The Simple Arithmetic of High Capacity Gun Magazines

In the wake of yet another mass shooting tragedy today, let’s examine the costs and benefits of high capacity gun magazines. I previously examined the cost-benefit of private gun ownership in the US, and noted at that time that the extraordinarily negative cost-benefit ratio might eventually become an issue for the pro-gun lobby (the industry generates economy-wide economic losses of over $15B/year) [1].

High capacity magazines [2] seem to have become a feature of virtually every recent mass-shooting in the US [3]. How many lives might have been saved by eliminating high-capacity magazines? Let us conservatively assume 10 deaths per year might be reduced through this policy (a rounding error compared to the roughly 10,000 annual gun homicides in the US). The economic value of 10 lives can be estimated at $80 million, while the annual sales revenue of high-capacity magazines might be less than $20 million (since gun magazine sales are a tiny fraction of gun sales, and magazines can be had for as little as $15) [4].

Measuring tragedy on an economic basis might seem crass, but it helps establish a key point: not only are high capacity magazines empowering individuals in mass shootings – but they are also provably hurting America as a whole, as they subtract value from our nation! An outright ban on possession of high capacity magazines is thus a reasonable step to limit further damage to America’s citizens and economy.

Let me address a number of potential criticisms here:

  • Would-be mass shooters will acquire weapons and high-capacity magazines illegally, so you are only affecting law abiding citizens. Actually, 75% of weapons used in mass shootings were acquired legally, and recent shooters acquired their weapons legally. Most of these shooters had no previous criminal record, so in the event high-capacity magazines were illegal, it’s unlikely that they would even know how to find them illegally.
  • Banning high-capacity magazines would have no effect on death rates, as shooters would simply reload. In the Gabrielle Giffords shooting, the gunman was stopped in his rampage once he stopped to reload. Reducing magazine capacity to 10 rounds reduces total firing capacity – this is simple arithmetic. In both of these shootings and many other incidents, lives would have been saved. For that matter, lives might be saved in incidents like drive-by shootings where the rapid fire of multiple rounds makes victims of innocent bystanders.
  • High capacity magazines are needed for self-defense. Even the police rarely find need to fire large numbers of rounds. Is there even one documented case of self defense where the potential victim needed more than 10 rounds to deter his attackers? There are outliers in everything, but I’d be surprised to hear of such a case.
  • I have a 2nd-Amendment right to whatever capacity magazine I like. The recent Supreme Court case upholding an individual right to a firearm also upheld the right to ban American citizens’ access to fully automatic weapons, grenades, tanks, and all other manner of military weapons. Even Justice Scalia admits that there are restrictions on the 2nd Amendment. Your right to purchase whatever weapon you like has long since been curtailed, and the government retains the right to enact reasonable restrictions on access to arms.

 

[1] Using more recent numbers on the economic value of human life at $8M per life, the gun industry may actually cause annual economic losses in the US of $200B per year (8M * 30k lives lost – economic value of gun trade). I republished the more conservative estimate above to remain consistent with the original analysis that I referenced.

[2] I am defining high-capacity magazines as those holding more than 10 rounds, as defined in the original assault weapons ban.

[3] Limiting gun capacity would have reduced casualties in a number of recent tragedies:

[4] Gun sales are estimated to have reached an annual rate around 12 million this year. If separate high-capacity magazine sales are in the neighborhood of 10% of all gun sales, and magazines cost around $15, then total annual revenue from this business might be 1.2M * 15 = $18M. This is an imprecise estimate, since gun sales are not tracked, but conveys the order of magnitude, and illustrates the tiny economic benefit supplied by this particular product relative to its cost in human life.

The Easy Way To Stop Illegal Immigration

Stopping most illegal immigration is easy.

You don’t need border fences.

You don’t need laws with questionable Constitutionality.

You don’t even need to round anyone up.

The simple answer: Penalize businesses that hire undocumented workers.

In attempting to find a solution to illegal immigration, it’s worth studying the root cause of the great majority of illegal entry into the United States. Individuals from poorer countries, mainly Mexico, want to work in the United States. Per-capita GDP in the US is roughly four times that in Mexico, so it’s easy to see why labor is trying to flow towards employment.

