Month: November 2009

Only in economics are floors above ceilings!

Only in economics are floors above ceilings!  It might be better to say "a minimum allowed price above the market price" and "a maximum allowed price below the market price," although that is a bit of a mouthful.  I find that the floors and ceilings language does work, however, if the instructor explicitly points out the oddity of floors above ceilings!  In that case, students find the distinction memorable.

Floors and Ceilings

Chindogu, making the simple complicated

Today's bizarrely fascinating cultural nugget from Japan: Chindogu. Literally translated as "weird tool," Chindogu is the Japanese art of creating deliberately complex devices that solve simple everyday problems.

Here is one example:

The Dumbbell Phone

People cite "lack of time" as the number one reason they don't work out more. With the dumbbell phone, that's no longer an excuse. Great for bulking up at your otherwise worthless telemarketing job, this phone will have you shaped and sculpted in no time.

This phone also makes a great gift, especially to that parent, friend, or girlfriend who's been known to talk your ear off on the phone. It's subtle, but effective, especially for those with weak arms.

You'll see a photo here, along with a discussion of other ideas, such as using "solar power" to light your cigarette or a fan to cool off your hot noodles.  The "grid-backed" shirt helps you tell your partner where to scratch your back.  It's a trend:

There's the International Chindogu Society, the Ten Tenets of Chindogu (Number Three: "Inherent in every Chindogu is the spirit of anarchy"), and scores of websites devoted to tracking the newest, and most ridiculous, Chindogu inventions.

Personalized markets in everything, increasing cost edition

Ezra Furman takes his music personally. He doesn’t want to just write songs, he wants to change lives, and in the process have his life changed as well.

Which is why the 23-year-old Evanston native is doing something (take your pick) outlandish, heroic, Quixotic, exhausting, ridiculous. He’s writing a song for every fan who buys his latest album, Ezra Furman and the Harpoons’ “Moon Face: Bootlegs and Road Recordings 2006-2009,” available at

More than 100 albums have been ordered since it became available a few weeks ago. Each consists of 10 tunes culled from Furman’s voluminous archive plus a customized song written directly to and for each paying customer. The tunes range from talking blues to more fleshed out melodies that Furman bashes out into a computer microphone on the road and then emails to his father back in Evanston to mail out on compact disc.

Here is more information.

What should we do instead of the Obama health reform bill?

A lot of people think you have no right to criticize a bill unless you propose a better bill.  I don't agree (if the aforementioned bill is bad on net), but in any case I will give this a try.  These are not my first best reforms or even my second best reforms.  They're my "attempt to work with some of the same moving pieces which are currently on the table" set of reforms.  I would trade away the Obama bill for these in a heart beat.  Keep in mind people, with a "no insurance" penalty of only $750, the current bill isn't going to work (and that's ignoring the massive implicit marginal tax rates on many individuals and families, or the "crowding out" of current low-reimbursement-rate Medicaid patients), so we do need to look for alternatives.

Here goes:

1. Construct a path for federalizing Medicaid and put it on a sounder financial footing; call that the "second stimulus" while you're at it.  It's better and more incentive-compatible than bailing out state governments directly and the program never should have been done at the state level in the first place.

2. Take some of the money spent on subsidizing the mandate and put it in Medicaid, to produce a greater net increase in Medicaid than the current bill will do, while still saving money on net.  Do you people like the idea of a public plan?  We already have one! 

2b. Make any "Medicare to Medicaid" $$ trade-offs you can, while recognizing this may end up being zero for political reasons.

3. Boost subsidies to medical R&D by more than the Obama plan will do.  Establish lucrative prizes for major breakthroughs and if need be consider patent auctions to liberate beneficial ideas from P > MC.

4. Make an all-out attempt to limit deaths by hospital infection and the simple failure of doctors to wash their hands and perform other medically obvious procedures.

5. Make an all-out attempt, working with state and local governments (recall, since the Feds are picking up the Medicaid tab they have temporary leverage here), to ease the spread of low-cost, walk-in health care clinics, run on a WalMart sort of basis.  Stepping into the realm of the less feasible, weaken medical licensing and greatly expand the roles of nurses, paramedics, and pharmacists.

6. Make an all-out attempt, comparable to the moon landing effort if need be, to introduce price transparency for medical services.  This can be done.

7. Preserve current HSAs.  The Obama plan will tank them, yet HSAs, while sometimes overrated, do boost spending discipline.  They also keep open some path of getting to the Singapore system in the future.

