"unlimited for life with a fixed initial cost" products  

  Rothstein, Vroom and other AAirpass holders had long been 
  treated like royalty. Now they were targets of an 
  investigation.

http://en.wikipedia.org/wiki/Stark_Law

http://en.wikipedia.org/wiki/Medicare_fraud

Some of the asserted frauds are actually crimes. Some of them are in a gray area and arguably abusive, like Rothstein. Some are really just attempts at innovative business models. Whatever the reason, though, if you are costing the government a lot of money, you are going to get hit with a Medicare fraud investigation. It doesn't matter if it's because your product is amazing and the cost is due to organic growth. All that matters is how much money it's costing the government.

Most people my age (35 and younger) believe that they can't rely on social security for their retirement. It takes some meta thinking to go a step above and realize that this line of reasoning is leading to a self-fulfilling prophecy, meaning we are unlikely to fight for a system we think is doomed.

All hogwash of course. Productivity is at least an order of magnitude or two higher today than it was in the depths of the Great Depression. Most staples like food, clothing, transportation and even shelter are cheaper now than they were 75 years ago, adjusted for inflation. We have no way to predict how high productivity will be in 2030, when social security will supposedly encounter "problems".

This all dwarfs any increase in lifespan, desired affluence, or cost of medical care we are likely to encounter (once real progress and cures begin happening, instead of the phantom progress we are experiencing in tech bubbles).

People complain more about the self-funding social security payroll tax of 6% than they do about the 3% rents charged by credit card companies. Heck some people spend more on their smartphone, cable and internet plans than they do on social security.

I really worry for the future of our society, when we freely give up all of the gains made in the 20th century like 40 hour work weeks, rights to privacy, shared public land and other resources like the airwaves, immigration for the huddled masses, and most importantly shared sacrifice and that our society is only as strong as the weakest among us, all the things that Americans used to believe in. We think we are somehow better or wiser than the people some respectfully call the Greatest Generation, who survived the depression, then fought in WWII and died for the standard of living we enjoy today.

We're better than this, especially here in such a mecca of ideas and enlightenment.

"Someone just told me that living outside the US for 5 years could disqualify me for Social Security benefits - I told them that I never expected to get them anyway.

It's been said upthread, but this pervasive attitude shows that the rich and their propagandamiesters are winning.

Straight talk on Social Security[2]:

'Here’s what Social Security is not:

- going broke;

- a Ponzi scheme;

- expected to stop paying out benefits in your lifetime;

- bankrupting our nation or future generations.'"

[1] http://www.metafilter.com/115423/My-FaithBased-Retirement#43...

[2] http://www.rollingstone.com/politics/blogs/national-affairs/...

Right now a social security payments surplus is subsidizing many other government programs, when that subsidy ends within the next decade it will cause hardship.

More so, social security is on a glide slope to begin running an absolute deficit in about 25 years. At that point the trust fund will be emptied and there won't be as much money coming in as going out. That's a pretty serious problem.

Medicare is even worse off, by a huge margin.

Yes, we can change medicare and social security and perhaps fix these things, but right now the train is on a set of tracks which are aimed directly at the edge of a cliff. We can also potentially balance the whole budget and pay down our debt as well, but that isn't happening either. Look at the EU and their budgetary crises right now. The public doesn't want to pay down their debts, they don't want "austerity measures", they don't want to pay their bills, they want benefits to remain forever high regardless of whether that's financially feasible. And they are willing to vote and riot to have their way.

Social Security and Medicare are not sustainable in their current forms. Period. They need fixing. Period. Fixing them will be really motherfucking hard (politically and financially) for our country. Period.

For many people (the subset of the working poor who end up living a long time) this is absolutely the case. For many other people (those with a below average lifespan or substantially above average career earnings) Social Security is a terrible deal and has no chance under the current formula of paying them back what they put in. Even if you don't count what their employers had to contribute, which might otherwise have been spent on higher wages.

It seems inevitable that the SS payroll tax cap will be lifted without substantial changes to the benefit formula, which will make it an even worse deal for, say, the median earner with a post-graduate degree.

That doesn't demonstrate that it's a bad program, just that's it's redistributive and we should be honest about that fact. A smart, productive 35-year old should absolutely not rely on Social Security for her retirement, assuming she doesn't want her lifestyle to drop off a cliff at age 68 or whatever the retirement age is by then.

