The Irrationality of Flexible Spending Accounts

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Ezra Klein has a good post up today on the problems of giving employers, but not individuals, a tax exemption on health insurance. This is clearly central to the problems of healthcare financing in the US, but, given how things are, it’s not the sort of policy that can be changed by itself – doing so without another mechanism to pay for insurance would end up making many more people uninsured.

What has always seemed to me to be bad policy, but not so intimately tied to the rest of our economy, is the existence of Flexible Spending Accounts. The gist of an FSA is that an employee of a firm which offers such a plan can set aside a fixed amount of their salary to pay for health care or dependent care; that portion of their salary is tax exempt, but must be used in the space of a little bit more than a year or it is forfeited.

I can’t see any public policy purpose here. Why is the tax exempt status of my medical or child care spending dependent on my employer offering such a plan? Why do I need to play “Let’s Make a Deal” to guess the closest dollar amount without going under to the amount I will spend on health or child care in order to exempt it from taxes? How does setting aside “use it or lose it” money help in any way to reign in health care costs?

I do participate in these plans. For child care, it’s easy to figure out in advance how much we’ll spend in a year on preschool. For health care, we overestimate how much we’ll spend and, towards the end of the year, use the leftover money to pick up a few pairs of glasses, since optometry is covered as medical. (Call me cynical; I’ll take advantage of a tax break even if I think it’s bad policy.)

But who benefits from FSAs versus a policy which says “The first N dollars of health or child care spending per year is tax exempt”? I can see how the companies which offer these plans to employers benefit. I can see how such things benefit optometrists or other providers where people can spend their money before losing it. I can even see how employers benefit, since they receive the money their employees forfeit due to the “use it or lose it” issue, though I don’t think many employers are actively seeking that revenue.

But the benefit to the public? To individual employees of companies offering the plans? To people who don’t have access to such plans? There are much more straightforward, efficient, and fair ways to provide a tax exemption for medical expenses.

Lawrence Lessig and Why I’m Going on Strike

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Lawrence Lessig spoke at Google this week on his and Joe Trippi’s Change Congress organization. In particular, he made a convincing pitch for the Strike 4 Change initiative, which asks people to make a pledge:

“I’m pledging not to donate to any federal candidate unless they support legislation making congressional elections citizen-funded, not special-interest funded.”

Many of my politically smartest friends believe that campaign finance changes are essential to making government work. I’ve never been in that camp – I’m very skeptical that anything can remove the influence of money on government, at any level – but I’m coming around to the belief that we need to try to plug holes in the system and hope to make progress while the “moneyed interests” are figuring out how to route around the new rules. A few observations seem to have tipped the scales for me:

  • Regulatory and legislative capture by established, often declining, industries appear to me to often be the biggest roadblocks to progress, even within those industries. (Think: cars, music, finance, or health care for starters.)
  • The common and brazen movement between government officials and lobbying firms is a form of institutionalized corruption.
  • The amount of time elected officials need to spend raising money for their next races is shocking and necessarily distorts everything else they do.

Lessig makes these points, and more, very effectively.

For the last several years, I’ve been giving money to a lot of campaigns, almost always Democrats challenging Republicans or contesting open seats. I feel good about this (even though an economist would probably find the utility of these contributions as low as the utility of voting). At first I was negative on the idea of the donor strike, because I feel it’s one side giving up a possible powerful edge unilaterally. What I came to realize, while listening to Lessig, is that this acts as a useful filter – I don’t want to give money to someone who’s wants the status quo in politics to continue; there are certainly plenty of possible candidates to give money to and this gives me a way to nudge on this important issue.

Let’s hope Lessig’s optimism about being able to pass the Durbin-Specter bill is justified; my cynical fear is a filibuster that “supporters” of the bill don’t try too hard to override.

