To Avoid Raising Taxes, States Try To Rack Up Fees

In the January 1, 2010 National Public Radio (NPR) story "To Avoid Raising Taxes, States Try To Rack Up Fees," Greg Allen reports that U.S. states are using numerous fees and other tax increases to reduce budget shortfalls.

Few ideas are more unpopular during a recession than increasing taxes. So, how can states, counties and municipalities that are struggling financially raise more money?

For many, the answer is fees.

Nearly every state in the country struggled to close budget deficits in 2009, and for many the struggle is not over yet. The National Conference of State Legislatures reports that 36 states already have budget deficits for the fiscal year that began in September, and the gaps are only expected to grow as 2010 progresses.

There have been a lot of cuts, and more are coming. Governors and legislatures have laid off and furloughed state employees, tapped rainy-day funds and cut spending on education and health care.

They have also raised revenue — what most people call taxes.

Few states have struggled more with the budget gap than New York. There, the Legislature's solution was to raise fees — for bottle deposits, tax preparers, nuclear plants, horse racing, hunting and fishing licenses. If there was a fee, the lawmakers raised it. If there wasn't one, they created it.

Dan Sharp owns Honeoye Lake Bait and Tackle Shop in upstate New York. He says the increase in fees for hunting and fishing licenses, combined with the poor economy, is hurting his business at a time when he should be busy: ice-fishing season.

"There's a few guys out on the lake — it just started here a week or so ago — but not the crowds like you'd expect to see," Sharp says.

At least seven other states have also raised hunting and fishing fees.

States Tax Visitors

While politicians have generally tried to avoid using the "T" word, some taxes have proved hard to resist.

Many cities and states are raising taxes on hotel rooms and rental cars. The reason is obvious: They are taxes paid by out-of-towners, not local voters.

Craig Banikowski of the National Business Travel Association calls it taxation without representation. And he says that over the past year, cities and states across the country have been raising rental car and room taxes like never before.

Indianapolis, Boston, San Francisco, Hawaii and Nevada have all added or increased hotel taxes recently, he says.

While raising taxes on constituents is always dicey, the sorry state of their budgets has forced a few states to do so. In Arizona, New Jersey, New York and Colorado, legislatures have suspended some property tax exemptions.

In Colorado, shutting down exemptions for senior citizens is saving the state $100 million annually. Mark Lowderman, the tax assessor in El Paso County, says he has already heard from 30 or 40 seniors who share a common sentiment.

"The general feel is they think they're trying to balance the budget on the backs of the seniors," Lowderman says.

He says he expects the outcry to grow once the property tax bills go out in the next few weeks.

'Sin' Taxes Continue To Rise

If there is such a thing as a popular tax, it would be those on alcohol and tobacco, the so-called "sin" taxes. More than a dozen states raised taxes on alcohol, and 15 states raised tobacco taxes over the past year.

Danny McGoldrick with the Campaign for Tobacco-Free Kids says some states have raised the cigarette tax by a dollar a pack. Even so, he says, there's room for more.

"They go from a low of 7 cents a pack in South Carolina to a high of over $3," McGoldrick says. "So there's a lot of room for tobacco tax increases across the country, and we're hoping that's what's going to happen in the coming year."

State and local governments have been inventive — some might even say devious — in finding ways to increase revenue. One idea that is catching on across the country is automatic surveillance cameras to monitor red lights and speed zones. Typically, the devices are installed and maintained by private companies, which take a cut of revenues from tickets and leave the rest for the municipality.

The state of Georgia has another new idea. It's a "super speeder" law that requires motorists caught driving 85 mph or faster to pay a special $200 state fine on top of the local penalty. It's expected to raise $23 million in the coming year.

And if it's successful, look for it to be coming soon to a state near you.

Scientist Monkeys Around With The Economy

The October 23, 2009 National Public Radio (NPR) story "Scientist Monkeys Around With The Economy," says:

"A primate ethologist asked what would happen when a low-ranking monkey is trained to do things high-ranking monkeys can't do? The answer in human economic terms: The new skills translated into a much bigger income."

According to the transcript of the radio report:

STEVE INSKEEP, host:And now we turn from baseball to monkey business. Most groundbreaking experiments in economics are performed by economists, as you would expect. But a scientist called a primate ethologist has added to the sum total of economic knowledge, at least as it applies to monkeys - and maybe to us. Alex Blumberg of our Planet Money team has the story.

ALEX BLUMBERG: You're on the low end of the social order. You toil and toil, yet make hardly any money for your efforts. Is there a way for you to improve your lot, bump up your earning potential, if you're monkey?

Dr. RONALD NOE (Primate Ethologist, University of Strasbourg): We were trying to answer questions about whether monkeys are able to behave in an economic way.

BLUMBERG: This is Dr. Ronald Noe, a primate ethologist at the University of Strasbourg. His question specifically was, what would happen if you trained a low-ranking vervet monkey to do things that other vervet monkeys, even high-ranking monkeys, couldn't do?>

Now, a vervet monkey society is pretty hierarchical: high-ranking monkeys get groomed a lot, but hardly ever have to groom other monkeys. Low-ranking monkeys groom others, but never get groomed themselves. Dr. Noe's team trained a low-ranker to open a container with bits of apples in it, a skill that no other monkey had. Would it be worth anything, he wondered, in monkey money -otherwise known as grooming.

Dr. NOE: It has some aspects of money. The higher-rankers can give other services that low-rankers can't give, such as support in a fight or a tolerance around a food site or something like that. And they get rewarded for that by grooming of them.

BLUMBERG: I see, OK. Tolerance around the food site, in other words, they let - they can…

Dr. NOE: They can decide whether or not the low-ranker is allowed to feed next to them or not. If they don't like it, they hit them over the head. If they like it, they…

BLUMBERG: So it's a protection racket, in a certain way.

Dr. NOE: We see it in a slightly more positive way. They are nice to each other and groom each other. But of course, they also hit each other over the head once in a while, that's for sure.

BLUMBERG: Sure enough, when they trained a low-ranking monkey to open the container, just as any technical college advertisement will tell you, the new skills translated into a higher income. Roughly an hour after she'd open the container for everyone, she was getting groomed a lot more, as much as a high-ranking monkey, and she no longer had to do hardly any grooming herself. But that was not the most spectacular finding.

