Month: November 2010

*The Phone Book*

The first American president to have a telephone on his desk was Herbert Hoover, who had one installed in 1929.  The White House did have a telephone well before most of the country, as Rutherford B. Hayes had had one installed in the telegraph room of the executive mansion in 1878.  It received little use at first, since so few other people had telephones at that time.  The very first telephone book for the city of Washington, D.C. lists this presidential telephone simply as "No.1."

That is from the interesting and new The Phone Book: The Curious History of the Book That Everyone Uses But No One Reads, by Ammon Shea.

Here is a post on Chaim Weizmann's passport.

*Perfecting Parliament*

The author is the highly intelligent Roger Congleton (my colleague) and the subtitle is Constitutional Reform, Liberalism, and the Rise of Western Democracy.  Here is the home page summary:

This book explains why contemporary liberal democracies are based on historical templates rather than revolutionary reforms; why the transition in Europe occurred during a relatively short period in the nineteenth century; why politically and economically powerful men and women voluntarily supported such reforms; how interests, ideas, and pre-existing institutions affected the reforms adopted; and why the countries that liberalized their political systems also produced the Industrial Revolution. The analysis is organized in three parts. The first part develops new rational choice models of (1) governance, (2) the balance of authority between parliaments and kings, (3) constitutional exchange, and (4) suffrage reform. The second part provides historical overviews and detailed constitutional histories of six important countries. The third part provides additional evidence in support of the theory, summarizes the results, contrasts the approach taken in this book with that of other scholars, and discusses methodological issues.

The book's introduction is here (pdf).  It is the best public choice/historical account of the rise of democracy that I know of and there is also a very interesting chapter on Japan.

Ideas Behind Their Time

We are all familiar with ideas said to be ahead of their time, Babbage's analytical engine and da Vinci's helicopter are classic examples.  We are also familiar with ideas "of their time," ideas that were "in the air" and thus were often simultaneously discovered such as the telephone, calculus, evolution, and color photography.  What is less commented on is the third possibility, ideas that could have been discovered much earlier but which were not, ideas behind their time.

Experimental economics was an idea behind its time.  Experimental economics could have been invented by Adam Smith, it could have been invented by Ricardo or Marshall or Samuelson but it wasn't.  Experimental economics didn't takeoff until the 1960s when Vernon Smith picked it up and ran with it (Vernon was not the first experimental economist but he was early).

(Economics, and perhaps social science in general, seems behind its time compared say with political science.)

A lot of the papers in say experimental social psychology published today could have been written a thousand years ago so psychology is behind its time. More generally, random clinical trials are way behind their time.  An alternative history in which Aristotle or one of his students extolled the virtue of randomization and testing does not seem impossible and yet it would have changed the world.

Technology can also be behind its time.  View morphing ("bullet time") could have been used much more frequently well before The Matrix in 1999 (you simply need multiple cameras from different angles triggered at the same time and then inserted into a film) but despite some historical precedents the innovation didn't happen.

Ideas behind their time may be harder to discover than other ideas–"if this is so great why hasn't it been done before"? is an attack on ideas behind their time that other innovations do not have to meet. Is this why social innovations are often behind their time?

What other ideas were behind their time?  Are some types of ideas more likely to be behind their time than others?  Why?

Will Employers Undermine Health Care Reform by Dumping Sick Employees?

Amy Monahan and Daniel Schwarcz write:

This Essay argues that federal health care reform may induce employers to redesign their health plans to encourage employees who are likely to consume a greater-than-average amount of medical services to opt out of employer-provided coverage and instead acquire coverage on the individual market. Although largely overlooked in public policy debates, this prospect of employer dumping of high-risk employees raises serious concerns about the sustainability of health care reform more generally. In particular, it threatens the viability of individual markets and insurance exchanges by raising the prospect of adverse selection in these markets caused by the entrance of a disproportionately high-risk segment of the population. This risk, in turn, simultaneously threatens to increase the cost to the federal government of subsidizing coverage for qualified individuals and to exempt more individuals from complying with the so-called “individual mandate.” The Essay offers several legislative solutions to the prospect of high-risk employee dumping that can substantially mitigate these risks.

