Month: November 2005

Taiwanese national health insurance

Paul Krugman, in a recent column, cited Taiwanese national health insurance as a success.  I have been unable to form a clear picture of how the Taiwanese reforms are working (albeit using only Google).  Nonetheless Tzuhao Huang, one of my Taiwanese Ph.d. students, sent me the following article:

Once the cornerstone of social development, Taiwan’s National Health Insurance (NHI) will teeter on the brink of demise if public resistance to premium hikes continues, foreign health experts observed at an international symposium to celebrate the NHI’s 10th anniversary in Taipei yesterday.

Although the rest of the world envies Taiwan for its success in providing easy, affordable and universal healthcare, Taiwan’s NHI is suffering from a recurrent financial crisis that also besets other nations like the UK, US, Germany and South Korea. As in these countries, health insurance is a highly politicized issue in Taiwan.

"Taiwan NHI’s financial problems stem from two factors: people’s mindset and politicians’ intervention," said William Hsiao, a professor of economics at Harvard University who helped design the NHI a decade ago.

In Hsiao’s opinion, the government failed to incorporate public participation at the launch of the NHI a decade ago. Deprived of adequate information, Hsiao said, people soon developed "free-lunch syndrome" and go doctor-shopping. "Taiwanese people think that they don’t need to pay more since they’ve got NHI. In fact, the rise of insurance rates is an inevitable trend as the society grows older, richer and demands more medical care," Hsiao said.

As Taiwan matures from a one-party state to a vibrant democracy, the insurance rate has increasingly become a bargaining chip in party politics, according to Hsiao. When the financing of the NHI was legislated under an authoritarian system, the executive branch was empowered to raise the premium rate whenever the program faces a deficit. But when faced with the opposition-dominated Legislative Yuan that now exists, the executive branch has lost its power and political conflicts flare up.

Here is information on the origins of the system.  Uwe Reinhardt suggests that premium hikes will keep the system solvent, so file this under "Developing…"  But keep in mind:

a) these strains are arising while Taiwanese health care is only 4.6 percent of gdp, and,

b) politicians are resisting necessary premium hikes

My worry is that U.S. national health insurance will be used to win votes, and not to correct micro-imperfections in the insurance market.  Let’s say that you are a left-wing blogger, and, for purposes of argument, that your entire critique of the Bush Administration is correct.  Remember, this guy was re-elected.  You are relying on these very same voters, and this very same "policy correction mechanism" to make politicians accountable for a well-functioning health care system.  You should hear my in-laws or my mother complain about the Medicare prescription drug bill, and that was supposed to help them.  Scary, no?

Comments are open, especially if you know more about Taiwan.

The roots of European success

The rise of Western Europe after 1500 is due largely to growth in countries with access to the Atlantic Ocean and with substantial trade with the New World, Africa, and Asia via the Atlantic.  This trade and the associated colonialism affected Europe not only directly, but also indirectly by inducing institutional change.  Where "initial" political institutions (those established before 1500) placed significant checks on the monarchy, the growth of Atlantic trade strengthened merchant groups by constraining the power of the monarchy, and helped merchants obtain changes in institutions to protect property rights.  These changes were central to subsequent economic growth.

That is from "The Rise of Europe: Atlantic Trade, Institutional Change, and Economic Growth," by Daron Acemoglu, Simon Johnson, and James Robinson, American Economic Review, June 2005; here is a longer and earlier version of the paper.

How should Bernanke speak up about deficits?

…our current fiscal policy has the potential to make it much more difficult for the Fed to carry out its job. Senator Chuck Schumer (D-NY) recently expressed his enthusiastic support for Bernanke on the expectation that Bernanke would speak out about the need to reduce deficits. Indeed I think Bernanke will do so. But one can speak about the need to reduce deficits (something on which I would like to see both parties come to an agreement) without taking a stand on exactly how that should be done (something on which feathers in the political fight will continue to fly). If Bernanke does speak up on deficits in this limited, bipartisan way, the influence of the Fed Chair’s tongue could grow even greater and the deficit problem might be raised front and center.

That is from EconBrowser.  Nouriel Roubini also offers an excellent analysis.

I think Bernanke should tread very carefully.  The danger comes if Bernanke signals a problem and nothing good happens in response.  That would make it clear that matters will get worse.

