Month: December 2005

Must I Retire Now? Must You?

by  Alex Tabarrok in

I will leave the philosophical assumptions unquestioned.  What about the economic assumptions?

1) What happens if everyone follows the philosopher’s advice and
retires so long as they are below the median of the unemployed?  Is
there a stable equilibrium?  Yes, in equilibrium every worker with a
job must be better than the average worker without a job.   This
certainly seems possible although it is hard to see how it is optimal –
can no change in wages or job assignments make it beneficial to hire
more workers?  The fixity of jobs assumption is very strong.

2) More generally, if workers are
paid their marginal product and are appropriately assigned (e.g. better doctors work on harder cases) then no worker need retire.  With appropriate assignment, when a below-median doctor does retire he would not be replaced by an above-median doctor.  Instead, the new better doctor would be slotted in for
more difficult work, everyone else would move down slightly and the
retiring doctor would be replaced by one only marginally better. 

3) What happens in general equilibrium?  With flexible markets everyone gets a job so the worker who retires because he is below median is replaced by a worker from another industry.   It’s no longer obvious that this is optimal.

Most generallly, comparative advantage tells us that markets find a place for even the lowest-quality workers.  For the argument to apply we need a relatively fixed number of jobs, relatively fixed wages and a large reserve army to draw from.  Supreme Court justices come to mind.

Beethoven died from lead poisoning

by  Tyler Cowen in

By focusing the most powerful X-ray beam in the Western Hemisphere
on six of Ludwig van Beethoven’s hairs and a few pieces of his skull,
scientists have gathered what they say is conclusive evidence that the
famous composer died of lead poisoning.

The work, done at the
Energy Department’s Argonne National Laboratory outside of Chicago,
confirms earlier hints that lead may have caused Beethoven’s decades of
poor health, which culminated in a long and painful death in 1827 at
age 56.

Wine from lead cups may have been the problem.  Here is the full story.  Just yesterday over lunch I had to shoot down (shout down?) Bryan Caplan’s claim that Wagner was the greater composer of the two.  Bach and Beethoven are at the top, then Mozart and Brahms.  After that it gets hard, but Stravinsky, Chopin, Monteverdi, Haydn, and Wagner come to mind…

How about health care vouchers?

by  Tyler Cowen in

Many of you favor vouchers for primary education so why not for health care?  Ezekiel Emanuel and Victor Fuchs write:

We propose a system of universal health-care voucher that would provide every American under 65 a voucher for basic health services from a qualified insurance company or health plan. Participating health plans would have to guarantee enrollment and renewal for the risk-adjusted value of the voucher regardless of medical history. Those who enrolled would be free to choose among several basic insurance programs and health plans; those who failed to enroll would be assigned one.

People who wanted to purchase additional services or amenities, such as a wider choice of hospitals and specialists or more-comprehensive mental-health or dental services, could do so with their own after-tax dollars.

Where would the funding for the vouchers come from? From an earmarked VAT, or value-added tax. Earmarking creates a direct connection between benefit levels and the tax level: if the public wants more services to be covered, they must be willing to support a tax increase. A VAT is administratively efficient, cannot be easily evaded, and creates an approximate link between taxation and personal wealth.

Government itself would not administer medical services; the current private delivery system would be maintained. Health-insurance companies and health plans would continue to contract with physicians, hospitals, rehabilitation facilities, pharmacies, and other providers for services to the individuals who enroll in their plans.

With universal health-care vouchers, employment-based insurance would probably fade away, and with it the lower wages, higher prices, and reduced employment that it brings. Critics across the political spectrum have noted the many shortcomings of employment-based insurance; few would mourn its passing. Medicaid and other means-tested programs would also become virtually obsolete as those covered were integrated into the mainstream health-care system. (Funding for long-term care such as nursing care would need to be continued.) As for Medicare, it could be phased out over time without forcing any existing beneficiary to switch to the voucher system. Importantly, current Medicare benefits would be supplemented by a tiered pharmacy benefit modeled on the one provided as part of the voucher program’s basic benefits package.

Management and oversight of the voucher program would be the responsibility of a federal health board modeled after the Federal Reserve Board, with multiple regional boards to facilitate implementation. It would define and periodically modify the basic benefits package, inform Americans about their health-care options, reimburse health plans, and collect data on patient satisfaction, quality of care, risk, and geographic adjustments for payments. It would also regularly report to Congress on the health-care system. The success of the voucher program would also be assessed by an independent institute, funded by a dedicated portion of the VAT, that would research the effectiveness and value of different interventions and treatments.