8. Invest more in pandemic preparation.  By now it should be obvious how critical this is.  It's fine to say "Obama is already working on this issue" but the fiscal constraint apparently binds and at the margin this should get more attention than jerry rigging all the subsidies and mandates and the like.

9. Establish the principle that future extensions of coverage, as done through government, will be for catastrophic care only.

10. Enforce current laws against fraudulent rescission.  If these cases are so clear cut and so obviously in the wrong, let's act on it.  We can strengthen the legal penalties if need be.

11. Realize that you cannot tack "universal coverage" (which by the way it isn't) onto the current sprawling mess of a system, so look for all other means of saving lives in other, more cost-effective ways.  If you wish, as a kind of default position, opt for universal coverage if the elderly agree to give up Medicare, moving us to a version of the Swiss system and a truly unified method of coverage.  But don't bet on that ever happening.

Separate issues:

12. If you can tax health insurance benefits and cut a Pareto-improving deal overall, fine, but I am considering this to be too politically utopian and it's not clear what the rest of that deal looks like.  The original tax break makes no economic sense but you don't want to end up with a big tax increase and a lot more people on the public books with little in return.

13. If the current bill were voted down, you can imagine some version of the above happening, although not necessarily all at once in one big bill.

14. Commission a study of how much the Obama plan is spending per QALY saved.  I agree that more health insurance saves lives, but a) the study should adjust appropriately for the superior demographics of those who hold or buy insurance, and b) the study should adjust for the income that would be lost through mandates and the safety that income would purchase.  I worry greatly that we have never, ever seen this number presented and that if we did it would not be pretty.  In any case, do the study, scream the number from the rooftops, and reread points 1-11.  Enact.

That's my recipe.  It's better than what we are doing now.  You don't have to adhere to any extreme form of economistic or free market ideology to buy it.  It might even be politically easier than the current path, as it "sounds less socialistic."

Alberta fact of the day

Edmonton and Calgary are among the few metropolitan areas in the developed world that are not connected to comprehensive motorway systems.

Here is much more, on highways in Canada or rather the relative lack thereof.  I am not convinced by his argument that a "bigger and better" highway system is what Canada needs, but I found this interesting reading nonetheless, mostly because it shows how few highways Canada has.

Root for the home team

Controlling for location and time fixed effects, weather factors, the pre-game point spread, and the size of the local viewing audience, we find that upset losses by the home team (losses in games that the home team was predicted to win by more than 3 points) lead to an 8 percent increase in police reports of at-home male-on-female intimate partner violence.

Here is the source paper and that is from David Card and Gordon Dahl.  In contrast, if you go see a violent movie, for that same length of time you are sequestered and thus less likely to be a danger to others.

The Big Questions

In The Big Questions, Steven Landsburg ventures far beyond his usual domain to take on questions in metaphysics, epistemology and ethics.  Beginning with Plato, mathematicians have argued for the reality of mathematical forms.  Rene Thom, for example, once said "mathematicians should have the courage of their most profound convictions and thus affirm that mathematical forms indeed have an existence that is independent of the mind considering them."  Roger Penrose put it more simply, mathematical abstractions are "like Mount Everest," they are, he said, "just there."

All this must make Steven Landsburg history's most courageous mathematician because for Landsburg mathematical abstractions are not like Mount Everest, rather Mount Everest is a mathematical abstraction.  Indeed, for Landsburg, it's math all the way down – math is what exists and what exists is math, A=A. 

Read the book for more on this view, which is as good as any metaphysics that has ever been and a far sight better than most.  Moreover, Landsburg's view is not empty, it does have real implications.  Since there is no uncertainty in math, for example, Landsburg's view supports a hidden variables or multiple-worlds view of quantum physics.

Speaking of quantum physics, The Big Questions, has the clearest explanation of the Heisenberg uncertainty principle that I have ever read.  In fact, this is a necessary consequence of Landsburg's metaphysical views; since it's all math all the way down, the explanation of the uncertainty principle is the explanation of the math and any true uncertainty or mystery is simply a fault of our own misunderstanding.

Turning to epistemology, the theory of beliefs and knowledge, two chapters stand out for me.  I learned a lot from Landsburg remarkable clear explanation of Aumann's agreement theorem–and I say that despite the fact that in the office next to mine is Robin Hanson, one of the world's experts on the theorem (see Robin's papers on disagreement and also his paper with Tyler, but read Landsburg first!).