True, you cannot fool markets forever.  But if we cannot get out of our current fiscal mess, I don’t want markets to learn that all at once.  I don’t want markets to learn — again all at once — that our very bright Fed chair is ineffective and that no one in the administration is listening.

Bernanke needs to signal concern about the deficit in exactly the right way.  Ex post, he needs plausible deniability about having complained too loudly.  Ex ante, he needs to signal he is complaining.  (That’s a tough combination, eh?)  Too much squawking, too soon, would be a mistake.  Instead he should play the chess strategy — "The threat is stronger than the execution" — and over time subtly shift the rhetorical bargaining power in Washington toward fiscal sanity.  A "do or die" stance won’t turn out well when the Administration cannot coordinate with an increasingly rebellious Congress, and that is assuming the Administration wants to do something good in response.  Finally people who play "showdown" or "chicken" with the Bush Administration don’t, er, always come out so well…

Markets in everything — funeral guests

Liu and her five-member Filial Daughters’ Band are part of a thriving mourning business in Taiwan. They’re professional entertainers paid by grieving families to wail, scream and create the anguished sorrow befitting a proper funeral.

The performances are as much a status symbol for the living as a show of respect for the dead on this island of 23-million people lying 145 km off the Chinese coast.

Weary, grieving relatives hire groups like the Filial Daughters’ Band to perform their mournful stuff for $600 for a half day’s work.

Here is the link, and thanks to Pablo Halkyard for the pointer.

The Treaty of Tripoli

In the late 1790s the US was having difficulty with Muslim pirates in the waters off Northern Africa.  After some difficulty, a treaty was signed in 1796 with the Bey of Tripoli promising friendship, trade and an end to hostilities.  The 11th article of the treaty provides a remarkable contrast between how these sorts of issues were handled by the founders and how they are handled today.  It reads:

As the government of the United States of America is not in any sense
founded on the Christian Religion; as it has in itself no character of
enmity against the laws, religion or tranquility of Musselmen; and as
the said States never have entered into any war or act of hostility
against any Mehomitan nation, it is declared by the parties that no
pretext arising from religious opinions shall ever produce an
interruption of the harmony existing between the two countries.

The Treaty was read aloud in the Senate and approved unanimously.  In his proclamation John Adams said, "I John Adams, President of the United States of America, having seen
and considered the said Treaty do, by and with the advice consent of
the Senate, accept, ratify, and confirm the same, and every clause and
article thereof."  The treaty was published in a number of leading newspapers.  It never aroused any opposition.

The Mansion Wars

John Tierney had an excellent column on "mansionization" in yesterday’s NYTimes (I am cited).  Unfortunately, it’s behind the great wall (which I predict will be down within 6 months) but here are some key grafs:   

In the town where I live, a once placid Washington suburb, the mayor has just sent out a letter asking the natives to stop throwing eggs at each other’s homes.  Such is life on the front lines of the anti-mansionization war….

My first impulse was to side with the mansionizers [because]…of my knee jerk libertarian reaction to the moralizers…Who were they to control other people’s property?…But when I talked to housing experts, they pointed to another message from the market… A majority of new homes in rapidly growing urban areas are in communities governed by private homeowners assocations that impose much stricter rules than governments do.

Some people chafe at the restrictions [but] Amanda Agan and Alexander Tabarrok…found that a home in the Virginia suburbs of Washington that was part of a private community typically sold for 5 percent more than a similar home nearby not governed by a homeowners association…

[M]ost people apparently want aesthetics to be regulated – not by politicians at the city or county level, but by homeowners in the neighborhood.  That’s why the developers of private communities write constitutions that give so much power to the homeowners associations…Those founding fathers learned by trial and error that empowering local busybodies is the best way to maximize home values and minimize strife.

Aesthetic and other rights held by homeowner assocations and condominiums are a relatively new but rapidly growing type of property, the private but collective property right.  Figuring out the best form for these rights will be an evolutionary process but one that is greatly aided by the fact that developers and homeowners have the same incentives – to make the home as valuable as possible.

Addendum: Art Woolf points me to the Rutland Herald which has Tierney’s column in full.

