to consider.

Sunday, September 20, 2015

Another Health Insurance Market Failure

I remember during the conversations during Obamacare's construction, one of the more obscure issues was how insurance companies don't have clients for that long, so insurance companies do a poor job of encouraging long-term health (I couldn't find the statistic, but I believe the average person has the same company for somewhere in the area of three or four years).

This seemed to be a reasonable criticism of America's state of health affairs, and I could argue it in the abstract. After all, approaches that achieve long-term health benefits are investments that save money in healthcare coverage down the road, but if the insurance company isn't likely to reap the benefits, why should it make the investment? This is obviously a market failure, because the market could operate more efficiently, but providers (justifiably) are acting in their self-interest (in this sense, public health is arguably a tragedy of the commons our system has manufactured). However, I never had an explanation of how this works in practice.

I've now encountered my example, and it's frustrating experiencing how it works. I recently completed the final physical therapy session my insurance company will allow me to partake in, although my ankle has never fully healed. There's a decent chance that with another month of work I'll be much better off, but my policy doesn't allow for it. The hell of it is, spending some extra money now should pay off in the long-term, as the current state of my ankle leaves me in line for arthritis and other issues down the road.

No one refutes this. My physical therapist is the expert saying it will happen, on a logical level I agree with him based on my limited understanding of how joints work, and the insurance company likely understands. But I'm unlikely, statistically, to be with Blue Cross of New York in 20 years when my ankle becomes a real problem, so there's no rational reason to invest in therapy now. It will be someone else's responsibility at that point. Even if future surgery is way more costly than extra PT sessions this year, someone else will foot the bill.

I get the contra - if my insurance company allowed me unlimited visits, my physical therapist would be inclined to continue scheduling sessions even after they were no long necessary in order to make more money. Some providers would resist this temptation, some would be bad actors, and some would schedule unnecessary visits merely for the sake of erring on the side of caution. So even in a  system that pays for preventative care, there would still be concerns. Answers may be difficult to definitively determine, but our system is undeniably prejudiced against long-term economic decision-making.

Saturday, September 12, 2015

That Time The New Yorker Incensed Me Into Writing the Editor

While I find John Cassidy’s concerns on the evolving  (devolving?) value of higher education largely on point (“College Calculus,” September 7), I question what appear to be potshots aimed at Kansas State University (full disclosure: not an alumnus, but I am native to the State and support the school’s research and extension mission). Cassidy is concerned that colleges are enticing students with specialized degrees that may sound exciting and even offer short-term reward, but fail to provide lifetime value. He then holds up Kansas State’s major in Bakery Science and minor in Unmanned Aircraft Systems as examples. While understanding of drone technology holds obvious value as the robotics become more ubiquitous in society (a fact the article fails to acknowledge), Cassidy condescendingly suggests that the purpose of the Bakery Science major is to “run a bakery.” Were this the purpose of the degree, it would well buttress his argument that students are increasingly taking on student loans to obtain unnecessary degrees. Unfortunately for Cassidy, it’s not. K-State’s Grain Science program has been in operation for over fifty years, suggesting it is far from a fly-by-night scheme to bring in additional tuition dollars. The program enjoys 100 percent placement (a statistic Cassidy may find dubious), and graduates earn the highest starting salary of all College of Agriculture graduates (a more difficult fact to quibble over - K-State’s College of Agriculture is consistently ranked among the top ten in the nation, signaling a semblance of worth in the degree.).

The irony is that the bakery program appears to be imbuing students with specific skills that make them more marketable in the workplace. Graduates are trained to work for Kellog’s, Nestle, and King Arthur Flour – not the local donut shop. As genetic science continues modifying the protein composition and nutritional nuances of grains, this training will only increase in value. We now want sweet foods without the sugar content and savory foods without the cholesterol – who do you think develops these products?