The flaw that exists in the current discourse regarding Social Security is that the program is framed as a retirement program. It is not. It is "end of life insurance". In fact, one correct term to use in describing programs such as Social Security is "Social Insurance":

http://en.wikipedia.org/wiki/Social_insurance

That's not how social security works. The benefit curve drops off dramatically in relation to the "pay-in" curve:

http://www.ssa.gov/oact/COLA/piaformula.html

And again, things will get worse when, seemingly inevitably, the payroll tax cap is lifted without substantially modifying the "bend points". A dollar you contribute to SS on your earnings over $56,000 is worth half the benefits of a dollar contributed under that amount.

  People complain more about the self-funding social 
  security payroll tax of 6% than they do about the 3% rents 
  charged by credit card companies. Heck some people spend 
  more on their smartphone, cable and internet plans than 
  they do on social security.

We have to be clear on whether it's supposed to be a great deal for everyone, or whether it's meant to be a redistributive program.

If it's supposed to be a great deal for everyone, ok, well, I have a different opinion. Let me opt out. You can continue to use it.

Alternatively, if it's supposed to be a redistributive program, well, then you might see why people complain about it. If it's redistributive, by definition some will pay in more than they get out, and others will pay in less than they get out.

All that the rational critics of Social Security, Medicare, and Medicaid want is the ability to opt out, in the same way we can switch from AT&T to Verizon. Right now you can only opt out via the very high friction process of moving and giving up citizenship.

Somewhat similarly, welfare was aimed at a tiny fraction of "the deserving poor" but was poorly worded/thought out and thus inadvertently changed the social contract and thereby actively grew the number of poor moms. At the time it was created, having a kid out of wedlock was strongly taboo. Poor single moms were thus mostly widows. The authors apparently could not imagine it becoming more socially acceptable to have children out of wedlock.

I worked at bigco for five years. Similarly shortsighted wording for contracts and the like is pretty rampant from what I have seen.

This is true, but the real problems with Social Security began when Lyndon Johnson combined the Social Security fund, then entirely separate, with the rest of the federal budget. Instead of maintaining a very close eye on how much money was coming in and going out for Social Security, there was no longer any urgency to keep that money around. In other words, money taken out of paychecks for Social Security was spent on everything else, and Federal income taxes were paid out as Social Security.

But thanks for contributing.

Even now, the system faces not a crisis, but a need for adjustments. In the 2030s, incoming taxes are expected to be at approximately 75% of payouts. If no changes are made, once the trust fund is exhausted, people will continue receiving at least 75% of their entitlement indefinitely.

http://www.ssa.gov/oact/TRSUM/index.html

I have no opinion regarding the solvency of social security.

This is getting way off topic, but the lower and middle class portions of the Bush tax cuts, for example, contribute way more to the deficit than those for the upper class. And your claim doesn't really square with the trend of more % of all income taxes being paid by the top percentiles over time.

On the other hand, the government is not quite a 'corporation,' and isn't entirely subject to those kinds of notions, is it?

Didn't say it wasn't. Try not randomly reshuffling the words. You'll get a much clearer picture of what I actually said.

disclosure: non-American with no knowledge of your welfare scheme

On the other hand, that strategy is working fine for Twitter...

> disclosure: non-American

Which may explain why you're not familiar with the particulars of the meme I refer to, but does not excuse randomly shuffling my words.

> with no knowledge of your welfare scheme

Social Security is not a "welfare scheme", it is a government-administered pension program. Everyone who has paid into the system, from the very poor to Bill Gates and Warren Buffet, is entitled to benefits at retirement in proportion to their contributions.

The wage base will need to be adjusted to reflect these changes. The last time it was changed was 20 years ago under Reagan.

30 years ago, to the nearest decade. That was the change in Social Security policies that raised my retirement age and the tax rate that I pay into the system. My standard retirement age is just after Medicare "exhausts," that is runs out of accumulated funds to pay full benefits to people who have been paying into the system for their entire working lives.

The original New Deal guys had mechanisms in place to deal with those sorts of things. But in order to keep funding in place for the Vietnam War and other things, the Congress accelerated cost of living adjustments in the 60s and 70s -- basically using Social Security as a political tool.

Since adjustments were made long ago, many other tweaks have affected Social Security. Welfare reform pushed folks who were chronic public assistance recipients onto the SSDI rolls. The ceiling for payroll tax adjustments hasn't kept up with inflation. And of course, the Obama administration decided to cut the payroll tax in the short term to stimulate the economy.

You are thinking of life expectancy at birth, which averages in childhood death.

SS only pays people who worked for at least a few years, so life expectancy for people who reach age ~20 is much higher.

