Month: November 2007

Dutch Treat

THE Dutch health minister, Ab Klink, is considering a recommendation to offer
free health insurance for life to anyone who donates a kidney for transplant.

The award would be quite valuable, worth about $1500 a year or $24,000 in present discounted value (30 yrs, 5% discount rate, no increase in health care costs).  Becker and Elias predict a large increase in organ supply at $15,000 so the Dutch are in the ballpark for a good test.  More here.

Thanks to Dave Undis of LifeSharers for the pointer.

View quake reading

Ryan Holiday blogs my email to him:

My reading was much different when I was younger. I would more likely
intensively engage with some important book totally full of new ideas.
Hayek. Parfit. Plato. And so on. There just aren’t books like that left
for me anymore. So I read many more, to learn bits, but haven’t in
years experienced a "view quake." That is sad, to me at least, but I
don’t know how to avoid how that has turned out. So enjoy your best
reading years while you can!

Quine should be on that list as well.  Nietzsche was a view quake in high school, though I find him oddly uninteresting upon rereading.  Here is Ryan’s post on Marcus Aurelius.; the Stoics collectively were a view quake for me, in economics there was Anthony Downs and Thomas Schelling and Albert Hirschmann.  David Hume.  Maybe Rene Girard was the last "view quake" author I read.  On the upside, greater context means that many more books are interesting than was the case before.

Many of you are asking me about Amazon Kindle, the new ebook (sort of); Jason Kottke offers a round-up of opinion.

Piling on Samuelson

Like Tyler, I think Samuelson has not done his homework.

Here is Paul Samuelson:

But financial panic engendered by the burst bubble of unsound U.S. and
foreign mortgage lending means that even a mammoth corporation like
General Electric would find it expensive now to finance a loan needed
to build a new and efficient factory.

Here is Jeffrey Immelt, chairman and chief executive of General Electric:

Q: What’s your opinion of the "credit squeeze" and the view that the US economy may be about to run into difficulties?

A: It’s clear there has been some bad lending behaviour [by banks] in the
US. But in the world as a whole, there is still a lot of liquidity.
Companies generally have strong balance sheets, giving them the ability
to borrow on reasonable terms….If you consider the problems in the credit markets, they will not have
an impact on the vast majority of GE’s business. In other words, the
overall effect on GE will be limited.

Yes, Immelt’s job is to be rosy but profits are strong at GE.  I’d like to see some evidence for Samuelson’s statement. 

Paul Samuelson, pessimist

Today, Federal Reserve Chairman Ben Bernanke admits that nobody, including
him, is able to guess how near to bankruptcy the biggest banks in New York,
London, Frankfort and Tokyo might be as a result of the real estate crisis.

Taken literally, Samuelson is correct.  No one can say how near to bankruptcy those banks are but that is because they are not very near to bankruptcy.  Subprime crisis or not, most people are still paying off their mortgages quite comfortably.  Many bank share prices are down but the major banks are not hovering close to p = 0.

I’m not sure what Samuelson counts as "today," but using Google News I cannot find any such statement by Bernanke and if it had been made it would be a) grossly irresponsible, b) headlines, and c) the market would have plunged dramatically.  The most likely possibility is that this passage is a simple untruth, not representing what Bernanke said.

Samuelson draws an analogy between today’s subprime crisis and Herbert Hoover claiming the Great Depression would end soon.  It’s worth noting that Hoover faced high unemployment, radical deflation, incompetent monetary policy, bank runs, and a lack of automatic stabilizers, none of which are the case today.

It is amazing how pessimism and the desire to blame will cloud men’s minds. 

It can be said, however, that if further bad things were to happen, "the crisis so far" would mean we have much less room to maneuver.  So I’m not telling you that everything is fine, I am simply putting this piece in perspective.

Here is the link and much more.

Energy price lock-ins

Trieu, a loyal MR reader, asks:

I’ve recently received "lock-in" offers from my gas and electricity company.  They’re offering me the "opportunity" to commit to the current price of gas and electricity for two years, instead of paying the fluctuating month-to-month rates.  Naturally, this offers set off my scam alert.  Are the energy companies signaling that they think energy prices are too high and will go down?  Or do you think there could be something else behind the strategy?

If you draw a standard and supply diagram, you can see that fluctuating prices (with a constant mean) increase expected consumer surplus but decrease expected producer surplus.  For instance as a buyer you’d rather have a price of 50 half of the time and a price of 200 the other half of the time, rather than 125 all the time; the opposite is true for the seller.  That is one reason why the utility may prefer a lock-in.

There is also a "only the stupidest consumers will respond" effect.  It costs the utility very little to make an offer favorable to themselves but unfavorable to the consumers.  It’s worth doing even if only a few people accept.  Given that utilities are regulated monopolies, you should expect conflict of interest to be high and thus decline most of their offers.

The most general response is simply that you should insure only against catastrophic events, and yes that sometimes includes your wife getting mad because you didn’t buy a product warranty on your latest purchase of toothpicks.

Surgery vs. Drugs

Levitt and Dubner discuss bariatric surgery in their most recent NYTimes column.  Writing on their blog (they or their publicist) say this:

Bariatric surgery is often the most effective treatment for the morbidly obese,
and with a mortality rate of around one percent, it isn’t terribly risky…

Not terribly risky!!!  I consider a 1% chance of death to be very risky, perhaps worthwhile for some morbidly obese people but when 1 in every 100 patients doesn’t make it off the table that is not good odds.

What I find most interesting, however, is that I don’t think that any drug, even one with net benefits, could pass FDA trials with a mortality risk of 1%.  Recall that Rezulin was pulled from the market when 63 out of 750,000 people developed liver problems (the actual number may have been higher of course but the numbers aren’t even close.)   

