Month: June 2007

Nordic model

A new blog, the topic is obvious, hat tip to New Economist.  I’ve said it before, I’ll say it again.  No matter what your politics, contemporary northern Europe represents a high point in human civilization.  If you’re not deeply interested in the region, you should be.  If you haven’t visited, you must.  Go, go, go.  Travel is the starting point of learning social science.

Addendum: Elsewhere Meghan O’Rourke notes: "It’s telling, for example, that in Scandinavia, where attitudes toward gender are more egalitarian, both men and women wear engagement rings."

More utopian (dystopian?) health care plans

Your body is scanned and monitored by implanted bots; the fight against terrorism made that necessary anyway.  All insurance based on the idea of expense reimbursement is banned.  But if you get sick, they send you some money.  Plain ol’ cash, to spend as you please.  (Off-line we can debate whether this is the government, the private sector, or some mix.) 

This would address cost escalation, boost equity, and eliminate the risk of being bounced by an insurance company, the three core problems cited by Brad DeLong.

The monitors also help us pay wealth-maximizing bonuses for those who get their prostates checked every month.

Larry Kotlikoff has proposed some version of this, minus the scanners and the check-up bonuses.

Keep in mind that standard single-payer plans give the poor, by the standard of their own preferences, far too much health care.  Let’s say a pauper received the same standard of care as a rich man; he would rather have the value in cash instead.  I suspect many of these people would rather have 50 cents in cash than $1 in health care, so right there many of these plans are losing half of their value per dollar spent.

The case against adolescence

Teens in America are in touch with their peers on average 65 hours a week, compared to about four hours a week in preindustrial cultures.

Here is more.  The problem, of course, is that a contemporary wise and moderate 33 year old is looking to climb the career ladder, find a mate, or raise his babies.  He doesn’t have a great desire to educate unruly fifteen year olds and indeed he can insulate himself from them almost completely.  He doesn’t need a teenager to carry his net on the elephant hunt. Efficient capitalist production and rising wage rates lead to an increased sorting by age and the moral education of teens takes a hit.   

Here is an interview with Robert Epstein, recommended.  His new book, The Case Against Adolescence, argues that teenagers should be treated much more like adults.

Richard Rorty dies

1. He emphasized that there is no unique way to translate the results of a model into an interpretation of the real world.  This is trivial for those who know it, but not everyone does. 

That means when DSquared writes: "[The case for free trade] can’t be derived in an economy with a positive rate of profit; Ian
Steedman proved this one in a series of papers discussed on Rob
Vienneau’s blog" the correct response is one never thought it could be derived in the first place.

See Rorty’s readable Philosophy and the Mirror of Nature; to some this is warmed-over Quine mixed with Continental gobbledy-gook but you can think that and still value the book.  This book (only $200!) has a wonderful essay on the importance of Rorty for economists and economic method.

2. Rorty stressed the importance of knowing fiction and the humanities for the social sciences or policy assessment.

3. Rorty wanted to erect "avoidance of cruelty" as a starting point for thinking about the liberal order.  I don’t think this quite works but it does represent a major and important challenge to the economic way of thinking and indeed to the entire classical liberal tradition. 

Unlike many modern liberals I take "the inevitability of death, probably painful" to be one of the starting points for political thought.  That being the case, cruelties are looming all the time and we need to pick and choose our noble actions.  I have mixed feelings about the "letting happen/causing" distinction and I place greater weight on ensuring the peaks of human existence.  Rorty’s view, consistently applied, would turn the entire planet over to the (other) animals.  I am not comfortable when I hear the phrase "optimal amount of cruelty" but I don’t wish to ignore those issues either.

Check out these comments.

The bottom line: Rorty is easy to criticize, but he remains one of more important contemporary thinkers to read.

Profile of Lant Pritchett

In The New York Times magazine, this Harvard economist is a strong advocate of open borders, or barring that, guest workers:

About 7 percent of
the rich world’s jobs are held by people from developing countries.  For
starters, he would like to see the poor get another 3 percent, or 16
million guest-worker jobs – 3 million in the U.S.  They would stay three
to five years, with no path to citizenship, and work in fields with
certified labor shortages.  He assumes that most receiving countries
would not allow them to bring families.  Taxpayers would be spared from
educating the migrants’ kids.  Domestic workers would gain some
protection through the certification process.