This article is dog-whistling at its finest. Cassidy fears that college degrees may only be used for signaling, thereby failing to provide specific training that makes a graduate worth more. He then purposefully singles out a program that provides specific training that makes students more knowledgeable and marketable, but condescendingly suggests these students are only good for running local bakeries. There are undoubtedly examples of narrowly focused degrees with inherent risk that can be mocked. I like to think an Oxford/Columbia/NYU-educated journalist didn’t simply single out a funny-sounding degree from a seemingly Podunk institution in Kansas and decide this was the perfect example without actually doing any research into the program, because that would be really lazy. I like to think this wasn’t a play to an overly educated East Coast audience readily willing to join the mockery of a public school in Kansas, because that would also be really lazy. Unfortunately, the author appears willing to do exactly that. I’m personally familiar with better examples on the East Coast, but we must apparently consider where our readership lies – in the ivory towers of the original colonies, and not the plains of the Midwest.

What's unfortunate is, I otherwise completely agreed with the article.

Tuesday, July 28, 2015

Why Niche Markets Shouldn't Lobby for Ideology

Politco's Morning Agriculture memo this morning thought it stumbled on something interesting this morning when it led it's daily e-mail with the following:

'GOOD FOOD' INDUSTRY ESCHEWS LOBBYING: "The leaders of the so-called good food sector - including Chipotle, Whole Foods and Applegate - are winning big in the marketplace with health-conscious consumers. But the industry's current lobbying strategy - largely ignoring Capitol Hill - may be a recipe for disaster in the long run, some of its other leaders say," reports Pro Agriculture's Helena Bottemiller Evich.
"The inertia already has cost the fast-growing sector: Just last week, the House approved a bill to block any state-level mandatory GMO labeling 275-150, a mostly party-line vote that picked up 45 Democrats. There's a growing list of good food industry leaders who are worried that remaining aloof could mean missing opportunities to fight several hot-button issues in Congress, including the future of federal dietary recommendations and school lunch reform.
"Yet neither Whole Foods nor Chipotle and Applegate, companies that serve up antibiotic-free meats, nor Hain Celestial Group, which owns Arrowhead Mills, Spectrum and Celestial Seasonings, have a single registered lobbyist between them, according to a POLITICO review of disclosure records. Their involvement on Capitol Hill, on issues from the farm bill to nutrition labeling, has ranged from limited to nonexistent."
So some healthy food providers are not lobbying Congress to mandate GMO labeling or push other policies enhancing nutrition in America. I don't understand why this should be thought of as surprising - Whole Foods and Chipotle only stand to lose if they do so.

Whole Foods is not some ideologically pure group seeking to make everyone in the country a hippie, natural-food loving consumer. It's a billion-dollar corporation bilking customers who bought into the organic craze. Its CEO lambasted the Affordable Care Act a couple years ago, clarifying Whole Foods is not some instrument of the left.

The only lobbying Whole Foods should be engaging in is to prevent labeling of GMO foods. As a niche market, it enjoys being able to charge a premium to claim the purity of its products. Once Price Chopper, Wal Mart, and Kroger are forced to similarly label their foodstuffs, consumers may be less likely to patronize Whole Foods as they're comfortable in being able to find non-GMO products anywhere. Lobbying against the Pompeo Bill obviously risks too much backlash from consumers to pursue the strategy, but Whole Foods should be comfortable in sitting back, not throwing millions at the problem, and enjoying its nicheness.

Whole Foods is the chain store that serves up organic food, while Chipotle is the chain fast-food restaurant promising all-natural meat products. So why doesn't Chipotle want everyone to be forced to eat that way? Same reason - as long as all-natural food consumption is held out as some sort of unique product, Chipotle can capitalize on its scarcity. Any bureaucratic move to reduce scarcity denies Chipotle to charge a premium. (FYI, it's interesting that while McDonald's divorced itself from financial interest in the chain about a decade ago, Chipotle has been crushing it while McDonald's is getting hammered.)

