Hospitals follow economic incentives

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“Hospital Discharges Rise at Lucrative Times” (Wall Street Journal, February 17, 2015) has a great chart showing how the American health care system follows economic incentives held out by the federal government. Hospitals can make nearly twice as much if patients are discharged one day over the Medicare threshold rather than one day under. This results in a huge spike in discharges on the magic day. (Click on “3” to see the best chart.)

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Los Angeles Times discovers the Veterans Administration flight school rules

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“U.S. taxpayers stuck with the tab as helicopter flight schools exploit GI Bill loophole” is a Los Angeles Times story (thanks Mike Aracic!) about the way the Veterans Administration funds flight schools. The journalist misses the corporate welfare angle that I’ve written about here for a few years. Flight schools affiliated with a standard college can collect 100% funding plus living stipends while independent flight schools can only tap into the VA for about 50 percent of the total cost. The veteran is therefore much better off training at a school affiliated with a university, thus resulting in the taxpayers paying 5-10X as much (add in the living stipend, tuition for the college on top of the flight hours, and much higher costs per flight hour). The story is about the waste of taxpayer dollars but it is missing the fact that it isn’t a waste from the perspective of the capitalists (some at “non-profit” universities) who have successfully lobbied to operate under rules that aren’t available to non-cronies.

Note that the college-affiliated/VA-funded Upper Limit school discussed in the article charges $600/hour for the Robinson R44. At East Coast Aero Club, operating at a much higher cost airport in a state with a much higher cost of living, we charge $329/hour, including fuel, for the same aircraft. Some of the veterans also fly around in circles in a Bell 205, the civilian Huey, with nine empty seats in the back. The companies that employ low-time helicopter graduates operate Robinson R22s and R44s, not Hueys, so there is no practical value to this training. It will be many years before the graduate gets into a helicopter like the Huey and that will be after a thorough operator-run training program (probably for a European-designed-and-built Airbus helicopter, whose rotor system spins in the opposite direction and therefore requires opposite pedal inputs; Bell got so fat from its own government contracts that they didn’t bother investing in new designs and has been steadily losing civilian market share to the Europeans).

[It is only fair to note that the total dollars involved in this program are negligible compared to the money spent by the federal and state governments on things such as health care, employee pensions, etc. Whether the VA flight school program continues in its present form or not won’t make any difference to U.S. prosperity.]

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Cost for the government to paint over some graffiti: $52, 953

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“Break-in at Y-12″ is a New Yorker story about three pacifists (one an 82-year-old nun) who broke into one of America’s most heavily guarded nuclear storage facilities. One of my favorite parts of the story is how the government calculated its damages from the graffiti scrawled by the miscreants.

Why you shouldn’t sell any product to an American (MU-2 crash in Oklahoma)

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The NTSB factual report on a November 10, 2013 crash of a Mitsubishi MU-2 says that the pilot had 11.5 hours of dual in the airplane and that was also his total turbine time (though he had a fair amount of multi). He elected to fly solo after 11.5 hours of MU-2 time and crashed just before what would have been his first solo landing. His family is now suing Honeywell, et al., claiming that an engine decided to fail a minute or so before arriving at the runway (story). The Honeywell TPE331 pilot notes say that “a mean time between in flight shut down of more than 63,000 hours has been attained.” Note that this is not the mean time between failure. This includes engines that are shut down because an oil pressure or temperature gauge becomes defective, for example. If we take the last five minutes of flight as critical due to the proximity to the ground, the lawsuit essentially says that it is more likely that a 1 in 756,000 probability event occurred (engine shutdown during a randomly selected five-minute block of operation time) than that a pilot with virtually no turbine experience or experience with the MU-2 crashed the notoriously tricky airplane through pilot error. (The MU-2 is probably easier to fly than a jet from the same era but due to its lack of turbojet engines or weight over 12,500 lbs. it did not require the special type rating that the pilot of a jet needs. This led to a high accident rate, the imposition by the FAA of some special training requirements, and the devaluation of used MU-2s to about half the price of comparable Beechcraft King Air turboprops.)

[Note that it is unconventional for someone with this level of training to be flying solo. Insurance companies typically like to see the new owner of a complicated airplane with a “mentor pilot” for between 10 and 50 hours following the completion of an intensive training course. A 40-year-old MU-2 is a particularly bad plane in which to solo as it presents the pilot with a whole wall of switches and gauges (Google Image Search).]

It will be interesting to see what the jury makes of this case.

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Things that I learned from Michael Stonebraker

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Michael Stonebraker came to talk to our three-day lab course on SQL programming. He’s a great example of why the research university should not be shut down precipitously. Here’s what I learned from him about the current state of database management systems.

