# Month: August 2009

3. Lobbying strategy: give us money or we will kill the gorilla.

4. How many people are killed by cows?  "…All but one of the victims died from head or chest injuries; the last
died after a cow knocked him down and a syringe in his pocket injected
him with an antibiotic meant for the cow. In at least one case the
animal attacked from behind, when the person wasn’t looking. Older men
with arthritis and hearing aids have the highest risk of being injured
by livestock, the report says, probably because they don’t hear the
animals charging and can’t move fast enough to get out of the way."

## Gompertz Law of Mortality, or, your body wasn’t built to last

I thought this was one of the more interesting blog posts I've read in some time:

What do you think are the odds that you will die during the next
year?  Try to put a number to it – 1 in 100?  1 in 10,000?  Whatever it
is, it will be twice as large 8 years from now.

This startling fact was first noticed by the British actuary
Benjamin Gompertz in 1825 and is now called the “Gompertz Law of human
mortality.”  Your probability of dying during a given year doubles
every 8 years.  For me, a 25-year-old American, the probability of
dying during the next year is a fairly miniscule 0.03% – about 1 in
3,000.  When I’m 33 it will be about 1 in 1,500, when I’m 42 it will be
about 1 in 750, and so on.  By the time I reach age 100 (and I do
plan on it) the probability of living to 101 will only be about 50%.
This is seriously fast growth – my mortality rate is increasing
exponentially with age.

And if my mortality rate (the probability of dying during the next
year, or during the next second, however you want to phrase it) is
rising exponentially, that means that the probability of me surviving to a particular age is falling super-exponentially.

The post has much more, including excellent visuals.  Here is Wikipedia on the law.  Here is an attempted derivation of the law

Three thought questions: a) what does the law imply about systematic risk and asset pricing? b) what does the law imply for regulatory structures and Arnold Kling's chess game analogy?  c) what does the law imply for the Fermi paradox?

## The monetary economics of Scott Sumner

Here is my latest column, on the monetary proposals of Scott Sumner.  You probably know Sumner from his blog TheMoneyIllusion and in my view he has become possibly the most astute commentator on monetary policy at this time.  Excerpt:

The Fed has already taken some unconventional monetary measures to
stimulate the economy, but they haven’t been entirely effective.
Professor Sumner says the central bank needs to take a different
approach: it should make a credible commitment to spurring and
maintaining a higher level of inflation, promising to use newly created
money to buy many kinds of financial assets if necessary. And it should
even pay negative interest on bank reserves, as the Swedish central
bank has started to do. In essence, negative interest rates are a
penalty placed on banks that sit on their money instead of lending it.

Much
to the chagrin of Professor Sumner, the Fed has been practicing the
opposite policy recently, by paying positive interest on bank reserves
– essentially, inducing banks to hoard money.

The Fed’s balance
sheet need not swell to accomplish these aims. Once people believe that
inflation is coming, they will be willing to spend more money.

In
other words, if the Fed announces a sufficient willingness to undergo
extreme measures to create price inflation, it may not actually have to
do so. Professor Sumner’s views differ from the monetarism of Milton Friedman by emphasizing expectations rather than any particular measure of the money supply.

There are more excellent posts on Scott's blog than I am able to link to.  Read through it all, if you have any interest in these topics.

One thing I learned from a systematic reread of Sumner is that he isn't quite the advocate of quantitative easing that I had thought.  All things considered, he seems to favor QE over doing nothing, but he also thinks that a truly credible commitment to future inflation can get us there without much painful-for-the-Fed's-balance-sheet QE being required.

While I think there is a very good chance Sumner is correct, my reread of his blog also gave me a better sense of, if he is wrong, why he is wrong or maybe incomplete is a better word.

In very general terms, think of our government, or central bank, as being able to do some good things by creating credibility, the rule of law being one example.  In this particular case the Fed could use its credibility to guarantee two to three percent price inflation annually or more exactly some target for nominal GDP growth.

One point is that bureaucracies tend to hoard credibility rather than to spend it.  That still could mean Sumner's advice is correct and this is simply why the Fed doesn't follow it.  There is, however, a deeper worry.  One possibility is that a weakened Fed cannot today precommit to delivering on two to three percent.  Let's say that Congress gets upset along the way, for whatever reason.  The Fed has then put its credibility on the line, including for the longer future, and that credibility is utterly refuted.  Ouch.  More technically, combine the two ideas of self-fulfilling prophecies and nested games.

Maybe the Fed is too risk-averse but there's also the possibility that the Fed is prudent in its unwillingness to stick its neck out.  Maybe the Fed has credibility only as long as it doesn't try to spend it (try modeling that).  This would bring us into the literature on creative ambiguity and signaling.

Another possibility is that, instead of Congress intervening, markets simply don't respond.  Sumner's theory makes sense to me, but how certain can we be?  The Fed again is putting a lot of longer-term credibility on the line.  Maybe the best the Fed can do is a kind of "inch-along" promise, which probably won't be very effective, as we are observing.

Perhaps the key question is just how credible a central bank can be, relative to its (possibly unjustified) risk aversion.

I now read Sumner much more as a "theorist of credibility," and thus as an implicit game theorist, than I used to.

## Interpreting life expectancy statistics and other health care issues

Matt Yglesias and Paul Krugman weigh in on interpreting life expectancy statistics across the U.S. and the Netherlands.  The fact under consideration, from a few days ago, is that the U.S. has low life expectancy overall but superior life expectancy after you reach the age of 65.