Dr. NOE: So what then did, is we got a second low-ranking female, trained her to open a second container with apples in it, and then we saw that the value of the first provider dropped, more or less, to the half of what she had before. So now we had a competition between two animals. Both of them could provide this good, these apples, and so the value of the first one dropped down again. And of the second one who was very low at the beginning of the experiment, she went up. And they ended up both in the middle, so to speak.

BLUMBERG: So when there was a monkey monopoly on the skill, the monkeys paid one price. But when it became a duopoly, the price fell to an equilibrium point, about half of what it had been. And this all happened despite the fact that we're talking about monkeys here. Monkeys can't do math.

Dr. NOE: Animals that cannot form binding contracts, animals that cannot talk about what they want to do or cannot offer verbally or anything - they nevertheless are quite accurate in adapting their behavior to what the market gives them.

BLUMBERG: Dr. Noe says that monkeys arrive at these economic outcomes not through sitting down and negotiation, but through feeling and emotion. Monkeys develop positive associations toward a container-opening member of the society, and they just want to groom her. But once another monkey can open the container, the skill isn't as unique, the positive feelings diminish, and grooming goes down. It's the law of supply and demand played out along the neurohormonal pathways that deal with emotion in the monkey brain.

Dr. Noe wonders how much of human economics operates along similar lines. As he puts it, even on the stock market, people might play more with their bellies than with their brains.

For NPR News, I'm Alex Blumberg.

(Soundbite of music)

INSKEEP: It's NPR News.

"The Informant" highlights some failures of unregulated markets

Unregulated markets frequently provide socially undesirable outcomes. A good example of this is highlighted in the 2009 movie The Informant, starring Matt Damon. This comedy is based on the real world price fixing conspiracy by corporate food giant Archer Daniels Midland (ADM). Damon plays an ADM executive who became an FBI informant and provided substantial evidence of illegal and unethical business behaviors.

The scandal was originally discussed on Ira Glass' This American Life program on National Public Radio (NPR) on September 15, 2000. The program was rebroadcast by NPR on September 18, 2009 to coincide with the release of the Matt Damon movie.

The episode description from the NPR website says:

168: The Fix Is In

Yes, airline prices are always the same no matter which airline you call; in Presidential elections you always feel like you're choosing between the lesser of two evils; and it doesn't really make your hair any cleaner if you do the final part of the instructions "shampoo, rinse, repeat." There are all sorts of situations in which we suspect the fix is in, but we almost never find out for certain. On today's show, for once, we find out. The whole program is devoted to one story, in which we go inside the back rooms of one multinational corporation and hear the intricate workings—recorded on tape—of how they put the fix in.

We hear from Kurt Eichenwald, whose book The Informant is about the price fixing conspiracy at the food company ADM, Archer Daniels Midland, and the executive who cooperated with the FBI in recording over 250 hours of secret video and audio tapes, probably the most remarkable videotapes ever made of an American company in the middle of a criminal act.

Prologue.
Host Ira Glass speaks with two people who believe they've uncovered behind-the-scenes conspiracies but can't be sure. Attorney Andy Hail has sued the two biggest supermarkets in Chicago (Dominick's and Jewel) because they charge a dollar more for milk than stores around the country, and because their prices seem to change simulateously, as if orchestrated. Cindi Canary from the Illinois Campaign for Political Reform tells the story of an Illinois law that seems to mostly benefit one man—the man who made sure it made it though the legislature. (8 minutes)

Act One.

We hear the first part of our story about Archer Daniels Midland and FBI informant Mark Whitacre. In this half, Whitacre inadvertantly ends up a cooperating witness—and turns himself into one of the best cooperating witnesses in the history of U.S. law enforcement, gathering evidence with an adeptness few have matched. (25 minutes)

Act Two.

Our story about ADM and Mark Whitacre continues. The FBI finds out that their star cooperating witness Mark Whitacre has been lying to them for three years about some rather serious matters. (22 minutes)

Song: "Lost in the Supermarket," The Clash

The NPR website has a links to download or listen to the program.

Study: Your Brain Thinks Money Is A Drug

According to David Kestenbaum's August 7, 2009 story "Study: Your Brain Thinks Money Is A Drug" on National Public Radio (NPR):

If you've ever thought of money as a drug, you may be more right than you know. New research shows that counting money — just handling the bills — can make things less painful.

"It is surprising," says Kathleen Vohs, a professor of marketing at the University of Minnesota's Carlson School of Management who participated in the research. "It still surprises me."

Why The Unemployment Rate Fell
Economists say it's no mystery.

Fewer Layoffs, Fewer Workers, Too
The experiments were conducted by a colleague of Vohs' in China. Students came into the lab and were told they would be participating in a test of finger dexterity. One group was given a pile of Chinese currency to count. Another group was given blank pieces of paper to count.

Feel Better About Finance
Get a dose of economics. . .

. . . On Planet Money
Then, some of the students were asked to put their fingers in bowls of water heated to 122 degrees Fahrenheit and rate how uncomfortable it felt.

"The subjects who had earlier been counting money and had their hands in the painfully hot water reported that the water didn't feel so hot to them, compared to people who had counted slips of paper," Vohs says.

How hot is 122 degrees Fahrenheit? Not hot enough to do lasting damage, but hotter than the Consumer Product Safety Commission recommends setting your home water heater. I heated some water in the microwave and used a thermometer to make sure I'd hit the mark — I can testify that 122 degrees is uncomfortable. "Like a hot hot tub?" Vohs asked during our interview. Yes. "Good, OK," she said, then confessed, "Boy, you know I never did that."

Money As A Substitute For Love

The experiment and related ones are described in a research paper titled The Symbolic Power of Money, published in the journal Psychological Science. Combined with earlier work, it maps out a curious connection. As far as your brain's concerned, money can act as a substitute for social acceptance, reducing social discomfort and, by extension, physical discomfort and even pain.

Researcher Xinyue Zhou, of the department of psychology at Sun Yat-Sen University in China, puts it in very human terms. "We think money works as a substitute for another pain buffer — love."

