No Returning to GEICO

This is a consumer alert for Americans considering GEICO after watching those brilliant and funny ads featuring the gecko lizard and cavemen.

We carried GEICO auto insurance for several years till they heavily jacked up rates when we changed one of our cars for a new one. That's apparently a common way for insurers to reward loyal customers that they figure will stick around no matter what. So we switched to AllState that offered much lower rates.

If we do want to switch again some time we'll probably steer clear of GEICO even if they offer low premium rates. This is because of their ineptness and questionable practices that we experienced at first hand. Some instances:

• Our car driven by daughter Sheena was lightly hit in the rear side by a car jumping a red light. That other driver was deemed at fault and ticketed by the investigating police officer. We reported the incident to GEICO and were assured this wouldn't reflect adversely on our record. The operator advised us to let GEICO fix our car in their own workshop and they'd recover expenses from the other driver's insurer. The car was repaired all right at a cost of $700. We then received a letter that GEICO had decided not to pursue the claim with the other insurer as the amount involved was too small and billed us the deductible of $100. Years later we learned that GEICO had without our knowledge recorded this claim in the insurers' common database, showing our daughter to be at fault. Why? Because this way we would get higher rate quotes from competing insurers.
  
• GEICO has its claims adjusters who assess damages and then offer the claimant the choice of a cash settlement , or proceeding to a GEICO designated workshop for getting the repair done. The problem I saw is that adjusters typically offer a very low cash settlement, forcing the car owner to go to the designated workshop that vastly inflates the claim after the drop-off, which the GEICO adjuster then readily allows. The workshop obviously has a kickback arrangement with the adjuster. This is corruption remniscent of practices in a third world country. The inflated repair charges adversely affect the claims history of the policy holder. They also affect GEICO's bottom line since the amount paid out may be far higher than claimants would have agreed to receive in fairer settlements.
• We saw a surprising number of clerical errors (e.g., in recording VINs, coverage and billing) in the policies issued. When I called to seek correction we'd typically get a lot of duplicate and contradictory mailings. It sometimes took multiple iterations for them to get things right, only to have the process repeated when even minor changes were required to be made.

GEICO is a subsidiary of Berkshire Hathaway which is founded by the legendary and admirable Warren Buffett. Improving GEICO's operational structure and execution to match its marketing and advertising creativity shouldn't be so hard. For example they can compile data on cost escalations for their designated and third party workshops that will help flag their crooked claims assessors / adjusters. They can track the numbers and cost of mailings and compare it to industry averages to improve efficiency, and also track the average number of customer calls made to resolve an issue. These measures are almost so easy that even a caveman can do it.

How Did He Get It So (Largely) Right?

Paul Krugman's article last week in the Times "How Did Economists Get It So Wrong" was remarkable in two ways.

First, it neatly captured the essence of how two schools of economists (which includes finance academics) differ in their approach to markets. Krugman presented this so skillfully that it can be grasped by readers without a background in economics. At the same time it was immensely useful and interesting as a recap and to put issues in perspective even for practitioners in the field.

Second, the article is fully eight pages long - much longer than his Op-Eds, and I thought it would be too "heavy" for most readers. Yet to my surprise it was the most popular and emailed article for a couple of days. That's as much of a tribute to the caliber of the Times' readership as to Krugman's writing. I strongly recommend this piece to anyone who wants to get an insightful overview (admittedly from Krugman's eyes) of the rival schools of thought and of the issues separating them.

Though I studied at Chicago, I find myself agreeing with much of what Krugman says. This is particularly so in regard to the Keynesian belief in helping the economy through temporary stimulus spending, and events showing markets can be grossly inefficient for long periods of time. In fact, in my post back on Feb. 10 I had voiced strong misgivings about the statements of some prominent Chicago professors who opposed the fiscal stimulus plans.

