Month: March 2004

Why has Russian health collapsed?

The health care collapse in the former Soviet Union is old news, less well known is the contrast between Russia and Poland:

…another Slavic nation with a traditional affection for vodka — Poland — is experiencing one of the greatest improvements in health ever known. The difference tells a story of how democracy has transformed the center of Europe in the past 15 years — and how it has failed in Russia.

Start with the figures. In the early 1980s life expectancies in Soviet Russia and Communist Poland were roughly similar, and both were starting to get worse. Cancer and cardiovascular disease were beginning a rapid rise, in lock step with their prime causes: smoking and alcoholism.

Two decades later, Poland’s life expectancy for men, at 70, has risen by four years since the collapse of communism and now is more than 10 years longer than that of Russian men. In Poland, cardiovascular disease has fallen by 20 percent in a decade, while in Russia, it has risen by 25 percent. Sudden deaths from accidents and other external causes have fallen 19 percent in Poland, while in Russia the rate has soared to an unprecedented level. Poland’s rate of HIV infection is one of the lowest in Europe; Russia has one of the world’s highest rates of new infection.

Polish researcher Witold Zatonski has an explanation for this difference:

…he has boiled his answer down to a simple slogan: “Democracy is healthier.” “It’s the only way to explain what has happened,” he said during a recent visit to Washington. “It turns out that the free-market economy and a free political debate correlate directly with good health in Eastern and Central Europe.”

I was incredulous when I first read this, apparently I was not the only one:

That conclusion used to be doubted by some of Zatonski’s colleagues, both in Poland and in the West. After all, democracy brought Poland freedom for cigarette and alcohol advertising, Western brands, and a parliament presumably susceptible to special interests. Tobacco companies spent $100 million a year on marketing to Poles in the 1990s.

Remarkably, though, all that money and influence have been outweighed by the other products of a free society, especially independent civic organizations and media that promote knowledge and open debate about health issues.

It is well known from happiness surveys (see the work of Bruno Frey) that people are happier in democracies, so maybe there is a link to health as well, even after adjusting for income.

What about the comparative statics?

In addition to Poland, the Czech Republic, Hungary and other newly democratic states have recorded dramatic gains in health. But Ukraine and Belarus, which have followed Russia’s political course of far more restricted freedom, have seen their health measures decline. The Baltic states of Latvia, Lithuania and Estonia, which were once republics of the Soviet Union, at first shared Russia’s downward spiral; but since 1995, as they have built Western-style democracy, they have reversed the trend and now follow Poland’s path.

Here is a comprehensive paper with data and cross-country comparisons. From this excellent piece I learned the following:

1. Health in Belarus has continued to decline. Since Belarus has stayed largely communist, the country may serve as a possible control for where Soviet health was headed before communism fell.

2. In Russia, many of the biggest negative health changes have come for the 18-34 group, not for the elderly.

3. In the CIS countries, injuries and violence account for a quarter of all deaths about men aged 25-64; this is six times higher than the death rate from Western Europe.

4. Homicide and suicide rates in CIS countries exceed those for the West by about 20 times.

5. In Russia, deaths from all external causes correlate closely with deaths from alcohol poisoning.

6. Men of low educational background have been to most vulnerable to bad health.

7. Russian life expectancy has declined but it actually improved during the 1994-8 period and has moved with economic crises.

Here is some additional information on mortality trends in Eastern Europe, here is another related link. Zatonski has a longer essay, which I do not currently have access to.

The bottom line: Here is what I used to think: “I blamed the Russian health collapse on the loss of relative status for the elderly. While market reforms have increased aggregate wealth, this has been mostly for the young. Older people have lost their grip on power, and suffered psychologically through their loss of international relative status as well. They lost the will to live and died early.”

Here is what I now think: “Russian young and middle-aged men have found few useful institutional supports during the transition. They’ve gone crazy with drinking and violence.” That being said, I don’t think we have sorted out the relative importance of economic and political factors.

Is Congress becoming worse?

