Month: January 2010

The “spending freeze”

There's not much to say in terms of the economic issues, the real lesson is that politics is more constrained than many people think.  Berating Obama for his lack of courage or his "failure to get tough" is simply denying or postponing this fundamental realization.

All policy recommendations need to be analyzed within this framework.  How will your preferred policy (this includes deregulation and the like, by the way; I am not aiming this barb in any particular direction) play out when, in the middle of the action, government turns out to be extremely constrained in a way you do not like.

If you are surprised by this Obama announcement, that is indirect evidence that some of your other policy preferences are incorrect.

More criticisms of comparativeness effectiveness research

There is a growing awareness among researchers, including advocates of quality measures, that past efforts to standardize and broadly mandate "best practices" were scientifically misconceived. Dr. Carolyn Clancy of the Agency for Healthcare Research and Quality, the federal body that establishes quality measures, acknowledged that clinical trials yield averages that often do not reflect the "real world" of individual patients, particularly those with multiple medical conditions. Nor do current findings on best practices take into account changes in an illness as it evolves over time. Tight control of blood sugar may help some diabetics, but not others. Such control may be prudent at one stage of the malady and not at a later stage. For years, the standards for treatment of the disease were blind to this clinical reality.

Orszag's mandates not only ignore such conceptual concerns but also raise ethical dilemmas. Should physicians and hospitals receive refunds after they have suffered financial penalties for deviating from mistaken quality measures? Should public apologies be made for incorrect reports from government sources informing the public that certain doctors or hospitals were not providing "quality care" when they actually were? Should a physician who is skeptical about a mandated "best practice" inform the patient of his opinion? To aggressively implement a presumed but still unproven "best practice" is essentially a clinical experiment. Should the patient sign an informed consent document before he receives the treatment? Should every patient who is treated by a questionable "best practice" be told that there are credible experts who disagree with the guideline?

That's Jerome Groopman, the full article is here, interesting throughout, and I thank someone — alas I have mislaid the email address – for the pointer.  My apologies to the person who sent this in.

The Boom and Bust Rap

The Keynes-Hayek rap video is finally here and it's brilliant. The lyrics cover Keynesian economics and Austrian business cycle theory very well but what I liked best were the many ways in which the visuals, the story and the music subtly and sometimes not so subtly (!) parallel the economics–e.g. note what happens to Keynes after the big party!

It's clear that a lot of thought went into integrating the music, the story and the lyrics in order to make the most of this medium and I give my colleague Russ Roberts and John Papola much props.

Real estate and transportation in Port-au-Prince

Port-au-Prince is now a city where most people are sleeping outside at night (estimates put it at 80 percent of the residents). I drove back to our camp just after dark a couple of nights ago, rushing to meet our own night-time curfew. At street corner after corner, people had blocked access to their blocks by placing stones in the way. They didn't want vehicles rushing blindly in and injuring sleeping families. I looked up these blocks and saw winding ribbons of re-created bedrooms, demarcated with bedsheets and string, as far as my eyes could see in the dark.

That's Montevia Andrew Sullivan.

Why do the Chinese save so much?

Yes, it's Eric Barker day.  Here is another entry from Eric's blog.  We all know that there are many more men in China than women and here is what that equilibrium looks like:

“The increased pressure on the marriage market in China might induce men and parents with sons to do things to make themselves more competitive,” Wei says. “Increasing savings is one logical way to do that, to the extent that wealth helps to increase a man’s competitive edge. Parents increase household savings mostly by cutting down their own consumption.”

Wei worked with Xiaobo Zhang of the International Food Policy Research Institute in Washington, D.C., to see if his hypothesis held up, comparing savings data across regions and in households with sons versus those with daughters. “We find not only that households with sons save more than households with daughters in all regions,” Wei says, “but that households with sons tend to raise their savings rate if they also happen to live in a region with a more skewed sex ratio.”

The effect is significant. The household savings rate in China rose from about 16 percent of disposable income in 1990 to over 30 percent today, which is much higher than most countries. About half of the increase in the savings rate of the last 25 years can be attributed to the rise in the sex ratio imbalance. “It’s a very high ratio of savings to income,” Wei says. “The comparable savings rate in the United States would be 2 or 3 percent before the crisis, and about 6 percent since the crisis.”

Even those not competing in the marriage market must compete to buy housing and make other significant purchases, pushing up the savings rate for all households.

The original source is here.  You'll note, by the way, that low wages and a high savings rate are the fundamental reasons for global imbalances, not Chinese currency policy.  If this is true, one implication is that the Chinese attempt to cut population leads indirectly to those global imbalances.  If you "fear China" (whatever that means), the current imbalances might be better than the relevant alternatives, namely a China with high and growing population and all the environmental problems which that involves.

There's plenty of talk from people wanting to make China "do it right" but only rarely do those discussions recognize all the constraints which China is laboring under.

Rename Capitalism Socialism?

Here's a potentially confusing footnote from Roderick Long:

There’s an ongoing dispute among libertarians over the meaning of
“capitalism.” While most libertarians use the term to refer to a free
market, a growing minority (examples include Kevin Carson, Gary Chartier, Charles Johnson, Sheldon Richman, and Brad Spangler) tend to reserve “capitalism” for the corporatist status quo, favoring “socialism” for the free-market alternative;

In a post titled Libertarians against capitalism, Sheldon Richman explains:

We are a group of libertarians who understand that historically the word "capitalism" has meant, not the free market, but crony capitalism — that is, collusion between business and State at the expense of consumers/workers. Thus we refuse to use the word "capitalism" to describe what we favor: individual liberty in all respects and free, competitive markets. We believe that what we have today IS capitalism — and we oppose it.