However, Krugman is still a little unfair to the Chicago school by painting them as largely unified against Keynesian beliefs, firmly believing in efficient markets, and lumping them all as "freshwater" economists. Krugman did acknowledge that the danger of a financial market meltdown was first pointed out by another Chicago economist, Raghuram Rajan. But Krugman didn't mention that a leading academic of the theory of "behavioral economics" (rival to efficient markets theory) also belongs to the Chicago school. That professor is Richard Thaler who is at least as well known as the other proponent of behavioral economics, Robert Shiller, whom Krugman repeatedly mentioned.

In fact, during my time there I had found it great about Chicago that rival theories could be freely and vigorously debated in the weekly finance workshops and other academic forums. I remember how Eugene Fama (dubbed "the father of the efficient market theory") in his highly popular fnance class had included Thaler's papers as required reading. And though a lot of friendly riffs about opposing beliefs were exchanged, Thaler used to be invited to Chicago's finance workshops to discuss his papers even when he taught at MIT or Cornell. Then about 10 years ago he was welcomed into Chicago as a tenured professor.

But apart from setting the record straight about Chicago and other other schools (about their not having monolithic, misplaced beliefs) I really like and commend Krugman's article.

Changing Our Criminal Justice System

I am unhappy with several aspects of our US criminal justice. But I'm on the left or the right depending on the practice in question. Broadly speaking, I'm with the left when it comes to presumption of innocence and treating those not yet convicted of crimes with dignity. And I'm with the right for more powers for investigating crimes, treatment of convicted offenders and lowering the taxpayer tab on prison inmates.

This is where I'd want a more liberal shift:

• Avoid handcuffing non-violent suspects before they obtain bail. Why did Martha Stewart, Michael Jackson, or the two Bear Stearns fund managers have to be handcuffed and confined before appearing in court when (a) they seem highly unlikely to pose physical danger to the arresting officers, and (b) had ample advance notice of impending charges, so they could be allowed to do something about it? Being handcuffed would be very humiliating and an affront to our dignity for most of us - something that can't be undone even if we're subsequently cleared. Since 1980 the Indian Supreme Court has barred handcuffing of suspects who are not likely to be violent or dangerous. There is also a clear provision for anyone to approach the court and seek anticipatory bail to avoid needless humiliation and inconvenience. If a developing country like India can have these safeguards, why not the US?
• Have much stricter gun control. What age are we living in? The 2nd Amendment giving the right to bear arms is an anachronism, though this will be hard to repeal because of entrenched beliefs. It's almost inconceivable for someone coming from India (and I'm sure most developed countries) to see how easily any punk in the US can acquire a firearm. Even assault weapons can be bought, with the NRA and the loony gun-toting fringe vigorously defending this right in the name of self-protection. And there should be strict background checks and stringent penalties for disqualified applicants possessing illegal firearms. Thanks to guns the US has a much higher homicide rate than other first world countries. With shootings at Columbine, Virginia Tech, Washington Beltway sniping, "going postal" and other workplace violence, perhaps the average American is now ready for more Europe style arms restrictions.
• Freely let DNA evidence and new techniques be used to revisit old cases of conviction to reassess guilt. Some of these convictions have been successfully challenged, DNA tests allowed and convictions reversed. But we know how jury verdicts can be so flawed and arbitrary - why assign a false sanctity to such verdicts and not allow DNA tests in all such cases?
• Decriminalize victimless crimes like acts between consenting adults, or using (as opposed to dealing with) drugs. What former NY Gov. Elliott Spitzer did in hiring a call girl may be bad for his family life, but shouldn't have been a crime.

Here's where I favor a marked shift to the right:

• Much stiffer penalties for criminals. True to our sense of fair play, justice should be retributive, not just reformative or a deterrent as liberals maintain. There's no reason to take capital punishment off the table for egregious murders so long as guilt is established beyond all lingering doubt (say with 99.99% certainty), not just reasonable doubt. There also shouldn't be a blanket minimum age or intelligence threshold for capital punishment. After all, a juvenile showing extreme cruelty or sadism while knowingly committing crimes is more, not less, likely to become an even bigger monster as he grows older.
• A tougher and lower cost jail environment. There's something wrong about criminals (especially hardened ones) sentenced to punishment spending their time watching TV, pumping iron, eating well and enjoying better medical care than many people outside the prison. Criminals should repay their debt to society through work and depending on the gravity of their offenses (think Dahmer, Bundy, the Beltway snipers, or the killers of my childhood friend Aasha) as a resource for medical testing and organ donation against payment to the state. These measures will at least lower the taxpayer burden, and if they act as some kind of a deterrent against crime, that's a bonus. (The Chinese till recently were harvesting and selling organs of executed prisoners. That disturbed many of us because we weren't sure if (a) those people had actually committed crimes deserving of the death penalty, and (b) if the profit from organ sales was itself an incentive for executing prisoners.)
• Close monitoring of inmates and strict punishments for offenses committed in jails. I've don't understand how prison rapes and inmate on inmate violence can still go undetected given our advances in technology. We can cheaply video monitor (and record) every cell, every square foot of prison space, and every movement by every inmate. Any offenses can be easily proved by playing back the recordings and inmates severely punished, preferably in a revenue positive fashion (see point above.) Guards who fail to act can also be identified and disciplined. This will also crimp in-prison gang activity and prevent the worst and most dangerous inmates from victimizing weaker ones.
• Furthering limiting or completely eliminating trials by jury. The US is one of the few countries where jury trials, which are highly wasteful with often arbitrary verdicts, are still widely prevalent. Other countries use just judges, whose verdicts can be appealed to superior judges and panels of judges. Given our multicultural society with ethnic divides and loyalties, jury trials are even more vulnerable to unfair outcomes, especially when the alleged crimes cross racial boundaries. Remember how O.J. Simpson was let off for double murder by a mostly black jury in 1994, and lost in the subsequent civil case decided by a mainly white jury (though this case admittedly required a lower burden of proof.)
• Requiring every US resident to submit a DNA sample and to carry a national ID card. Objections by the ACLU to maintain privacy have little merit, since safeguards can be imposed to ensure the information is used only to detect or prevent major crimes. Besides, consider the huge upside of such measures. Any DNA on a crime scene can be matched against a national database of the entire populace to solve crimes. Terrorism can be severely limited with a national ID, possibly combined with biometrics. The system can be carefully designed of course to protect most privacy, but this exercise to guard against "Big Brother" excesses should be very feasible.

There may be nuances, but I expect a majority of Americans will agree with my thinking. Am I wrong?

Clunker Mania and its Aftermath

Stubbornness sometimes pays off. For years I had resisted getting rid of our 1992 Chrysler Town & Country minivan. It served as our (and occasionally our friends') spare car, and my father's car whenever my parents came visiting. It was also good for hauling five plus passengers or bulky home supplies when needed.

Then this Cash for Clunkers (CARS) program was launched last month. Anita and I happily traded in our minivan for a fuel efficient SUV, getting a $4,500 rebate from Uncle Sam in the process.

Nationally in the US, this $3 billion taxpayer funded program has benefited automakers, dealers and about 700,000 buyers like us. The implementation by the government could have been a lot better, especially in avoiding internet outages and speed of processing claims. But overall this was a huge success and has boosted the recession-hit auto industry. This clunker mania also drew in many shoppers to dealerships who did not qualify for rebates, but were enticed to buy cars anyway.

What now? Consider three factors. First, some pundits have predicted that with the ending of this program the sales of autos will slump. Second, a lot of owners of old sedans are feeling left out. That's because only the old cars and light trucks with a rated gas consumption of 18 mpg or less qualified for the rebate, and this excluded most sedans. Third, some eligible clunker owners couldn't buy a new car because of shortages of popular fuel efficient models due to the enthusiastic response to the program.