In fundamental ways that have gone largely unrecognized, Congress has become less vigilant, less proud and protective of its own prerogatives, and less important to the conduct of American government than at any time in decades. “Congress has abdicated much of its responsibility,” Nebraska Sen. Chuck Hagel said in a recent conversation. “It could become an adjunct to the executive branch.”

Hagel is no disaffected Democrat frustrated by the imperious GOP leadership. He is a conservative Republican admired by colleagues in both parties for his thoughtfulness and independence. He admits that he is atypical in his concern for Congress’s constitutional role as a check on, and a balance to, the presidency and the judiciary. “Congress is the only thing that stands in the way between essentially a modern-day democratic dictator and a president who is accountable to the people,” he says.

Throughout American history, the status and influence of the three branches of government, and particularly of the executive branch and Congress, have risen and fallen like great historical tides. For long periods, most dramatically in the last third of the 19th century, Congress was dominant. Arguably this was also true in the last quarter of the 20th century, after Congress brought an end to the Vietnam War and forced Richard M. Nixon from office. Even in the ’90s, Congress played a key role in replacing Reagan-era budget deficits with the large surpluses George W. Bush inherited when he became president in 2001.

But Congress’s influence has waned in the past few years, perhaps since the unpopular and unsuccessful effort to remove Bill Clinton from office in 1998-99. Though it occasionally resists an executive-branch proposal, Congress today rarely initiates its own policies. Few members speak up for the institutional interests of Congress. “The idea that they have an independent institutional responsibility, that the institution itself is bigger than the individuals or the parties, doesn’t occur to the bulk of [members] for a nanosecond,” said an exasperated Norman Ornstein of the American Enterprise Institute, a longtime student of Congress.

It occurs to Rep. David Obey of Wisconsin, the ranking Democrat on the House Appropriations Committee. He said that the House has given up the meaningful exercise of its powers by largely forfeiting its oversight role and abandoning all discipline on the federal budget. “Which means that this administration is essentially walking around with a free hand . . . . If the Congress is turned into a jellyfish, there are no checks and there are no balances.” Jellyfish isn’t a bad image for the backbone Congress has shown in recent times.

Read the whole story, which is instructive and stimulating throughout.

My take: The blogosphere reflects an obsession with “the Bush administration,” but the failings of Congress are essential to understanding the last few years.

Smart prostitute with heart of gold

Earlier Tyler reported that lying is more common over the phone than with email. Further evidence comes from a surprising source. In a letter to New Scientist magazine Yvette Astre writes:

I have found a similar difference between phones and email in my business.

I am a prostitute, and to get clients I advertise in the local newspaper. Normal practice is to provide a phone number as an initial point of contact. Using my cellphone was getting rather expensive, as was advertising several days a week. I also work as a volunteer for several non-profit community organisations, and there I found many people preferred emails to the phone or postal services. So I decided to try an email address instead.

The difference really surprised me. With my phone number, guys would sometimes make bookings then not turn up. Others sounded very creepy. However, using email I have had only two cancellations, and in both cases I was paid in full for the time they booked with me.

Then again, prostitutes who read New Scientist and volunteer at non-profits? Johns who pay for services not rendered? Was this letter phoned in or emailed?

Markets in everything, the ongoing saga

St. Francis Episcopal Church in Stamford, Conn., in a bid to fill empty pews, has introduced a monthly Sunday service for pet owners who wish to take their dogs and cats (and presumably birds, ferrets, and boa constrictors) to the altar to receive the host or a special benediction. Other houses of worship around the country, the paper noted, are also offering everything from pet-friendly services and prayers for the animals to pet funerals and “bark mitzvahs.”

Here is Kasha’s Bark Mitzvah. By the way, “All of Beth Shir Shalom’s Bark Mitzvahs are held in the parking lot, to avoid any “accidents” in the sanctuary.”

Here is a photo of the Episcopal version of a pet-friendly service (no fear of accidents, apparently; see also the attached comments, such as “It looks like that black dog in the picture has some sort of mind control over that old lady. It gives me the creeps.”). Here is the full story, add your own commentary, you don’t want to hear “My Take” on this one.