I'd never heard of Applegate before the article, but it appears to be a line of meat products in grocery stores such as chicken nuggets and hot dogs. Most of its products are red meat, and the company appears to operate under the guise of healthy because its products are organic while simultaneously clogging your arteries (see product line here). This is the company that stands to lose on a labeling bill for the same reasons - right now the company markets itself as organic, and there are enough customers who care enough to pay a premium for the label. Forcing everyone to label will push more companies to ensure they can meet the same standards. This may be good for consumers, but bad for Applegate because increased supply will lower prices at the checkout aisle. That means more money in your pocket, and less than theirs.

Still not convinced? An analogy is fuel-efficient cars. While people are aware they'll save money on gas purchases if they buy a more fuel-efficient car, some care more than others. A company specializing in making a great fuel-efficient car can target those people that care, but there may not be enough for all auto manufacturers to really target this market (think Toyota v. GM at the turn of the 21st century).

But if Congress requires companies to label the gas mileage a car receives and installs CAFE* requirements, other companies see greater incentive to enter the small-car market. This is good for consumers of small cars because choice equals lower prices, but the niche for efficient cars previously filled by a single company no longer makes that company as much money. It doesn't make sense for Toyota to lobby Congress to increase GM's presence in the small-car market in this example. It similarly doesn't make sense for Whole Foods to lobby Congress to increase competitors in the market.

*Corporate Average Fuel Economy

Monday, July 27, 2015

Which League Increases Pitchers Salaries?

It was announced yesterday that the Royals have acquired Johnny Cueto; a necessary move if they hope to win the World Series this year (that's how the organization felt, and I'm of like opinion). And as an NL pitcher (Cueto played for the Reds) sheds the responsibility of batting in his new AL home, I question which league most impacts the salaries of pitchers.

I used to believe the NL made pitchers marginally cheaper for AL teams. The American League doesn't care if a pitcher can hit. But in the National League, a guy with 92 mph heat who carries a .350 OBP could be more valuable than a slightly harder slinger who strikes out the majority of his at-bats. Obviously the arm is the most important function of a pitcher's value, but batting is a consideration that NL personnel offices must pay attention to. That makes pitchers who can manufacture hits worth more, and those that can't worth less. AL teams then have the opportunity to swoop in and acquire those pitchers that can't hit, because they ascribe a different value to hitting (essentially, zero).

However, the pendulum swings the other way too: AL teams have an opportunity cost NL teams don't concern themselves with in the designated hitter. Using Kansas City as an example, the Royals acquired Kendrys Morales this year to be their designated hitter. Morales should never be playing first base for the Royals - while he's technically the backup to Eric Hosmer, expect a quick call-up from Omaha for Balbino Fuenmayor to play the position.

So what do the Royals pay for the privilege of having Morales on the roster, despite the fact he should never field the ball? His current deal is worth $17 million* over two years, and that's not at the high end of the spectrum. Alex Rodriguez obviously pulls in the most dough (due $21 million cash money in 2015), while David Ortiz will make $16 million, and Nelson Cruz and Nick Swisher will pull down $15 million this year. Only two teams (Houston and AnaheimLA) aren't paying at least $3 million for the position. Morales makes the median salary for DHs in the MLB at $8.5 million.

What does an NL team gain in avoiding the opportunity cost of carrying a designated hitter on the roster? The average NL payroll this year is $124 million (inflated by the insane spending of the Dodger), and the median payroll is $105 million (Milwaukee Brewers). That means if the Brewers were the Royals of the AL, 8.1% of their payroll would be going to Kendrys Morales. In this scenario, Ryan Braun is probably gone from Milwaukee. Unless they can develop one for cheap (doesn't happen), the Brewers would have to make a major decision in whether to be competitive by overpaying for a DH (I consider DH the most overpaid position in the league), or having a guy hitting .210 in the line up.

Or maybe not. If all NL teams are subject to the DH rule, the cost of pitchers would likely decrease. Cruz could command more money because 30 teams want him rather than 15, but all other positions would take a salary hit because NL teams would have less money to spend on non-DH positions. And that includes pitchers. Finite resources and all that jazz. I guess the takeaway is, blame the DH rule for inflated payrolls. And go Johnny Cueto.

*For consistency, all numbers should be in 2015 cash, not payroll hit.