Month: August 2007

Insurance markets in everything, getting caught edition

by  Tyler Cowen in

"My favourite ticketing system was in Mumbai, India," Kim enthuses. "No one actually buys a ticket, but you can buy ‘ticket insurance’ from private entrepreneurs who work at the entrance of the station.  The ‘ticket insurance’ is about half the price of a regular rail ticket.  It gives you a guarantee that, in the extraordinary event that you are booked by a railways inspector for taking a free ride, your fine will be paid.  A relative was once booked and the ticket insurer paid the fine exactly as promised."

Here is the link, and thanks to Brendan Leary for the pointer.

The bill to raise the value of the yuan might pass

by  Tyler Cowen in

So reports The Washington Post.  It is worth reviewing (my interpretation of) Milton Friedman:

1. Attempts to stabilize nominal exchange rates, as the Chinese are doing, can in fact be destabilizing, since the eventual adjustment will often come suddenly rather than gradually.

2. Accelerating that adjustment by passing laws aimed at foreign countries is unlikely to be a good idea.  The laws encourage a sudden adjustment now, become a focus on rampant speculation, and the target of the laws is unlikely to react with good grace or feel gratitude. 

3. In the long run a country can peg its nominal exchange rate but not its real exchange rate.  In other words, if the Chinese lower the value of the yuan sooner or later Chinese prices will rise to restore the appropriate terms of trade.  Sterilization of flows (e.g., soaking up Chinese money supply by selling bonds) can succeed for only so long and eventually the problem will cure itself.

4. We might have to actually apply the punitive tariffs.

In other words, this development is really bad news.

Medicare for everyone, part II

by  Tyler Cowen in

Here is an excellent NYT column on health care, by Alex Berenson.  The bottom line is this: U.S. medical care costs are so high for (at least) two key reasons: a) personnel costs are much higher than in Europe, and b) U.S. doctors usually are paid fee for service, rather than fixed salaries.  That leads to much more spending, for obvious reasons.

Keep this in mind next time someone tells you that America can cover everyone through a single payer system at lower expense.  Berenson continues:

Medicare, especially, does not like to second-guess doctors’
clinical decisions, said Dr. Stephen Zuckerman, a health economist at
the Urban Institute. “There’s not a lot of utilization review or prior
authorization in Medicare,” he said. “If you’re doing the work, you can
expect to get paid.”

As a result, doctors have steadily increased
the number of procedures they perform on Medicare beneficiaries – and
thus have increased their income from Medicare, Dr. Zuckerman said. But
the extra procedures have not helped patients’ health much, he said. “I
don’t think there’s any real strong evidence of improvements in health
status.”

This same incentive is weaker when doctors are paid fixed salaries.  One key question for single payer advocates is the following:

Through what mechanism will you replace doctors’ fee for service with fixed salaries?

In closing, let me quote the always-worth-reading Matt Yglesias:

…when it comes to defending the interests of powerful, entrenched local groups, Democrats are usually about as bad as Republicans.