Torture, terrorism, and incentives

President Bush, Dick Cheney and others who support the use of torture by the United States and its agents usually rely on the ticking time bomb argument.  Sometimes torture is necessary to prevent a greater evil.   I accept this argument.  If my kid were kidnapped and the suspect was refusing to talk, I’d want Vic Mackey to do the questioning.

But it does not follow from the "ticking time bomb" argument that torture should be legal.  The problem with making torture legal is that the government will abuse its powers.  I do not trust the government, any government, to use this power responsibly.  Leviathan must be heavily restrained, especially when it comes to torture.

Here is where economics can make a contribution.  By making torture illegal we are raising the price of torture but we are not raising the price to infinity.  If the President or the head of the CIA thinks that torture is required to stop the ticking time bomb then they ought to approve it knowing full well that they face possible prosecution.  Only if the price of torture is very high can we expect that it will be used only in the most absolutely urgent of circumstances.

The torture victim faces incredible pain and perhaps death at the hands of his torturer.  If these costs are to be born by the victim then we had better make damn sure that the benefits are also high and the only way we can do that is to make the torturer also bear some of the costs.  Torture must not be cheap.

My avian flu policy paper

The piece is about forty pages, here is the pdf link.  Your comments are welcome, either below or by email.  You already have heard bits and pieces of this: pro-intellectual property, pro-decentralization, and skeptical of quarantine and centralized stockpiles.  A good plan also should prove useful for catastrophes other than avian flu.  Here is the Executive Summary of the piece:

To combat a possible avian flu pandemic, we should consider the following:

1. The single most important thing we can do for a pandemic–whether
avian flu or not–is to have well-prepared local health care systems. We
should prepare for pandemics in ways that are politically sustainable
and remain useful even if an avian flu pandemic does not occur.

2. Prepare social norms and emergency procedures which would limit
or delay the spread of a pandemic. Regular hand washing, and other
beneficial public customs, may save more lives than a Tamiflu stockpile.

3. Decentralize our supplies of anti-virals and treat timely distribution as more important than simply creating a stockpile.

4. Institute prizes for effective vaccines and relax liability laws
for vaccine makers. Our government has been discouraging what it should
be encouraging.

5. Respect intellectual property by buying the relevant drugs and
vaccines at fair prices. Confiscating property rights would reduce the
incentive for innovation the next time around.

6. Make economic preparations to ensure the continuity of food and
power supplies. The relevant “choke points” may include the check
clearing system and the use of mass transit to deliver food supply
workers to their jobs.

7. Realize that the federal government will be largely powerless in
the worst stages of a pandemic and make appropriate local plans.

8. Encourage the formation of prediction markets in an avian flu
pandemic. This will give us a better idea of the probability of
widespread human-to-human transmission.

9. Provide incentives for Asian countries to improve their
surveillance. Tie foreign aid to the receipt of useful information
about the progress of avian flu.

10. Reform the World Health Organization and give it greater autonomy from its government funders.

We should not do the following:

1. Tamiflu and vaccine stockpiling have their roles but they should
not form the centerpiece of a plan. In addition to the medical
limitations of these investments,  institutional factors will restrict
our ability to allocate these supplies promptly to their proper uses.

2. We should not rely on quarantines and mass isolations. Both tend
to be counterproductive and could spread rather than limit a pandemic.

3. We should not expect the Army or Armed Forces to be part of a useful response plan.

4. We should not expect to choke off a pandemic in its country of
origin. Once a pandemic has started abroad, we should shut schools and
many public places immediately.

5. We should not obsess over avian flu at the expense of other
medical issues. The next pandemic or public health crisis could come
from any number of sources. By focusing on local preparedness and
decentralized responses, this plan is robust to surprise and will also
prove useful for responding to terrorism or natural catastrophes.

Cosby was Correct

In Debunking Cosby on Blacks Washington Post columnist Michelle Singletary attacks Bill Cosby for his speech last year to the NAACP. 

Poor blacks are bad parents because they waste what little money they have
buying high-priced, brand-name shoes, Cosby chided.

"All this child knows is gimme, gimme, gimme," Cosby said, according to
a transcript of the speech. "They are buying things for the kid. $500 sneakers.
For what?"

Cosby was lauded by white conservatives and some blacks for being brave
enough to speak out. But like the price of sneakers that Cosby got wrong, he was
incorrect about much of what he said.