Make your TV a work of art

That’s right, put a digital copy of a masterpiece as a screensaver on your TV:

An expensive new digital television is big, beautiful, flat and can hang on the wall. Some might even consider the set a piece of art.

RGB Labs charges for subscriptions to images such as The Luncheon of the Boating Party by Pierre Auguste Renoir.

So why not display Picasso, Renoir, Monet and other masters on the screen itself?

Three companies have recently formed to help consumers do just that…

[One of them] Chandler’s company, Dream City, has acquired licensing rights to more than 1,000 pieces of art, including masterpieces from Cézanne, Van Gogh and Picasso. He sells them in $14.95, 30-piece collections as screensavers. A Web site offers step-by-step instructions on how to connect a PC to the TV and run a slide-show loop on your big screen.

The core idea came from Bill Gates:

Microsoft (MSFT) Chairman Bill Gates has displayed art on wall-mounted PC screens at his home for years. That’s where Chandler got the idea for Dream City.

He put a frame around a monitor hooked to an old PC, hung it on the wall and showed family photographs and art.

“At parties, people just stood there, mesmerized,” Chandler says. “I realized there was a business there.”

Here is the whole story, which includes a Renoir image on a big TV screen.

My take: The idea is a promising start, but I am repelled by the idea of copies of classic paintings in my living room. Looking at lower quality reproductions would depress me. It would also make me wonder why I cannot find anything more personal, more current, and more alive to enjoy. I am keener on the idea of art created especially for this medium, let’s hope that is forthcoming.

Addendum: Michael Giesbrecht writes: “You’re in luck, Tyler! Literally hundreds, if not thousands, of pieces of art, created especially for this medium, are taken to market each year, and have been for quite some time. Check out In the common vernacular, the medium is referred to as a “movie”. Many of them look great displayed on wall-mounted digital television screens.” You can put up a static image from these movies quite easily. I love Renoir but on my screen I want Blade Runner.

Small business outsourcing can favor employment

Global giants aren’t the only companies cutting costs by shifting jobs overseas. Increasingly, small businesses are finding that “offshoring” jobs is a boon to their bottom line – and sometimes gives them room to create new jobs at home.
For example, when Rajeev Thadani wanted to expand Claimpower Inc., his medical-billing service in Fairlawn, N.J., he chose to outsource some of the work to India. But unlike most companies going this route, his business had just five other employees at the time.
Mr. Thadani, who runs the company with his wife, flew to his native Bombay in 2001 and hired four locals to help file insurance claims on behalf of New Jersey doctors. They use a software system that Mr. Thadani, a programmer by trade, developed specifically for the task.
Today, he employs 35 people [in India]…Now he’s taking steps to expand his business nationally, while planning to add staff in the U.S.

From The Wall Street Journal, Tuesday, March 16, Marketplace section.

This is comparative advantage in action, finding a cost advantage to create new and better jobs.

By the way, a new web site, BlameIndiaWatch details the scapegoating of India in the debate over trade and outsourcing. Here is their mission statement:

Blame India Watch is concerned with the increasing anti-Indian/anti-India sentiment among tech workers, as well as media coverage that focuses disproportionately on Indian workers or propagates anti-India(n) sentiment. What began a few years ago as IT grumbling about Indian-specific H-1B “Temporary Guest worker” and L-1 “Intracompany Transfer” workers and immigrants has now morphed into the outsourcing issue, and is now gaining international attention. We aim to highlight this scapegoating, encourage IT workers to put a stop it, and redirect the anger to where it belongs.

My take: I read about one Indian who said something like the following: “Hey, you lectured us for decades during the Cold War and Indian socialism. Aren’t we now doing exactly what you told us to?”