I suspect the Google talk will be available online soon, but it doesn’t appear to be yet. This talk appears to be similar:

“Soonly”

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Allie, our three year old, just told me she’d do something “soonly,” obviously generalizing from an observation that she wanted a word that ended in “-ly” for that role. Matthew, our son, didn’t make the same types of errors at that age. He’s nearly eight now and a very good reader; I’m not sure if he sees the distinction between adjectives and adverbs today and it doesn’t seem to interfere with his speaking, reading, or writing.

Allie also refers to her school, the Eureka Learning Center, as “My-reka;” for Matthew, it was always “Eureka.”

I’m reminded of Steven Pinker’s Words and Rules, which posits that there are two different mechanisms in the brain for modeling language, represented in the title as “Words,” for memorizing vocabulary and irregular forms, and “Rules,” for grammar and declension/conjugation of regular forms. Allie’s language development seems to be very rule-centric.

Both our kids are great with language. But it seems like they’re wired a bit differently from each other.

Interviewing someone is a skill

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We saw Paul Auster interviewed tonight as part of the City Arts & Lectures 826 Valencia Program. Auster is one of my favorite authors — very few books are as good as his Leviathan and others, from the sparse New York Trilogy to the rollicking The Book of Illusions, are also among my favorite novels. He manages to be thoughtful and entertaining at the same time and his books are all very well-crafted. I saw him in a similar interview about a decade ago and remember it as a great evening.

Not tonight. Auster was, as before, great to listen to. But the interviewer, who I won’t name, was terrible. She pitched him pointless questions with short answers (favorite type of scotch? you grew up in New Jersey?) and gave him very few opportunities to talk at length, except where she wanted him to tell stories he’s already written. And we really didn’t need to spend five minutes talking about Auster’s relationship with his assistant.

Interviewing well is hard. The point, I think, is to get the subject to express as much information as possible in a short time and to keep it focused on things that are interesting. It’s not about the interviewer, it’s about the interviewee. If you’re interviewing someone, get your ego out of the way and find ways to make your subject say things that the audience didn’t know.

Over the years, I’ve seen some wonderful interviews with City Arts & Lectures and some real clunkers. But never before has the interviewer been so bad that I was looking forward to the audience’s questions; they were a mixed bag, but almost all were better than the official questions.

New York, July 2008: A vacation in Links

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(I blogged a little about our trip, posted a couple of FriendFeed and Facebook messages, but wanted a little bit more. At the same time, it seemed like too much effort to actually write details about everything and, with us back for three weeks, I doubt I’ll get to that. Instead, I decided to linkify my notes.)

Virgin America.

The view from our window:

Sarah & Brian’s wedding. David Stark Design. Prince George Ballroom.

Otto.

American Museum of Natural History: astrophysics camp for Matthew.

South Pacific. Fireworks with the Philharmonic.

Jazz at Lincoln Center, Dizzy’s Club. Marcus Roberts Trio.

MoMA. Home Delivery: Fabricating the Modern Dwelling. Buster Keaton’s One Week. Cafe 2.

Esca.

August, Osage County.

The Met. Jeff Koons on the Roof. Superheroes: Fashion and Fantasy. Petrie Café.

John’s Pizza. (Bleeker Street, of course.) Cones.

Children’s Museum of Manhattan.

Waterfalls. Grimaldi’s. Brooklyn Ice Cream Factory.

Katz’s Deli. Russ and Daughters.

Tang Pavillion.

Staten Island Ferry. Playing the Building.

Thunderstorms on the way home:

(Image from Flight Wait.)

Obama, live

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We attended a Barack Obama fundraiser in San Francisco this evening. It was my first time at a full-on, campaign-run political fundraiser. I can’t say I like the overall experience; my preference is usually to just give money quietly online. But I thought that hearing Obama live would be worth it and it was.

