Ward’s 2012 Washington State, King County, and Seattle voter’s guide to the issues

Washington State’s November 2012 election ballot is chalk-full of important initiatives that you have a duty (that’s right) to vote intelligently on.  To help with that, I’m going to go over my recommendations below.  With one notable exception this year, this guide will NOT cover individual candidates, as I believe that territory is too fraught with political biases to be worthwhile to an unsympathetic reader.

Why should you give any credence to what I say?  Because I’ve researched each measure carefully, consulting several sources, am highly educated (two college diplomas and an MBA, with a solid background in economics, finance and even some philosophy), reasonably intelligent, and thoroughly rationale and critical.

My biases: I take it as given that each individual’s happiness is equally important (be it a Washington voter, felon, or Chinese guy), and that the goal of good policy should be to promote the greatest happiness across the greatest number of people.  (I.e.: I’m a died-in-the-wool Utilitarian after the fashion of Jeremy Bentham.)

These positions follow from the above philosophy:  I generally favor more choices for people as opposed to fewer (because people are usually made better off with more choice, except in certain cases.)  I believe society should often reallocate its resources to the people who have the least in the world (being careful not to create bad incentives that decrease our prosperity), as the amount given up by the well-off often does more good as an amount received by the worse-off.

As a simple example, Bill Gates wouldn’t miss $20 (and nor would most of us), but that same $20 can buy vaccines in Africa that could save a life.

Without further ado, here’s how you should vote (and why)!

State issues:

Ref 74 – Allow the gays to get marriedAPPROVE.  (Note that this bill preserves the right of religious organizations to refuse to perform, recognize, or accommodate any marriage ceremony, like that of a same-sex couple.)

502 – Legalize, regulate & tax marijuana – APPROVE.

Marijuana doesn’t appear to be particularly harmful.  Let’s let adults make adult decisions about what (at worst) mildly harmful substances they choose to ingest of their own free will.  Furthermore, policing marijuana has been largely a failure, and is extremely costly.  Instead, this bill will stop treating ADULT (21+) casual weed users as criminals, and turn weed use into a profitable source of state revenue for education, etc.

1240 – Public charter schools in WA state: APPROVE.  We need to explore more options in improving public education in WA state (and nationally), and allowing freer rein to nonprofit school administrators in a select group of 40 public charter schools seems like a very reasonable way to try some new things in education.

These charter schools are still publicly-funded & publicly-accountable schools (read the description of the bill before you go spouting off misleading WEA-influenced rhetoric willy nilly.)  They’re open to everyone, regardless of income (there’s no tuition, overflow applications will be handled by an impartial lottery), and they don’t ‘take money from public schools’ in the sense that they ARE public schools, run by a nonprofit org, and therefore get money from existing public school sources.  They are simply ALTERNATIVES to existing public schools.  They have to maintain the same hiring & educational standards as all other WA state schools.

Charter schools may not end up being the ‘answer’ to our less-than-stellar education system, but let’s please at least explore the possibility (and then measure & analyze the results), rather than being defeatist by opposing any new innovations in public education.  THINK OF THE CHILDREN! J

8221 & 8223: APPROVE each – Take a look at the 2012 Legislative voting: hardly anyone on either side of the political aisle opposed these bills of fiscal reasonableness, which is a good sign that we should pass them.

Advisory 1 – MAINTAINED – Recommend to the legislature to maintain the closure of a business tax deduction (aka, a tax ‘loophole’!)  I’m all for eliminating deductions favoring silly things, even when popular (I’d LOVE to see the homeowner’s mortgage interest deduction go away, but it’ll never happen.)  In economic theory, such loopholes distort incentives, and are bad for economic efficiency (unless they’re correcting/promoting for negative/positive externalities, like taxes on gasoline, which are a good thing, and should be higher!)  Plus, WA need revenue, so let’s close this and collect some.

Advisory 2 – MAINTAINED – See above rationale.  This time we’re taxing a negative externality-causing thing, petroleum, and perhaps correcting for subsidizing of negative externalities).

BTW, neither of these advisory votes matter that much since they won’t change the law by themselves!