It doesn’t make sense to regulate one source of risk at much higher rates than another source, given equal benefits.  It’s quite possible, for example, that patients denied risky weight loss drugs turn to even riskier bariatric surgery.   (I am not arguing this point here, I am explaining why efficiency requires that equal risks be regulated equally).

So if it doesn’t make sense to regulate one source of risk at much higher rates than another source, should surgery be regulated more or drugs less? 

When to say “I love you”

No, this question applies not at the beginning of the relationship, but after a few years or more.  Sure, you love the person but this is economics and we think at the margin.  Why did you say "I love you" right now rather than two minutes ago?  I can think of a few reasons:

1. Anxiousness and a desire to reassure oneself in the face of self-doubt.

2. Irritation at the other person, leading to #1.

3. Desire to manipulate the other person by first making him or her feel compliant and secure.

4. Being overcome by suddenly stronger feelings of love, perhaps because of a Proustian reminder.

5. The simple feeling that too long has passed since having said "I love you," presumably combined with the belief that the words are uttered rarely enough to still have potency.  You need to signal you are keeping track of such things.

6. The sex was either very good or very bad, see #1 and #4.

7. One has work or chores to do, and is hoping to create a distraction of some kind.

8. To announce that a conversation is over.

Natasha asks whether in a marriage one hears "I love you" more or fewer times than is optimal.  We both think "fewer" is usually the answer, although given the low cost of generating the message, and the possibility of reaping gains from trade, it is not entirely clear why this equilibrium persists.

Japan bleg

How expensive is it to visit Tokyo these days?  I understand PPP indices and know all the tales of $200 melons and beef protectionism.  But how much does the place actually cost?  When I visited in 1992 I stayed in a small but comfortable business hotel, traveled by public transportation, ate sushi, and had a relatively cheap trip.  Is that old mental picture of mine now a delusion?  Should I instead focus my travel attention on the worst currency manipulators?

Practice makes perfect?

Technological innovations, especially the use of laparoscopic
procedures [for stomach surgery], have made for considerable gains in safety and efficacy.
While the operation is still dangerous in some circumstances – one
study found that for a surgeon’s first 19 bariatric operations,
patients were nearly five times as likely to die than patients that the
surgeon later operated on – the overall mortality rate is now in the
neighborhood of 1 percent.

That is from Dubner and Levitt, the full story offers much more, mostly about weight loss, and here is further discussion.

Recommended Christmas and holiday gifts

Suitability as gifts means the book is a short one, the items will signal elevated taste, they are at least reasonably entertaining, visually appealing, and they are unlikely to be given by others as gifts unless of course your social circle reads MR.

1. Fiction: Stephane Audeguy, Theory of Clouds.  The conceptual foreign novel which got lost in the shuffle of the American fiction market.

2. Popular Music: The View, Hats off to the Buskers, from Scotland, this is musically superior pop and they still have room to get even better.

3. Classical music: Either William Byrd, Laudibus in Sanctus, beautifully recorded, or John Adams, The Dharma at Big Sur/My Father Knew Charles Ives, and yes I spent twenty years as a Johns Adams skeptic.  In the last few years he’s raised his music to an entirely new level.

4. Gadget: I still use my iPhone almost every day and I can no longer imagine not having one.  Mostly I surf web sites and blogs while waiting in lines, or read email.  I’ve yet to make a phone call with it. 

5. DVD: I watched through Planet Earth as quickly as I could.  Yana then took the box up to college, if you need another testimony.  If your loved one doesn’t merit an entire DVD box, I thought Away From Her was the best movie of the year; sadly the first-rate No Country for Old Men won’t be ready on disc in time. 

6. Single song on iTunes: Anthony and the Johnsons, Knockin’ on Heaven’s Door.  The key here is to pick a song on an album you won’t otherwise buy or you won’t otherwise think of.

7. Crazed economist idea: Buy someone a book of stamps.  It has the efficiency properties of a cash transfer (who doesn’t need stamps?), yet if you choose an attractive issue it will show (a little) more thought than money alone.  And hey — you had to stand in line to get it, or endure their ugly web site, and at a monopolistic institution at that.

Finally, it is often better to give experiences rather than possessions, and if you don’t know what your wife wants email her sister or best friend and ask.


Cambodia…basically has one industry, the garment
trade, which employs about 300,000 people (almost all of them young
women), and probably supports about 10% of the population directly and
indirectly.  Almost everyone else makes their living in agriculture,
with a small government elite, a smaller tourism community, and a tiny
small business sector…Cambodia’s garment trade is incredibly dependent on
special treatment from America, where it sells almost all its wares.

In other words, true free trade from China, for the United States, would devastate the Cambodian economy.  If you wish to consider the strongest arguments for protectionism, they usually involve weighing the interests of one poor country against another, and not the interests of a poor country against a rich country.  Here is the full discussion.  Related lessons are that comparative advantage won’t necessarily yield pleasant price and wage ratios and that producing anything of value is truly, truly difficult.  Given Cambodia’s previous problems, one also has to wonder whether mass migration to Vietnam is the best option available, provided of course that is possible.

Cold Skin

The Japanese pihlosopher Musashi once said that only a select few appreciate the art of war.  Gruner is one of them.  The battle is defensive at night.  Amorous forays with the mascot fill his days.  And it is hard to tell which of the two activities impassions him most.

That is from Albert Sanchez Piñol’s Cold Skin, a Catalan novel which is well known in Europe (I discovered it browsing a Swiss bookstore) but obscure in the United States.  It captivated me right away.  I cannot quite call it science fiction, but I would recommend it to science fiction and horror fans who are looking for something serious and conceptual and literary, and who feel that only scraps remain on the table…