If illegal immigrants come to the US to find work, then the easiest way to stop illegal immigration is to remove that incentive. Federal and state governments can easily step up enforcement against businesses which hire undocumented workers, and can increase the fines to the point that it is uneconomical to hire illegal workers. Once the cost of hiring an undocumented worker exceeds that of hiring a documented worker, businesses will naturally follow the profit motive.

The Obama administration has accelerated business audits, quadrupling the previous administration’s efforts in that area. If employer audits were expanded and targeted at those sectors known to use illegal labor most heavily, demand for illegal labor would drop immediately. That in turn would decrease the number of would-be employees crossing into the US, as job opportunities thin out.

Effective enforcement of employment law, even against small businesses, would significantly reduce new illegal immigration. Once the flow of illegal immigrants is slowed from the current 500,000 per year to a trickle, an answer for how to deal with the 12 million among us today can be sought. But until businesses find that hiring illegal workers is unprofitable, the immutable laws of capitalism will cause laborers to find their way to the jobs.

America’s Prison Problem

Why does the United States lead the world in both total prisoners and prisoners per capita? The United States had a prison population of 2.4 million in mid-2008, greater than that of any other country, including China. Our per capita imprisonment rate of 750 per 100,000 individuals is several times greater than all other developed nations. It costs US taxpayers roughly $70 Billion per year to care for all of its prisoners, at a per-prisoner cost of roughly $30,000 per year [1]. While this accounts for feeding, housing, guarding, and providing health care for prisoners, it does not account for the economic activity lost with so many held outside of society. Can anything be done to mitigate the tremendous cost and growth rate of America’s prisons without compromising public safety?

The American prison population has grown rapidly over the last several decades, from 500,000 in 1980 to 2.4 million today, while the overall population has grown by only 33% over the same period [2]. As a result of the sheer volume of prisoners and the prison population growth rate, incarceration is now one of the largest costs borne by taxpayers, after defense, health care, and retirement benefits.

How can the US reduce the total cost of incarceration without risking public safety? Roughly half of all US prisoners were imprisoned for non-violent offenses, and imprisoning these ponzi-schemers, drunk drivers, and pot heads provides little benefit. Why not fine them heavily and simply monitor their probation via ankle bracelet? Law-abiding Americans would be better off if the million non-violent offenders behind bars instead were forced to pay financial restitution for their crimes. If even half of these non-violent offenders stayed in the work force, the net benefit to US taxpayers would be roughly $60 Billion per year, including both prison cost reductions and increased economic activity [3].

If common sense doesn’t bring elected officials to explore other forms of punishment for non-violent offenders, then exploding state and federal budgets will force the issue. Witness California, where a federal judge is calling for the release of 43,000 California prisoners to reduce overcrowding. California lacks the funds needed to properly house its prisoners, so it will have to take a hard look at other forms of punishment. Why not use harsh fines and probation to punish non-violent offenders, thereby earning the state money, saving tax dollars, and keeping the economy more productive at the same time?

[1] According to the New York Times, the annual cost to house a prisoner varies widely by state ($12,000 to $45,000), but is rising rapidly nationwide due to rising health care costs. If we assume $30,000 per prisoner per year as a mean, then it costs $72 Billion annually to incarcerate 2.4 million prisoners.

[2] Bureau of Justice Statistics data shows that the prison population nearly quintupled from 1980 to 2008 (up 380%), while Census data show that the US population rose only 33% during the same period. The prison population has grown at ten times the rate of the population over the period.

[3] Taxpayers would directly save around $35 Billion annually if the prison population were halved by releasing non-violent offenders into probation. If half of the non-violent offenders were able to gain employment, these 600,000 employed workers would contribute roughly $25 Billion annually to the economy (assuming average US per capita income). The total net benefit to the economy would be around $60 Billion per year.