Seattle & King County

APPROVE both Prop 1 in King County (fingerprinting levy to aid law enforcement) and Prop 1 in Seattle to rebuild the crumbling Alaskan Way seawall.

2012 Bonus recommendation – Ward’s votin’ Republican in the Governor’s Race

WA State governor:  I normally don’t post any of my partisan (Dem vs Republican) recommendations, since I want to restrict this guide to a non-partisan review of issues, vs politicians, but I’m going to break this rule for this notable reason: for the first time in my (relatively short) electoral life, I’m voting for a Republican, Rob McKenna, for WA state governor.  (The Seattle Times also recommends Mr. McKenna, along with a few other Republicans, as well as Democrats, that I will be voting for in large part due to their recommendation rationales.)

In short, McKenna seems to be more thoughtful and have more detailed, practical plans on tackling tough issues like education & health care costs in WA state than his opponent, Democrat Jay Inslee.  Inslee seems mostly full of hot, nice-guy-that-you’d-have-a-drink-with political air, spouting vague platitudes which I generally agree with in principle, but that don’t seem to have any practical implementation behind them.

While I disagree with McKenna’s backing of Eyman’s initiative to prevent the legislature from passing taxes without a 2/3s majority (because I think it will hamstring our legislature’s ability to close loopholes & properly fund voter-approved measures, and puts us on a road to major fiscal problem similar to places like California that have tried such a thing), I think McKenna is the best choice for governor of the two.  He has the strongest plan & apparent commitment to fund higher education (he wants to increase state funding from 30% to 50% of the cost of tuition), and he also seems serious about introducing measures to reduce the cost of health care at the state level (by favoring Health Savings Accounts & increased competition in state health care plans.)

You can find a comparison of McKenna & Inslee on the issues here: http://seattletimes.com/html/localnews/2019488749_govissues21m.html

And also here, which includes a video of the first gubernatorial debate: http://www.diffen.com/difference/Jay_Inslee_vs_Rob_McKenna

How to improve the health care system and what I learned from Michael Moore’s “Sicko”

I recently watched Michael Moore’s ‘Sicko,’ a “documentary” (and propaganda piece) on the health care system in the United States.  Moore also contrast our system with various government-run programs around the world.  While Mr. Moore’s opinions and footage are clearly biased in favor of a government-run system, I believe he does raise some valid points.  I’ll enumerate some of them below, adding my own thoughts.   Please remember that I am certainly not an expert in this area, and that these are merely my moderately-informed opinions.  Feel free to dissent, agree and argue by posting comments.

(Note to readers: I do feel a little uncomfortable posting politicized articles on this blog next to objective financial advice.  However, I do think there’s some value in asking readers of this blog to consider some of these very important issues from time to time, even if they disagree with every word I say below.  I’ve tried to keep my opinion pieces 1) separate by clearly labeling them as political, 2) as even-handed as possible, given my personal feelings and biases, and 3) without financial advice that relies on my political opinions.  Let me know in the comments if you like seeing a political article like this every once in a while, or if you think it’s inappropriate given the other content on my site.)

1) Doctors under a government-run insurance plan do not have to worry about getting paid by private insurers and can focus solely on providing health care. One could argue that a government-run plan would be more complicated than a private one.  That may be true, but I would think even one highly complicated government insurance option would be much less complicated that the combined thousands of private plans.

2) The profit motive of private insurance and health care companies (including for-profit hospitals and drug companies) is not necessarily in the best interests of patients. Moore interviews people whose job it is to find loopholes that allow insurance companies to avoid paying claims to those who become sick.  Also, there have been studies that show doctors are much more likely to prescribe particular drugs to patients when lobbied by drug salespeople regardless of whether the patient needs the drug or not:  “[r]esearch clearly shows that doctors who report relying more on promotion tend to prescribe less appropriately, prescribe more often and adopt new drugs more quickly.”