Past research has shown that a social relationship can make things hurt less. "If you dip your hand in hot water, if someone is standing there beside you, then you feel less pain," Zhou says. "That was a classic experiment."

Money as a substitute for social acceptance and love? Zhou laughs and admits that it's kind of sad. "All substitutes are sad."

Vohs found the results of the money-handling experiment especially surprising because the effects last so long. Sometimes a full 10 minutes had elapsed between the time students handled the money and the instant they put their fingers in the water.

The researchers had them fill out surveys as they waited. The responses offered some clues as to what was going on in the brain. The students were asked a litany of questions: Did they feel happier after counting the money, or sadder? What stood out, Vohs says, was a feeling of strength. "When subjects had been reminded of money, 10 minutes later they said inexplicably they just felt stronger," Vohs says.

The Power Of 'Priming'

The experiment could prove groundbreaking. "It's a substantial finding," says Nicholas Epley, a professor of behavioral science at the University of Chicago's Booth School of Business. The research "has the potential to be something of a discovery, which we don't always have all that often in psychology."

Epley says the long-lasting connection between being reminded of money and feeling less pain appears to be an elaborate example of something psychologists call priming, in which thinking about one thing can subconsciously trigger a related response.

Epley cites another experiment where subjects were primed to think about old people. "It turns out that if you make people think about old people, lo and behold, they walk more slowly!"

Economists have studied money for ages — how prices, for instance, can efficiently direct the flow of resources. But meanwhile, in our brains, money has become a curious force, in this case behaving a bit like aspirin.

How Green Are Reusable Bags?

According to Tovia Smith's August 7, 2009 story "How Green Are Reusable Bags?" on National Public Radio (NPR):

Business are selling them, even giving them away hoping they will replace those plastic grocery bags that have become something of a poster child for environmental waste and destruction. From the Whole Foods Market to Home Depot, stores are jumping on the reusable-bag bandwagon, delighting many eco-minded shoppers.

"I think they're great! I love it," says Susan Klein, 42. "I have about five of them that I use all the time — for everything!"

But bagger, beware! Not all reusable bags are created equal.

"There are different shades of green," says environmental consultant Catherine Greener.

A Mixed Bag

The Whole Foods bag, for example, is made of mostly recycled plastic — ecologically better than a bag made from PVC or with harsh chemical dyes, for example. But the bags are also shipped thousands of miles from overseas. So every reusable bag is a mixed bag, baffling consumers and experts alike.

"There are a lot of different characteristics," Hoover says. "And it can be hard to say, 'Organic and fair trade and local cloth is better than recycled content polypropylene from China.' There are too many parameters to come up with a clear winner."

Stores too struggle with the trade-offs. Last year, Wal-Mart started selling a black bag that was made entirely from recycled bottles. Now, it offers a cheaper blue bag that is thinner and uses less plastic. On the other hand, however, only a third of the plastic in the new blue bag is recycled. And, it lasts only about half as long as the black one.

"I think we are living in the land of confusion right now as we migrate through what is less bad into what is truly good," Greener says. "This is an evolving and a moving target."

It all leads even the experts to the very unscientific conclusion about what shoppers should buy.

"My first answer to that would be, 'What draws your eye?'" Hoover says. "Buy the bag that you most personally are going to reuse, because that's the most important thing."

So if some gritty hemp weave appeals to you, or if it's a little bling, or the $1,000 dollar Hermes silk shopping bag that turns you on, "by all means, buy that bag," Hoover says.

Old Habits Die Hard

Eventually, you will hit the environmental break-even point. That is, as long as you use the bags and don't just leave them to collect dust somewhere.

"I always forget [my re-usable bags.] So they sit in the car," says Paul Briner, a contractor in Boston, loading his groceries into a paper bag at the check-out of the Whole Foods Market.

Indeed, old habits die hard.

"I still prefer the plastic," says another shopper, firefighter Rob Williams. Whole Foods offers only paper bags, but when he's shopping at other stores that still offer plastic, "I always take the plastic," Williams says. "I'm just being honest."

Many stores are hoping financial incentives will help change hearts and habits. Whole Foods offers a nickel, every time you BYOB. Other stores offer points and prizes.

Environmental Impact

Bob Lilienfeld, editor of the Use Less Stuff report, says it may be years before most Americans really change their ways.

"For 5 or 10 percent of the population, I'll call them 'the tree-huggers,' it's OK, they're going to do it anyway," Lilienfeld says. "The vegetarians are going to do it anyway. The rest of us need an incentive."

And it's not only habits at the grocery store that will need to change. Once people no longer have a ready supply of old grocery bags stashed at home, they will have to find new ways to pick up their dog poop or line their bathroom waste baskets. If people just go out and buy other plastic bags, it will defeat the purpose.

Ultimately, even if we eliminate billions of grocery bags from the market, how much good will it do?

"I hate to say it, but not much," Lilienfield says.

In the big picture, he says, the big fuss around shopping bags is really just a distraction.

"The bag is not the environmental bogey-person that everybody thinks it is," he says. "If you look at the entire grocery package that you bought, the bag may account for 1 to 2 percent of the environmental impact.

"The other packaging may account for 7 percent. Ninety percent is accounted for by the products you buy. That's where all the environmental impact is."

As people begin to think more about their shopping bags, Lilienfield says he hopes they'll also start to think more about what's in the bag as well.

Separating Fact From Fiction In Health Care Debate

According to the August 7, 2009 story "Separating Fact From Fiction In Health Care Debate" on National Public Radio (NPR):

The battle over health care is sparking claims on both sides, but many of the assertions being made twist the facts and others are outright false, says the editor of a Web site that tracks the claims.

Bill Adair, editor of PolitiFact and the Washington bureau chief for the St. Petersburg Times, tells Melissa Block that one group that opposes an overhaul says the health care bill allows illegal immigrants to get free medicine.

"We gave that our lowest rating on our Truth-O-Meter: a pants on fire," he says. "To the contrary, there's language [in the bill] that says that undocumented aliens would not be eligible for the credit under this plan."

The claim came from a chain e-mail that included many other assertions, including one that said a "health choices commissioner" would decide health benefits and that individual consumers would have no choices. This claim, too, got a "pants on fire" from PolitiFact.

