Month: March 2010

Has regulatory uncertainty slowed the economic recovery?

Monday night I gave a talk at George Mason University on the jobless recovery; in the comments Pete Boettke summarizes some parts of the talk.  One point I made is that the slow aspects of the recovery do not, contrary to some accounts, seem to stem from uncertainty about the plans of the Obama administration.  I see at least two reasons for this doubting this account:

1. Output has recovered much more rapidly than the labor market; last quarter gdp growth exceeded five percent yet employment is essentially flat.  The labor market is one of the least regulated sectors of the American economy, so it would be odd if regulation were causing the slow aspects of the bounceback.  Many of the extant government-blaming hypotheses predict slow output growth, not rapid output growth and slow labor market participation.

2. Arguably health care and finance have been subject to the most regulatory uncertainty.  Yet the health care sector has held up OK and banks have made a very strong comeback in terms of profits.

I believe the causes of the jobless nature of the recovery are unique to the labor market.  I hope to blog more about these reasons and to communicate further points from my talk.

Haiti fact of the day

Nearly 17 percent of Haiti's civil servants died in the disaster, including many senior managers…

Most likely these were the people most likely to be inside of relatively substantial buildings.  It's also a reflection of how much Haitian government was concentrated in Port-au-Prince.  Did you know that the U.S. occupation of 1915-1934 encouraged this centralization, if only to make the country easier to rule?  The full story is here.

Attracted to Evil?

In transcranial magnetic stimulation (“TMS”), a coil of wire is placed near the head. Alternating current flowing through the coil induces a magnetic field with a strength of up to 2.5 teslas (one tesla is 20,000 times the strength of the earth’s magnetic field). The field passes harmlessly through the skull and influences the electrical Brain_magnetsignals passing among neurons in the brain.

(Image and quote from Progress Daily.)

TMS has been used to stimulate or suppress different centers of the brain including those involved with attention, language and memory.   A new paper in PNAS used TMS to disrupt part of the brain involved in judging intention and morality.  Here is a summary:

Magnets can alter a person's sense of morality, according to a new report in the Proceedings of the National Academy of Sciences. 

Using a powerful magnetic field, scientists from MIT, Harvard University and Beth Israel Deaconess Medical Center are able to scramble the moral center of the brain, making it more difficult for people to separate innocent intentions from harmful outcomes….

Magnetic fields made people judge outcomes more than intentions.

The effect was small and temporary but no less disturbing especially if the effect could be made to operate at a distance.  Perhaps the tin-foil-hat-people have had it right all along.

Sometimes third-party payment *lowers* cost

Really. There is a new paper by Mark Duggan and Fiona Scott Morton — "The Effect of Medicare Part D on Pharmaceutical Prices and Utilization." — in the just-arrived issue of the American Economic Review.  

The point is that large buyer groups, structured incentives for patients to consume certain products, and formularies ("a mechanism that allows a buyer to identify a therapeutically similar treatment as a viable substitute for a patented treatment") all can help lower cost.  These institutions are cited as reasons why Medicare D has cost about twenty percent less than expected; the third party can institute these procedures more effectively than can individuals paying out of pocket, or so the data in this paper indicates.

Ideally much more of the health care sector should work this way, although usually it doesn't.

You'll find earlier versions of the paper here.  The references are also a good place to start for catching up on some of the major papers in health care economics over the last ten years.

How does Netflix receive your discs so early in the morning?

Someone from Netflix writes to me:

The post office doesn't scan any DVDs for us. The envelopes come to us from the post office in standard mail cages. The envelopes are opened and inspected (currently by hand) by the nearest Netflix hub starting extremely early in the morning. After inspection, they're scanned by a computer. It's not until the DVD is actually scanned that it's marked as returned.

Netflix has spent quite a bit of time hacking the USPS, as it were. They've found they have a much higher customer satisfaction rate, as well as being easier to get new customers, if one-way transit time is only 1 day. It's hard to achieve in most places, but in high density areas like the SF Bay Area it's very cost-effective.

The same correspondent references this article on related information, and more.

Further assorted links

What is the biggest flaw in the labor theory of value?

Dan R., a loyal MR reader, poses this question:

I would be curious to know what you consider the biggest flaw in the labor theory of value to be. Also, would you say that it is disproven, unnecessarily bulky, or simply marginalized?

There is a simple model in which the labor theory of value is true.  If inputs are homogeneous and constant returns to scale hold, the proportions of labor input will indeed be proportional to price.  If not, labor inputs will be reallocated until this proportionality holds (Much ink has been spilled on whether this is what Smith, Ricardo, and others had in mind; it is one way of reading Smith's deer-beaver-hunting example.)

One problem is that we need labor, capital, and land for production, not just labor.  The so-called "transformation problem" tries to square this circle.  The simplest response, however, is to give up the labor theory of value.

Another problem is that inputs are heterogenous.  They have to be valued in dollar terms, and that requires imputation, a'la Friedrich Wieser, and that in turn requires information from the demand side.  Price determines cost of production at least as much as cost of production determines price.

Compared to Marshallian supply and demand scissors, the labor theory of value is at best awkward and most of the time it is wrong.  There are some economic sectors where constant returns to scale hold and thus demand has little influence over market price.  But those are special cases, even if some Cambridge-U.K. linked economists promote them as the main show. 

Addendum: David Henderson comments.

China diabetes fact of the day

It's not surprising to see China as "number one" in so many things, but I was surprised by the magnitude of this development:

According to the report, more than 92 million adults in China have diabetes, and nearly 150 million more are well on their way to developing it. The disease is more common in people with large waistlines and in those who live in cities, the report indicates.

"For every person in the world with HIV there are three people in China with diabetes," said David Whiting, an epidemiologist with the International Diabetes Federation, who was not involved in the research.

The Federation projected last year that some 435 million people would have diabetes by 2030. "With this new study, we're going to have to rerun our estimate," Whiting told Reuters Health.

The full story is here.

The extreme tension in Caplanian thought

Bryan writes:

Fortunately, the government can handle this problem without spending trillions or heavily regulating the insurance or medical industries.   All it needs to do is provide a means-tested subsidy to make private health insurance more affordable for those who need it most.  The subsidy should be based on income, wealth, chronic health status – and, given Balan's focus on the deserving poor – on past and current behavior.  People who engage in voluntary risky behaviors – smoking, drinking, over-eating, mountain-climbing, violence, etc. – should receive a smaller subsidy, or no subsidy at all.  The same goes for people who failed to buy long-term insurance when they were healthy and employed, then ran into health or financial troubles. 

First, I am worried about a governmental process which first judges the "deservingness" of each poor person before setting the proper subsidy.  Do they videotape your life as you go along, or do they convene a Job-like trial when you submit receipts for reimbursement?

Second, causality is so often difficult to determine in medicine.  Say a poor guy had a heart attack but he ate grilled meats for thirty years.  Was that irresponsible behavior or not?

Third, and most of all, Bryan loves to stress the heritability of intelligence, income, and even life expectancy, among other variables.  But how can your parents be your fault? 

This is a fundamental tension in Caplanian thought, namely the desire to promote intuitions of both meritocracy/desert and facts about heritability.  Bryan can't have it both ways.

You can leave your comments on this post here.