Monday, August 31, 2009

Technology on the way out the door

A list of 30 from MSN. My favorite:

29. Using proper grammar and punctuation
Status: On life support
txting and iming has made proper grammar seems kinda old skoo, dont u thnk? heres hoping 4 capitalization & punctuation 2 make a comeback in emails & other writing. the gr8 gatsby probly wuld hv been way less gr8 if it wuz written like this. lol

Politicians worried about appearances in the Netherlands

The simple solution to the problem outlined in this story about parsimonious posing in the Netherlands would seem to be to raise the salary of the prime minister. Lowering the salaries of others just drives the competent out of government.

Hat tip: Lars Skipper

Sunday, August 30, 2009

Assorted links

1. Red Hot Lovers in Ann Arbor replaced by Ray's Hot Links. I have not been there yet but will go soon. I am also not sure of the relationship, if any, between the old and the new places, though apparently Ray's mostly reproduces the old menu.

2. With friends like these ... one more on terrible Ted.

3. On record stores in Ann Arbor.

4. The Economist asks Jim Manzi of National Review about global warming and about torture.

5. John Scalzi on design flaws in Star Trek.

A Chicago story

This is a story told about Theodore W. Schultz, who was for many years on the faculty at Chicago. During my time there as a graduate student I think he had already retired, but he would still show up at seminars from time to time and make smart comments. The story is in the form of bullet points as it comes from a talk given by another economist in honor of Schultz.
He [Schultz] was a very wise and kind man.

One lesson he taught me I carry to this day.

Chicago economics in the early 70s was a rough-house
environment. Browbeating and intimidation, especially
of students, were natural by-products.

Responding to this ethos when I first arrived, one day
I demolished a student’s work at a seminar where Ted
was present.

Later, Ted took me aside and told me that I had made
some excellent, helpful points.

But he also encouraged me to “remember that today’s
student is tomorrow’s colleague, and you will be together
in this profession for many years. Be kind and
they will remember.”
This advice actually extends more broadly. Economics is a very small world. Being nice, interested and respectful has a high payoff and, beyond that, is both more pleasant and the right thing to do.

Whole Foods and health care reform

Grant McCracken criticizes John Mackey, the CEO of Whole Foods, for writing an op-ed in the WSJ advocating more market-oriented health care reform than is currently on the table. His concern is not with the substance of the editorial, but its potential to destroy shareholder value by alienating part of Whole Foods' customer base.

I agree with the reactions of Radley Balko and Megan McArdle in their reactions to the reactions (though, contra Megan, the ribs I had there last Friday were surprisingly good, and I like the salad bar too). But I also agree with Grant McCracken about Mackey's duty to the shareholders.

Nonetheless, it is disappointing to see the left reacting with boycotts, which is of course just the mirror image of the town meeting disrupters on the right. Neither actually engages with the ideas or the evidence that should underlie decisions about health care reform.

Oh, and must we use the Orwellian term "town meetings" to described these heavily stage-managed photo ops?

Health care cost reduction

Hard to see how one can reduce costs very much after making deals with the two largest input providers, namely the pharmaceutical industry and the American Medical Association.

Any serious health care plan ought to include big increases in the supply of physicians. The job of a GP is an important one, but not one that requires the heavy selection (in part on marginally useful skills like memorization and ability to function while sleep deprived) embodied in the current system. Better to have more doctors with a bit less hubris and a bit more willingness to rely on expert systems.

And, yes, I did just link to Robert Reich.

Saturday, August 29, 2009

What my summer research assistant learned

I hired an undergraduate research assistant this summer, which I do not usually do, but I knew the student well from two classes and in the end it worked out well and was a lot of fun.

Here is her summary of the key lesson learned:
I think I learned the most important lesson of research: it never seems to go quite as well as you expect it will.

Sue Dynarski gets the blogging bug

Sue has started a blog, called the Cranky Analyst, that I have added to the list on the right. I hope it was not my bad example that caused this!