List of Metro Areas By Cost Effectiveness (Adjusted Income)

How cost-effective is your city? More precisely, how well does your hometown rank in median income when incomes are adjusted for the local cost of living? This combination of qualities can be thought of as the “cost-effectiveness” of a city, as measured by adjusting income for cost of living. A number of news sources produce “best cities” lists, and Kiplinger Magazine’s list enables a simple calculation of cost-effectiveness, since it publishes both median income and a cost-of-living index for each city [1]. The ranking of the 50 largest cities in the US by cost-effectiveness (median income / cost of living) is provided below:

Metro Area Cost of Living Index [2]
Median Household Income Adjusted Income [3]
1. Atlanta-Sandy Springs-Marietta, GA 0.94 57307 60965
2. Indianapolis-Carmel, IN 0.88 52607 59781
3. St. Louis, MO-IL 0.87 51713 59440
4. Washington-Arlington-Alexandria, DC-VA-MD-WV 1.38 81163 58814
5. Dallas-Fort Worth-Arlington, TX 0.92 53748 58422
6. Austin-Round Rock, TX 0.94 54827 58327
7. Houston-Sugar Land-Baytown, TX 0.89 51685 58073
8. Cincinnati-Middletown, OH-KY-IN 0.9 51926 57696
9. Denver-Aurora, CO 1.01 58039 57464
10. Nashville-Davidson–Murfreesboro–Franklin, TN 0.88 49979 56794
11. Kansas City, MO-KS 0.95 53564 56383
12. Charlotte-Gastonia-Concord, NC-SC 0.92 51702 56198
13. Salt Lake City, UT 0.98 55064 56188
14. Philadelphia-Camden-Wilmington, PA-NJ-DE-MD 1.03 57831 56147
15. Minneapolis-St. Paul-Bloomington, MN-WI 1.14 63866 56023
16. Columbus, OH 0.94 51687 54986
17. Hartford-West Hartford-East Hartford, CT 1.19 64989 54613
18. Jacksonville, FL 0.94 51269 54541
19. Las Vegas-Paradise, NV 1 54299 54299
20. Seattle-Tacoma-Bellevue, WA 1.14 61740 54158
21. Richmond, VA 1.05 56277 53597
22. Detroit-Warren-Livonia, MI 1 53593 53593
23. Phoenix-Mesa-Scottsdale, AZ 1 52857 52857
24. San Francisco-Oakland-Fremont, CA 1.37 72059 52598
25. San Jose-Sunnyvale-Santa Clara, CA 1.58 82664 52319
26. Chicago-Naperville-Joliet, IL-IN-WI 1.13 58946 52165
27. Birmingham-Hoover, AL 0.9 46667 51852
28. Boston-Cambridge-Quincy, MA-NH 1.29 66870 51837
29. Louisville-Jefferson County, KY-IN 0.89 46095 51792
30. Memphis, TN-MS-AR 0.86 44495 51738
31. Baltimore-Towson, MD 1.21 62524 51673
32. Sacramento–Arden-Arcade–Roseville, CA 1.15 58480 50852
33. Orlando-Kissimmee, FL 0.98 49789 50805
34. Milwaukee-Waukesha-West Allis, WI 1.02 51669 50656
35. New York-Northern New Jersey-Long Island, NY-NJ-PA 1.21 60964 50383
36. Rochester, NY 0.99 49508 50008
37. San Antonio, TX 0.93 46203 49681
38. Virginia Beach-Norfolk-Newport News, VA-NC 1.1 54442 49493
39. Oklahoma City, OK 0.89 43652 49047
40. Pittsburgh, PA 0.92 44814 48711
41. Buffalo-Niagara Falls, NY 0.93 44747 48115
42. Cleveland-Elyria-Mentor, OH 0.99 47600 48081
43. Providence-New Bedford-Fall River, RI-MA 1.16 54064 46607
44. San Diego-Carlsbad-San Marcos, CA 1.32 60970 46189
45. Portland-Vancouver-Beaverton, OR-WA 1.17 53935 46098
46. Tampa-St. Petersburg-Clearwater, FL 0.99 45243 45700
47. Riverside-San Bernardino-Ontario, CA 1.23 54991 44708
48. New Orleans-Metairie-Kenner, LA 1.06 45802 43209
49. Los Angeles-Long Beach-Santa Ana, CA 1.42 56680 39915
50. Miami-Fort Lauderdale-Pompano Beach, FL 1.2 47527 39606

Atlanta tops the list, followed by Indianapolis, St. Louis, Washington D.C., and Dallas. Rounding out the top 10 are Austin, Houston, Cincinnati, Denver, and Nashville. What city holds the unfortunate designation of being least cost-effective? Miami/Ft. Lauderdale is dead last, with Los Angeles, New Orleans, Orange County (California), and Tampa/St. Petersburg all in the bottom 5.

