What Type of Good Is an iPhone?

There are reports that the latest cost-reduced Apple iPhone 5c isn’t selling as well as had been hoped:

The “c” in the iPhone 5c might now stand for cut.

After some drastic price cuts at Walmart and other U.S. retailers, the Wall Street Journal reports that Apple’s is cutting the production or orders for its lower-end phone with its suppliers.

Apple has told its Taiwanese assemblers that it will be cutting this quarter’s orders on the lower-end handset, according to the Journal’s Lorraine Luk. One of the assemblers, Pegatron, was told to cut orders by 20 percent and the other, named Hon Hai, was told to cut by a third, Luk reports. Additionally, Apple has told a component supplier that it would cut parts production by 50 percent.

Apple declined to comment on the reports when reached by ABC News. The company hasn’t released sales numbers of its newest iPhone 5s and 5c phones yet, but did announce that it had sold a combined total of nine million of the newest phones just in the launch weekend.

However, the $199 5s, which has a better camera, faster processor and the new fingerprint sensor, has clearly been more popular than the $100 5c, which comes in a selection of colors but has last year’s specifications. But analysts say that might not be a bad thing for the company if customers are opting for the 5s instead.

That’s made me wonder what kind of economic goods Apple’s products actually are. A “positional good” is a product or service at least part of whose value is derived from its ranking in desireability relative to substitutes. A “Veblen good” is a product or service whose demand rises with its price. Goods can be both positional goods and Veblen goods.

Do iPhones provide more bang for the buck? Or is there a status component in iPhones that makes them a positional good? Or if you cut the price of an iPhone would demand actually fall?

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Who’s More Extreme?

Writing at CNN.com Alex Castellanos sums up his theme that the Democratic Party is more extreme than the Republican:

Which party is more extreme?

A Republican Party divided between 180 mainstream House members and 40 Ted Cruz mini-me’s? Or a Democratic Party united to preserve our fossilized, ineffective public sector?

I don’t know that I agree with him. I think that both parties have pretty much purged their moderates and the Congress is more polarized than it has been in 150 years. It is also less representative than it has ever been—nearly half of all Americans characterize themselves as “independents” and, interestingly, they’re indepenents with a remarkably consistent point of view.

Something to reflect on. The states with the greatest domestic outmigration per the 2010 census were all Blue states—New York, Illinois, California, Michigan, New Jersey, Ohio, and Connecticut—while the states with the largest domestic inmigration were Red states. Some, seeing that as a glass half-full, will interpret that as predicting that the Red states will become Bluer. That may be true. Another interpretation is that when you have a solid majority you can enact your program into law but you can’t necessarily make it work.

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Inspection and Delay

The editors of the Chicago Tribune ding Healthcare.gov:

We encouraged a one-year delay in the law. We recognize that’s not going to happen. Obamacare is here. It’s time, though, for the Obama administration to level with Americans about what’s happening here. It’s time to stop blaming Republicans and start talking about what needs to change.

The administration can do one thing — apparently on its own — to spare many Americans. It can delay the requirement that everyone buy insurance by March 31 or pay a penalty. Federal officials already have granted a one-year reprieve to the mandate that most employers provide insurance to their workers or pay a penalty. The administration cut a sweet deal for Congress and its staffers, who will continue to get generous federal subsidies. It has allowed any number of carve-outs for special pleaders.

A delay in the individual mandate would not be a special favor to American consumers. It’s a matter of fairness.

There are many major problems with doing that, problems so major that I find any delay or even an admission of error hard to imagine. So, for example, delaying the “individual mandate” would give its opponents more time to mount their opposition and would guarantee that Healthcare.gov was an issue in the midterm elections. How would you like to be a Democrat in a district that went for Romney in 2012 being forced to defend a program that even its proponents would have to acknowledge wasn’t ready for primetime?