Obama is a great speaker and not just in comparison to Nancy Pelosi, Steve Westley, and John Roos who preceded him tonight. And not just in comparison to John McCain or George Bush. What’s appealing to me is how much intelligence he was able to convey. Tonight, he spoke without any obvious notes or teleprompter and appeared to be speaking off the cuff. He would pause at times, even stop in the middle of sentences, listen for audience reactions, and think about where to go next. He clearly had a bunch of packaged riffs that, once he decided what topic he wanted to talk about, he could rely on for phrasing — he does those set pieces extremely well. But the interludes, the improvisation, the weaving it all together was at least as compelling.

The emphasis of the speech will, I suspect, show up in his convention speech: if people believe that he will make what he promises happen, people will vote for him. A strong message about creating confidence in a government that can execute competently and effectively. Clear and measurable platform-style positions for health care (insure all children, cost effectiveness) and education (college in exchange for national service). Less on foreign policy than I had expected, but forthright statements about a war that shouldn’t have been fought and restoring alliances. The biggest applause line may have been about shutting down Guantanamo and restoring Habeus Corpus; perhaps that’s a function of the audience, but it’s a significant sign of how disappointed everyone is with what the Bush presidency has done.

This was not a big speech for Obama. He was speaking to a very friendly audience, whose main goal, I think, was looking for reassurance that this election was not going to be 2004 (or 1988) all over again; I came in cautiously optimistic and left the same way. But I also left feeling that he’d be someone you could have an intelligent conversation with on almost any topic. And, more importantly, someone I can trust to lead this country thoughtfully and with the right goals in mind.

Off-balance-sheet entities? Really?

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Over my vacation, I read Kurt Eichenwald’s Conspiracy of Fools, which is a wonderfully entertaining, novelistic narrative of Enron’s history and collapse. More on that in future posts, but having just finished that book, I choked when I read this in the New York Times’s hagiographic profile of Henry Paulson from Sunday:

Most notably, he advocated bundling bad loans into off-balance-sheet entities that theoretically would allow banks to improve their financial standing. The plan was a total flop and yet another signal that Mr. Paulson underestimated the severity of the problem.

I’m sorry, but how would that have helped? Isn’t this just an accounting trick? Isn’t the issue that these loans are not being repaid? I can understand the value in writing the loans down, but moving them off balance sheet without writing the loans down just shifts the problem around. Something’s very wrong with the state of accounting if this is what the Treasury Secretary is recommending.

New York can still be magical for me

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I moved away from New York two decades ago for a life I enjoy a lot in San Francisco, but tonight we had one of those magical nights which you can only get in a city like New York.

The center of our evening was seeing South Pacific at Lincoln Center. It’s a great production of one of the great musicals. I’d never seen South Pacific before and I was surprised at how uncliched it was. While some of the story didn’t seem particular fresh and it couldn’t be controversial in the way it was in 1949, thanks to progress in society, I think they found something deeper in this production than I would have expected. Despite the disappointment of seeing an understudy for Kelli O’Hara, all the performances were great. It’s the type of show which reminds you how powerful live theater can be.

Then, walking home, we were surprised by beautiful fireworks in Central Park, courtesy of the New York Philharmonic. There’s nothing quite like walking along and seeing the sky light up like that.

These both followed doing some things with the kids and just being out and around the city. The day wasn’t too hot and humid, unlike a few recent ones. All in all, what one wants in a city vacation. I love living in San Francisco, but still miss New York when I’m not here; tonight reminded me of why.

Traded in my BlackBerry for an iPhone

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I’m going to be a little long-winded here, but with the anticipated announcement of a new iPhone later this morning and having recently read John Gruber’s post about why hardcore BlackBerry users would be unlikely to switch to iPhones soon (hint: no keyboard), I thought I’d comment on that transition, since I just did it a couple of months ago.