For non-economist readers Sue is a rising star in the economics of education, particularly but not exclusively higher education, who just joined Michigan a year ago from the Kennedy School, with a joint appointment in the Ford School (the policy school) and the Ed School.

Movie: In the Loop

In the Loop is a reality-based political spoof about political interactions between the US and the UK in the run-up to the Iraq war. It is also one of the two or three funniest movies I've seen this year. I particularly enjoyed "Chad" (love that name), the truly nasty little 20-something wonk brown-nosing his way to power. DC is full of such people, a subset of whom are selected out by a tough process of winnowing to become members of Congress. The US-UK interactions are perfect as well, perhaps because the film was made by the BBC.

Highly recommended.

Friday, August 28, 2009

Assorted links

1. London tube map with anagram station names

2. Calling the people you disagree with racists is just a nice way of saying that you do not have any actual arguments against their position.

3. The role of incompetence in Italian academia (and elsewhere).

4. Peak oil foolishness, denounced.

5. Manly names.

Hat tips: Economist Gulliver blog, MR and others.

Two more on Ted

Virginia Postrel offers some thoughts on Teddy, Obama and glamour that I think are right on. Actual governing isn't glamorous. I suspect that is why they are having trouble rousing the "netroots" to action these days. They like movements that provide excitement and a feeling of moral worth but not dull policy details.

In contrast, Radley Balko focuses more on Ted's moneyed background.

Thursday, August 27, 2009

COIN in Afghanistan

A thoughtful post on counter-insurgency strategies for US forces in Afghanistan from the Economist's Democracy in America blog.

I think that sometimes we forget that most people, indeed almost all people, really just want a stable, reasonable context in which to work, play and enjoy their friends and families. If you can get to that, or even look like you are getting to that, people who want to blow things up will have no support.


MR linked to this fascinating survey piece on recent research on the placebo effect from Wired magazine.

Back in graduate school, Lester Telser circulated an article in his class of a randomized control trial of four treatments: branded aspirin, unbranded aspirin, branded placebo and unbranded placebo. The effects were all distinguishable and in the order listed. This has really important implications for welfare analyses of advertising (among other things) which I do not think have yet been incorporated into the literature.

It is interesting to think about placebo effects in economics. Given the important role of expectations in thinking about business cycles, one might think about, say, fiscal stimulii applied early on in the downward part of the business cycle as being aimed in part at producing placebo effects operating to change the mood, and thus the behavior, of consumers and investors. It is a bit tricky to distinguish between changing expectations about the actual likely path of future outcomes from simply changing the mood of agents in the economy. Suppose, for a moment, that fiscal stimulii actually have no real effects but that all consumers and investors believe that they do. In such a world, does a stimulus have a real effect or a placebo effect or both?

Another interesting question concerns the welfare effects of bans on patent medicines that are not directly harmful but not directly effective either.

Wednesday, August 26, 2009

Ted Kennedy, R.I.P

Ted Kennedy has departed this earth for what will surely be an awkward reunion with Mary Jo Kopechne.

What to say about Ted?

Nick Gillespie at reason highlights some bad legislation and hopes for the end of an era of political hubris. Nick's a bit tougher on NCLB than I would be but on target in praising airline and trucking deregulation and dissing the Americans with Disabilities Act.

The Economist takes an oddly literary tone in its meditation on great men with great flaws. Surely, Ted was more interesting than either of his brothers. But a great man? I don't see it. I think negligent homicide rules you out on that one, no matter what comes after, particularly when you use your connections to largely dodge any punishment and when what comes after is a decidedly mixed bag.

I like this comment from the Economist piece too: "Ted Kennedy, more influential than his two dead brothers... Such an accomplishment! That shows how in the politics, being outside a coffin makes a world of difference."