It clearly pays to live in Atlanta or the other top cities, as higher incomes and lower costs translate into a higher quality of life or simply greater net savings. The cities at the bottom of the list generally suffer from high real estate prices and rental costs coupled with lower median incomes.

[1] Here’s the full spreadsheet of data from Kiplinger.com including 300+ metro areas.

http://www.kiplinger.com/tools/bestcities_sort/index.php?sortby=hhi&sortorder=DESC

[2] The Cost of Living Index in Kiplinger.com’s original list is set so that the average cost of living in the US is 100. Here I have divided the Kiplinger index by 100 so that it can be more easily used in the Adjusted Income calculation.

[3] The Adjusted Income, or cost-effectiveness, is calculated by simply dividing a city’s median income by its cost of living (when the cost of living is a ratio centered around 1 as discussed above).

How to Balance the Federal Budget

Can the US federal budget be balanced? It is obviously physically possible to balance the budget by either lowering spending, raising taxes, or a bit of both. But can the budget be balanced in a manner that is fiscally prudent while maintaining adequate funding for government’s most important operations?

I have attempted to balance the 2008 budget below while obeying the following constraints:

  1. No tax increases
  2. No spending shifts between departments, only spending cuts
  3. All spending, including entitlements spending, is fair game

The actual federal deficit for 2008 was $459 Billion, which forms the goal for the cost cutting exercise outlined in the table below [1].

Category 2008 Spending ($Billions) Proposed Cuts Proposed Spending
Defense 612 Cut by $150 Billion, maintaining US defense spending at a level that exceeds the entire World excluding NATO. [2] 462
Social Security 612 Phase out social security benefits for upper income seniors, cutting roughly $110 Billion annually. [3] 500
Medicare + Medicaid 587 Introduce 20% coinsurance for medical spending above $40,000 per year for Medicare and Medicaid recipients, saving $110 Billion. End Medicare Advantage subsidies, saving $17 Billion. [4] 460
Non-defense Discretionary 508 Make an across-the-board 9% cut in non-defense discretionary spending, saving $46 Billion. [5] 462
Other Mandatory Programs [5] 411 End agricultural commodity subsidies and crop insurance subsidies, saving $15 Billion. Modify student loan programs to cut out private middlemen, saving $9 Billion. [6] 387
Interest Payments 253 This cannot be cut without a US government default. 253
Totals 2,983 459 2523

As the table shows, the US federal budget cannot be balanced without deep cuts in Medicare/Medicaid, Social Security, and the Department of Defense. Roughly 60% of the budget is allocated to these major programs, making a balanced budget impossible without reductions here.

A rationale for each major budget cut is provided in the footnotes below. I invite readers to share their balanced budgets as well, or to suggest changes in the cuts that I’ve suggested. Just make sure that the numbers add up, as cutting $459 Billion from the federal budget is harder than it looks!

[1] The core budget data for the table comes from Table S-3 of the US Budget Summary Tables. The 2010 budget document is used, as actual spending for 2008 is not available in earlier versions. The 2009 fiscal year data is incomplete, and also has significant one-time items like TARP and Stimulus package spending, so I chose to focus on the finalized 2008 numbers instead.

[2] The US defense budget represents almost 50% of the entire world’s defense spending, leaving ample room for cuts without jeopardizing US security. Over time the US defense apparatus has become particularly bloated, and cuts may actually improve the DoD’s efficiency over time. It’s worth noting that the US won the Cold War with much lower defense budgets than today.

[3] Social Security was enacted to ensure that American seniors did not starve in their last years, but later grew into a mandatory retirement program. Cutting Social Security payments to upper income seniors would bring the program closer to its original goal. There are 5 million senior households with income greater than $50,000, and they represent the top 20% of all seniors in income terms. These seniors likely draw maximum social security benefits, around 30k annually if there is slightly more than one senior per household on average.  Phasing out these benefits for the wealthiest 20% of seniors would save around $110 Billion. Gross benefits reductions would be around $150 Billion (5 million * 30,000), with an offsetting loss of tax revenue from the reduction in benefits.