Unemployment in South Africa

More than 40 percent of the South African workforce is without a job and nearly 60 percent of those who are jobless have never worked. The NYTimes is correct that South Africa faces many problems including poorly educated workers, AIDS, and crime. But it is not true that South Africa is doing poorly “despite [it’s] sound economic policies.” In particular, if you read to the 22nd paragraph you find this buried lede:

In other developing countries, legions of unskilled workers have kept down labor costs. But South Africa’s leaders, vowing not to let their nation become the West’s sweatshop, heeded the demands of politically powerful labor unions for new protections and benefits. According to a study conducted in 2000 for the government’s finance department, South Africa’s wages are five times higher than Indonesia’s, even though its workers are only twice as productive.

To the great detriment of its people, South Africa’s leaders have been successful. South Africa is not the West’s sweatshop.

When is it rational to honor sunk costs?

Alex offers up some biography and describes his encounter with sunk costs. He asks the classic question: why honor a cost once it is sunk? Why not just go ahead and do what is best?

Brian at CrookedTimber writes the following, citing a paper by philosopher Thomas Kelly:

The main idea (roughly stated) is that since the value of an action is partially determined by what happens in the future…our current actions can be sometimes justified by the redemptive value they confer on past actions.

What does this mean concretely? Here is one example from Kelly:

One might prefer that, if others have made significant sacrifices in attempting to realize some valuable state of affairs S, then their sacrifices not be in vain. That is, one might prefer that these sacrifices causally contribute to the realization of some valuable state of affairs…Interestingly, one sometimes is in a position to determine, by one’s own actions, whether the past efforts of others will have been in vain. This is true, for example, when it is within one’s power to finish some valuable project in whose service others have labored, but which they are now not in a position to complete. Let us say that when one acts so as to prevent the past efforts of others from having been in vain one redeems those efforts.

In other words, you don’t want to admit that you shouldn’t have started your blog. And how about this?

Gilbert Harman…observes that, so strong is our desire to see our own past efforts play a role in bringing about valuable ends, we will often adopt new ends, carefully tailored, so that our past efforts can be seen as instrumentally valuable means to the achievement of these ends.

Let’s not forget the game-theoretic rationale for honoring sunk costs: You might honor sunk costs so that others do not perceive you as wasteful, or so that others perceive you as constant and reliable. Robert Nozick argued that we follow through on sunk costs as a kind of self-discipline, to prevent ourselves from initiating too many stupid undertakings in the future. If you self-signal that you will follow through on your commitments, you will be more careful in accepting commitments in the first place.

By the way, I have found that women honor sunk costs to a greater degree than do men. Furthermore women often do not like it when men announce that something is “only” a sunk cost.

The bottom line: Once your model of choice is at all complex, no one knows what a sunk cost means any more. So a theoretical scolding of those who honor “sunk costs” is not completely well-defined. That being said, there is still the empirical question of whether most people attach too much weight to previous plans and have a status quo bias. The experimental evidence suggests that we are more rigid than we need to be. The propensity to honor previous commitments may have efficiency properties, but we cannot discard this proclivity when we ought to.

Is overconfidence good for traders?

A little confidence is a good thing. But a lot of confidence may be even better — particularly if you’re a high-powered currency trader playing the international money markets.

Finance professor Carol Osler found that at least some of the wild and unexplained fluctuations in currency markets may simply be due to overconfident money traders. “Overconfidence can help you get ahead, but it can have serious ramifications, too,” says Osler, who teaches at the International Business School at Brandeis University.

Osler and her research colleague, psychologist Thomas Oberlechner of the University of Vienna, interviewed 416 currency market traders. They asked these wheeler-dealers to rate how successful they were as traders on a seven-point scale ranging from “much less successful” than other traders to “much more successful.” They also asked the traders’ bosses to rate the employees’ value to the firm, and then asked the traders to estimate what the exchange rate of five currencies would be in six months and in a year.

The first thing they learned is that — surprise! — most currency traders have outsize egos: Nearly three in four rated themselves as “better than average.” Even most traders working at less prestigious institutions thought they were better than most, Osler and Oberlechner reported in a paper they have presented at two European universities and at Harvard.