This doubleXX post, which was linked to by the marginal revolutionaries, takes a more positive view, making what is to me an odd analogy between Ted Kennedy and Chuck Colson. It actually took me a while to realize that the author was equating running a religious ministry to help prisoners with being a senator as examples of public service. I have met a few genuine public servants in my day. They are rare and, in my experience, not elected.

Finally, I should note that back in 1982, Ted Kennedy co-sponsored (with Dan Quayle of all people) the Job Training Partnership Act, and thereby set in motion my dissertation research. Truly, he has touched us all.

Addendum: full Economist obituary (as opposed to the Democracy in America blog post above). A bit kinder than I would be, and oddly no mention of deregulation on the plus side, but very fine overall.

Replication in economics

Greg Mankiw linked to this horrifying tale of replication in one of the hard sciences.

Do economists do better?

Well, I think editors in economics are not as hopelessly incompetent as the editors described in this saga. They might be slow - certainly I am too slow - but they tend to worry about substance rather than form. In most cases, they are not this high-handed either. I have certainly never experienced anything like this and do not recall stories of editor behavior like this.

On the other hand, I know of several recent instances where junior people have replicated papers by famous people and found some problem with what was done. Some of these cases arise from a class taught by David Card at Berkeley wherein the students do a replication as their class paper.

I am going to leave names out of this on the misbehavior side, but in a couple of relatively high profile cases involving top journals, the senior people did not really distinguish themselves. In a way this is odd. Someone with tenure at a top department does not really have much to lose by being helpful and honest. We all know that empirical papers in economics are complicated things, carried out over long periods of time, sometimes in temporally separated frantic bursts of activity to meet deadlines, and often with assistance from multiple graduate student research assistants who are, rather by definition, still learning how to do research. So occasional errors should not come as much of a surprise. Moreover, for senior people, tenure is not at risk. Even reputation is not really at risk. And yet, there is sometimes trouble.

I do not know all the details of these cases, of course, and usually have more information about one side than the other, which is why I am not mentioning names, but we can, I think, do better as a discipline. Sometimes doing better just means chilling out a bit.

Let me toss out some praise, too. Rajeev Dehejia was helpful throughout the process in which Petra Todd and I replicated his papers with Sadek Wahba. At the end of the day, we still disagree in regard to the meaning of the results that emerge from the Supported Work data, but at least we agree on the results! The process does not have to be unpleasant or worse.

Tuesday, August 25, 2009

Lingering Australia question

Whenever I visit Australia, I ask the locals "You have a state called New South Wales, but where is New North Wales?"

I have yet to receive a good answer.

The public option in health care reform

I've been reading and thinking a lot more about health insurance reform lately and have actually started to reach some conclusions. One of what seems to me (though not to many others) less important dimensions of reform is whether or not to have a "public option" competing with private insurers. Economists Greg Mankiw and Richard Thaler say pretty much what I would have said had I written a long post about this. I think you can sum it up as: if the public option does not receive government subsidies or other competitive advantages, it will not do well in the market and so does not matter much. If it is subsidized, then it is just a stalking horse for a single payer system and should be avoided. If we are to have a single payer system then we should have it after an honest debate.

Assorted links

1. TIME on homosexuality from 1966. It is amazing how fast change has come on this dimension.

2. If Jesus returns tonight, who will feed your pets tommorow?

3. Cool photographs of waves.

4. TIME offers confessions from a 30-year old gamer. The ending is dopey in a TIME-ish sort of way but the rest is interesting. Why do people feel they being older implies not having fun anymore? Avoiding fun - on purpose - seems like an excellent way to really *feel* old.

5. China cracks down on virtual currencies.

Hat tips: marginal revolution

Doug on karma

Doug Holtz-Eakin says that what goes around comes around.

New improved Savery Hall

Savery Hall, the home of the economics department where I did my undergraduate work, has been remodeled.

It needed it when I was a student in the early 1980s so I can only imagine what it looked like when they finally got to it.