I’m not saying that the profit motive is bad in the health care industry (in fact, I think it’s often a wonderful way to align the incentives of many different people and businesses), but it has some undesirable effects.  Without the large profits that drug companies enjoy, there would be smaller incentives to pursue groundbreaking drugs that can work wonders for people ranging from cancer sufferers to those with high cholesterol.  I think many people make the faulty argument that because drugs are so cheap to manufacture, they shouldn’t be priced so high.  However, development of these drugs requires an enormous amount of research and development (R&D) expenditures, and most drugs developed never see the light of day.   Economist Gary Becker has suggested that countries that regulate the prices of drugs to low levels are able to ‘free ride’ off the American system.  What he means is that drugs that are developed in the US, where their makers can enjoy large profits, still benefit other nations that might have stifled similar drug development in their own country with price caps.

3) Moore’s ‘Sicko’ also states that we in the US suffer from poorer health as measured by infant mortality and longevity when compared to other industrialized nations. It is certainly true that we are an unhealthy nation, but others like Becker point out that this is mostly due to our terrible lifestyle, and not to the quality of our technical skill in healthcare.  Becker shows that survival rates for diseases like cancer are higher in the US, suggesting that our healthcare system is in fact very good (although very expensive.)  While it’s true that our poor health is often due to factors like overeating and smoking, I think it’s incorrect to think that our health care system can’t help fix these lifestyle factors.  When an ‘ounce of prevention is worth a pound of cure’, why should we be so focused on the quality of the cure and not prevention?

One potential benefit of a government-run health insurance option is that it would be a perfect place for an incentive system to be set up to promote healthier lifestyles.  One could penalize people who smoke or are at an unhealthy weight through higher premiums, or reward seniors who join a gym or excercise program.  This gets into dicey territory of how to determine what’s ‘bad’ and what’s ‘good’ for people.  One might point out that obese people and smokers actually costs less to treat during their lifetime because they die sooner.  Despite this, I personally feel that we as a country have a responsibility to encourage people to live healthy lives.  Libertarians would find this paternalistic, but I believe people are generally happier if they are healthier, and I would support the government taking modest measures to raise the health of its population.  Simple things like providing information (warning labels on cigarrettes, forcing restaurant chains to display calories) shouldn’t be too objectionable.  Penalties for drunk driving are another example (which should be increased; the penalties, I mean.)*  On a larger scale, we could eliminate farm subsidies for crops that make up too much of our diet, like the corn used to make corn syrup.

4) There is a general lack of information on the part of consumers. I’m a fairly sophisticated consumer when it comes to most items.  I have a mental price list for pretty much everything I buy, and am constantly weighing benefits of one product versus savings on a substitute.  Despite the fact that I pay much more attention to prices and value than most people, I am completely clueless as to what is reasonable to spend on a night in a hospital, a routine doctor’s office visit, x-rays, or a hip surgery.  Prices are not posted for all to see and compare between hospitals as they are for other products.   Insurance options are generally not set up to encourage patients to shop cost effectively.  Combine this with the many varieties of health insurance, all with pages of descriptions on what they do and don’t cover, copays, coinsurance rates, deductibles and lifetime maximums.  These factors make it very hard to know if what you’re paying for care is reasonable or outrageous.  A government insurance option or regulation that standardizes the way policies are displayed, or a rule forcing healthcare suppliers to clearly delineate their service prices in a fashion that’s easy to compare, would go a long way towards helping patients make better decisions for themselves.

5)  I also perceive a lack of competition between health care providers and insurers within localized areas. This could be partially fixed if the government would equalize the tax benefits of health care between individuals and businesses.  Currently, a business gets to deduct its health insurance premiums whereas a wage-earner with an individual plan generally cannot.  This provides a huge incentive for people to be insured through their employer, which creates problems of choice, since companies typically don’t offer many insurance options from competing providers.  Transportability, by which I mean the ability for a person to keep their insurance when switching (or losing) jobs, is also an issue when insurance is tied to employment.  Individuals do have some options to avoid paying taxes on their out-of-pocket health expenses, like Health Savings Accounts, but usually not their insurance premiums.

In addition, I would guess that businesses get to write off health benefits at the corporate tax level of 35%, whereas even if individuals could write off thier insurance premiums it would be at their federal income tax level, which would be much lower for the vast majority of people.  Because of this last issue, I would suspect it would be easiest for the government to eliminate the tax breaks that businesses get on health care, and simply let individuals deduct their personal insurance costs.**  I think that if the onus were put on individuals to buy their own health insurance, and if policy terms were more standardized, it could lead to a situation more like car insurance, where it’s very easy to compare policies and switch to get the best deals.