"This chain e-mail is very persuasive in many ways because it has specific language, page numbers from the bill, but when you look at what it uses to back up a claim like that, it's just not true," Adair says. "There is a health commissioner that would be responsible for running the exchange under the main bills that have been discussed, but it's not like that person would say you couldn't get coverage or you could. That person would just be responsible to administer what the general standards were for the programs."

Bogus claims aren't just coming from those who oppose an overhaul. Democratic Rep. Russ Carnahan of Missouri recently claimed that the Congressional Budget Office estimated the current plan would create a $6 billion surplus over 10 years. Adair's group has rated that as false.

"That really was a little bit of budget trickery there," he says. "He is wrong that the CBO said this. The CBO said that the health care plan would post a deficit of something like $239 billion, something like that.

"What he's doing is including some other numbers to try to erase that and actually make it look like a $6 billion surplus, but that's not what the CBO says."

Adair says that because much of the action in the health care debate has been on the side of the groups that oppose an overhaul, that side is also responsible for much of the misinformation.

"I think much of the dialogue is being set by the critics who are making some very strong claims about this, and when we check them out, we find that many of them are exaggerated or completely false," he says.

Hot Climates May Create Sluggish Economies

David Kestenbaum's story "Hot Climates May Create Sluggish Economies" on National Public Radio's Morning Edition on July 17, 2009 reports:

New research suggests that higher temperatures can have a damaging effect on the economies of poor countries. The study, by economists at the Massachusetts Institute of Technology, found that in years with higher temperatures, poor countries experienced significantly slower economic growth.

The research adds to an economic puzzle that dates back hundreds of years: Why do the poorer economies of the world tend to be in hot places, while the more successful economies are found in cooler climates?

The French writer Montesquieu wondered about it in the 1700s. Now there is significantly more data to work with. A graph of per-capita GDP and average temperature shows rich countries at one end — Norway, Germany, France and the U.S. — and poverty at the other end in Cambodia, Liberia and Congo.

Many researchers have written this off as a historical accident, perhaps a legacy of colonialism.

Ben Olken, an associate professor of economics at MIT, and his colleagues wanted to examine the temperature connection more closely. They decided that instead of comparing one country to another, they would look within countries. Did a hot year mean slower economic growth?

The answer appears to be yes. They found that for poor countries, an increase in annual average temperature by 1 degree centigrade corresponded to a 1.1 percent drop in per-capita gross domestic product.

It's "a huge effect," Olken says. The difference between a country that's in recession and one that is buzzing along amounts to a 3 percent shift in GDP. "So, 1 degree explaining a 1.1 percent shift is a huge effect of temperature."

It's unclear exactly why temperature would have this effect. It might be that crop yields go down, or that disease is more of a problem. Or it might just be what you could call the "sloth" theory — it's hard to work when it's hot out. Who wants to mow the lawn in August?

"This stuff is not implausible," Olken says, "If you look back at the U.S. before the advent of air conditioning, there were times when the federal government would shut down. It was too hot out."

The researchers found that temperature shifts did not appear to affect the wealthier countries, perhaps because of air conditioning, or because they already are situated in cooler climates.

The results suggest that global warming could increase the gap between rich and poor.

"One of the takeaways I have from this paper is it seems like the economic impacts of increased temperature in poor countries are going to be very severe," Olken says.

William Easterly, an economist at New York University, says the new study is fascinating, but he's not convinced.

"It's way too soon to take one statistical finding and say we have solved a 500-year-old problem of why temperature and per-capita income are associated with each other," Easterly says.

Easterly says he thinks cooler countries have stronger economies because of a historical accident. "It was Europeans who discovered first how to set up a prosperous market economy," he says. Europeans spread to other temperate parts of the world. That explains why the rich economies are there today.

Why didn't the hotter parts of the world catch up? "When you're ahead, you tend to stay ahead," Easterly says. The slave trade was one example of how that played out. "Europe and America benefited from the profits of the slave trade. And Africa was permanently harmed by the slave trade."

Olken says his team has checked and rechecked its results with a number of data sets. He says the temperature and GDP correlations keep showing up.

Whatever the cause, there are some countries that buck the trend. Singapore is just about on the equator and has a strong economy. Indonesia is growing fast.

Easterly says the great hope of global trade is that countries can adapt to do whatever makes sense in their part of the world. With time, they can overcome climate, even history.

Most Patients Happy with German Health Care

According to an NPR story by Richard Knox entitled "Most Patients Happy With German Health Care," most Germans are happy with their health care system and it is far better than U.S. critics want us to believe:

Correction: In an interview, we said, "And when Germany became a nation in the 1880s, one of the first big things that the government did was to unite all of these what they call sickness funds into one system." In fact, Germany became a nation in 1871.

Morning Edition, July 3, 2008 · Mention European health care to an American, and it probably conjures up a negative stereotype — high taxes, long waiting lines, rationed care.

It's not that way in Germany. Very little tax money goes into the system. The lion's share comes, as in America, from premiums paid by workers and employers to insurance companies.

German health benefits are very generous. And there's usually little or no wait to get elective surgery or diagnostic tests, such as MRIs. It's one of the world's best health care systems, visible in little ways that most Germans take for granted.

Checking In With An Old Friend

Juergen in der Schmitten was a medical student when I first met him 17 years ago. Now, he's a 42-year-old general practitioner in a suburb of Dusseldorf.

On one particular night, Juergen was the doctor on call for the region. Any German who needs after-hours care can call a central number and get connected to a doctor.

Around 11 p.m., a woman with a fever called Juergen. She wanted him to make a house call. They talked for maybe five minutes, in the end agreeing that she would come into his office in the morning.

A situation like this would be unlikely in the United States. Americans might not get through to a doctor at all, let alone have a discussion about whether the physician should make a house call in the middle of the night to treat a case of flu.

The Patients' Perspective

Sabina and Jan Casagrandes say they've had really good care from the German health system. And they've used it a lot.

Sabina is American, Jan is German. They live in a fourth-floor walkup with their two little girls in Cologne, an ancient city on the Rhine in western Germany.

"I've probably been very expensive for the health insurance system here," Sabina says. "When I was 33 years old, I had a giant lump on my neck all of a sudden, where your thyroid is. And it was a big tumor."