Additionally, it would provide additional time for the economic implications of the program to become clearer. Some advocates of the PPACA might think that would be beneficial to their case but the Obama Administration apparently doesn’t. We’ve heard a lot less about the PPACA’s triumphs over the last few weeks and a lot more about growing pains. If the administration were more confident about it, we’d be hearing solely about its merits.

Damningly, a delay would be taken as an acknowledgement that the faction of House Republican firebrands who’ve demanded a delay in the PPACA individual mandate as the minimum requirement to avoid shutting down the federal government or raising the debt ceiling had a point.

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Time Is Of the Essence

Megan McArdle’s post on why Healthcare.gov needs a “drop dead date” is useful if only for this succinct description of why time is of the essence for the PPACA:

The administration estimates that it needs 2.7 million young healthy people on the exchange, out of the 7 million total expected to apply in the first year. If the pool is too skewed — if it’s mostly old and sick people on the exchanges — then insurers will lose money, and next year, they’ll sharply increase premiums. The healthiest people will drop out, because insurance is no longer such a good deal for them. Rinse and repeat and you have effectively destroyed the market for individual insurance policies. It’s called the “death spiral,” and the exchanges, like the mandate, were designed to keep it from happening.

The open enrollment period for the exchanges is over on April 1—there are 182 days from October 1, 2013 through March 31, 2014. To enroll 7 million people over that period you’ve got to enroll more than 38,000 every single day. Heck, to enroll 2.7 million you’ve got to enroll almost 15,000 people per day every single day. By no account is that happening.

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Rolling Up the Sleeves

Under the encyclopedia entry for “Washington Insider” they should have a picture of Leon Panetta. In Ruth Marcus’s interview with Sec. Panetta there are two money quotes. This one:

Then, to Obama. “This president — he’s extremely bright, he’s extremely able, he’s somebody who I think certainly understands the issues, asks the right questions, and I think has the right instincts about what needs to be done for the country.”

Next came the “but” — without a name but with a clear message. “You have to engage in the process. This is a town where it’s not enough to feel you have the right answers. You’ve got to roll up your sleeves and you’ve got to really engage in the process…that’s what governing is all about.”

The other one is here:

As to the notion that any proposal associated with Obama was inherently toxic to Republicans, Panetta said, “If the president, for whatever reason, feels he can’t do it because the Republicans don’t want to confront him, then he ought to be willing to delegate that responsibility to someone who can do it.”

How could Sec. Panetta and I be so completely wrong?

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Your Winnings, Sir

I am shocked, shocked! to learn that political cronyism was involved in the development of the Healthcare.gov web site:

The biggest problem with Healthcare.gov seems simple enough: It was built by people who are apparently far more familiar with government cronyism than they are with IT.

That’s one of the insights that can be gleaned from the work done by the Sunlight Foundation Reporting Group, a Washington, D.C.-based nonprofit that focuses on government transparency. In a report filed this past week, the group examined why the system broke as horribly as it did: The contracts awarded to those who built it were, by and large, existing government contractors with “deep political pockets.”

Has no one ever heard of a qualified bidders list? I’ve never heard of a federal project of any sort by any administration that didn’t limit the bidders to those on an already-restricted list of qualified bidders.

Here’s how it works, kiddies. The lowest bidder from the list of qualified vendors is selected. Not the most competent or even the lowest bidder. The lowest qualified bidder. So, for example, Booz Allen was practically guaranteed to be involved. You remember Booz Allen? They’re the guys who hired Edward Snowden and who knows how many other dubiously qualified and certainly insecure folks that they farmed out to the federal government for beaucoups bucks. How Booz Allen continues to be an approved vendor is a puzzlement.

How to you get to be an approved vendor? Connections. How do you get connections? Lobbyists help. How do you get lobbyists? Money. The return on investment on hiring lobbyists is fantastic. A half billion dollars is one heckuva software development project.

Read and weep at the article linked above on the connections of the various companies involved in this particular development. If your project is going to be built by the federal government, that’s how it will inevitably be built.