[4] Along with defense spending, Medicare and Medicaid are the fastest growing parts of the federal budget.  Since government resources are limited, government benefits must also be limited. Medicare and Medicaid spending can be contained by requiring individuals to pay 20% of their own health care bills beyond $40,000 per year. This change would affect only 5% of Medicare recipients, but would yield huge savings as many patients would decline expensive treatments once cost became a consideration. 32% of all Medicare spending occurs above the $40,000 line; if requiring coinsurance cut this in half, roughly $110 Billion would be saved. This analysis assumes that the breakdown in Medicaid spending is similar to that of Medicare.  An additional $17 Billion annually could be saved by ending subsidies to Medicare Advantage, which is part of current health care reform proposals under debate.

[5] Non-defense discretionary spending includes almost all other federal departments. A 10% across-the-board cut would force all departments to shrink and increase efficiency. Alternately, targeted cuts could be used to shrink certain programs, but these cuts would still have to total $51 Billion annually. Health care cost growth could be reined in through heavy cuts at the NIH, which heavily subsidizes health care and pharmaceutical research. Cutting NIH’s $30 Billion budget in half would enable other departments to get by with a 6% cut instead. One more alternative would involve eliminating Congressional earmarks, which would reduce spending by $20 Billion.

[6] Other Mandatory Programs includes federal funding for food stamps, unemployment insurance, farm subsidies, student loans, veterans’ benefits, and other miscellaneous programs written into law with automatic spending formulas. Farm subsidies in particular deserve heavy cuts, as they distort the economy while worsening Americans’ health. Eliminating commodity crop payment programs and crop insurance subsidies would save $15 Billion annually (see page 4). An additional $9 Billion in savings is possible through the removal of middlemen in federally-backed student loans. Since the federal government assumes all risk on these loans, there’s no reason to compensate private banks to issue the loans.

The Mystery of Health Care Pricing

Many economists, think tanks, and politicians have been agitating for more consumer-driven health care in the US. They argue that if consumers have to spend their own money for care, they will tend not to waste health care resources, and they will shop around for cost-effective care. The first part of this argument appears valid, as individuals will always spend their own money most carefully. Studies have validated this hypothesis, showing that individuals with high-deductible insurance and health savings accounts (HSAs) tend to spend less than those on traditional insurance.

But are individuals able to shop for health care in a competitive marketplace? Personal experience and numerous reports indicate otherwise. In the US, most health care providers can’t tell you the price of any particular health care service until after it’s been performed! I recently shopped around for a health care service, and called four doctors’ offices in total. One office told me that they “aren’t allowed to provide that sort of information.” Two more offices were flabbergasted, and attempted to ease their way out of the conversation. Only one office was able to answer with an actual price quote.

Why is this so difficult for medical providers? Virtually all chargeable medical services have associated CPT Codes, which are defined by the American Medical Association [1]. Hospitals, labs, and most medical practices have a chargemaster, which is essentially a price list. Even small practices without explicit chargemasters know the rate their doctor charges for his time. When insurers and medical providers negotiate payment structures, they negotiate using the chargemaster rates (and usually Medicare rates) as starting points for negotiation.

The currently proposed health care reform plans have missed this essential element: require all health care providers to publish standardized price lists, and market competition can begin [2]. For doctors, a simple hourly rate should be enough to satisfy this requirement. Hospitals and labs should be required to initially publish online price lists for their most common charges, with the list expanding over time. While this information is irrelevant to patients in emergency situations, the great majority of health care spending is pre-planned [3].

Put another way, why not include a mandate on medical price lists as part reform? The cost of the mandate to providers is extremely low, as the information is available, and publishing the information online eliminates distribution costs. While price transparency is making slow progress, Congress has an opportunity to make this happen, and should do so as part of the health care reform package.

[1] The AMA would likely be a primary opponent of free publishing of CPT code-based price lists, since it derives signicant ($70M per year) income from its copyright on CPT codes. If the government is to open up the pricing market, it may have to break this monopoly by buying the copyright at fair value and putting it in the public domain.

[2] Consider a scenario in which all doctors are required to provide price lists. Since most small practices would find this difficult, they might just quote a maximum hourly charge. One surgeon might quote $1000 per hour, and another $2000 per hour. And there you have it, competition on price can begin, just as it occurs for plastic surgery, Lasik, and other out-of-pocket services today!

[3] According to the Kaiser Family Foundation, roughly 70% of health care expenditures are non-hospital expenses. Since many hospital expenses are planned, it appears that significantly less than 30% of health care expenses are emergencies in which consumers have no choice of provider. According to ACEP, only 3% of health care costs are emergency-related.