Finding inner peace

A humorous bit from my inbox:

"I am passing this on to you because it definitely works, and we could all use a little more calmness in our lives.

By following simple advice heard on the Dr. Phil show, you too can find inner peace. Dr Phil proclaimed, 'The way to achieve inner peace is to finish all the things you have started and have never finished.'

So, I looked around my house to see all the things I started and hadn't finished, and before leaving the house this morning, I finished off a bottle of White Zinfandel, a bottle of Tequila, a package of Oreos, the remainder of my old Prozac prescription, the rest of the cheesecake, some Doritos, and a box of chocolates.

You have no idea how freaking good I feel right now.

Pass this on to those who you think might be in need of inner peace."

Hat tip: Jackie Smith

Saturday, August 22, 2009

Assorted links

1. Police, guns and women in Texas.

2. German professors misbehaving. Das ist nicht gut!

3. Economics of crime in cartoon form.

4. Unfortunate restaurant names

5. Women with headsets.


There has not been as much blogging as usual as I was in Oz (i.e. Australia) for a conference on evidence-based policy sponsored by Australia's Productivity Commission. Information about the conference, including the agenda and my slides, is here.

The other outside speaker was Ron Haskins of the Brookings Institution, who I have been wanting to meet since graduate school. You can find the short paper underlying his talk on the web page as well.

The meeting included a lot of higher-ups in the Australian federal and state governments and as a result was conducted under "Chatham House rules", which means that I cannot tell you which speakers I thought were really cool and which a waste of time, though there were some of both. It was interesting to interact with so many people with power - this was a much higher level enterprise than I have ever been involved with in either Canada or (even more so) in the US.

I also got a chance to see old friends and make new ones via seminar visits to both the University of Melbourne and the Australian National University in Canberra.

All in all a most excellent journey.

Hitchens on Obama

I am gradually catching up on the Atlantic, having finished the February 2009 issue in Australia this past week.

I quite liked the post-election column on Obama by Christopher Hitchens, who in general is one of my favorite bits of the magazine.

Here is the first paragraph as a teaser:
I have a small wish of my own in this season of public and private Utopias. It is that the emergence—or should I say ascendance?—of Barack Hussein Obama will allow the reentry into circulation of an old linguistic coinage. Exploited perhaps to greatest effect by James Baldwin, the word I have in mind is cat. Some of you will be old enough to remember it in real time, before the lugubrious and nerve-racking days when people never knew from one moment to the next what expression would put them in the wrong: the days of Negro and colored and black and African American and people of color. After all of this strenuous and heated and boring discourse, does not the very mien of our new president suggest something lithe and laid-back, agile but rested, cool but not too cool? A “cat” also, in jazz vernacular, can be a white person, just as Obama, in some non–Plessy v. Ferguson ways, can be. I think it might be rather nice to have a feline for president, even if only after enduring so many dogs. (Think, for one thing, of the kitten-like grace of those daughters.) The metaphor also puts us in mind of a useful cliché, which is that cats have nine lives—and an ability to land noiselessly and painlessly on their feet.
Read the whole thing here.

Wednesday, August 19, 2009

Rose Friedman, R.I.P.

Notice from the Friedman Foundation.

Sad news but a long life lived well and lived usefully.

Monday, August 17, 2009

Too big to fail: the musical

This is cute.

Hat tip: Dimitriy Masterov

Much better than a GED

Rescued from a ditch when she was no more than a teeny, tiny ball of fluff, Oreo C. Collins, a 2-year-old tuxedo cat from Macon, Ga., may be the very first in her family to obtain a 'high school diploma' — online or off. (Of course, we may never know for sure because, as she wrote in her "life experience essay" portion of the test, she's adopted.) Kelvin Collins, president and CEO of the Better Business Bureau of Central Georgia and Oreo's rescuer, encouraged Oreo to seek her "education," by taking part in the BBB's ongoing investigation of online diploma mills.
Read all about it here.