It took two operations to remove her cancer. Luckily it was curable with surgery and radiation. Sabina says she had the best care she could imagine.

"Then I came home to my little daughter, who I couldn't really lift up because of my neck having been cut open," Sabina says. "So I asked my doctor, 'What can I do?' And she said, 'Well, your health insurance will pay for someone to come help you in the house.'"

Sabina's health insurer paid a friend to shop, cook and even help care for the baby until Sabina was back on her feet. That's not unusual in Germany. In fact, under the country's system for long-term care, family members can choose to be paid for taking care of a frail elder at home if they want to avoid nursing home care.

Coverage For All

The health care system that took such good care of Sabina is not funded by government taxes. But it is compulsory. All German workers pay about 8 percent of their gross income to a nonprofit insurance company called a sickness fund. Their employers pay about the same amount. Workers can choose among 240 sickness funds.

Basing premiums on a percentage-of-salary means that the less people make, the less they have to pay. The more money they make, the more they pay. This principle is at the heart of the system. Germans call it "solidarity." The idea is that everybody's in it together, and nobody should be without health insurance.

"If I don't make a lot of money, I don't have to pay a lot of money for health insurance," Sabina says. "But I have the same access to health care that someone who makes more money has."

But she acknowledges that nearly 8 percent of her salary is a sizable bite.

"Yes, it's expensive. You know, it's a big chunk of your monthly income," Sabina says. "But considering what you can get for it, it's worth it."

Actually, it's about the same proportion of income that American workers pay, on average, if they get their health insurance through their job. The big difference is that U.S. employers pay far more, on average, than German employers do — 18 percent of each employee's gross income versus around 8 percent in Germany.

More Added Benefits In Germany

Moreover, German health insurance has more generous benefits than U.S. policies cover. There are never any deductibles, for instance, before coverage kicks in. And all Germans get the same coverage.

For instance, the Casagrandes' insurance covers an expensive medicine Jan needs for a chronic intestinal problem. He says if they moved to America, they might not be able to buy insurance at all because of their pre-existing conditions — a nonproblem in Germany.

"He says for himself — or for us — the health care system in the United States is the major reason why we have never moved there, and never will move there. Because both of us have chronic illnesses that have to have a lot of medical attention, and we would go broke," Sabina says, translating for Jan.

Jan adds something else. "It's also the No. 1 reason in the United States that people personally go bankrupt," Sabina translates, "which would never happen here ... never!"

Coverage For The Family

On the other side of Germany, in Berlin, we meet another couple who know both the American and German health systems.

Nicole and Chris Ertl own Tip Toe Shoes, a children's shoe shop in a well-off area of the German capital. The Ertls sell high-quality European shoes — tiny Italian sandals, French and Danish boots and clogs in wonderful colors.

Chris is from San Diego, Nicole is German. She also works part time as a physician therapist and gets her health care through her job like the great majority of Germans. Like the Casagrandes, she's happy with her coverage.

"It's a good deal!" she says. "It's really good because it's a package."

It's a package many Americans might envy. Nicole pays a premium of $270 a month for insurance that covers her children, too. Nicole pays a single $15 copayment once every three months to see her primary-care doctor — and another $15 a quarter to see each specialist, as often as she wants. She pays no copayments for her children's care —-and her insurance even covers her daughter's orthodontia bill.

"They always have good care," Nicole says, "because for kids, everything is free. The drugs, it's always free" until they turn 18.

Different Rules For The Self-Employed

But even though her insurance covers the kids, it doesn't cover her husband. Because Chris Ertl is self-employed, he has to buy insurance on his own, from a for-profit insurance company.

About one in 10 Germans buy this so-called "private" coverage. It's not just for people who are self-employed. Civil servants and anyone who makes more than $72,000 a year can opt out of the main system. It's a kind of safety valve for people who want more and can pay for it.

But most people don't opt out. Chris says that's because there's a fundamental difference in the way Germans view health care and the government's role — which, in Germany, means refereeing the system and making sure it's fair and affordable.

"The general opinion in Germany is always that the government will do it for us, everything will be OK," Chris says. "In the States, I think you grow up knowing that no one's going to help you do anything. If you want health care, go get it."

It's important to remember that the German government doesn't provide health care or finance it directly. It does regulate insurance companies closely — the nonprofits in the main system and the for-profits where Chris gets his coverage. So Chris' insurer can't raise his rates if he gets sick or jack up his premiums too much as he gets older. The government also requires insurers to keep costs down so things don't get too expensive.

"Where am I better off medically?" Chris says. "I would probably say Germany."

In some ways, Chis Ertl's coverage is better than his wife's. He gets his choice of top doctors — the chief of medicine, if he wants. If he goes into the hospital, he gets a private room. When he goes to the doctor, he gets a free cup of coffee and goes to the head of the line. All this embarrasses him — and annoys Nicole.

"When he goes to the doctor, he has a lot more service," she complains.

Germans really hate any hint of unfairness in health care. The fundamental idea is that everybody must be covered and, preferably, everybody should get equal treatment. So the fact that 10 percent or so can buy some perks is an irritant — something Germans complain about but manage to put up with.

But it's unthinkable that 48 million people wouldn't have health insurance at all — the situation in America. As an American, Chris thinks that's shameful. "It's terrible," he says. "It's unbelievable. It shouldn't happen."

Germans, he says, would never tolerate that. And their system has been working pretty well for 125 years.

Radio piece produced by Jane Greenhalgh.

The Economics of Adultery

In the National Public Radio (NPR) story "After Sanford's Affair, Putting A Price On Adultery," Chana Joffe-Walt explains how economists can do a cost-benefit analysis of marital infidelity:

All Things Considered, July 9, 2009 · The Republican Party in South Carolina this week voted to censure Gov. Mark Sanford for his extramarital affair with an Argentine woman but stopped short of a formal call for his resignation.

Sanford's marital infidelity may not have cost him his job, but it certainly was a costly choice.

This is the kind of human decision economists love to study. Tim Harford, author of the Dear Economist advice column in the Financial Times, points to an economic model that can help make rational sense of what's usually an emotional issue. The model appears in a paper called An Economic Theory of Extramarital Affairs (PDF) by Ray Fair of Yale, and it focuses on how much time it takes to conduct an affair.

