Monday, July 20, 2009

Nobel Freakonomics, Part II: A Tale of Two Terminals


WASHINGTON -- House Democrats on Tuesday unveiled sweeping health-care legislation that would hit all but the smallest businesses with a penalty equal to 8% of payroll if they fail to provide health insurance to workers.

The House bill, which also would impose new taxes on the wealthy estimated to bring in more than $544 billion over a decade, came as lawmakers in the Senate raced against a self-imposed deadline of this week to introduce a bill in time for action this summer….

Mr. Obama said Monday that he is buoyed by progress on health legislation -- which House Democratic leaders intend to move to the floor later this month -- but made clear that he knows a tough road lies ahead. "I've got no illusions that it's going to be easy to get over the finish line," he said.

—The Wall Street Journal


There is a short-term parking lot at JFK that I never use if I don’t have to.

It is the parking lot at Terminal 4, which happens to be home to Virgin Atlantic and other, less familiar, international airlines, such as Taca International (with flights to and from San Salvador), for example, LOT (flights to and from Warsaw), and Jordanian Airlines, with flights between Amman and JFK.

Passengers emerge from the gates at Terminal 4 groggy and glazed-eyed, for they have made long, time zone-crossing flights from exotic capitals around the world, often with kids in tow and frequently with what seem to be their life’s belongings. They wander around the concourse, often with cell phones clamped to their ears, either looking for the family or friends meant to meet them in the sudden chaos of New York City, or else trying to find their way to the right car, or bus, or subway line.

It’s what helps makes New York, well, New York.

Besides being a kind of United Nations in miniature—only less blatantly corrupt, and far more productive than the real thing—Terminal 4 happens to be the only non-airline, privately-operated terminal at JFK.

Full of airy spaces and dozens of shops, Terminal 4 is, as it is advertised to be, “one of the most modern, efficient, spacious and unique terminals in the New York area,” and “A Model for 21st Century Air Travel.”

A model, that is, until you try to leave the joint.

It is then, as those groggy, glazed travelers leave the air-conditioned confines of the Terminal and approach the passenger pick-up area on the road, that things get less “modern, efficient, spacious and unique.”


A sea of cars, vans, window-blackened stretch limos and beat-up Honda Civics cruise slowly along, looking for spaces that may or may not open up, as well as whoever it is they’re supposed to pick up, while keeping a cynical eye out for the airport traffic cops of the Port Authority of New York and New Jersey—for it is the Port Authority of Etcetera, Etcetera which unfortunately operates the outside of Terminal 4.

And with the government involved, things get less modern and efficient.


The traffic cops of the Port Authority of Etcetera, Etcetera appear and disappear and reappear at odd moments, with no regularity. Their sole job seems to be to chase away cars on the theory that drivers who need to wait for short periods of time should park in the short-term parking lot at Terminal 4.

And since nobody in their right mind wants to park in the short-term parking lot at Terminal 4, it is an endless cycle of traffics cops suddenly appearing to chase away cars, until they disappear. Then the cars return after circling the airport, until the traffic cops reappear, and it starts all over again.

Now, the reason nobody in their right mind wants to park in the short-term parking lot at Terminal 4 is because the short-term parking lot at Terminal 4 is even less efficient than the disappearing/reappearing traffic cop routine.

This is not for lack of parking spaces—the parking lot itself has plenty of spaces. And it is not for lack of toll booths for leaving the parking lot—there are nine.

The problem is in the management of those toll booths.

Apparently, the State Senator whose brother-in-law skims the toll booth take at Terminal 4 needs to employ as many relatives of the guy at the Port Authority of Etcetera, Etcetera who gave him the contract as possible, in order to keep the contract.


How else to explain why each one of those nine toll booths takes E-Z-Pass, or credit cards, or cash...which means that each toll booth must be staffed, or else no cars can go through?

Of course, because of this ridiculously inefficient layout, each lane can get blocked if somebody forgot their wallet, or didn’t bring enough cash, or lost their ticket, or didn’t bring the E-Z-Pass...which seems to happens every time more than one car is waiting in line.