Hat tip: Charlie Brown

Sunday, August 9, 2009

Assorted links

1. Promoting "quality human and fairy relations"

2. How to end your emails. I am a "cheers" guy myself unless the subject suggests otherwise.

3. The financial crisis explained in "Special English" by the Voice of America.

4. WW2 home front pictures from Life Magazine

5. Choosing a town name is not as easy as it might appear.

Hat tips: Austin Kelly, Lisa Smith, the Good S**t blog and marginal revolution

Same name, different person

I have, rather obviously, known all my life that there were other people with my same name, at least the same first and last names. In junior high, there was another "Jeff Smith"; I was once mistakenly called into the principal's office on his behalf. When I bought tickets to the Seahawks versus Dolphins AFC championship game back in the day, my excellent tickets, which required some non-trivial effort to obtain, went to some other "Jeff Smith" while I received his less excellent tickets, due to some incompetent person in the Seahawks' ticket office.

What I did not expect so much is that there would be someone else called "econjeff", but there is that too. You can see him (or her) at work in the comments section of this post. I think it is true that he always writes "EconJeff" while I always write "econjeff".

Just so you know.

Relative costs of war

These graphs from Matthew Yglesias display the inflation-adjusted costs of the various wars the US has engaged in, both in absolute terms and relative to the size of the GDP at the time. The latter graph is particularly illuminating regarding how little, in relative terms, we have spent on Iraq or Afghanistan.

Graphs of casualties, either absolute or relative to population, would make the same point even more strongly. US deaths in Iraq number about 4,000 for a war that has now lasted over half a decade. In World War 2, according to Wikipedia, the US lost over 1,400 killed just in securing the beaches at Normandy and over 6,800 in securing Iwo Jima, one small island in the Pacific.

This does not mean that the Iraq war was worth doing or was not worth doing. But it does offer up some perspective and I think it helps to account for how quickly Iraq has faded from the radar screen now that the situation has stabilized and we have begun to pull out.

Saturday, August 8, 2009

Update on McDonald's in Denmark

From frequent hat tip recipient Lars Skipper, in response to a reader question:
Most of the 85 McD's in Denmark have been designed by my father (they do need architects when building them!). When he first started building them, there were talks about putting the soda machines in the public space but it was decided against this because of a tax on (any!) fizzy drinks (both diet products and regular carbonated water are subject to the tax as well) of $0.20 per liter. This tax is on top of a sugar tax of $5 per kilogram of (any type of) sugar in your product (and of course you pay a 25 % VAT of all the taxes also). And from January 1st 2010 the sugar tax also applies to sugar-free products such as candy, ice cream, and sodas!?! Anyway, the bottom line is that sodas are pretty expensive in Denmark: Your regular 8 fl oz Diet Coke costs between $2 and $4 dollars depending on where you buy it (discount markets the former and vending machines the latter).
BUT: At the moment 33 out of the 85 McDonalds Restaurants in Denmark have decided that the cost of having people waiting in line to be served at your restaurant is too high compared to the soda tax so they have decided to having their restaurants refit and have the soda-dispensers located inside the restaurant (there is an audit-controlled teller installed in the dispensers so the restaurant will have to pay tax on the amount of soda they dispense and not the number of cups they sell - no escape from the tax authority).
The amazing thing is that Denmark has any (above ground) economic activity at all.

Thursday, August 6, 2009

Assorted links

1. Choose your own apocalypse from Slate. I know this is all over the blogosphere but it is pretty cool so I thought it should be in my corner of it as well.

2. The Onion suggests one solution to the national debt.

3. Daily Show on "cash for clunkers": not funny any more?

4. This does sound like a fun job.

5. Things not to do at a college football game.

Hat tip: Sue Dynarski (can you figure out which one?)

Preston McAfee on journal editing

I wish I had read this interesting, and entertaining, piece by Preston McAfee about journal editing before starting my stint at the Journal of Labor Economics.