For transaction processing (“Small Data”), the standard RDBMS variants work pretty well as long as the database fits into RAM (1 TB is a reasonable size) and as long as you’re not trying to do more than about 1,000 updates per second.

For high-volume transaction processing you need a new architecture where everything is in RAM, which means that transactions happen fast enough that the system doesn’t need to try to be doing 100 of them simultaneously, in various stages of completion. How is the Durability part of the ACID test met if everything is in RAM? Stonebraker points out that you need to have real-time failover anyway so why not let the failover system give you the D in ACID? If that’s not good enough, put an uninterruptible power supply behind both servers. It turns out that customers don’t actually trust this so everyone takes a 5 percent performance hit and logs transaction requests to an SSD. (The log is what the DBMS was told to do, not a data log of blocks in their old and new states.) Stonebraker has drawers full of companies that he has started for every possible database management challenge and his personal solution in this area is VoltDB.

For traditional “business intelligence” or “data warehousing” queries, the column-oriented shared-nothing DBMSes such as Vertica (yet another Stonebraker-founded company, sold to HP) end up being 50X faster than row-oriented DBMSes (e.g., Oracle, MySQL). Why? The database is too big to fit into RAM and you’re usually interested only about 1/50th of the columns in any one query. Thus the system needs to fetch and scan only about 1/50th as much stuff from disk as would a row-oriented DBMS.

What customers want and doesn’t exist right now is a DBMS to handle Big Data and Big Analytics. This will be an “Array DBMS” and it will be good for machine learning, clustering, trend detection, etc. The Array DBMS will be good at handling the common “inner loops” of “Big Analytics” such as matrix multiply, QR decomposition, SVD decomposition, and linear regression. Somehow I have a feeling that this might be Stonebraker’s next company!

Water Doomsday Prophets False?

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Technology Review writes about the Sorek plant in Israel (link), which produces a week of water for one person for less than 58 cents. This may not be sufficiently cheap for competitive agriculture, but it would seem to contradict the prophets of aquatic doomsday (e.g., see “The Coming Water Wars: The next big wars will be fought over water.” from U.S. News).

What do readers think? If I can get some Chinese solar cells to charge up my Tesla, drive to the water factory, also powered by those solar cells, and fill up my travel mug, why would I go to war? (And of course, as my friend Rob says when offered bottled water: “Wouldn’t it be great if there were a pipe going to every building. Then we would not to have haul water around by truck.”)

 

Ellen Pao case shows how the moral landscape in the U.S. has changed

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Part of Ellen Pao’s direct testimony in her lawsuit against Kleiner Perkins included that she was having sex with a co-worker whom she knew to be married (Business Insider). Presumably everything in Pao’s “case in chief” is intended to persuade the jury that they should be sympathetic toward her. Thus we can take this as a barometer of how times have changed in the U.S. If we were to go back 50 years, for example, it seems unlikely that a plaintiff seeking sympathy from a jury would have started out “So I was having a multi-month adulterous affair with a married guy at work…” Perhaps a public statement like that would be made on some sort of television investigative news program and the person confessing his or her part in what was then a crime would been shown with a face obscured in shadow but certainly nobody would have expected to be paid $2.2 million in 1965 (equivalent to the $16 million Pao seeks today, adjusting for inflation) after relating a tale of this sort.

Separately, I wonder what the jury will make of Pao’s complaints that “After she filed the lawsuit, Pao said the work environment at Kleiner Perkins became ‘extremely difficult and very uncomfortable. Partners were uncomfortable talking to me… if I went to their office they seemed nervous.'” (arstechnica) Maybe someone could sue General Motors and expect to keep working on the assembly line. The money sought from litigation would be coming out of the shareholders’ pockets, not the personal checking accounts of co-workers. But Kleiner Perkins is a partnership. Pao was essentially suing these people individually and then being surprised that it was hard to work with them after that. (There is some precedent for Pao’s expectation. Unlike some Scandinavian countries that have an administrative process for divorce (98 percent of Swedish divorces happen in this non-adversarial manner), in the U.S. the government encourages one parent to sue the other and then pays workers, such as judges, to express dismay at the resulting lack of cooperation between the litigants. We just finished analyzing some data from all 243 May 2011 divorce lawsuits in Middlesex County, Massachusetts. Only about 16 percent of the couples had filed a “joint petition” indicating that they had gone to a mediator rather than one running to the courthouse to sue the other. So 84 percent decided that a good way to embark on the next phase of a multi-decade co-parenting relationship was a lawsuit.)