Now, this would not necessarily be a huge problem, except the State Senator whose brother-in-law skims the toll booth take at Terminal 4 also employs somebody to do meaningless tasks—like wash the toll booth windows while everybody is stuck in line—because apparently it is terribly important that the windows of the toll booths be cleaned…really slowly...while the cars wait for the toll booth lanes to become unblocked.


And this only serves to mock the drivers of the cars blocked at the toll booths, until all the drivers stuck in line want to shoot somebody.


Now, fortunately for other flyers at JFK, that same State Senator of Terminal 4 fame does not have the parking contract for JFK's Terminal 7.

Terminal 7, which is a mere few hundred yards across the tarmac from Terminal 4, is the sparkling home of British Air. It has a youthful, business-like demeanor—entirely international but not so much of the United Nations as maybe of Davos in its prime.

Terminal 7 has no such crowded, mindless, endless traffic looping, as does Terminal 4, for the simple reason that Terminal 7 has a great short-term parking lot. Easy in, easy out—with a credit card lane, and an E-Z-Pass lane; and they both work. There never seems to be a line. You can park, go inside the terminal and meet an arriving passenger, then leave the parking lot without feeling trapped and wanting to shoot somebody.

Now, you might think somebody would get with the program. But you’re dealing with the Government. Specifically, you’re dealing with the Port Authority of Etcetera, Etcetera. More specifically, you’re dealing with that powerful State Senator’s brother-in-law who skims the parking lot concession at Terminal 4.


All of which is to raise the question: why the rush with healthcare reform?

Why the “self-imposed deadline” to pass a bill to regulate the most complex manifestation of government involvement in human commerce, in a couple of weeks?

Will a government that can’t manage a simple toll booth at a parking lot be able to figure out how best to provide affordable healthcare coverage to all Americans—let alone those new Americans arriving daily at Terminal 4 at JFK—in a couple of weeks?

Is the point here to pass regulations in a particular period of time, for a short-term political gain, or is it to craft a healthcare system that actually functions well in 5 and 10 and 20 years?

And, along those lines, where’s the analysis behind the regulations?

Talking heads and Nobel economists talk up healthcare systems in Canada, the UK, and France as if every retiree in those countries is rosy-cheeked and doing one-handed pushups while they wait in line for their pension checks.

Where’s the data?

Bush’s Part D didn’t work: why will Obama’s fix work any better?

In the meantime, if you think health care is best managed by the government—well, then go ahead and park in Terminal 4.

And try to get out.


Jeff Matthews
I Am Not Making This Up

© 2009 NotMakingThisUp, LLC

The content contained in this blog represents the opinions of Mr. Matthews.
Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes investment advice. It should never be relied on in making an investment decision, ever. Nor are these comments meant to be a solicitation of business in any way: such inquiries will be ignored. This content is intended solely for the entertainment of the reader, and the author.

20 comments:

Anonymous said...

...or talk to a Canadian.

Kim said...

You go Jeff - I've been wondering why it's so urgent to slap something together and get it out there. Since we are thinking of altering an industry that is about 20% of the GDP how about some thoughtful consideration of what the changes ought to be.

BTW - my undergrad math degree has taught me that simple systems usually are the best systems. The policies that I have seen seem complex and unwieldy. How about thinking harder about this and coming up with a simple answer.

Kevin said...

If you don't have time to read and understand the legislation, you can't possibly fault it, right?

I think most Americans would agree that the current healthcare system is in need of overhaul, with costs escalating at seemingly exponential rates. Indeed, cost escalation is the bugbear Obama constantly cites in his calls for reform. (And if that is the touchstone for reform, let's get to work on higher education). What baffles me is the proposed solution. In what universe do costs come down when the gov't underwrites insurance for the roughly 50 million uninsureds in the US? Maybe on bizarro-earth, but not in this world. Even the democrat appointee of the CBO agrees - the plans currently in the House (handmaidens of the president's designs) will not result in a single dime of cost-saving. In fact, they aren't even budget-neutral. Obvious cost-savers like caps on malpractice awards are non-starters with the prez. Other less obvious ways to reduce costs (or at least pay for the expansion), like removing the federal subsidy on employer-provided healthcare benefits, are not palatable to big labor (representing all of about 10% of US workers), and therefore also not to the president's liking.