I was particularly struck with this bit:
Not all authors agree, of course, but in my view we are in the business of evaluating papers, not improving papers. If you want to improve your paper, ask your colleagues for advice. When you know what you want to say and how to say it, send it to a journal.
I find it hard not to want to spend a lot of time trying to improve the papers I handle, whether as an editor or as a referee. This is not bad in and of itself but it has the side effect of greatly increasing my editorial and referee response time. Put differently, I think I am confused about the point of the business, which is indeed evaluation, not improvement.

I am also keen never to be caught up on the other end of something that once happened to me as an author. Back in the day, my friends Kermit and Dan and I wrote a great big paper on the effect of college quality on labor market outcomes - this paper was the distant ancestor of the paper eventually pubished, a decade and a half later, in the German Economic Review (in English, as are all the other papers in that journal). We decided it was too long to submit as written so we broke it up into what we called the "boy" and "girl" papers. We sent the boy paper to journal A and the girl paper to journal B. Each paper included copious citations of the other paper, as in at least one every page. After a reasonably long wait, we get back a rejection on the boy paper from journal A in which the editor states that "based on [his/her] careful readnig" he/she is rejecting the paper because it does not look at women, only men. Of course, if said editor had read even the first page of the paper (and not even very carefully), it would have been clear that there was a separate parallel paper entirely devoted to women. It was not so much the rejection that bothered me - the paper was okay but not great - but rather the straight out lying by the editor. As it turned out, I had the opportunity to present the boy paper at the NBER labor studies group with said editor sitting three spots down on the right at the main table. So I began my talk with the story of the one big paper and the two smaller papers, all the while looking straight at said editor. Said editor has been nice to me ever since.

Still, this experience looms large in my mind whenever I sit down to be an editor, and I think pushes me to spend more time than I should on the papers, especially the ones that are going to end up getting rejected.

Finally, I do know the solution to Preston's puzzle about why the referee reports he gets as an editor are better than the ones he gets as an author. It is because he is better at picking referees than most other editors!

Book: I'm Perfect, You're Doomed by Kyria Abrahams

This book tells the story of the author's upbringing within the Jehovah's Witness community. It is one part sociology of small religious groups, one part raucous coming of age tale and one part bittersweet tale of liberation. It was not quite what I was expecting - much funnier but also less meditative. It is remarkable for its forebearance for both the parents, trapped in their unhappy marriage and struggling on their own with lives in the church. More generally, Abrahams seems to recognize that even though being brought up as a Witness is a very different thing, and a remarkably totalizing thing, her parents probably would have been a mess even as Episopalians or Buddhists and she would still have had a bumpy teenage ride. The author also has a lot of tolerance for her own struggles along the way, which get pretty tough at times and are described without much apology or sugar-coating. I was heartened, after reading the book, to go on to the book's web page and see that things have settled down a bit in the author's life.

Bookslut review here, which captures it pretty well, though the review is a bit less positive than I am about the book.

Recommended, if the subject is of interest.

Art works both ways

These posters are really eye-catching, though weakened by the fact that Obama is not actually a socialist under any reasonable definition. I would have put something like "Love and Obey" instead.

Monday, August 3, 2009

No new taxes

You know, I seem to recall that there was another president who made bold claims about "no new taxes" and came to regret it.

It seems doubly crazy in this case for two reasons. First, by any reasonable accounting, the pledge is already broken via the stimulus package, which represents a huge increase in future taxes. Second, unless Obama is planning to take over the Fed and start printing money (which is, of course, just a different way of raising taxes, in that case on cash balances), or to make huge cuts elsewhere in the federal budget, neither of which seems likely, there is simply no way to pay for the current health care policy changes on the table solely with taxes on those making more than $250,000 per year. There are not that many such people and they tend to have the most opportunities to avoid income taxation, either via legal loopholes or simply by not reporting parts of their income, or even by moving elsewhere.