The distinct whiff of hubris was confirmed when they compared the traders’ self-evaluations with the supervisors’ ratings. More than half of the traders gave themselves a higher rating than their supervisors did, while few underestimated their value.

The researchers found that this self-confidence had no impact on a company’s bottom line. But it had a dramatic and positive impact on the careers of traders, increasing their chances of becoming a senior trader or chief dealer, when other factors such as age and trading success held constant.

Here is the link. Here is Carol Osler’s home page.

My take: I have mixed feelings about the core result. On one hand, competition is thick and you have to take chances to win special positions in life. This requires a certain amount of hubris. That being said, I worry about selection bias in the results. You only observe the ones who made it. Try asking the bankrupt currency traders, lying in the proverbial gutter, if cockiness was good for them. And let’s not forget about those in jail, or headed there.

Krugman vs the CEA

Paul Krugman goes beyond the bounds of decency and evidence when he accuses the Council of Economic Advisors of corruption. His evidence? The following graph (click to expand):


Krugman writes:

…wishful thinking on this scale is unprecedented. What you see in this chart is the signature of a corrupted policy process, in which political propaganda takes the place of professional analysis.

Now, the CEA has certainly made mistakes and can justifiably be accused of optimism (see Brad DeLong and passim) but Krugman’s chart is highly misleading. Here is the same data but over a slightly longer time-frame.


With this graph it becomes clear that the CEA has in essence been predicting a return to trend. Obviously, the CEA has been wrong, employment has not returned to trend, but that surely tells us more about the peculiar nature of this recession than it does about corruption at the CEA.

Has political progaganda taken the place of professional analysis? Indeed.

Mexican democratization

1. “The making of Mexico’s democracy was distinctive in many ways. There was no Nelson Mandela, no single leader to personify and guide the struggle. Nor was there a single democratic movement, but rather a multitude of initiatives from individuals and groups across the society and the country, which gradually converged as more and more Mexicans became convinced of the need to end the PRI’s despotic rule.”

2. “We contend that Mexico’s opening to democracy is one of the few major developments in the country’s modern history that was not shaped by invasion or intervention by the United States.”

3. The Salinas cabinet had an amazing preponderance of economics Ph.ds. His Finance Secretary had a Ph.d. in economics from MIT. The Trade Secretary and Budget Secretaries had Ph.ds. in economics from Yale. Salinas’s Chief of Staff studied Political Economy at Stanford. The head of the PRI at the time had a masters in economics from University of Pennsylvania. His government favored economic liberalization but did much less for democracy.

4. “It can be argued that Raul Salinas de Gortari [brother of the president, Carlos] did more than any other living Mexican to contribute to his country’s transition to democracy. His, however, was not a hero’s role; his impact stemmed from the compelling force of his negative example. He did more to discredit the PRI system in the eyes of the Mexican people than anyone else in seven decades, and in so doing, he significantly hastened the demise of authoritarian rule.” Follow this link to the famous photo of Raul with his mistress.

5. Since democratization, progress against crime, corruption, and drug trafficking has been slow at best. The Mexican public agrees.

6. Some communities in southern Mexico still reckon time with the Mayan calendar.

7. By 2002, “some were saying that [Vincente] Fox’s only truly major achievement had been to get himself elected.”

The facts and quotations are from Opening Mexico: The Making of a Democracy, by Julia Preston and Samuel Dillon, an excellent book on how an autocratic society can find its way to democracy.

The jobless recovery

This week’s Business Week had a useful though non-revelatory feature article on the jobless recovery (note that the paper edition has much more than the link).

The bottom line? Two root causes — productivity gains and fear — appear to be causing our economy’s weak employment performance.

Rapid productivity gains mean that a business can produce the same output with fewer workers. So unless demand is truly booming, why hire more people?

At the same time uncertainties have kept business cautious. Terrorism, corporate scandals, and the bursting of the high-tech bubble all provide extra reasons to wait. Counterintuitively, largely positive changes, such as productivity boosts and their accompanying sectoral shifts, can spur caution as well. Why make your irreversible investment today when you will know more two years’ down the road?