"This must be one of the things that weighs on your mind a lot," Harford says. "And if you're a busy person, like, say, the governor of South Carolina, it's going to be very difficult to clear your schedule and make time for some quality affair."

An Expensive Proposition

The dilemma of finding time sounds familiar to Chris Proctor, a married man who admits to having had an affair. "When you're as busy as I am, it is difficult to find the time," says Proctor, a marketing representative in St. Louis.

Three years back, Proctor met a woman from Virginia at a weeklong gathering. The affair lasted for nine months. Looking back on it, he says, it was expensive. He ticks off a list of costly items.

"The cell phone plan, I hadn't planned on," he says. "So that was 60 bucks a month by the time you get text messaging; the phone calls [are] on top of that." He figures he spent up to $5,000 traveling to see his lover. "So it wasn't cheap."

Proctor started to add in other costs — a potential divorce, the cost of his kids not growing up with two married parents — and decided the affair wasn't worth it to him.

Or as Harford would say, the utility Proctor was receiving from the affair was not worth the money or the opportunity cost — that is, what he was giving up in order to have his dalliance.

The Happiness Rule

Economists tend to think about any problem or any choice in terms of preferences. You can't satisfy all your desires at once, because you've got constraints on your budget and your time. Given all your varying preferences, you'll tend to maximize your happiness. You'll rationally choose the best option for you.

People who've had affairs do talk about a measure of rational decision-making at some point in the process — just not always at the outset.

Katherine Johnson works for a law firm in Washington, D.C. She's single, but she encountered a certain married man at the gym who caught her eye. They had both lived in Indiana and hated it, she says. He asked her to lunch, and that lunch was followed by another, and another, until they were having a full-blown affair.

Johnson wasn't betraying a personal commitment of her own. The affair didn't cost her a lot of money. But she did factor in other costs.

"You can't go out on dates," she says. "I couldn't really tell my mom about this. My own integrity was at stake."

She names the benefits.

"It's exciting," she says. "The thought of it is definitely very exciting. For me, the benefit was the companionship and the camaraderie and having someone to talk to throughout the day."

Those benefits outweighed the costs for Johnson for almost a year. When that equation shifted, she ended the affair.

When Your Spouse Is Cheating

Any affair necessarily involves at least three parties: the cheater, the person being cheated with, and the spouse being cheated on. That last person must weigh his or her own costs and benefits.

Harford, the economics advice columnist, hears from this kind of person frequently. In his role as columnist, Harford adopts a persona of someone who finds all of life's answers in economics papers.

A "Mrs. F. in Oxford" might write, "I'm starting to suspect my husband of having an affair. How can I find out?"

Harford says this is a typical "information problem." Mrs. F probably knows people who know whether or not her husband is having an affair, but they don't want to be the one to tell her.

Thus she must to set up what's known as an information market. She can ask her friends and acquaintances to make bets on her husband's fidelity — and those bets should carry real financial consequences.

"She should issue a bond that would pay money if [her] husband [is] caught by a certain date," Harford proposes. "Another bond would pay money if her husband was not caught by a certain date. By looking at the price of these two bonds, she gets a sense of whether there are people out there who think her husband is betraying her."

Obviously, Harford's idea sounds crazy. His plan is also, perhaps, brilliant. It seems to strike people as absolutely one or the other.

Economics is helpful in lining up the rational, measurable benefits of cheating. Proctor says if he had listened to his internal economist, he probably would have determined that $5,000 was more than he wanted to pay for an affair. But he didn't listen.

For politicians, the costs are huge — so much so that they would seem to clearly outweigh any benefits. But every few months, another politician offers another apology.

It may be that these precise economic models can't survive contact with the unpredictability of human beings. If only we could work the passion of X into the utility function — ah, forget it.

The Decreasing Importance of the U.S. Dollar in International Finance

The National Public Radio (NPR) story "In IMF Bonds, A Possible Rival For The U.S. Dollar" reveals that the U.S. dollar is decreasing in importance in international finance as assets become increasingly denominated in other currencies. "The U.S. dollar has long been the world's reserve currency — a haven in times of economic trouble. Countries like China and Russia would like to change that. They may have found a way in new bonds from the International Monetary Fund."

All Things Considered, July 2, 2009 · In times of global economic crisis, the International Monetary Fund lends money to nations in trouble. But in the current recession, the IMF has found that it, too, is running out of money.

"We have made quite a large number of commitments of our resources in the last year," says Craig Beaumont, division chief of the IMF's finance department. The organization has loaned out about $150 billion, leaving it with just another $50 billion on hand.

Now the IMF has decided to raise an additional $70 billion the same way large companies do — by issuing bonds (a first for the IMF).

That part of the story is simple enough, but the IMF bonds touch on a far more profound topic: namely, what the world's reserve currency should be. Reserve currency acts as an anchor and a safe haven. It's the currency everyone measures their own against, and the one everyone reaches for in times of trouble. Right now, the world uses the U.S. dollar.

But emerging players like China and Russia have said they wouldn't mind if that changed.

And that's where this story gets more complicated. The IMF's new bonds aren't denominated in U.S. dollars. Instead, they'll be issued in a kind of hybrid called Special Drawing Rights. SDRs are a mixture of the U.S. dollar, the British pound, the euro and the Japanese yen.

The IMF uses SDRs internally, to calculate the money it lends to various nations. A few months ago, the head of China's central bank suggested that SDRs could become the basis for a new kind of global currency.

"The emerging markets are hoping, and China in particular is hoping, that this will start the debate," says Eswar Prasad, a Cornell University professor who once led the China division at the IMF. The bonds could "also start some real progress toward challenging the U.S. dollar's dominance in international financial markets. The Chinese would dearly like to break free of the embrace they have of the U.S. dollar, because they have no alternative, and they would desperately like to have an alternative."

The Problem Of Dollars

Beaumont, of the IMF, is quick to point out that Special Drawing Rights are absolutely not a currency. They're more of an accounting tool, a way to track where the IMF's money is going.

"No one ever carries SDRs around in their pocket," he says.

The problem for China is that it has more money coming in than it knows what to do with. It sells tons of stuff to the U.S. and gets billions of American dollars in return. Where should it put those dollars? Often, China buys U.S. Treasury bonds, because they're the safest investment around.