So when AA argues they 'lose millions' they are really saying that if they could sell this persons First Class seat to someone else on short notice they would make more money. But that assumption glosses over the fact that folks fly First with mileage upgrades, or get 'bumped' from coach on an over sale situation, or book way in advance and pay less. Since there isn't any discussion about what the average seat price is for First Class on the same flight when no AirPass member is flying, it didn't feel like they were being particularly objective with regard to price.

The fact that they could not sell AirPass + Companion for $3M (which according to them would have the owner 'ruining' AA in year 2 at this rate) seems to me to validate my feeling that they are over pricing their 'loss' here.

An example of a lifetime-for-fixed-cost product that works is the annuity. Even British consols, perpetuities which pay out forever, are seen as a smart financing method (zero roll-over risk) because they were sensibly priced.

Edit: This also explains why these tickets didn't sell recently at $3 million a piece -- for that money, again assuming a 40 year annuity but a 3% interest rate, you can buy a $1200 ticket twice a week.

I fly once or twice a month and don't buy first class tickets very often; it wouldn't take too much for me to cross $15k (and as a 21-year old my threshold would be $13 061 assuming constant life expectancy). Remember, the marginal cost to you of these flights is more or less zero.

AA saw this as a source of financing so one should really see what rate they seem to have financed themselves at. Let's assume we're slicing above travellers who fly 100 000 miles (between Delta's Platinum and Diamond [3]; I wasn't able to find what the average of the top two tiers in 1981 would have been). Airline price per mile for domestic coach ranges from $0.06 to $1.22 [4]. Let's use $0.58/mile as our conservative guess for the cost of a first class flight. Thus we have an airline financing $350 000 for 39 years at $58 000/year at an internal rate of return of about...16.5%.

If American Airlines really believed in a 16.5% floor on US interest rates they should have started by dropping the first part of their name.

Note that we've ignored that $350 000 buys both you and your cuddly friend a ticket.

[1] http://www.google.com/publicdata/explore?ds=d5bncppjof8f9_&#...

[2] http://www.usinflationcalculator.com/inflation/consumer-pric...

[3] http://www.delta.com/skymiles/about_skymiles/benefits_at_gla...

[4] http://online.wsj.com/article/SB1000142405274870454090457545...

I am sure the then CEO and his fleet of execs even got a good deal of rewards for rolling out this scheme.

If companies really want to make up on profits in such a low margin industry the way really is to make travel cheaper and easier. Not offering unlimited plans and then expecting customers to not treat them as such.

Never offer something for a lifetime

Even if the cost of supporting it "forever" is minimal (that is, the complete opposite of what AA has done)

Things like GMail, for example. You may be tempted to do it. Don't

Always put in your terms of use a provision of termination. Of course, be reasonable, for example, allow the user to backup the data given a reasonable timeframe (e.g. Google Health)

I wonder would they do it again with the benefit of hindsight, or did it serve their purpose?

Joyent's CEO was on HN a while back and mentioned that if users on the old FreeBSD boxes want to run on the new illumos boxes, they should send an email to support.

If you'd said "Never offer something for free", which seems to be what people are responding to, I'd have a whole other set of arguments...

Unless cost decrease exponentially over time, like with gmail, in witch storage cost falls down like a stone.

"For life" is a particularly egregious example, but these sort of conflicting incentives are everywhere. It's one reason I've been so happy with the popularity of pay-as-you-go models in, e.g., AWS.

I've always been leery of "unlimited" hosting for a monthly fee because your incentives aren't exactly aligned with the host. NearlyFreeSpeech.net, for example, highlights that fact in their marketing materials that since it's pay-per-use, the more successful your site is, the more money they make, so it's win-win.

Netflix and home broadband also suffer from these problems.

I'm not sure an annual charge would necessarily fix the situation for heavy users. It's very similar to the situation of cable and phone companies losing money on heavy users of their service.

The problem cable and phone companies have is that lots of people sign up for unlimited plans when available because of the mental transaction costs of doing anything else. That makes adjusting terms to manage heavy users harder because those adjustments also affect a large slice of customers where the unlimited deal is working as designed.

Just hop on the next train: BahnCard 100 offers 12 months travel on all DB services. It only costs 3,990 EUR for standard class and 6,690 EUR for 1st class.

They also have 25% and 50% discount cards available. The 50% is quite a good deal, as I think I paid mine back within the first week of getting it.

http://www.bahn.com/i/view/DEU/en/prices/germany/bahncard.sh...

Airlines used to think this way - the marginal fuel cost for a seat was something like $10 (essentially it only costs you at takeoff). But then airport improvement fees, security fees, faa upgrade fees meant that they were paying out $100s for passengers who were travelling for free.