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Belly Flop

Ezra Klein concludes his criticism of the PPACA rollout:

A lot of liberals will be angry over this post. A lot of conservatives will be happy about it. But it’s important to see the Affordable Care Act as something more than a pawn in the political wars: It’s a real law that real people are desperately, nervously, urgently trying to access. And so far, the Obama administration has failed them.

The Obama administration’s top job isn’t beating the Republicans. It’s running the government well. On this — the most important initiative they’ve launched — they’ve run the government badly. They deserve all the criticism they’re getting and more.

Read the whole thing for why he proclaims the PPACA “a failure” to date.

As Mr. Klein does, I think it’s too early to decide whether the rollout has been successful or not. We’ll have mileposts on November 1, January 1, and April 1. If by April 1 fewer than 7 million people have enrolled (the CBO’s estimate), I think it will be fair to label it a failure.

One thing I’d suggest that those who feel it’s been a resounding success should reflect on. If the Administration believed it was a success, don’t you think they’d shouting it from the rooftops?

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Sales Is King

You might want to take a look at Thomas Frank’s article at Salon on the banality and misleading character of discussions of creativity. What all of them miss is that for every Swiffer, Post-It, and “Like a Rolling Stone” there are a thousand new, innovative products that were developed but never came to market or that came to market and flopped. Forget creativity. Sales is king.

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The Other Healthcare Shoe

The PPACA addresses only one of the healthcare shoes. It’s concerned with how healthcare is paid for, increasing access to healthcare insurance. Actually, that’s the easy part. The hard part is increasing access to care. The PPACA did nothing to change how healthcare is provided and that second shoe will drop soon. The Boston Globe explains the implications:

Across Massachusetts, about half of primary care doctors aren’t taking new patients, according to the Massachusetts Medical Society’s 2013 Patient Access to Care Study. The rate for internal medicine specialists, or internists, who often also serve as primary care doctors, is 55 percent. If you’ve found a new doctor and want to schedule a routine visit, be prepared to wait. It takes an average of 39 days for new patients to get an appointment with a family physician and 50 days to see an internist. That’s better than last year, when the average wait was a whopping 45 days, but up from 29 days in 2010.

The wait could get longer. The Association of American Medical Colleges projects that nationwide 13,700 more doctors of all types were needed than were available in 2010, and that the gap will hit 130,600 by 2025, with about half of the shortfall in primary care. Are doctors becoming two-headed calves? No, but they are getting scarcer, for lots of reasons.

Among the reasons are more old people, Baby Boomer docs retiring, the increasing tendency towards specialization, and greater demand induced by the PPACA.

If you think the battle over the PPACA has been hard-fought, you ain’t seen nothing yet. We need to make basic changes in medical education, licensing, and how medicine is actually practiced to increase the availability of primary care.

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Success Is Not An Option

Whether you love the PPACA or despise it, there’s an article over at the New York Times on the development of the Healthcare.gov web site that you should read. It recounts the project’s rocky history and many roadbumps encountered along the way including excessive complexity, inability to specify functionality until very late in the project, unrealistic expectations, and unworkable delivery dates. I laughed out loud when I read this:

One person familiar with the system’s development said that the project was now roughly 70 percent of the way toward operating properly, but that predictions varied on when the remaining 30 percent would be done. “I’ve heard as little as two weeks or as much as a couple of months,” that person said. Others warned that the fixes themselves were creating new problems, and said that the full extent of the problems might not be known because so many consumers had been stymied at the first step in the application process.

It’s obvious the Times’s reporters aren’t familiar with the 90-90 rule. If that estimate is correct, it could be years before the site is actually working.

I genuinely sympathize with the Administration on this. It’s a sad state of affairs when you can’t admit problems, can’t admit even the smallest error, and can’t even do the right thing due to the political considerations. That may be fine when running a political campaign but in project planning it can be disastrous. Large scale projects have enough inherent problems.

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