Landsburg's skills of explanation are also brought to bear in a wonderful little chapter explaining the theory of instrumental variables and of structural econometric modeling  – and this from an avowedly armchair economist!  

Finally for those, like me, who loved The Armchair Economist and More Sex is Safer Sex there is also lots of economics in The Big Questions.  Highly recommended.

Political vs economic competition, or why a two-party system can be OK

Max Kaehn, an occasional MR commentator, expressed a common sentiment when he wrote:

You think a voting system that sticks us with a two-party cartel instead of a diverse market in political representatives isn’t a major problem? Are you sure you’re an economist?

Here are a few reasons why political competition isn't the same as economic competition:

1. Economic competition lowers costs.  For the average worker, it cost a month's wages to buy a book in eighteenth century England and today it might cost well under an hour's wage.  The competitive incentive to use and introduce new technologies drove that change.  Political competition may support cost-reduction enterprises in an indirect manner, by providing good policy and spurring the private sector, but the mere ability to supply candidates and parties at lower cost is no great gain.

2. Having lots of parties means you get coalition government.  This works fine in many countries but again it is not to be confused with economic competition.  Coalition government means that say 39 percent of the electorate gets its way on many issues, while 13 percent of the electorate — as represented by the minor partner in the coalition — gets its way on a small number of issues.  Whatever benefits that arrangement may have, they do not especially resemble the virtues of economic competition.  

3. Many people think that greater inter-party competition, and/or more political parties, will help their favored proposals.  Usually they are wrong and they would do better to realize that their ideas simply aren't very popular or persuasive.

4. Often the U.S. system is best understood as a "no-party" system, albeit not at the current moment, not yet at least.  The bigger a party gets, often the less disciplined it will be.

5. Stronger electoral competition, in many cases, brings outcomes closer to "the median voter or whatever else is your theory of political equilibrium."  That's better than autocracy, but again there are limits on how beneficial that process can be.  It's not like economic competition where you get ongoing cost reductions in a manner which saves lives, brings fun, and enriches millions.

The bottom line: Political competition is better than autocracy, but its benefits are not well understood by a comparison with economic competition.

Questions that are rarely asked: the Wikipedia paradox

Michael Nielsen has two of them:

Question 1: What’s the most notable subject that’s not notable enough for inclusion in Wikipedia?

Let’s assume for now that this question has an answer (“The Answer”), and call the corresponding subject X. Now, we have a second question whose answer is not at all obvious.

Question 2: Is subject X notable merely by being The Answer?

Do you see where this is headed?  Must Wikipedia include everything?  There is more analysis at the link and note that the more these questions are asked, the more likely we encounter a paradoxical answer:

…suppose I went to great trouble to convene a conference series on The Answer, was able to convince leading logicians and philosophers to take part, writing papers about The Answer, convinced a prestigious journal to publish the proceedings, arranged media coverage, and so on. The Answer would then certainly have exceeded Wikipedia’s notability guidelines!

I wonder, as do you, whether this notoriety extends in transitive fashion to the seventeenth round of deciding who or what is the marginally deserving entry: "Well, you're not really notable, or even close, but all the others who were marginal became famous through the process of having had their lack of fame debated.  Mick Jagger now invites you to his party."  Not!

At some point these people under debate, once there are enough of them, all turn into a big group of Wikipedia nobodies.  

Department of Unintended Consequences

In the face of greatly increased demand for services, providers are likely to charge higher fees or take patients with better-paying private insurance over Medicaid recipients, "exacerbating existing access problems" in that program, according to the report from Richard S. Foster of the Centers for Medicare and Medicaid Services.

Here is much more.  As I understand the broader story, if you seriously analyze the effect of the current reform package on Medicare and Medicaid, the basic story of how the whole thing will work falls apart.  Here is a further point:

In its most recent analysis of the House bill, the CBO noted that Medicare spending per beneficiary would have to grow at roughly half the rate it has over the past two decades to meet the measure's savings targets, a dramatic reduction that many budget and health policy experts consider unrealistic.

That's for a high-voting group which is growing in numbers.  And this:

The report, requested by House Republicans, found that Medicare cuts contained in the health package approved by the House on Nov. 7 are likely to prove so costly to hospitals and nursing homes that they could stop taking Medicare altogether.

The laws of economics have not been repealed.  I know fully well how hard it is politically, but until the supply side (and I mean the supply of services, not health insurance) is more competitive, the proposed reforms will make the core problems of U.S. health care worse not better.