6) Lastly, I think the importance of personal security and risk aversion is overlooked by opponents of government health insurance. As Moore’s film shows, experiencing a traumatic health event without proper insurance (or finding out you didn’t have what you thought was proper insurance) can be catastrophic to individuals and families.  (You’ve probably heard the oft-quoted statistic that about half of the bankruptcies in the US are related to illness or health care expenses.)  People gladly pay more to avoid unsustainable losses; that’s what insurance is all about.  I think that covering the majority of the 40-50 million Americans without health insurance with at least catastrophic care, and forcing insurance companies to not drop patients when they get sick would help alleviate the hardship individuals would feel in the event of a serious illness.  Plus, catastrophic care combined with preventative visits could save money through early prevention and by lowering emergency room visits by those without insurance.


I think its important for both sides of the health care debate to realize the successes AND defects of our current system.  (For extra reading, Becker does some of this in his analysis of the Swiss health care system.)  My point here is not to illustrate that government-run insurance is better than private insurance (I think we should have both, assuming the government option can be done right.)  Rather, I want to stress the importance of improving the current system, which is not working for many Americans, notably those in the bottom income percentiles.  Standardization and flexibility in individual choice in policies can help consumers navigate the system and make better choices.   Making sure that all Americans, especially children, since they have no choice in the matter, have affordable health coverage is also important.  I believe we should take things a step further and find ways for our health care system to alter our lifestyles for the healthier.  I’m frankly dismayed that a nation as wealthy and resourceful as ours has continued to allow many of its citizens to exist in a condition so inferior to that of the rest of us.  Because I believe that the individual happiness gained from increased wealth diminishes rapidly at a certain point, it is shameful and stupid for us not to a have a more egalitarian society, especially with respect to basic services like health insurance.  It is my hope that Americans will one day view basic health care in the same way most view education or protection from violence today, as a benefit that should be extended to all, regardless of race, sexual orientation, gender, or income.

* There is an important distinction that economically-minded people like myself make when discussing government-imposed penalties and incentives.  1) Incentives designed to compensate for the damages a person or company does to bystanders.  These are known as ‘negative externalities’.  A common example is pollution which affects those who are not the cause of the problem.  2) Incentives designed to modify behavior towards some kind of (subjectively) preferable alternative, despite the fact that this behavior is only harming the individual that persists in it.  Strict Libertarians would argue that government should never step in under these situations, since that would be infringing on individual liberty.

The problem with this position is that it assumes people are always rationally doing what they want to, and that no one outside of that person has a better idea of what would make the self-inflicter better off.  This may make economic calculations easy, but it’s difficult to apply in real life.  Few people question that a child should be forced to do certain things that will make them better off in the long run, like attending school or avoiding sharp objects.  Yet once a person is an adult in the eyes of the law, this idea that others can sometimes look out for a person better than the person themself is thrown out the window by those who hold “liberty” as the ideal that trumps all others.  For example, an economist would say a drug addict shooting heroin into his veins and living in a dumpster is doing what’s ‘best’ for himself, given his desires and position.

However, I doubt that few people, including the addict himself, in his more-lucid moments, truly believe such a person wouldn’t be better off if he were able to kick the habit.  Moreover, we frequently hear people saying they don’t want to do something, and yet they do it anyway.  While this makes me react cynically and irritably toward such people, I still think we as a society have a responsibility to take their words at face value and try to help them.  This might be on the ‘local’ level of a family member forcing someone into rehab, or it might be on the government level of subsidizing rehab centers or criminalizing (to a reasonable extent) the use, or at least the sale, of drugs.

** Labor unions dislike this idea because it jeopardizes the benefits they can offer people.  However, it’s important to remember that health insurance is just one part of employees overall compensation package, so less benefits would be theoretically made up in higher salaries (minus the difference in tax subsidies that the business was enjoying.)  Plus, instead of subsidizing health insurance premiums at the corporate level, government could provide additional subsidies to individuals to make up any differences.

Do average Americans benefit from lower capital gains tax rates?

