Month: October 2009

What are the gains from competition among insurers?


Ezra Klein reports:

For people, like, well, me, who think that the health insurance
exchanges have a real shot at lowering health-care costs throughout the
system, the graph
above is difficult. For conservatives who believe that the key to
constraining health-care costs is to encourage competition between
insurers and give individuals the opportunity to choose, the graph
above is difficult. Because what the graph above shows is that neither
of those strategies has worked terribly well, at least as of yet.

The bottom line is that premiums seem to go up no matter what the institutional structure or its degree of competition.

How can a weak dollar be beneficial?

I'm still receiving email pushback on my view that a falling dollar can be good for the U.S. economy.  The critics charge: why not just let the dollar fall close to zero or at least hope for such?  A few points:

1. I'm not asking for a specific weak dollar policy (we've already done enough on that front!).  The point is that if the market brings a falling dollar, this outcome can be part of the equilibrating process.

2. You don't have to approve of all the policies, or private sector practices (e.g., a low savings rate) that produced the weak dollar.  A weak dollar is still a healthy response, given those constraints.

3. Never forget the difference between real and nominal exchange rates.  That answers the conundrum about wishing for a dollar of near-zero value. 

4. A falling dollar will (often, not always) increase employment in the export sector.  Supply-side, production-based multipliers are the best kind to have and they can outweigh the economic costs of higher import prices.  When the dollar falls, a big chunk of that shift is born by foreign exporters like a tax rather than being passed along to U.S. consumers.  The net effect is that Mercedes-Benz subsidizes job creation in the United States.  And sometimes a falling currency is in fact an efficient form of lump sum taxation in this regard.

5. Free traders are usually economic cosmopolitans, which is good.  A weak currency in one country means a strong currency in another and the distribution effect, at least at the first-order level of analysis, is a wash.  So cosmopolitanites shouldn't object to weak currencies per se.  From a global point of view, a lot of currency movements are close to a net wash in efficiency terms, although they may be good for at least one of the countries in the equation.  As a rough rule, weak currencies do the most good where resources are unemployed and there is a realistic elasticity of exports, though it is more complicated than that.

6. A weak dollar poses the biggest problems for the EU and other foreign regions.  Still you can see those as real problems and think a falling dollar is OK for the U.S., taken alone.

7. Again: blah-blah-blah caveats about the difference between a currency falling as a pure thought experiment and a currency falling as associated with some particular cause.  Blah, blah, blah, etc.  Blah.

Daniel Drezner offers related commentary.

Which areas are taught best?

Joanne asks a good question:

Everything else being equal, are there subjects that lend itself to
better teaching by professors? I've always chosen classes mostly on
professor teaching quality as measured by anonymous student surveys,
but was wondering if there are certain classes of subjects where one
could find better or worse teachers?

This may sound odd, coming from someone with a Ph.d, but I don't feel I have much experience being a student.  A lot of the time I didn't pay attention.

A foreign language is especially hard to teach well.  What can you do with verb conjugation?  Microeconomics can be taught well.  Literature.  Classes that can be taught well make for easy narrative and vivid anecdote.  The instructor can be enthusiastic without it seeming forced (not the case for introductory accounting).  The students can be presented with relatively high-level material even in lower-level courses; poetry and literature illustrate that principle.  Finally, the class must have actual substance, which rules out any number of offerings, best left unlisted.  It's harder to teach macro well because it's less likely the instructor actually believes the material.

The best teachers I ever had were Hilary Putnam for Philosophy of Language and Charles Pine for calculus, plus H. Bruce Franklin for literature.  Franklin was (still is?) a Stalinist and he edited The Essential Stalin.  Barbara Jean Glotzer taught a very good Algebra II.

Going Galt

The Obama administration orders huge pay cuts:

Under the plan, which will be announced in the next few days by the Treasury Department, the seven companies that received the most assistance will have to cut the cash payouts to their 25 best-paid executives by an average of about 90 percent from last year. For many of the executives, the cash they would have received will be replaced by stock that they will be restricted from selling immediately.