Here is the full argument, and another explanation, try here too.  Here is the write-up for Rand.  Daniel Akst has put forward related ideas in The New York Times.  Here is another version of the plan. 

What is the main problem with this idea?  Is it that insurance companies would have to be so stringently regulated (otherwise they cut benefits for high-risk buyers) that this amounts to single-payer insurance with the companies as an extra shell and thus an extra cost layer on top?

Comments are open.

How to save for your retirement

by  Tyler Cowen in

…for most of us, it would probably be easy to save for retirement if we
were willing to live like your parents did–or at least like my parents
did. One television, no stereo, no VCR, no cable, one (used) car, six
rooms for four people, no eating out, no cell phones, no vacations
other than visiting relatives, stretching meat out with egg and bread
and noodle rings, jello as a salad, turn the light off when you leave
the room and get off the phone–it’s long distance!

Jane Galt has more.  Saving is less fun than it used to be, most of all in the United States.  That is one reason why we save less, or save only in fun forms, such as capital gains on our homes.  The better your society at marketing and retail, the harder it is for abstinence to compete.

Don’t trust expert predictions

by  Tyler Cowen in

Last night I finished Philip Tetlock’s Expert Political Judgment:

…no matter how unequivocal the evidence that experts cannot outpredict chimps or extrapolation algorithms, we should expect business to unfold as usual: pundits will continue to warn us on talk shows and op-ed pages of what will happen unless we dutifully follow their policy prescriptions.  We — the consumers of expert pronouncements — are in thrall to experts for the same reasons that our ancestors submitted to shamans and oracles: our uncontrollable need to believe in a controllable world and our flawed understanding of the laws of chance.  We lack the willpower and good sense to resist the snake oil products on offer.  Who wants to believe that, on the big questions, we could do as well tossing a coin as by consulting accredited experts?

Daniel Drezner has two excellent posts on the book, here and here.  Here is Louis Menand’s glowing review from The New Yorker.  Here is Tetlock’s home page.  Here is a sample book chapter.

And yes Tetlock has data, drawing upon twenty years of observation of 82,361 forecasts.  Tetlock also finds that "foxes" forecast better than "hedgehogs" and that only the forecasts of foxes have positive value.

This is one of the (few) must-read social science books of 2005.

My caveat: Assume that the experts are usually wrong in their novel predictions.  The consensus views of a science still might be worth listening to.  Economists cannot forecast business cycles very well, but you should listen when they tell you that a deflationary shock is bad news.  Each new forecast or new theory is an example of individual hubris and in expected value terms it is stupid.  But the body of experts as a whole, over time, absorbs what is correct.  A large number of predictions creates a Hayekian discovery process with increasing returns to scale.  Social knowledge still comes out ahead, and in part because of the self-deceiving vanities put forward every day.  You can find that point in Jonathan Swift’s Gulliver’s Travels.

Comments are open, most of all if you have read the book or other work by Tetlock.

Sonic paternalism, Australian style

by  Tyler Cowen in

Like elsewhere in the Australian work force, an
industrial revolution is happening in the pit of the Sydney Opera
House. Under a new interpretation of WorkCover rules, players in the
Australian Opera and Ballet Orchestra can’t be exposed to sound levels
higher than 85 decibels averaged over a day.


This will have implications for orchestral music generally, but its
immediate impact is being felt on, of all things, the Australian
Ballet’s Sleeping Beauty. To avoid any one musician being exposed to
excessive sound, the orchestra is working with relay teams of extra
musicians: four separate horn sections, four of clarinets, four of
flutes, and so on. The orchestra that begins a particular performance
isn’t necessarily the same one that finishes it.

It’s a logistical nightmare and an expensive one, adding $100,000
to the ballet’s production costs. And all this for a score as lyrical
and romantic as Tchaikovsky’s Sleeping Beauty, never mind the noisily
modernist Rite of Spring.

Here is the full story.

Canadians Need Global Warming

by  Alex Tabarrok in

As an expatriate I had to laugh at those Canadians in Montreal bundled up in their parkas and toques protesting global warming!  If there is any place in the world that could use some more warming it is the great frozen north.

That was my opening for the interview with the BBC on global warming and AIDS.  Unfortunately, it was something of a disappointment as that was about all that I got to say.