The following steps by the Obama administration and Congress can address all these issues:

• A new version of the program raises the mileage ceiling for clunkers so it includes many more sedans. Say, the EPA mileage ceiling for clunkers can be raised from 18 mpg to 21 mpg. This will create a second wave of new car buyers, as well as help those who were eligible but couldn't complete their transactions under the just ended program.
• At the same time the rebate per vehicle can be slightly reduced so that the same public funds cover more cars. For example, the rebate can be $3,000 for the new car's fuel economy improvement of 6 mpg or more (4 mpg for new SUVs), and $2,000 for 4 - 6 mpg (2 - 4 mpg for new SUVs.)
• The implementation should be considerably improved this time around. With even halfway decent capacity planning there was no reason to have website crashes or overloads. Just 700,000 claims with each file of a few MBs size were being uploaded over a period of several weeks. Any decent data vendor could have made many times such capacity available even at short notice. The same applies to human claims processors using back of the envelope calculations, especially now, with the benefit of hindsight.

Another aspect bothers me, though I've no solid solution. Some experts have decried the requirement that the engines of the old traded vehicles be disabled to take them permanently off the road. This in a macro sense is a destruction of value since some of these vehicles may have many years of useful life left. It is worse if the vehicle in question now happens to be a car with somewhat better fuel efficiency than the existing 18 mpg threshold.

Can we spare such cars, and only require them to be converted so they can use compressed natural gas (CNG) that is much cheaper and less polluting than gasoline? This conversion is very popular in India and costs $1,500 - $2,000. Can such converted used cars be allowed to be exported to countries like India, so that the US owner bringing them in gets a much higher trade in value, in addition to the government rebate? That can draw more owners of less old cars to avail of the CARS program and buy new vehicles. But I haven't thought this through and it needs more study.

Another Look At Howard Dean

I was underwhelmed by Howard Dean's Democratic Presidential bid in 2004. Even before the Iowa primary and his much publicised "scream" (a total non-factor for me) Dean was my fourth preference, behind Wesley Clark, John Edwards and John Kerry, in that order.

I had paid inadequate attention to what Dean had to say and thought he leaned too far left on some issues at that time. But as 2008 rolled along I was impressed by his articulation of Democratic values and even-keeled stance as DNC chairman during the Hillary - Obama primary slug fest. And now he's been making direct, succinct and insightful comments in TV news shows on health reforms, including on the issue of the public option that he strongly supports.

In the Morning Joe program on MSNBC he offered this very interesting perspective on death panels and why Obama seemed to be backing away from the public option ahead of a Senate vote. He said this was a way to get a bill past the Senate with 60 votes when Democrat senators like Ben Nelson and Kent Conrad are sabotaging the public option provision. This provision can then be re-introduced through a "reconciliation process" with the House of Representatives bill that then needs only 50 votes to pass. If that's truly what Obama has in mind then I won't be so hasty in judging him.

Others have also noticed how Dean is such an effective voice for health reforms and for batting down misinformation by opponents. Here is a YouTube clip by a group called The Young Turks showing how Dean counters three arguments against key reform provisions. The commentator wonders why Dean isn't the Health and Human Services Secretary. Now that he's done being DNC chairman I hope he gets to assume another high public office. And yes, if I could revisit 2004 he'd be my top choice among those presidential candidates.

Is Some Profiling Okay?

I think much better of President Obama now though I'm not always his fan. I voted for him last November thanks in large part to the person to whom he owes a huge debt of gratitude. I'm referring of course to Sarah Palin. Her post-election antics and recent comments (e.g., "Obama death panels could decide if her parents and her baby, Trig, who has Down’s Syndrome, will live or die") confirm that voters like me chose well.

Following the Henry Gates arrest in his own home I had the same initial reaction about probably stupid police behavior as Obama articulated to his cost. So I sympathize with him and his need amidst the media circus to make amends through a beer fest. The Cambridge police union had a nerve asking for Obama's apology. How does a uniformed law and order force get to have a union anyway? In India such a practice is rightly banned. It is interesting to see the racial divide on who people think was at fault.

My views on this incident and the larger issue of profiling are unlikely to please either camp.