And for the 25 best-paid executives, the total compensation, which includes bonuses, will drop, on average, by about 50 percent.

The companies are Citigroup, Bank of America, the American International Group, General Motors, Chrysler and the financing arms of the two automakers.

There is no way this will work as advertised.  If the administration actually follows through, most of these executives will quit and get higher paying jobs elsewhere.  Executives not directly affected by the pay cuts will also quit when they see their prospects for future salary gains have been cut.  Chaos will be created at these firms as top people leave in droves.  Will the administration then order people back to work?    

Addendum: Larry Ribstein has an excellent post on this issue and see Max Fisher for an interesting explanation of the timing and a good roundup.

Russia markets in everything

AndrewG points us to the following:

A Russian armoured-car builder is boasting that its latest vehicle has seats covered with “whale-penis leather”.

That is not all:

The bulletproof windows are gold-plated, the exhaust is made of
tungsten, the gauges are encrusted with diamonds and rubies and the
exterior has a Kevlar coating.

The car also comes
with three bottles of the world’s most expensive Vodka, RussoBaltique,
although the website does warn prospective buyers not to drink and

It is supposed to be the world's most expensive…whatever it deserves to be called.  Here is more information.

Assorted links

1. Lots of opinions about lots of people, including assessments of their relative status.

2. How will Twitter make money? (a request), and more here.

3. Garett Jones: "How much have
cell phones pushed down the cash wages of tedious jobs? Labor supply
increase: parking attendant, janitor, better jobs now."

4. Kerry Howley on freedom.

5. Rules for writing non-fiction.

6. Pay as you wish, for the Goo Game: the results.

*Too Big To Fail*

That's the new book by Andrew Ross Sorkin and the subtitle is The Inside Story of how Wall Street and Washington fought to Save the Financial System — and Themselves.  Last night I read through to p.132.  So far it seems to be the single best narrative of the crash and its aftermath.  I haven't seen anything theoretical or on root causes, etc.  I chuckled at reading this sentence, which starts with Dick Fuld of Lehman Brothers picking up the phone:

"I know this call may be a little unusual," [Treasury Secretary] Paulson began.  "You and I have been trying to kill each other for years."

I'll let you know if my judgment changes, but so far this falls into the "recommended" category, noting again that it is narrative not theory.

Addendum: Here is Yves Smith on the book, very good post.  See also Felix Salmon.

Successful government bureaucracies

Jason asks:

What are some examples of successful government bureaucracies?

Wars aside, here is a short and very incomplete list: the NIH, the Manhattan Project, U.C. Berkeley, the University of Michigan, Fairfax County, the World Trade Organization, the urban planners of postwar Germany, some of the Victorian public works and public health commissions, most of what goes on in Singapore, anywhere that J.S. Bach worked.

The European Union has been very good for eastern Europe.  I'll leave aside the health care issue because we've debated that plenty already.  The real question is what all these examples have in common.

The day everything changed?

Even since I wrote Create Your Own Economy, which was not so long ago, I've come around closer to Alex's position on on-line instruction.  Today I read:

After several years of experimenting
with “hybrid” Spanish courses that mix online and classroom
instruction, the University of North Carolina at Chapel Hill has
decided to begin conducting its introductory Spanish course exclusively
on the Web.

Spanish 101, which had featured online lessons
combined with one classroom session per week, will drop its
face-to-face component in an effort to save on teaching costs and
campus space in light of rising demand for Spanish instruction and a
shrinking departmental budget.

Adios a mis amigos!

Addendum: Elsewhere on the "everything changed" front, no one wants to buy The Boston Globe and Barnes and Noble's new e-Reader — Nook — will allow e-readers to "lend" copies to their friends, albeit in sequential fashion.

Assorted links

1. Blog on Chinese financial markets.

2. Webcast site for my NIH talk, coming on Wednesday noon, on lotteries and randomized control trials in medical research.

3. Very good comments on geo-engineering, with some excellent sentences, and more here.

4. Why the Euro is not the next global currency.

5. Evidence on pedigree effects in academia.

6. Cory Doctorow's publishing experiment.