Hopefully, somebody in congress comes to their senses and either kills this behemoth or offers a sensible solution. I'm less than confident.

Jeff Matthews said...

My thanks to the "Anonymous" who corrected a poorly constructed sentence. You know who you are.

JM

togilvie said...

When did this blog go from "interesting topics about the market" to "angry rants about democrats"?

You're neither articulate nor funny when you rant about the evil liberals, two things that brought me to the blog in the first place. I don't say this to criticize, but think you may want to use the internal editor a bit more before posting. Either way, I'll be coming a lot less often...

Jeff Matthews said...

"Tolgilvie": We mention neither liberals nor Democrats in this piece...nor Republicans or Conservatives, for that matter,

We are equal-opportunity skeptics here. Not sure what you were reading, but it wasn't NMTU.

JM

Aaron said...

@ Kim:

I agree with you on simple solutions to solve complex problems. Here's one simple idea not being talked about to lower the cost of health care: tort reform.

Kaleberg said...

I'll bet Lot 4 is the lot they had to let out to a concessionaire because the private sector is so efficient. You see that kind of idiocy all over the private sector, and there is nothing you can do about it except go elsewhere.

hue said...

as a long time reader, i expected more from "not making this up."

this parking lot is a strawman argument, you may as well rant about DMVs, that is what most most people vent about when they talk about the gov't running things.

of course, the gov't will not be efficient, but that is not what the gov't is there for. the gov't provide a service that private industry won't do (or can't like the stimulus package). so the debate is whether more people in the US should have health care? i'm actually neutral on the subject.

the War in Iraq would be a good example. should the Bush administration haave impose a draft if it really wanted that war instead doing that on the politically cheap, and outsourcing some of the war function to 100,000 Blackwater security guards and KBR drivers. those are jobs provided by GIs in past wars. (my numbers on contractors are not exact.)

Finance said...

Enjoyed the post enormously, very amusing, in fact, if you think about it the Democrats have been trying to pass a health care bill since 1992, so no so much in a rush, also with midterm election soon over the horizon, representatives and senators have a very (very) limited attention span (be honest you know about that that aspect of your system).

The objective in slowing down the process is entirely driven by an object of killing the deal...

As for the comment about Canadians, I've had my share of hospital stays and interaction with doctors, I can assure you and your readers that the only people involved in selecting the medical care of Canadians are the doctors, sure there can be delays in surgery and errors are committed, but in general it functions. part of the problem here is that the system has been somewhat hijacked by the unions, what was originally a provision of basic care, has become a monopoly, at that level our system has become monolithic, but as long as private options remain...

Anonymous said...

I might feel better about the Health Care bill if the members of Congress were not excluding themselves from the public option which President Obama wants. They might read the bill if they were subject to the public option. If members of Congress do not want the public option for themselves, I know enough that I don't want for myself. It's ironic in that members of Congress are the exact people who should be in guinea pigs with the public option. Taxpayers already pay over 2/3 of the cost of Congressional health insurance. We might save some money on Congressional health costs if they were forced to have the public option.

Anonymous said...

Jeff, re international comparisons, you ask "where's the data?"

It's easy to find - US spends significantly more for significantly worse healthcare:

http://www.npr.org/news/specials/healthcare/healthcare_profiles.html

Anonymous said...

Nice anecdote bro.

"Where’s the data?"

indeed.

Martin H said...

The tactics being used to try to get a bill approved are every bit as interesting as the substance of the legislation.

Artificial deadlines like the one being used can be very effective when there's some sort of credible threat behind them (e.g. a competing bidder in an auction). However, in this case the threat doesn't appear to outweigh the risk of lost votes for each Congressman who votes Yea.

Erikwim said...

Ok Jeff, as a first time reader I am spitting high speed through your blogs. I cannot yet say your blogs are great, since I have not read enough of them to know. But I do see a bias when I see one. A very common one: government is bad, private is good. Now that is odd. You do not seem te be the kind of guy that wants to have a mental bias.