One way to interpret this data (re: Yglesias and Krugman) is to think that the U.S. should spread Medicare to its entire population.

Another interpretation is that spreading Medicare to the entire population would lead to higher expenditures on the health of the young and lower expenditures on the health of the old, for better or worse.  "Medicare for everyone" doesn't simply replicate current Medicare outcomes across a broader swathe of the population.  Medicare works as well as it does, in part, because not everyone is on Medicare or something comparable.  The U.S. split system makes Medicare, at the same time, both more effective in terms of outcomes and more costly in dollar price terms.

In this country the old don't seem willing to accept losing their privileged "first in line" position, namely Medicare for them and few others.  And Congress won't let some egghead committee come along and cut the waste out of Medicare.  The immediate results of the current proposed plan would thus be greater health care expenditures overall, pressures on doctor supply a' la Massachusetts, an even more severe long-term insolvency for the whole system, combined with an unclear resolution for all these escalating pressures.  I don't see many people on the pro-Obama side simply coming out and admitting these increasingly obvious truths, although Andrew Sullivan deserves credit on this score.

You may or may not think that's a good deal overall and perhaps you still think it's a good deal if you assign a high enough priority to covering more of the uninsured.  Or maybe (Kevin Drum has made this argument) you think it's the only path toward long-run cost control.  But if you think it's a bad deal overall, it doesn't mean you are in denial about the fundamental facts of U.S. health care supply or for that matter in denial about the cross-sectional comparisons with Europe.  Choosing French health care institutions for the United States has never been on the table, not even in evolutionary terms.

Sullivan put it very well a few days ago.  He noted that Obama — a master communicator — can't convince most people that the proposed reform is a good deal for them because…it isn't a very good deal for most people. That includes some of the people receiving new coverage, such as those receiving the new forced employer mandates.  (NB: Their wages will go down and they really need the money!  In the shorter run their wages won't go down and some of them will lose their jobs, even with phase-in a few years from now.  I'm still waiting for good Democratic economists to condemn this idea but I fear there is so much fixation on a "victory vs. defeat" framing of the struggle, and desire to skirt the CBO, that this isn't receiving the critical analysis it ought to.)

This desire to claim and promote a more universal distribution of benefits is one reason why you see so much attention paid to the public plan option.  The competing public plan at least offers the promise that some part of the proposed health care reforms will benefit virtually everyone.  My view is that a public plan would soak up many high-risk cases, benefit those cases and few other people, and that overall a public plan is superior to mandates, not Satan incarnate, but not a cure-all for the system as a whole by any means.  Advocates remain oddly silent as to what in concrete terms the public insurer will be instructed to maximize and how that fits in with pressures to extend coverage to more people.

Plan supporters are quite willing to admit "it's not nearly as good as what we wanted," but they're in denial about how truly bad the proposed reforms are in absolute terms or as a matter of economic logic and by that term I mean the economic logic of good Democratic economics, not extreme libertarianism.

In the meantime, repeat this sentence after me: if we don't solve the costs problem, in egalitarian terms things will only get worse, no matter how many people we cover.

The Republicans on this issue are (mostly) very bad and hypocritical but that doesn't give the Democrats license to proceed without a solution.

Andrew Gelman offers some good advice on writing up your results for a research paper:

1. Start with the conclusions. Write a couple pages on what you've found and what you recommend. In writing these conclusions, you should also be writing some of the introduction, in that you'll need to give enough background so that general readers can understand what you're talking about and why they should care. But you want to start with the conclusions, because that will determine what sort of background information you'll need to give.

2. Now step back. What is the principal evidence for your conclusions? Make some graphs and pull out some key numbers that represent your research findings which back up your claims.

3. Back one more step, now. What are the methods and data you used to obtain your research findings.

4. Now go back and write the literature review and the introduction.

5. Moving forward one last time: go to your results and conclusions and give alternative explanations. Why might you be wrong? What are the limits of applicability of your findings? What future research would be appropriate to follow up on these loose ends?

6. Write the abstract. An easy way to start is to take the first sentence from each of the first five paragraphs of the article. This probably won't be quite right, but I bet it will be close to what you need.

7. Give the article to a friend, ask him or her to spend 15 minutes looking at it, then ask what they think your message was, and what evidence you have for it. Your friend should read the article as a potential consumer, not as a critic. You can find typos on your own time, but you need somebody else's eyes to get a sense of the message you're sending.

Bottom line?  Readers are "potential consumers," make it easy for them to buy.  And don't think that marketing is below you.  It isn't.  Marketing can expand the market for what is profound and deep as well as for what is fun.

## Puffins

I've had a few reader requests to blog puffins.  My interest in puffins dates from a visit to Iceland in the early 1990s, where I went on a lovely mini-quest to track down a colony.  Here is a YouTube of puffins.  Here is a longer and more scenic video of puffins in Iceland.  Here is the sound of puffins, UK puffins at least.

"The fresh heart of a Puffin is eaten raw as a traditional Icelandic delicacy."

But that is not for me.  I am interested in puffins for a few reasons: a) they appear unlikely, b) they often seem to be anticipating something, and c) nature has produced them.

Here is a collection of poems about puffins.  None seems good.  Here is a Russian video about Puffincat.  It is recommended.  Here are postage stamps featuring puffins.

On this site if you scroll down you will see pictures of albino puffins, among other delights.