First, I think the policeman James Crowley acted improperly in arresting Gates and was much more at fault. When Gates said he lived in the house Crowley clearly should have realized how an African-American Gates would be upset about his perceived profiling by the police. Gates probably assumed that cops happening to pass by had stopped to challenge him simply because they saw a black man getting into this upscale house. All Crowley had to do was to civilly inform Gates that the police had received a 911 call about a possible break-in so they needed to verify identity. Instead, Crowley mechanically repeated orders in this just-do-as-I-say-since-I'm-a-cop manner that inflamed Gates who was probably unaware of why the police were there. Too bad Crowley's misconduct was rewarded with beer in the White House, though I completely understand Obama's recognizing political realities and defusing an unexpected firestorm.

At the same time I think that some forms of ethnic profiling can be reasonable, useful and appropriate if done right. At our University of Chicago campus which is surrounded by some rough neighborhoods, in almost all muggings, break-ins and other crimes the perpetrators were black. So our campus police on patrol would frequently watch for black youths without book bags to enquire as to where they were heading to ensure they were on bona fide business. Were they wrong to do so? The chance of the accosted youth being up to no good was very low, say, 1 in 200. But for non-blacks that probability would be more like 1 in 20,000. So what's a more efficient use of limited resources? The only thing is, the university police went out of their way to be polite, pleasant and apologetic once the subject of their attention was confirmed to be okay.

Take also the case of South Asians and Middle-Easterners, including myself, after the 9/11 attacks. I know many of my fellow-Indians and especially Muslims were livid when they were pulled aside for detailed searches at airports. I had much more than my fair share of such searches, but I thought differently. How can I blame the poor security personnel? From my looks I could easily be a Middle-Easterner, and even Anita says I can have an intimidating gaze. So even if the absolute probability is minuscule, I'm a 100 or 1000 times more likely to be a fanatical hijacker than your average homegrown American traveler.

During and after my full searches at airports I'd put screeners at ease and thank them for keeping us safe, and mostly got a lot of gratitude and goodwill in return. Some screeners would then confess to being stressed by the indignant reaction of many passengers pulled out for this special treatment. Subsequently, to achieve balance and perhaps political correctness I'd see random passengers including teenage girls being identified for additional searches. There's some merit to this approach, but using it to supplant (rather than supplement) the traditional way including profiling is likely to make us more vulnerable.

Rubina a Graphics Editor - What's That?

For the couple of years after graduating from the Columbia School of Journalism our daughter Rubina has worked as a graphics editor, the last 18 months with the Wall Street Journal (WSJ).

What does she do as a graphics editor? She obtains the data and material and then uses it to create charts, tables, inset summaries and other visuals (except pure photographs) that accompany news stories. For her and her colleagues it can be a charged - some will say stressful - environment with tight deadlines. But she has a passion for it.

For the most part she and her colleagues walk into work in the morning, learn about developing stories and then conceive of the graphics in consultation with reporters, columnists and editors. Then it's data and materials search, verification, creation, iterations and all to be completed before "press time" by late evening.

They each do anything from two to five graphics on a typical day, depending on the complexity and the workload. To maintain an efficient and collaborative environment without worries about who gets credit the graphics folks generally do not put their names on their creations. We don't know about her precise handiwork till she tells us, though we can make some guesses.

Want to see a sample of Rubina's work? Unfortunately, most of the online versions are not the same as the ones in print, and need a subscription to view. If you have one, here's one from May 12 that she did on the US federal highest bracket tax rates going back all the way to 1913. The print version was better. It is overlaid with the terms and pictures of US Presidents. Rubina had to work with some IRS folks to get a major part of the information. When the story came out the IRS called to compliment the WSJ on the graphic.

Addendum on July 22: Today, Rubina had a graphic on childhood obesity so I thought I'll add it. Here's what she had to say:
I have a U.S. map on today's Currents page on child obesity rates by state. Rather than color-coding the states like we usually do, we decided to make the heights of the states correspond to their obesity rates. This was done using a program called Cinema 3-D, which I used for the first time on Monday. You can see the print version on page A11 or online here by clicking on the small map: http://online.wsj.com/article/SB124821547930269995.html