…the comedian was rattling off
nonsense much like his Fat Albert character Mushmouth.

I was curious so I went to Table 2100 of the Consumer Expenditure Survey and found the following for 2003:

Average income of whites and other races: $53,292.
Average income of blacks: $34,485.

The survey then lists expenditures on a wide variety of goods from eggs and fish to books and televisions; to do a proper comparison we would have to correct for income and other demographic variables but some figures just jump out at you, including this:

Expenditures on footwear by whites and other races: $274
Expenditures on footwear by blacks: $440.

Chalk one up for the good Dr. Cosby. 

Bad Statistics Lead to False Hope

Newspapers around the world are all agog with the story of a British Man, 25, ‘cured of HIV’; that headline from the normally reserved BBC.  Scot is first in world to beat HIV says, (can you guess?), the Glasgow Sunday Mail.  The more cosmopolitan, but doubly wrong, Medical News Today says, Man is Cured of AIDS.  Other newspapers are reporting that doctors are "stunned," "mystified" and wondering whether this man holds the key to curing AIDS.

The story is pathetically simple once one gets past the headlines.  A man tested positive for HIV, he took a lot of vitamins and just over a year later tested negative (several times).  Now what are you going to believe that he cured himself of HIV or that the first test was wrong?  HIV tests have high accuracy but when millions of people take these tests it’s an easy bet that there will be significant numbers of false positives.

It is even possible that in low-risk populations there will be more incorrect diagnoses than correct ones!  Doctors may be stunned but to a statistician results like this are banal.  Unfortunately, in about a dozen articles that I took a look at, many doctors were quoted (sadly, even the skeptical doctors were skeptical for the wrong reasons – they think the guy must still have HIV!) but not a single statistician.  For the correct statistics see here or my earlier post, Why Most Published Research Findings are False, which analyzes a different application of the same idea.

Can we take care of everyone?

Here is one reader (first quoting me) from the comments section of my post on health care:

"I would admit that we cannot take care of everyone and that we face tough trade-offs."


Here is another:

"I would admit that we cannot take care of everyone and that we face tough trade-offs."

Why can’t we? Other industrialized countries do it. We’d have to raise taxes by a nontrivial amount, to be sure, but we certainly could do it if we wanted to. You don’t get points for intellectual honesty by ruling some policy options out of bounds a priori without explaining why.

Every day about 155,000 people die.  They die in Europe too.  People die from heart attacks and they die from flu.  Children drown in buckets and people die in car crashes.  We don’t call these health care problems but they still kill you.  We could spend the Laffer-health-maximizing percent of our gdp on health care and these people still would die, sooner or later.  Most would still die sooner.  We could repeal the Bush "tax cuts" and they still would die.  The world also has several billion very poor people, and other billions of moderate but not wealthy means.  They count too. 

We can take some limited group of these people and make them better off by selective health interventions.  But we should choose the targets of our benevolence carefully, and we should remain cost effective.  No matter how good a job we do, many more people will slip through our fingers.  Those who are "taken care of" receive only marginal improvements for temporary periods.

The liberal tendency is to want to feel that you are taking care of everybody.  Policies, such as national health insurance, maximize this feeling.  In the process the idea of margin is often forgotten.

Philosophical observations: Conservatives, liberals, and libertarians all exhibit different attitudes toward death.  Conservatives are obsessed with death; look at their emphasis on abortion, capital punishment, and the need to kill people in our foreign policy.  In their view death is everywhere, and we must make hard decisions to limit it (banning abortion and invading other countries, for a start).  Liberals promote an ethic of caring, and prefer not to let death enter the political calculus too much.  Most of all, they will tell us death is to be avoided.  But thinking too closely about death leads us to feel we are not taking care of everybody; furthermore it shows this ethic to be ill-defined or impossible.  Libertarians are closer to the liberal attitude, although a liberty ethic replaces a caring ethic.  If libertarians thought too much about death, they would have to admit that it is the greatest loss of liberty possible (even worse than taxes), which might lead to government intervention.  At the very least it would imply an emphasis on positive rather than negative liberties.

The conservative attitude toward death — at least in general terms — is the most accurate and realistic of the bunch, but also the most dangerous.  By rubbing death in our faces, it can inure us to the horrors of killing people or letting them die.