I had resisted getting a “smartphone” for a while. I’d had a Palm III in the mid ’90s and didn’t find it something I really integrated with my life. I’d also had some ugly Sprint Phone in the late ’90s that let me browse news headlines and check mail at Yahoo, but it was painful enough to use that I never really got hooked. Then I switch to AT&T for a while for a much nicer phone and realized that, at the time, what I wanted was a phone that worked. When AT&T discontinued TDMA support without having a suitable presence of GSM towers in my neighborhood, I switched back to Sprint with a phone whose sole advantage was a rubberized case that could survive being dropped. I lasted with that for a few years — it worked fine as a phone and wasn’t too large. Given my limited experience with internet-enabled phones and PDAs, the bulky ugliness of BlackBerries and Palm devices, and my general resistance to anything branded as running Windows, I didn’t feel the need to get one.

Then, Steve Jobs pre-announced the iPhone. Like most technophiles, I swooned. Phone/iPod/camera/browser/PDA. Real internet access. The usability which I love Apple products for. And the prettiest device I had ever seen. So, I figured, I’d stick with my Sprint contract until the iPhone actually came out and then switch.

What intervened was that I started to make more phone calls for a few months, went over the 700 monthly minutes in my existing Sprint contract, and was charged the usurious rates they charge when you go above your limit. I called Sprint, told them I wanted to increase the calling time in my plan, but was told I could only do so by starting another two-year contract. Sorry, no.

By that time, the cool kids around the office were carrying the BlackBerry Pearl. It was small. It was available on AT&T, which I knew I was going to switch to, in order to get an iPhone. It was internet-enabled.

For me, the Pearl was the perfect email device. I didn’t use BlackBerry email, since I’m addicted to gmail’s threading, but the gmail mobile app is very well done. And the Pearl’s two-letters-per-key keyboard is very easy to type on — I can probably type on it at half the speed of a full-size desktop keyboard. Google Maps Mobile is similarly excellent. And, in addition, it could browse the web, but neither the built-in browser nor Opera were very good and, on the small screen, there was only so much of a browsing experience one could hope for.

Perhaps I’m too easily sold on a new device and too willing to compromise, but I really liked the Pearl. It was so much more functionality than I’d had before that I was totally hooked. I got used to reading things on it and wrote tens of email messages on it a day. It was good enough that, for the most part, I stopped carrying my laptop around the office. “Good enough” is an important criteria: anything that replaced it had to be better in enough dimensions to be worth the switch.

I was happy. Despite my original plan, I was going to stick with my BlackBerry, at least until there was a physical keyboard on the iPhone and, more important to me, a decent, native implementation of gmail.

On the other hand, Susan had gotten an iPhone last year and I’d become comfortable with it; ok, I was coveting it. On a vacation where we had poor GSM/Edge coverage but good WiFi, it worked very well (though modern BlackBerries do, too). I used the web interface to gmail on it and was more than pleasantly surprised. And I found that it was more important to me to have a well-rounded internet device than just a good email device. So I switched, even knowing that the device I was buying would be (hopefully) obsolete in a couple of months, due to the mythical 3G iPhone.

Now that I’ve switched, I can’t believe I held on to the BlackBerry as long as I did. What I’ve found is that I use the iPhone less for email than I used the BlackBerry, but much more in general. The phone experience on it is much more pleasant than I’d expected. The few native apps work nicely, but it really shines as an internet device. One shout-out: the new Google Reader beta for the iPhone is one of the most addictive apps I’ve ever used. And I’m very excited by the possibility of native apps, now that the SDK is out.

Of course, the iPhone still has its compromises. The lack of a keyboard does hurt, but I’m typing better than I had expected and wouldn’t want to give up any screen space or make the device larger. I’m hoping that with downloadable iPhone apps, we get an iPhone version of gmail mobile. (Despite working for Google, I have no idea if such a thing is in progress.) The Edge network is terrible once you’re used to anything faster, but the 3G rumors give my hope. And I still carry my iPod Nano with me, because the GSM interference (aka, BlackBerry buzz) is really awful when I use the iPhone hooked up to my car’s stereo.

So, is it the ultimate phone/mobile internet device? No, but it’s better than anything else I could actually buy today. And it’s a very satisfying piece of “realized science fiction” that I can carry around with me. It’s good enough for now.