The IMF bonds will also be very safe, because they're essentially backed by the entire world.

China has pledged to buy what amounts to $50 billion of the new bonds. Russia has pledged to buy up to $10 billion, and so has Brazil.

Against the scale of the global economy, Prasad says, these amounts are relatively small. But if countries decided they didn't trust Treasury bonds so much anymore and began moving a lot of money elsewhere — say, to IMF bonds — that could be a big deal. It could spook the U.S. bond and currency markets, he says, and they are in a fragile mood.

There are a lot of reasons to think China, for all its trash-talking about the dollar, doesn't want to knock it too much. Brad Setser, an economist at the Council on Foreign Relations and an expert on the relationship between the Chinese and American economies, says Beijing would hurt its own cause by moving away from the greenback. "I don't think this is a step toward a new currency that is going to rival the dollar," Setser says.

That's because China needs the dollar to remain strong. It happens to hold more than $700 billion in U.S. Treasury bonds. And it's still buying more.

Bank Crisis Through The Ages

According to "Bank Crisis Through The Ages" on National Public Radio's Weekend Edition on Sunday, June 28, 2009, "Each financial crisis in American history has brought sweeping changes and pledges that bank failures will be averted in the future. Planet Money's Chana Joffe-Walt and Alex Blumberg take a tour of financial regulation through the ages."

Click the link above to listen to the story (6 min 39 sec).

Will Overstimulating Economy Bring Inflation?

The National Public Radio (NPR) story "Will Overstimulating Economy Bring Inflation?" considers the relationship between overall spending and inflation:

Morning Edition, June 26, 2009 · While the United States worries about a repeat of the Great Depression, Germans have another crisis in mind: the hyperinflation that hit them more than 80 years ago. And inflation may be on German Chancellor Angela Merkel's mind when she meets with President Obama in Washington on Friday.

Just after World War I, Germany underwent what is now the textbook case of hyperinflation. Germany had debts to pay and it had gotten into the bad habit of basically printing money. At the peak of the crisis, German currency included a 50-million-mark note.

In When Money Dies: The Nightmare of the Weimar Collapse, Adam Fergusson wrote:

"In October 1923 it was noted by the British Embassy in Berlin that the number of marks to the pound equaled the number of yards from the Earth to the sun.

"Dr. Schacht, Germany's National Currency Commissioner, explained that at the end of the Great War one could in theory have bought 500,000,000,000 eggs for the same price as that for which, five years later, only a single egg could be procured."
Some people worry the United States might be heading for inflation soon. The amount of money in an economy is determined by its central bank, which is supposed to be independent of politics.

In the current crisis, the Federal Reserve and other central banks around the world have been taking unprecedented, historic steps to make credit available — to basically push money into the economy.

The head of Germany's central bank has warned that this could lead to inflation.

Merkel earlier this month said, "We must return to an independent central bank policy, and to a policy of reason. Otherwise, in 10 years' time, we'll be in exactly the same situation."

Merkel worried the central banks might be bowing to political pressure, losing their independence.

Josef Joffe, editor of the German newspaper Die Zeit, says concern about inflation is in the German DNA. He worries there's just too much money in the economy.

"[U.S. Treasury Secretary] Tim Geithner and [Fed Chairman Ben] Bernanke and the president and [National Economic Council Director] Larry Summers think they can soak it up again when the time comes," Joffe says. "But meanwhile, they are pumping unprecedented liquidity into the American global system. And I just can only say, 'Good luck, Mr. President, in soaking up that excess liquidity.' And I think that's what Mrs. Merkel reacted to. If the Germans believe in one god, it's the independence of the central bank."

So are we at risk of catching a nasty case of inflation down the road? I took our U.S. economy in for a kind of doctor's office visit to a place that gives this advice out to countries all the time — the International Monetary Fund.

"What we have been telling ... not this country, but all our members, is that there is a need in the short run for macroeconomic policies to support economic activity. But there is a need for every central bank, for every government to have a strategy, to start thinking now about how to exit when the moment comes," says Carlo Cottarelli, the IMF's director of fiscal affairs.

There could be difficulties, he says.

Raising interest rates and pulling money back out of the economy is often unpopular. It's been said the role of a central bank is to "pull away the punch bowl, just as the party gets going." That time is arguably still in the future. As we all know, it's still a pretty lousy party.

Economic Crisis Stirs Free Market Debate

National Public Radio´s Morning Edition program ran a story entitled Economic Crisis Stirs Free-Market Debate on June 23, 2009:

Morning Edition, June 23, 2009 · For months, the U.S. government and financial institutions have been operating in crisis mode, frantically crafting emergency programs designed to forestall a systemic economic collapse.

The steps taken during these times have challenged longstanding assumptions about the operation of modern free-market capitalism and the role of the government in the economy. In the aftermath of the crisis and the inauguration of a new, more activist Democratic administration, U.S. economic thinking seems to be at a historic turning point.

The idea of capitalism as an economic system was explained more than 200 years ago by the Scotsman Adam Smith. In his book The Wealth of Nations, Smith said a free market guides a society to efficiency by bringing buyers and sellers together and stimulating economies to produce more of what's needed and less of what's not.

In the United States, the best known apostle of free-market capitalism was the legendary economist Milton Friedman, who died in 2006. In 1980, Friedman made the case for Adam Smith's capitalism model in a 10-part television series called Free to Choose.

The 'Invisible Hand'

"[Smith's] key idea was that self-interest could produce an orderly society benefiting everybody," Friedman explained. "It was as though there were an invisible hand at work."

In theory, the "invisible hand" of the free market destroys companies that can't compete. But it lifts up companies with good ideas, ones that sell. The Austrian economist Joseph Schumpeter called this "creative destruction."

Free-market true believers say governments generally should stand back and let this process run its course.

The pro-market, laissez-faire philosophy reached a heyday in the 1980s in Britain under Margaret Thatcher and in the United States under Ronald Reagan. In a 1986 message to American farmers, Reagan famously quipped, "I've always felt the nine most terrifying words in the English language are, 'I'm from the government and I'm here to help.' "

President Reagan supported the broad deregulation of the U.S. economy, in order to minimize the government role. In the years that followed, pro-market principles continued to guide U.S. economic policies.