It is true that capitalism was named by its enemies.  Thus, it's interesting to note that a socialist is someone who believes in socialism, a communist someone who believes in communism but a capitalist is someone with capital.

It's also true that capitalism is a truly social system, a system that unites the world in cooperation, peace and trade.  Thus, if all were tabula rasa socialism might be a good name for capitalism.  But that boat has sailed.

So if we name crony capitalism, capitalism, and if we can't name capitalism, socialism, then what should capitalism be named?

Why do high-end prostitutes make so much money?

Have I mentioned that Eric Barker is awesome?  Many of you should be reading his blog.  Yesterday he brought us this account, with the source paper here:

Edlund and Korn [2002] (EK) proposed that prostitutes are well paid and that the wage premium reflects foregone marriage market opportunities. However, studies of street prostitution in the U.S. have revealed only modest wages and considerable risks of disease and violence, casting doubt on EK’s premise of an unexplained wage premium. In this paper, we present evidence from high-end prostitution, the so called escort market, a market that is, if not entirely safe, notably safer than street prostitution. Analyzing wage information on more than 40,000 escorts in the U.S. and Canada collected from a web site, we find strong support for EK. First, escorts in the sample earn high wages, on average $280/hour. Second, while looks decline monotonically with age, wages follow a hump-shaped pattern, with a peak in the 26-30 age bracket, which coincides with the most intensive marriage ages for women in the U.S. Third, the age-wage profile is significantly flatter, and prices are lower (5%), despite slightly better escort characteristics, in cities that rank high in terms of conferences, suggesting that servicing men in transit is associated with less stigma. Fourth, this hump in the age-wage profile is absent among escorts for whom the marriage market penalty is lower or absent: escorts who do not provide sex and transsexuals.

Excellent, but I do find some problems in that account.  As for the fourth point, who ever said: "Don't worry ma, she's a sweet girl, she's only serviced the conference trade!"?  Maybe, in "crossroads" cities, sexual mores are looser in some other way, as a greater supply of the free product than you will find in Topeka.  As for the third point, can't it simply mean that conference men (even assuming that is indeed the relevant characteristic of the city) get really drunk and don't care much about the age of the woman?  On the second point, isn't that "hump-shaped pattern" probably driven by demand rather than supply?  If you wish to claim it is driven by supply, you need to postulate that women in the 26-30 bracket are mainly competing against each other, rather than say 20-25 year-olds.  Is that true?

Some problems they are having in Haiti

1. Since many financial institutions are closed, transport is difficult, and people don't all have their papers (fear of theft also may be an issue), it is almost impossible to receive remittances, which account for more than one-quarter of the country's gdp.

2. The current makeshift shelters are not robust to rain and storms and the rainy season is starting in May.  Rain also brings a greater risk of various diseases.

3. The price of food keeps on rising.  It was already the case — before the earthquake — that poor people commonly ate mud cakes as a source of nutrition.  54 percent of Haitians live on less than one dollar a day.

4. The party with the ability to make things happen — the U.S. military — isn't formally in charge and is sensitive to bad publicity.

5. In the Darfur crisis, eighty percent of the fatalities came from disease and disease has yet to begin in the Haitian situation.

6. There are already 150,000 accounted-for dead and many more uncounted.

7. It's by no means clear that the aftershocks are over and there is even some chance of a bigger quake to come.  This also discourages aid efforts and the construction of more permanent shelter.

8. Outside of some parts of Port-Au-Prince and immediate environs, external aid is barely underway yet damage is extensive.

9. It is not clear that the upcoming planting season — which starts in March — will proceed in an orderly fashion.  One-third of the country's population is living at loose ends and most of the country's infrastructure is destroyed.  For the planting season many Haitian farmers need seeds, fertilisers, livestock feed and animal vaccines.  That planting season accounts for sixty percent of Haiti's agricultural output.

10. Before a limb can be amputated, some doctors have to first go to the market and buy a saw.

Those aren't the only problems.

Why Bernanke should be reconfirmed

Jim Hamilton nails it.  Excerpts:

Please permit me to suggest that intellectual stamina is the most important quality we need in the Federal Reserve Chair right now.


How could there possibly be an alternative whom Barbara Boxer (D-CA) and Jim DeMint (R-SC) would both prefer to Bernanke?

Elsewhere I have to strongly differ with the Johnson-Kwak proposal that Paul Krugman be selected.  I don't intend this as a negative comment on Krugman, if anything I am suggesting he is too dedicated to reading and writing and speaking his mind.  The Fed Chair has to be an expert on building consensus and at maintaining more credibility than Congress; even when the Fed screws up you can't just dump this equilibrium in favor of Fed-bashing.  What lies on the other side of that curtain isn't pretty.  Would Krugman gladly suffer the fools in Congress?  Johnson and Kwak are overrating the technocratic aspects of the job (which largely fall upon the Fed staff anyway) and underrating the public relations and balance of power aspects.  It's unusual that an academic will be the best person for the job.

I also have to put the kibbosh on plans which postulate Bernanke as failing to receive reconfirmation but staying on the Board and letting Donald Kohn slide into the de fact #1 slot and everyone working together as before.  That's just not how things work.  Bernanke would more likely leave, plus outsiders would not know who was in charge or what the default was if the cooperation should break down.  The resulting reputational equilibrium would again prove unworkable or at least highly disadvantageous.

Overall when I read these discussions I realize that my theories of public choice are very, very different from those of some of the other commentators.