Finally, after reading the news coverage of this case I am wondering if I myself might have a case against Kleiner Perkins. This New York Times article is typical: “Ms. Pao, who came to Kleiner with the dream of helping direct such a fund, graduated from Princeton with a degree in electrical engineering. She got a law degree from Harvard and worked for Cravath Swaine & Moore for two years doing international deals. She returned to Harvard for a business degree and worked for a variety of tech companies, including BEA Systems and Tellme Networks. Her geek cred is pretty unassailable.” In other words, a person who got an undergrad engineering degree and then never engineered anything has “geek cred” and, implicitly therefore, is entitled to be selected as a senior partner at Kleiner Perkins. What is the basis of the Philip Greenspun v. Kleiner Perkins lawsuit then? I have an engineering degree and have actually had jobs doing hands-on software engineering and electrical engineering. So the Greenspun geek cred should be at least as strong as Pao’s. Like Pao I have been inside the Menlo Park offices of Kleiner Perkins (not to have sex with a married employee, but to talk about some of their portfolio companies’ projects and to attempt to hector them into finding a team and building a startup around my “Mobile Phone as Home Computer” idea). As happened to Pao, the Kleiner Perkins partners with whom I spoke failed to recognize my potential to join them as a senior partner. Instead of issuing me $16 million in paychecks they escorted me to the front door and into my rental car.

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I have invented the “Apple TV Edition”

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Apple is now taking $200 of electronics that typically retails for $349 and will be worth $0 in a few years, wrapping it in $640 of gold (source: Forbes), and selling the combination for $12,000 as “Apple Watch Edition.” I’m looking at a 6-year-old Panasonic 1080p plasma TV on the wall. It might be worth about $349 on Craigslist and will be worth $0 as soon as 4K goes mass-market. I am going to remove the black plastic bezel and replace it with a metal bezel containing some gold, fusing the two together so that they can never be separated. The result will be the $12,000 “Apple TV Edition.” The weight of the metal bezel will not generate complaints such as this one from Bloomberg about the Apple Watch.

How many people are out there willing to spend $12,000 on a fancy case inextricably linked to almost-immediately-obsolete electronics? Vertu supposedly found about 350,000 customers for its expensive-on-the-outside phones. I’m guessing that Apple could sell at least 10 times that number over the next three years. That’s $4.2 billion or a little over a week of revenue for the company.

What do readers think of the $12,000 Apple watch? Is it more evidence for the philosophy of David St. Hubbins? (“It’s such a fine line between stupid and clever.”) On which side of the Hubbins Line does the watch fall?

Money to be made in leasing buses?

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Shuttle bus drivers in the San Francisco area are unionizing (SFGate), thus potentially rendering their employer unprofitable and inducing customers, such as Apple and Yahoo, to switch to non-union bus companies. This is kind of the same situation as with airlines and unions. At any time the drivers (pilots) can unionize and potentially render the airline insolvent. The resulting sustainable structure in the airline industry seems to be that a leasing company owns the airplanes. Then when the airline is bankrupted by a union contract entered into during a fit of management optimism, the physical airplanes can be moved, repainted, and put into service at a new carrier. ILFC is one example of such a lessor and it worked well enough to turn Steven Udvar-Hazy into a multi-billionaire.

Is there now an analogous opportunity in the Bay Area? Form a leasing company to own a fleet of luxurious buses ($300,000 each?). Use easily replaced vinyl wraps for branding. Lease them to an operator who will hire drivers and contract with Apple. When the operator’s employees unionize and the Apple contract becomes unprofitable, move the buses to a newly organized non-union operator who can be competitive. The regulations and start-up delays for a bus company shouldn’t be anywhere near as painful as for an airplane.

Where’s the flaw in this business plan? Is it already too easy to obtain low-rate bank financing for buses?

Sheryl Sandberg: “Everyone is stupid compared to me”

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The latest Sheryl Sandberg piece is “How Men Can Succeed in the Boardroom and the Bedroom”.

Sandberg says “If men want to make their work teams successful, one of the best steps they can take is to bring on more women.” In other words, men are too dumb to realize how much richer they could be if they hired more women. (Related: the Kleiner Perkins partners were too dumb to figure out how much richer they would have been if they had promoted superstar Ellen Pao to partner.) Women are also too dumb to get rich by hiring women, as evidenced by the fact that Yahoo did not go on a feminine hiring spree after Marissa Mayer took the CEO job, nor did HP when run by its female CEOs (Carly Fiorina and Meg Whitman). Even Sheryl Sandberg the COO is dumb compared to Sheryl Sandberg the pundit. Facebook has a low percentage of female employees and managers (Bloomberg). Her article doesn’t explain why she has elected to cut her own compensation by not hiring women to make Facebook more successful and thus boost the value of her Facebook shares.

Sandberg says “Research shows that when men do their share of chores, their partners are happier and less depressed, conflicts are fewer, and divorce rates are lower.” Presumably it would be Sandberg (previously divorced, according to Lean In) who would decide what each man’s “share of chores” should be. Sandberg adds “Couples who share chores equally have more sex.” (she does not cite “Does a More Equal Marriage Mean Less Sex?”, a February 6, 2014 New York Times article about research concluding the opposite, nor “Why Most Published Research Findings Are False”).