So let me show you where i see the bias. Your blog about terminal 4 and 7 could simply be switched (with some tweaking) with your blog on Sears and Wal-mart. Just substute terminal 4 for Sears and terminal 7 for Wal-mart.

The obvious fact is that both in the private sector and in the government sector we find great places and not so great places. And for taht matter in both spaces we see self-inflicted deadlines.

On the health care system overhaul:

I agree that data would help to support health care changes. Or just hopping on a plane to visit the UK, Sweden, Germany, France or The Netherlands where I happen to come from.

It's not that hard to see that you can have a pretty good system with quite a lot of government intervention. I do not see people in the US (my brother lives there) being twice as healthy as in Europe, but the fact seems to be that the health care costs are twice as high and can chase you out of your home if your not insured. It's not about minor differences. It is a no brainer.

Jeff Matthews said...

Erikwim:

You say you "see bias" in the blog ('government bad, private good') on the basis of 2 blogs.

I suspect this is due to your own blind spots, since you've applied faulty logic to demonstrate the supposed "bias."

The faulty logic is in comparing the JFK parking lots (one bad, one good) to shopping at Sears versus Wal-Mart (one bad, one good) as proof that the private sector can be just as bad or good as the public sector.

But that's a mistake.

In the case of the JFK parking lots, the consumer has no choice. They are stuck with an irrational system producing two polar opposite results--a great parking lot and a horrible parking lot--and the consumer has no choice: they can't go to the better parking lot, because there is no alternative to either parking lot.

On the other hand, a consumer doesn't have to shop at Sears. They can go to Wal-Mart instead.

Thus, in a private sector industry where consumers have free choice, the better, least expensive product wins. Always.

The bias you see is probably your own.

But leaving that aside, I agree that "getting on a plane" and visiting other countries to experience the pros and cons of alternative systems is a great idea.

Having lived overseas myself, and having friends and family members who live or have lived in many different countries--from the UK to Indonesia--I think those members of Congress who are pushing immediate overhaul of an exceedingly complex and important (17% of GDP) industry certainly ought to get on a plane and visit countries they think they can emulate with a few thousand pages of legislation.

Coming from Wall Street, in fact, I think every member of Congress should do that, even the anti-reformers, instead of arguing from their own parochial biases. It's the kind of research investors do before committing money to a company. Why shouldn't Congress do the same kind of research before committing a few trillion dollars on remaking the healthcare system?

And that's my main point: what is the rush? Why must it be done this month? Why not actually study the alternatives?

As for healthcare reform being a "no-brainer," as you say, I think you should get on a plane and live in the U.S., or have a good talk with your brother about that statement.

The U.S. healthcare system is enormously complex, with huge government involvement along with the private sector.

We also have a far higher population of immigrants (although your country has its own set of issues along those lines) and a growing population.

And we have something most other government-managed healthcare systems doesn't have: a legal system run by and for trial lawyers. (This is an issue that is not being touched in the current debate.)

Thanks for posting, and if you have actual specifics, rather than the "it's a no-brainer" type meaningless comment, we'd love to have them.
JM

Jeff Matthews said...

Erikwim:

You say you "see bias" in the blog ('government bad, private good') on the basis of 2 blogs.

I suspect this is due to your own blind spots, since you've applied faulty logic to demonstrate the supposed "bias."

The faulty logic is in comparing the JFK parking lots (one bad, one good) to shopping at Sears versus Wal-Mart (one bad, one good) as proof that the private sector can be just as bad or good as the public sector.

But that's a mistake.

In the case of the JFK parking lots, the consumer has no choice. They are stuck with an irrational system producing two polar opposite results--a great parking lot and a horrible parking lot--and the consumer has no choice: they can't go to the better parking lot, because there is no alternative to either parking lot.

On the other hand, a consumer doesn't have to shop at Sears. They can go to Wal-Mart instead.

Thus, in a private sector industry where consumers have free choice, the better, least expensive product wins. Always.

The bias you see is probably your own.

But leaving that aside, I agree that "getting on a plane" and visiting other countries to experience the pros and cons of alternative systems is a great idea.

Having lived overseas myself, and having friends and family members who live or have lived in many different countries--from the UK to Indonesia--I think those members of Congress who are pushing immediate overhaul of an exceedingly complex and important (17% of GDP) industry certainly ought to get on a plane and visit countries they think they can emulate with a few thousand pages of legislation.