I think Obama will regret this move, just as Bush I did. Why not be honest instead? It really is kind of amazing that this administration, after all the hoopla, hasnt' even really tried to be different. From day one it has been business as usual with spin, spin, spin.

Assorted links

1. How to avoid having a frustrated dog.

2. Seems to me this fellow should get a reward for thinking for himself rather than being arrested.

3. Noam Scheiber at the New Republic has an interesting profile of Zeke Emanuel at OMB.

4. An interesting, and at times moving, portrayal of Detroit's black middle class, from the NYT.

5. Top ten fetishes (okay for work).

Various hat tips.

Prescription drug coverage in Denmark

When I was at a conference in Copenhagen last month, I got to this this paper, which makes use of kinks in the reimbursement schedule of the Danish prescription drug insurance scheme to get a handle on the price elasticity of drugs.

What really struck me was not the analysis (which is very nice) but the system itself, and how starkly it contrasts with the system produced by congress and Bush II. The Danish system has the following features:

(1) a step function subsidy that starts at zero and ends at 100 percent for a very high level of annual drug expenditures.

(2) when there is a generic, the subsidy only applies to the price of the generic, though individuals can pay out of their own pocket to get the branded drug

(3) there is no coverage of recreational drugs such as Viagra

The one oddness to the system, which is not really completely avoidable, is that the expenditure total that determines the subsidy amount cumulates over calendar years, so that there is an incentive to concentrate drug expenditures in every other year by buying stocks where possible, so as to maximize the subsidy received under the non-linear schedule.

I am also not sure exactly how the system determines whether or not to cover certain drugs. I expect there is some sort of expert agency that does this, which is not ideal but likely better than having politicians directly involved.

The US system (called Medicare Part D), though its political motivation was news stories about old people eating pet food because their prescription drugs were so costly, includes first dollar coverage, which then disappears over a certain range of expenditures - the famous donut hole.

First dollar coverage makes no sense from any sort of economic standpoint or even from any sort of equity standpoint. It is pure and simple vote-buying. One way to reduce the deficit or to afford universal coverage (or a convex combination of the two) would be to reform Medicare Part D by making it look like the Danish system. Even a proposal along these lines would show some seriousness on the fiscal side and a willingness to taken on the narrow self-interest of a powerful constituency.

Change you could believe in, anyone?

Sunday, August 2, 2009

Cash for klunkers and heterogeneous treatment effects

Ken Troske points me to this letter to the editor that notes one perverse effect of the "cash for clunkers" program that subsidizes owners or old cars to trade them in for new cars. The program raises the market value of old cars and thus makes it harder for a poor person without a car to afford to buy one. Of course, at the same time, poor people are presumably over-represented among the owners of clunker cars. So, for some poor people the the program is a windfall.

Of course, the program is not really about poor people, or about the environment. It is about shoveling more tax dollars to the big three auto companies.

That flushing sound you hear is your tax dollars, including the two billion recently added to the program.

Some simple, and not so simple, economics of health care

This recent column by Paul Krugman claims to make the case that "markets" can't cure health care.

Part of the column is very good. Health care, at least big ticket health care, is not like other goods. This is less true of day-to-day things like glasses and cavities, which is part of why there is not a lot of talk about these markets. But, for big things there are two key issues. First, there is a lot of uncertainty. Big costs - very big costs - can arise suddenly. This suggests the value of insurance, which is of course something that can and does arise in markets. Second, there is an information asymmetry. The doctor typically has more information than the patient about the available treatments. As a result, just as with car repairs, doctors have a financial incentive to mislead and sell more treatment than is necessary. Insurance helps to work against this tendency by limiting what doctors can do via selective reimbursement. As Krugman notes, though, insurers have incentives that push in the opposite direction from physicians, though this point is oversold in Krugman's piece because insurers also have long-run concerns about their reputations, which affect their future profits. So, there is no question that health care is not like bread or even cars. No economist would disagree with this.