Sandberg writes from her fully staffed household in which “[second husband] Dave pays bills, handles our finances, provides tech support” to suggest that other women’s husbands should behave differently than her own: “when fathers shouldered an equal share of housework, their daughters were less likely to limit their aspirations to stereotypically female occupations. … For a girl to believe she has the same opportunities as boys, it makes a big difference to see Dad doing the dishes.” Could it be that this study simply shows that girls age 7-13 perceive marriages without a division of labor as inferior overall? If a girl sees her dad doing the dishes every night she is more likely to reject the concept of marriage and therefore prepare for a life as a single person with a high-income job? Perhaps she will later change her mind and get married anyway, but the “aspirations” measured by researchers interviewing 7-13-year-olds would be toward a career without marriage or children. And that does raise the question of whether research by a graduate student interviewing 7-13-year-olds is something we should base our lives on. The interviews that I have conducted with children indicate that 35 percent of Americans are veterinarians (35 percent of children said that they wanted to be vets and it seems reasonable to assume that they followed through on their plans from kindergarten).

Sandberg shows the value of a Harvard economics degree when analyzing complex data: “Twenty-five percent of United States gross domestic product growth since 1970 is attributed to the increase in women entering the paid work force.” In other words, if a higher percentage of the population has a waged job, the GDP number will go up. Inspired by Sandberg, my personal plan for boosting GDP will be to have every child in American sign up to Uber. Then when a parent has to drive the child to a soccer game, the child will put the request in through Uber and pay the parent for accepting the trip. Where does the child get the money? The parent can hire a payroll service to issue the child paychecks and an end-of-year W-2 for doing homework. If successful, parents will also sell at-home meals to children. Then we hire the neighbor to clean our kitchen while taking a 1099 job cleaning his kitchen every night….

Sandberg says that more gender equality will make “entire societies prosper.” This U.N. ranking does not seem to support this theory. If we take “prosper” as something broader than the GDP number and more like the U.N. Human Development Index, there does not appear to be a strong statistical link between prosperity and gender inequality. Poor countries seem to rank lower in gender inequality but perhaps this is because one of the things that people like is equality and rich countries buy more of it while poor countries can’t afford it. (One interesting item in the table is that China is closer to gender-equal than the U.S., as are Japan and Korea, despite our stereotypes of Asian countries as male-dominated.)

One of my Facebook friends wrote about this piece: “Guys, Sheryl tells us to replace foreplay with choreplay ™. It ‘is real’. I am all for equality and stuff, but I feel like everywhere I look, I see half-baked pieces saying that nearly all problems in the world can be solved by ‘bringing on more women.’ Sounds more like Sherylplay to me.” As he is a white male Harvard graduate it was with glee that I was able to comment “Check your privilege.”

Sandberg’s theories are about to get a test now that Germany has put in a quota system for female board members of public companies(Guardian). If German companies continue to outdistance their Spanish, Italian, and Greek rivals Sandberg can say “Their success is attributable to the quota for women on boards.” (Thus contradicting this paper by Ahern and Dittmar regarding Norway’s quota: “The quota led to younger and less experienced boards, increases in leverage and acquisitions, and deterioration in operating performance.” (fortunately, all irrelevant when you have a country of 5 million people sitting on billions of barrels of oil)) [Separately, how can a 30% quota be justified? If there is to be a quota, why isn’t it 51%, reflecting the percentage of women in the German population? And how does this dovetail with Sandberg’s quote that “Men may fear that as women do better, they will do worse. But the surprising truth is that equality is good for men, too.”? Unless German companies expand their boards, won’t every woman who gets a coveted board job under this new quota system mean that a man must lose a job?” Is the number of jobs that are actually worth having growing fast enough that 51% can be taken by women (gender equality) and yet leave men with more of these good jobs than they had before?]

What do readers think? Could it be that all humans on the planet are so stupid compared to Sheryl Sandberg that they had not previously figured out these simple-yet-foolproof ways to (a) get rich, (b) have a successful marriage, and (c) rear high-achieving children? Can middle-class people get useful tips on how to arrange their domestic lives from one of the world’s richest persons? Can people who run companies subject to competition get useful tips from a manager who has spent her entire career working for monopolies? (U.S. Treasury Department, Google, Facebook)

At first glance Sandberg’s claims invite skepticism. But then look at the people U.S. public companies actually do hire as top managers (also this CNBC list) and it is clear that Econ 101 cannot explain what happens in the real world (see my economic recovery plan for what I would change regarding public company boards). Maybe it is time to buy more stock in German companies…

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