In effect, Pritchett
is proposing a Saudi Arabian plan in which an affluent society creates
a labor subcaste that is permanently excluded from its ranks…he
estimates his plan would produce annual gains of about $300 billion –
three times the benefit of removing the remaining barriers to trade.

He considers nationalism an "atavistic prejudice," but I think it is, at least for the time being, a necessary atavistic prejudice.  People will identify with some political unit or other and the current alternatives to nationalism usually are worse (my unverified theory is that Pritchett’s Mormon background plays a role in his views).  The key question is how many more people we can take in before this constraint starts to bite.

Not unrelated is this NYT article on the evolution of Larry Summers.

What I’ve been reading

Lots of catch-up from time abroad:

1. Liza Mundy, Everything is Conceivable: How Assisted Reproduction is Changing Men, Women, and the World.  Excellent stories, even-handed, and surprisingly philosophical.  How can you not read a good book on this topic?

2. Janos Kornai, By Force of Thought: Irregular Memoirs of an Intellectual Journey.  Charming memoirs of one of the major economists from the Communist bloc.  An intellectual autobiography, an account of how and why human beings change their minds, and an explanation of why he was more creative in Hungary than with the mainstream at Harvard.

3. Trevor Corson, The Zen of Fish: The Story of Sushi, from Samurai to Supermarket.  The first few chapters are an excellent overview and history of sushi, after that the book is a lame account of a bunch of losers taking a sushi course.

4. Brink Lindsey, The Age of Abundance: How Prosperity Transformed America’s Politics and Culture, on how America became so libertarian, reviewed here by George Will.

5. Hermann Broch, Die Schlafwandler (The Sleepwalkers).  Broch remains one of the most underrated authors of the 20th century, this may be his masterpiece but start with his shorter Death of Virgil.

The Open Borders attack

At least a dozen times in MR comments I’ve seen remarks describing me as an Open Borders advocate; this is in spite of having written explicitly to the contrary (here, see also here).  I do favor more immigration, including of the unskilled variety.  But truly open borders would put an unbearable strain on the cultural foundations of American liberal democracy; many of the immigrants themselves would be the biggest losers.  Maybe Megan McArdle (no, not her) had a good post saying much the same.  The more radical libertarians should take a cue from what is best in conservatism.

Why should the ascription of an open borders position prove so common?  Many of the anti-immigration arguments are correct when applied to the open borders position, so why not set up, find, or create the debate where one’s position is strongest?  When it comes to marginal changes, the results of which depend on empirical study, it is harder to be a polemic doomsayer.  An increase in unskilled immigrants — surely good for the immigrants themselves, and yes we can debate how many and from where — will not bring disaster to the United States.

(It is also worth pointing out that many of these "unskilled" workers in fact do a much better job at construction or carpentry than American-born alternatives.  If the immigrants are getting $15 or $20 an hour, the American might well receive less.)

The failure of the recent immigration bill was a partial surprise, but asset prices didn’t much move one way or the other.  Similarly, if a swarm of Latinos were going to turn southern California into a degenerating Mexifornia, real estate prices would be plunging.  The reality is that prices have fallen with the burst of the real estate bubble but have otherwise been rising throughout a period of continuing and predictable Latino immigration.  (Contra Steve Sailer, robust real estate prices do not come automatically from greater numbers and thus "rising demand"; it is easy enough for large numbers of rotten people to ruin land values if the inflow is destructive in net terms.)

Matt Yglesias hopes something better might yet come than the failed and highly imperfect immigration bill.  He sees a steady trend toward greater influence for liberal Democrats and a better chance in the future.  I see this issue as a Black Swan; no matter which party holds the presidency, one focal and negative public event could set back the cause of immigration reform for twenty years.  I am sad that nothing good is likely to happen soon.