But in 2008, the global economy nearly went into full meltdown. The Bush administration, at the urging of Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke, concluded it had no choice but to intervene in the marketplace, to save companies whose failures could have set off dangerous chain reactions: first, the mortgage giants Fannie Mae and Freddie Mac, and then the American Insurance Group (AIG), the largest insurance company in the world.

Adam Smith's Model Outmoded?

The free market had allowed such companies to make bad investments that put institutions around the world at great risk. Many economists, including some from Wall Street, said the lesson was that free-market ideology had been carried too far.

"We sort of morphed from Adam Smith's invisible hand, that markets move things in a very helpful direction, to some notion [that] free markets have an infallible hand," says Robert Barbera, chief economist at the Investment Technology Group (ITG).

The simple capitalism model that Smith described no longer seemed to fit the complicated, highly interconnected global economy of today. In his book The Cost of Capitalism: Understanding Market Mayhem and Stabilizing our Economic Future, Barbera says it's time to update our economic thinking. Schumpeter's idea that it's good for companies to fail and others to take their place usually makes sense, Barbera says, but not always.

"Wal-Mart appears. It's very innovative, and many, many small retailers over time are put out of business. That's the price of progress," Barbera acknowledges. "That's Schumpeter's 'creative destruction.' Conversely, when you're in a position when a great many financial institutions have lent the wrong way and there's this chance for a dominolike default, there's nothing creative about that destruction. You've got to prevent it. That's the cost of capitalism: Periodically you will have to come to the rescue of the financial system."

The Bush administration, generally conservative and pro-market, came to this very conclusion when it rescued AIG. Clearly, new ground had been broken in economic thinking.

Not Too Big To Fail

Not surprisingly, free-market purists have objected to these moves. They say the government should just let troubled companies go down, no matter how big they are.

"How, going forward, are we going to avoid [another] situation like this, unless we say, in a few cases, 'Look, that's it!' " argues Thomas Woods, a senior fellow at the libertarian Ludwig von Mises Institute in Auburn, Ala.

"I'm telling you that would have more of a salutary effect than all the regulatory tinkering put together," Woods says. "If these guys saw that, just like everybody else, if they don't produce, they fail. They're just like the guy who's a mechanic, the guy who's a plumber. They enjoy no special privileges."

Woods lays out his argument in his book, Meltdown: A Free-Market Look at Why the Stock Market Collapsed, the Economy Tanked, and Government Bailouts Will Make Things Worse.

A History Of Intervention

Actually, however, there's nothing new about American capitalism changing in response to developments in the economy. When the free-market system allowed monopolies to emerge in the 19th century, the Interstate Commerce Commission was created to control them. And the Great Depression, 70 years ago, brought another layer of government intervention in the U.S. economy.

The free-market champion Milton Friedman, in fact, said the U.S. government erred during the Depression by not intervening quickly enough. In one segment of his Free to Choose TV series, Friedman explained how the failure of one private New York bank in 1931 set in motion a whole series of bank failures around the country. It was, Friedman explained, an emergency situation that demanded an intervention by the Federal Reserve. But the Fed failed to act.

"The Federal Reserve system stood idly by when it had the power and the duty and the responsibility to provide the cash that would have enabled the banks to meet the insistent demands of their depositors without closing their doors," Friedman argued.

It is now widely accepted, even by most pro-market economists, that in a financial crisis, the government needs to intervene, even aggressively. What largely sets economic thinkers apart from each other is their view about what governments should do in addition to rescuing troubled banks.

"Most economists to the left of Friedman will say, 'Well, yes, this is one example where the government should intervene actively, but there are lots of others, too,' " says Brad DeLong, an economist at the University of California, Berkeley.

The Government's Expanding Reach

This is where the debate is now. The U.S. government, last fall under President Bush and then under President Obama, has gone well beyond rescuing banks. The practice of American capitalism has fundamentally changed.

"Remember those days in September when we woke up and found that the U.S. taxpayer now owned two large mortgage companies and an insurance company, AIG?" DeLong asks. "And now we're going for auto companies, and who knows what's going to go next? The U.S. government is taking over an awful lot of things and expanding its role in the economy quite strongly and quite aggressively."

Obama says he does not want the U.S. government's majority ownership of General Motors to mean Washington runs the company, but his administration is demanding more fuel-efficient vehicles. He says he's "a strong believer in the power of the free market," but that statement came even as he proposed regulatory reforms that would bring the biggest government intrusion into the private sector in more than 70 years. And then there are the administration's plans for energy and health care reform, both of which feature major new government roles.

Our free-market capitalist system will survive. But with each new economic crisis the guiding principles get revised.

What a Texas town can teach us about health care.

In "The Cost Conundrum", a June 1, 2009 article in The New Yorker, Dr. Atul Gawande reports that McAllen, Texas, spends more per person on health care than almost any other U.S. city. His investigation provides suggestions for improving the health care system. For example, if a market-based health care systems provides doctors with more income when they order unnecessary tests and procedures, is it a surprise that they occur?

Dr. Gawande also discussed these issues on the National Public Radio (NPR) program Fresh Air on June 17, 2009:

Fresh Air from WHYY, June 17, 2009 · In "The Cost Conundrum," his latest article for The New Yorker, staff writer Dr. Atul Gawande reports from McAllen, Texas, a border-town with the dubious distinction of spending more per person on health care than almost any other market in America.

But higher spending doesn't necessarily correlate with better care, as Gawande discovers when he compares health outcomes in McAllen with those of El Paso, Texas — a city with similar population demographics, but where Medicare spending per enrollee is half that of McAllen.

Gawande writes that his findings, based on Medicare's 25 metrics of care, indicate that: "On all but two of these [standards of care], McAllen's five largest hospitals performed worse, on average, than El Paso's. McAllen costs Medicare seven thousand dollars more per person each year than does the average city in America. But not, so far as one can tell, because it's delivering better health care."

As the national debate about health care heats up, Gawande's article has become a must-read for President Obama's staff.

Gawande is an associate professor of surgery at Harvard Medical School and at the Harvard School of Public Health. In 2006 he received the MacArthur Award for his research and writing.