The trickier question is what implications this has for policy. If the government provides insurance, it has much the same incentives as private insurers to cut costs. Treatment provided to individuals is as much a "medical cost" to the government as it is to a private insurance company. I think it is reasonable to argue, given the different institutional incentives, that government run insurance is more likely to respond to the situation by approving more treatment and running a deficit. But that is not socially optimal either if it means, as it certainly does, for example, in the case of medicare's payments for treatments near the end of life, that a lot of treatment is provided that does not come even close to passing a social cost-benefit test. Saving administrative costs by failing to limit treatments that do not pass such a test is a fool's bargain.

I guess what puzzles me is that there is not more emphasis on the non-profit sector in the current policy discussions. As I have learned from my colleague Paul Courant, we rely on non-profits to solve similar problems of information asymmetry in the higher education field. Why not in the health field? Non-profits would seem to avoid some of the problems with both for-profit private insurance (your care is not some shareholder's loss in profits) and government insurance (because non-profits face a hard rather than a soft budget constraint).

So, I applaud Krugman's focus on the particular nature of health shocks and on the information asymmetry between patients and providers. One can certainly find discussions in libertarian and conservative quarters that do not face these issues as they should, but such discussions represent the low end not the high end of the debate. Simply pointing out that health care is not the same widgets, though critically important, does not alone make the case for the Obama plan, or for a single payer system, or indeed even for many aspects of the current design of Medicare and Medicaid.

Ed Glaeser on education

This piece on teachers by Ed Glaeser has been sitting in my queue for a while. I think it falls short of Ed's usual standard on a number of dimensions. First, it is easy to say we should have better teachers and much harder to actually have them for two reasons. First, the literature makes pretty clear that we do not (yet?) know what observable characteristics make for a good teacher. Thus, at the moment, there is no clear way to change the hiring process to bring in more individuals who will be good teachers. Ed is more coy about this fact than he should be. Second, it takes some time to sort out who is a good teacher and who is not through classroom observation. By the time it is sorted out, teachers in most public schools will have tenure and essentially be impossible to fire.

This line of argument suggests that what is needed is a change in the industrial organization of schools, away from a predominately government / union near monopoly model toward a model that includes a more flexible labor market. Oddly, Ed does not mention this but instead suggests throwing good money after bad by putting more money into the current system. That makes little sense given that in the current system teacher salaries are essentially a constant plus a fixed amount times number of years in service plus another constant for having a master's degree. In such a system one cannot raise the salaries of the good teachers without similarly raising the salaries of all the mediocre ones.

Finally, I have always thought that (former Chicago economics professor) Sherwin Rosen's model of hierarchies suggested that you do not really want the "best and the brightest" in teaching. Teachers influence a small number of people at a time a little bit. That is important, but not important enough that, from a social standpoint, you want to take someone who would otherwise develop some great new product, or start a new firm, away from that and put them into teaching.

Medical marijuana in California

This Rolling Stone piece suggests pretty strongly that, at least in the Golden State, medical marijuana is a big step towards legalization.

My favorite bit:
I always say, 'Never compare yourself to the mediocre -- use the entrepreneurial drive to bring yourself to a higher level,' " says Daniel. "The biggest problem facing this industry right now is the stoner mentality."
I remember talking with one of my colleagues last fall before the election about the medical marijuana initiative on the ballot in Michigan. He was concerned about exactly the sort of scenario described in this article and was going to vote against the initiative. For me, it was this scenario that made me keen to vote in favor of it.

Saturday, August 1, 2009

Movie: Hurt Locker

We saw Hurt Locker last week at the State Theater. I am not sure it is *quite* as good as the hype would have it, but it is very good indeed and worth seeing. It has a mostly realistic feel about it, though without the long periods of waiting and boredom that combat includes. The movie works as either a surprisingly thoughtful war movie or a surprisingly violent character study. The grocery store scene alone is worth the price of admission.