Consumer surplus and the Internet

Our analysis indicates that the
increased product variety of online bookstores enhanced consumer
welfare by $731 million to $1.03 billion in the year 2000, which is
between seven to ten times as large as the consumer welfare gain from
increased competition and lower prices in this market.  There may also
be large welfare gains in other SKU-intensive consumer goods such as
music, movies, consumer electronics, and computer software and


Here is the paper, the pointer is indirect through Tim Harford.  Do read my previous post — relevant for the wage stagnation debate — on how much the Internet is worth.

Away From Her

I often ponder how much meaning a single moment can have; a related question is whether it matters if this single moment is connected to many years of complementary life experiences.  Meditations on the nature of marriage and also identity remain favorite topics of mine.  The morally complex Canadian drama Away From Her concerns the evolution of Alzheimer’s in a woman and her husband’s reactions.  It is one of the best movies I have seen, ever, though it is hard to say more without spoiling the surprises.  It is guaranteed to make you cry, and I’m not referring to the ending.  For the wonks it even has some bits on health care policy.

Here is more information.  And if you are interested in Alzheimer’s, John Bayley’s Elegy for Iris is one of my favorite books.

Brad DeLong’s health care plan is outed

It is described as utopian, read it here, excerpt:

20% Deductible/Out of Pocket Cap: The IRS snarfs
20% of your family economic income and uses it to pay your family
health bills. If your expenses in a year are less than 15% of your
family economic income, the balance is returned to you with your tax
refund check (or stuffed into your IRA).

Single-Payer for the Rest: All family health bills
greater than 20% of your family economic income are paid by the federal
government out of the 5% not returned (and perhaps, someday general
revenues). The main point, after all, is insurance: if you fall
seriously sick, you want right then and there to be treated whether or
not your wallet biopsy is positive.

Sin Taxes: on Tobacco, Gorgonzola, Three-Liter Bottles of
Liquid High-Fructose Corn Syrup, Tanning Clinics (Melanoma), et cetera:

Sin taxes (and, perhaps, someday general revenues) pay for an army of
barefoot doctors and nurses and mobile treatment vans roaming the
country and knocking on doors: Let me examine your prostate. Mind if I
check your refrigerator and tell you how to eat healthier? Have you
exercised today? I’m a Pilates instructor, and we could do a session
now? Are you up on your immunizations? Anybody here have a fever and
need antibiotics? Come on out to the van and I’ll clean your teeth."
The idea is to make the preventive care cheaper-than-free, to insure
that nothing with a high long-run benefit/cost ratio gets left undone
because people would rather get a bigger check the next April to use to
buy an HDTV.

A Lot of Serious Research on Best Public-Health, Chronic-Disease, and Hospital Practices

That’s it. No deduction for employer-paid health expenses. No insurance companies.

There is plenty of further rationale given, do read the whole post.  But I have to say, those rubber gloves have me worried… 

Profits and Losses

Daniel Davies thinks that it’s a point in favor of heterodox economics that neoclassical economics assumes profits are zero ("normal") while profits in the real world are not zero.  Tyler says the explanation is market power.  I think both are mostly wrong.

Take a look at the national income accounts.  Most of gross domestic income is wages, about  56%.   Proprietor’s income and corporate profits are together about 17% but most of proprietor’s income is really labor income and a good chunk of corporate profits is interest and a return to capital.  In a generous accounting true profits might be 5-10% of gross domestic income – not zero but not very large either.  Indeed, 5-10% is an amazingly low figure when one recognizes that the entire capitalist economy depends on the existence of profits. 

Is the explanation for profits monopoly power?  Not really.  Or rather, the better way of phrasing it is that most profits are a return to innovation and entrepreneurship.  Innovation and entrepreneurship typically bring some market power but disequilibrium monopoly has very different implications for policy than equilibrium monopoly

Here’s some intuition.  Textbook neoclassical economics says profits and losses are zero. The standard monopoly story can explain profits but not losses.  The return to entrepreneurship/dynamic economy/creative destruction story that I am telling can explain both profits and losses. 

Thus Davies is correct, profits do suggest a role for heterodox economics but it’s not the paleo-Keynesian/Marxist heterodoxy that gets the boost but the Austrian heterodoxy of Mises, Hayek and Schumpeter.