Some research sources suggest that outsourcing has cost the U.S. only 300,000 jobs in three years, though all such figures should be taken with a grain of salt (for instance, when calculating the number, what is the relevant counterfactual?). A Wall Street Journal survey (12 March 2004) found that only sixteen percent of responding economists blamed outsourcing as a significant source of job losses. More importantly, outsourcing creates more jobs than it destroys; let us not forget the positive role of insourcing as well, the U.S. receives massive capital flows from outside.

And who is to blame for the jobless recovery? Paul Krugman finds a not unsurprising culprit:

…should we blame the Bush administration? Yes – because it refuses to learn from experience. Franklin Roosevelt, in his efforts to combat economic woes, was famously willing to try anything until he found something that worked. George Bush, by contrast, seems determined to try the same thing, over and over again.

I hope Krugman does not really mean the Roosevelt point. Recall that the Great Depression was by many measures worse in 1937-8 than in 1932. A willingness to “try anything” is hardly a recipe for economic success.

And while I buy the Krugman line on Bush’s fiscal irresponsibility, we don’t find it priced in the bond market. So why should we think those bad policies are driving the labor market?

Brad DeLong suggests that the tax cut was ill-targeted for the purposes of stimulating aggregate demand. Point granted. That being said, government is better at stimulating nominal rather than real aggregate demand. In times of structural uncertainty, often the latter is more badly needed. So I don’t blame Bush fiscal policy, whatever its flaws, for the jobless nature of recovery.

The Democrats have little to offer in the way of short-run cures. Perhaps assisting the jobless can be defended on distributional grounds, but it can delay reemployment as much as boost it. A new President, whether or not you favor the idea, would increase rather than lower uncertainty, at least at first. Greater fiscal responsibility will pay off in the future (I am all for it), but I don’t see how it will boost employment over the course of, say, two years. Most of the relevant uncertainties are real and structural in nature.

Read this post on why many people are no longer looking for jobs. Reeducation is a significant reason why many people have stopped looking for work. This might someday kick in with higher productivity. But note also that workers fear being locked into jobs that will later brand them as losers. So in times of uncertainty they, like businesses, often will simply prefer to wait.

The bottom line: There is a potential silver lining in the cloud that we call the jobless recovery. Once those people get to work, output could be especially high, provided we don’t mess up in the meantime. That being said, responsible economists all along the political spectrum remain puzzled by the jobless recovery. We can cite and roughly agree on its causes. But at the end of the day, relative to other recoveries, we all remain surprised by the slowness of employment to adjust.

Addendum: Here is Alex on productivity and employment.

Alison Krauss + Union Station

Alison Krauss has the voice of an angel. You probably heard her on the Academy Awards singing a track from Cold Mountain or on the wonderful soundtrack for O Brother, Where Art Thou? where she sings the heart-breakingly beautiful Down to the River to Pray. She plays with the versatile Union Station whose I am a Man of Constant Sorrow was also featured in O Brother. For more, Alison Kraus + Union Station Live is an excellent place to begin.

Cultural imperialism watch

Did the idea of the enclosed shopping mall come to the United States from Vienna? And was the ideology of communal European planning the original inspiration?

Austrian architect Victor Gruen brought the mall concept to this country and designed the first enclosed American mall, drawing on ideas from socialist theory. He saw malls as the new source of American community, though later in his life he became more skeptical.

By the way, what do we do when socialists bring us ideas that transform our country? In this case we named a shopping theory after the guy:

“The Gruen Effect” is what happens when a clever layout causes task-oriented shoppers to forget the purpose of their quick trip to the store and begin shopping aimlessly. It’s also the very threshold that the designers of the Mall of America want visitors to cross. “We want people to get lost in the mall,” explains Tim Magill of Jerde Partnerships, the group that designed the Bloomington complex. “We want to tweak your perceptions so you’ll be exposed to areas you would regularly pass by.”