The answer, according to some well-reasoned arguments voiced by Fairmark.com‘s Kaye Thomas, is ‘not much.’  Here’s some interesting thoughts from Mr. Thomas’s article regarding taxable stock capital gains in the US.  (Bolding and italics mine):

“[I]t may be true that 100 million Americans own stock, but most stock held by middle class Americans is in IRA or 401k accounts, where the capital gains rate doesn’t apply. The tax rate matters for stock held outside these retirement accounts, and most of that stock is owned by extremely wealthy individuals. The bottom 60% of households own just 9%, while the top 10% of households own 70%. Over half of all capital gains go to households with income over $1 million. That’s roughly two-tenths of one percent of the population getting more than half the benefit of the cut in the tax rate.”


“Advocates of lower capital gains rates (and lower corporate tax rates, and other tax benefits for business) often cite the statistic that 100 million Americans own stock, implying that the middle class will receive an ample share of the benefit. Yet ownership of stock is highly concentrated in the hands of wealthy individuals, a small fraction of the population. The vast majority receive little direct benefit, or none at all. To borrow an analogy from John Kenneth Galbraith, the “100 million” argument is like justifying the cost of feeding more oats to the horses by pointing out that some will fall to the ground and be eaten by sparrows.”

Disturbing (but not altogether surprising) news about the financial bailout

No one seems to know where the $700 billion financial bailout went, what’s being done with it, and how much is still in the bank’s coffers to be used for who know’s what. Read about this below:


Now I can understand how normally, banks wouldn’t track dollars that came from one source versus dollars from another. However, in THIS case, the government fronted billions in taxpayer money (not private investment.) Therefore, I can’t imagine congress requiring anything less than full disclosure of how the money was going to be allocated and spent.

It appears that the rush to get money to the banks has succeeded in giving banks no incentives whatsoever to transparently disclose what’s being done with the money, or ‘where’ it’s at within each bank. If one made the assumption that these banks were all going to use this money for the best possible long-term usages for their firms, this lack of disclose might be okay. BUT, the fact that banks are in this mess due to poor financial decisions (and NOT “bad luck” due to the economic downturn, despite the fact that it exacerbated the situation), destroys that assumption.

While I do strongly believe that private firms generally perform better than government-owned ones (been to your local post office lately?), one thing that political trumpeters of the “free market” like to neglect are the conflicts of interest between firms and their management teams. Unfortunately, CEOs are often rewarded with compensation that focuses on the short term stock price (stock options and bonuses dependant on share price) rather than being aligned with the company’s long term future.

Warren Buffet, CEO of Berkshire Hathaway and arguably the greatest investor of all time, is a notable exception. His substantial net worth of many billions is almost completely investing in the company he leads. This long term ownership, combined with the fact that Buffett’s salary is a meager (for CEOs) $100,000 per year, with no fancy options deals, means that Buffett’s incentives are aligned with those of his long term shareholders.

Also, CEOs are generally paid more relative to the size of the company they control***. This creates the incentives to make fiscally irresponsible mergers just to “grow the empire.” And now, with the precedent being set of companies designated “too big to fail,” managements have even more incentives to grow the size of their firms. These incentives by themselves do not encourage firms to pursue social gains (either for consumers or shareholders) and therefore are undesireable.

Coming back to the financial bailout, it is very troubling that in an effort to quickly sustain failing companies within the financial services industry (without discussing whether that was the right thing to do or not), congress and the administration may have not addressed the threat of those firms failing in the future, throught poor use of the bailout money in the present. This lack of oversight may result in these same companies returning years later in similar predicaments. (Of course, that may have resulted anyway, even with oversight, calling into question the wisdom of the bailout, of which I’m not knowledeable enough to discuss.)

Hopefully failure of many of these companies down the road does not turn out to be the case. But, when one has no idea of what’s happening with the bailout money those firms received, how can we know one way or the other?


*** From nobel prize-winning economist Gary Becker (on the Becker-Posner-Blog.com): “For every 10 per cent increase in firm size, measured by the market value of assets, by sales, or by related variables, compensation increases by about 3 per cent. This “30 per cent” law held during the 1930’s, and has held for every succeeding decade, including right up to the present.”