Month: July 2009

Interview with Kenneth Arrow

by  Tyler Cowen in

With Conor Clarke, it's about his classic paper on health care.  Excerpt:

…the question that I started with was why health insurance coverage was
limited. There was virtually no insurance outside of hospitalization,
which was limited and heavily taxed. When I heard about this myself, it
was just as a consumer. My first health-care plan as a professor had a
$15,000 ceiling. A ceiling? I was thinking that should be a floor!
$15,000 I can handle, but above that… it would be a problem.

The most interesting segments are the (hard-to-excerpt) remarks on the erosion of professional standards in medicine.

By the way, what will life expectancy be when population is infinite?

Product placement markets in everything, Hollywood style

by  Tyler Cowen in

Last month, 18-year-old Kenya Mejia closed her valedictory address
at Los Angeles's Alexander Hamilton High School on a startling note:
publicly professing a secret passion for a classmate.

"I cannot let this opportunity just pass by," said Ms. Mejia, who is
to enroll at the Massachusetts Institute of Technology in the fall. "I
love you, Jake Minor!"

The crowd roared. Mr. Minor stood and pumped his fists in the air. A few days later, Ms. Mejia cashed a check for $1,800.

The commotion Ms. Mejia created was actually part of a ploy cooked
up by marketing executives and consultants for Twentieth Century Fox,
the Hollywood studio whose headquarters is less than two miles from
Hamilton High.

A valedictorian speech in the movie involves a similar reference.  Here is the full story.

David Brooks on the sterilization of half of humanity, hail David Brooks

by  Tyler Cowen in

Today he writes:

Every day, I check a blog called Marginal Revolution, which is famous
for its erudite authors, Tyler Cowen and Alex Tabarrok, and its
intelligent contributors [TC: that's you!]. Last week, one of those contributors asked a
question that is fantastical but thought-provoking: What would happen
if a freak solar event sterilized the people on the half of the earth
that happened to be facing the sun?

His Burkean answer is here and I very much agree with it.  Excerpt:

Without posterity, there are no grand designs. There are no high
ambitions. Politics becomes insignificant. Even words like justice lose
meaning because everything gets reduced to the narrow qualities of the
here and now.

And:

If millions of immigrants were brought over, they would populate the
buildings but not perpetuate the culture. They wouldn’t be like current
immigrants because they wouldn’t be joining a common project, but
displacing it. There would be no sense of peoplehood, none of the
untaught affections of those who are part of an organic social unit
that shares the same destiny.

Here is the original inspiring MR post.

The effect of community rating in health insurance markets

by  Tyler Cowen in

Maybe there's been enough discussion of Paul Krugman on health care but still this caught my eye.  In a recent blog post Krugman wrote:

The reason we have restrictions on interstate sales of health insurance is that a number of states regulate insurers. In particular, some states have a form of community rating, which basically says that insurers can’t deny you coverage or charge extremely high premiums if you have a preexisting condition. And community rating will be unsustainable if individuals can buy insurance from out of state; insurance companies in states that don’t have community rating will cherry-pick the healthy, good risk people, leaving the community rating states with only the highest-cost people.

Krugman's post seems to be very approving of such community rating.  When it comes to California, which has no community rating, "insurers compete by doing their best to deny coverage to anyone who might actually need medical care."

Based on a close look at the data, Herring and Pauly write (I can't find an ungated version can you?):

Some states have implemented community rating regulations to limit the extent to which premiums in the individual health insurance market can vary with a person's health status. Community rating and guaranteed issues laws were passed with hopes of increasing access to affordable insurance for people with high-risk health conditions, but there are concerns that these laws led to adverse selection. In some sense, the extent to which these regulations ultimately affected the individual market depends in large part on the degree of risk segmentation in unregulated states. In this paper, we examine the relationship between expected medical expenses, individual insurance premiums, and the likelihood of obtaining individual insurance using data from both the National Health Interview Survey and the Community Tracking Study Household Survey. We test for differences in these relationships between states with both community rating and guaranteed issue and states with no such regulations. While we find that people living in unregulated states with higher expected expense due to chronic health conditions pay modestly higher premiums and are somewhat less likely to obtain coverage, the variation between premiums and risk in unregulated individual insurance markets is far from proportional; there is considerable pooling. In regulated states, we find that there is no effect of having higher expected expense due to chronic health conditions on neither premiums nor coverage. Overall, our results suggest that the effect of regulation is to produce a slight increase in the proportion uninsured, as increases in low risk uninsureds more than offset decreases in high risk uninsureds [emphasis added by TC]. Community rating and guaranteed issue regulations produce only small changes in risk pooling because the extent of pooling in the absence of regulation is substantial.

You'll find some unadjusted raw data for states here. 

Herring and Pauly, who wrote this paper in 2006, stress that what I am describing as the Krugman view is the "conventional wisdom" yet not supported by the facts.  More generally, you can think of their excellent paper is a contribution to the ongoing debate over health insurance and adverse selection.  As the authors say "there is considerable pooling."