Coming from Wall Street, in fact, I think every member of Congress should do that, even the anti-reformers, instead of arguing from their own parochial biases. It's the kind of research investors do before committing money to a company. Why shouldn't Congress do the same kind of research before committing a few trillion dollars on remaking the healthcare system?

And that's my main point: what is the rush? Why must it be done this month? Why not actually study the alternatives?

As for healthcare reform being a "no-brainer," as you say, I think you should get on a plane and live in the U.S., or have a good talk with your brother about that statement.

The U.S. healthcare system is enormously complex, with huge government involvement along with the private sector.

We also have a far higher population of immigrants (although your country has its own set of issues along those lines) and a growing population.

And we have something most other government-managed healthcare systems doesn't have: a legal system run by and for trial lawyers. (This is an issue that is not being touched in the current debate.)

Thanks for posting, and if you have actual specifics, rather than the "it's a no-brainer" type meaningless comment, we'd love to have them.
JM

Erikwim said...

Dear Jeff,

(If you are so harsh on other people's language in their comments on your blogs, please be a little less of the same tune yourself. I specifically specified i did not read a lot of your blogs, but a lot more then 2. That i can only read as a stab under the belly, unnecessary and unbecoming. Please stick to arguments.)

On the 'no brainer'. How to reform is not a 'no brainer', that is very complicated hard work. The fact that the system is long overdue for a major overhaul however is a no brainer.

And as a matter of fact i did and do a lot of discussing on these kind of subjects (and this particular one) with my brother. It is as obvious to him as it is to me that there is a clear bias against anything government managed.

That bias is not helping the cool-headed decision making that is needed. Let the facts speak: at this point in time many more government run systems are performing enormously better then the american system.

Maybe good rational discussion can come up with a wonderful new system that is more privately based then in Europe, and at the same time providing more value for money. But the burden of proof is on anyone suggesting such a private solution. And until such proof is provided based on something more substantial then hope or industry lobbying, the facts of the current performance of different health care systems in the world strongly suggest more government involvement at this point in time in the US would be great for an important part of the population.

It is up to you Americans to choose your own system. And i fully agree that making a good study of different systems around the world is wise. But i don't buy it that these studies have not already been done. My wife visited the US 20 years ago on a study trip visiting US universities to specifically study the differences between the US health care system and the Dutch system. The comment she still remembers most is this one, from some US professor: 'What are you doing here? Your system is so much better then ours. There is not much you can learn here.' The professor did that study at least 20 years ago.

The problem is not about information on all of these systems. The problem is choosing and adapting useful parts of these systems to the specific US circumstances. The main ingredient required is not information. It is courage to make wise decisions uninfluenced by past mistakes, lobbying industries, fear of not being reelected. These are things i cannot help you with. The only other beneficial ingredient is freedom from unnecessary bias. That is a thing i can help with. I can try to help you see the problem form a different perspective, with a different bias perhaps.

Now on having no choice on choosing your terminal: of course you have a choice! First: use the other terminal to a fly to somewhere else, and then connect to wherever you want to go. Or drive a car. Or take a train for part of the journey. Or get a cab or a bus to the airport, that would solve the parking problem.

Similarly it is simply not true that in private enterprise you can always choose where to go as a consumer. Example: Iphones in my country only come from one phone operator.

Or in Buffett speak: you want a moat. Or even better a toll bridge. You want a newspaper in a one newspaper town. Now how much choice do you have in these private enterprise situations of toll bridges, moats etc.??

I maintain my point about the bias in your post.

Jeff Matthews said...

Erik...so we need "courage," not information.

Great.

Just stay away from the investment business.

JM

Erikwim said...

Jeff,

I will hold my comments to your blog. I don't like your style of reacting. But thanks for pointing me to the Bronte Capital blog. John has a very pleasant way of responding to comments, even if they are critical. The way you respond to comments on this blog, including mine, does not get me in a good mood.

So good luck with your blog.

And get lost with your comment on my investing: i am an investor and doing very well, thank you.

Ciao