I am not, by the way, suggesting that we should move everything to the individual insurance market or that Jim DeMint is an objective analyst of U.S. health care.

Totally false and ridiculous claims about Chinese bubbles

by  Tyler Cowen in

China's communist government owns a large part of the money-creation and money-spending apparatus. Money supply therefore shot up 28.5 percent in June. Since it controls the banks, it can force them to lend, which it has also done.

Finally, China can force government-owned corporate entities to borrow and spend, and spend quickly itself. This isn't some slow-moving, touchy-feely democracy. If the Chinese government decides to build a highway, it simply draws a straight line on the map…

…But don't confuse fast growth with sustainable growth. Much of China's growth over the past decade has come from lending to the United States. The country suffers from real overcapacity. And now growth comes from borrowing — and hundreds of billion-dollar decisions made on the fly don't inspire a lot of confidence. For example, a nearly completed, 13-story building in Shanghai collapsed in June due to the poor quality of its construction.

This growth will result in a huge pile of bad debt — as forced lending is bad lending. The list of negative consequences is very long, but the bottom line is simple: There is no miracle in the Chinese miracle growth, and China will pay a price. The only question is when and how much.

The link is here.  The claim is that the entire Chinese economy is a huge bubble waiting to burst, but in the meantime it is being sustained by government monetary and fiscal policy, plus it is being lending to its major customer (never a good long-run strategy), namely the United States.  These charges were written by Vitaliy Katsenels. 

I thank Laeeth Isharc for the pointer.

The Uninsured: Adverse Selection Problem or Distribution Problem?

by  Alex Tabarrok

In his recent post on health care and insurance Paul Krugman writes:

[Insurance companies] try to avoid covering people who
are actually likely to need care.

If insurance companies do avoid covering people who are
"likely to need care," this suggests that the uninsured are
unhealthy.  But 60% of the uninsured are in excellent health
(Table 10) (In fact, overall the uninsured are only slightly less healthy than the insured).

To be sure, this doesn't mean that being uninsured is not a problem
but, contra Paul, it does mean that insurance companies would be
willing to cover most of the uninsured at the same rates as the insured
if the uninsured could or would pay those rates. In Paul's story there is a market failure, in the latter story health insurance is expensive and some people don't buy it.  The difference matters because the wrong diagnosis will almost surely lead to the wrong treatment.

Addendum: McArdle nicely takes the time to follow the logic.

Should Bernanke be reappointed?

by  Tyler Cowen in

Mark Thoma says yes (with links to a debate) and I think his analysis is on the mark.  Nonetheless he is leaving out one very strong point in favor of his view.  The Obama administration has done plenty of interfering with the car companies and also with executive compensation.  These episodes make me nervous.  Reappointing Bernanke, who is from an opposing party, is a signal that such meddling won't be applied to the Fed and that the Fed will be allowed to regain some of its autonomy vis-a-vis Treasury.  Not reappointing Bernanke would make the markets very nervous about the future autonomy of the Fed.  (Even if Alex is right more generally about central bank independence, I don't want the current Fed to resemble General Motors or Chrysler.)  There's lots of talent in the current White House, but given how much policy has been run from the White House, it would be a bad signal to look to the White House for a Fed pick.  Many of the other possible picks seem to be largely untested at a major league level.  You can complain about Bernanke all you want but his likely successors probably have the same list of drawbacks that perhaps you are ascribing to him.

So yes, Bernanke should be reappointed.

Newsweek coverage for *Create Your Own Economy*

by  Tyler Cowen in

…the author has crafted a how-to guide for living in the
information-glutted 21st century, and a convincing defense of our
just-Google-it culture, which many say is dumbing down the species. His
four best ideas:

The Rain Man stereotype is wrong.
Many people with autistic traits function quite well in society. In
fact, we can learn from this neurodiversity," since autistics excel at
mentally ordering information, a key trait in the digital age.

Our
constant Twittering and e-mail checking may look like ADD, but they
actually mean we're paying better attention to long-running stories,
such as a presidential election or a family member's career.

Google is making us smarter. The Internet has rendered it
unnecessary to store a lot of "general knowledge" in our heads.
Instead, we can specialize in the areas that truly matter to us.

As
culture moves online, it becomes easier to copy and share. "When access
is easy," writes Cowen, "we tend to favor the short, the sweet, and the
bitty." Hence the rise of Twitter, six-word memoirs, and other small
doses of culture.

The link is here.

European health insurance bleg

by  Tyler Cowen in

Yana is moving to Paris for the fall semester and some (but not all) family members believe that she should buy additional health care insurance for this event.  I fear this is a market which does not work very well, since so many customers don't file claims or have repeated interactions with the company.  So I ask you all — and thank you in advance — for advice on the best way to make this transaction and find a reliable company.  Web evaluations of the leading suppliers are not obviously impressive and she won't have a French institution to cover her with a local program.

This is a post rich in health care economics, I am sorry to say.  And I know how much you all love health care economics.