I found the critique section of the paper more convincing than the legal remedies, but in any case it is an important piece.  Schwarcz wrote in the MR comments section:

The worry over employers shedding employees onto the exchange is exactly right, but in a different way than almost everyone seems to think. The real risk is NOT that employers will completely drop coverage, leaving their employees to purchase coverage on the exchange. Instead, it is that employers will offer all employees revised plans that are specifically designed to induce ONLY THE LEAST HEALTHY employees to opt for coverage on the exchange. Most seem to ignore this risk because such employees would not be eligible for subsidies. But employers would nonetheless find this an extremely desirable strategy because (i) they would avoid any penalty under the "employer mandate," (ii) their health care costs would decrease substantially by virtue of reducing coverage and shedding high-cost employees, (iii) high-cost employees would not be much worse off, as they could acquire coverage on the exchange with no medical underwriting or preexisting conditions. While coverage for high risk employees would cost more on the exchange than employer coverage, the employer could defray this cost by putting it's normal contribution into a tax free HRA Account, which could be used for coverage. The employer and its employees would be better off, and exchanges would be subjected to the risk of adverse selection from a disproportionately risky pool of policyholders. For much more on this, see: http://ssrn.com/abstract=1651308.

Addendum: Austin Frakt comments.

The culture that is Washington

As the Washington region begins an important effort to fix Metro's outdated, unwieldy governing apparatus, here's a way to appreciate the scale of the challenge: The task requires eight separate governmental bodies representing 12 distinct political jurisdictions to agree to rearrange how they oversee a ninth body, the transit system itself.

…If that's not daunting enough, consider that the biggest changes would require four entities – Maryland, Virginia, the District and Congress – to agree unanimously on identical wording to change the 44-year-old regional compact that created Metro.

The story is here.  

How willing are you to believe another human being?: the case of Picasso’s alarm installer

A 71-year-old retired electrician is at the centre of a legal battle after coming forward with more than 200 hitherto unknown paintings by Pablo Picasso, a French newspaper reported Monday.

Experts who have examined the collection have estimated it could be worth some 60 million euros (80 million dollars), Liberation reported.

…Le Guennec said he had worked installing alarm sytems at a number of Picasso's residences, including a villa in Cannes in the south of France, during the last three years of Picasso's life — he died in 1973.

He said he had had been given the works as presents, either by Picasso's wife or from the artist himself. The collection included 271 works, Liberation reported.

For the pointer (more here) I thank Chris F. Masse.

Obamacare: where are we?

I became so sick of blogging this topic, but it's time to revisit where matters stand:

1. The health care sector is becoming more concentrated, largely through mergers and acquisitions.  Some of this is long-term trend, and some of it is a direct response to a more regulated and rent-seeking-intensive sector.  By no means I am against corporate bigness per se, but this does not augur well for cost control and affordability.

2. It seems more obvious that requiring health insurance companies to limit their overhead costs is a mistake.  It is leading to more concentration in the sector and probably to more accounting chicanery as well.

3. Contrary to my earlier expectations, the legal issues are not going away.  They had seemed like non-starters to me, but I now could imagine that a few Federal judges rule against the mandate and there is a subsequent crisis of confidence as some major Democrats run for cover rather than defending the policy.  I now give this scenario 35-65 rather than 10-90.  The fact that mandate enforcement could be passed to the state level, without much affecting the operation of the plan, doesn't matter any more, given the spin such rulings of unconstitutionality would receive.

4. Negative trends in health care markets continue, and many of these will be blamed, by many people, on the new health care reform.  In fact Obamacare will make some of these trends worse (e.g., private insurance patients pushing out Medicaid patients), but Obamacare will be blamed for this problem before the extra negative effect starts operating.  I understand the political logic of how benefits programs became popular and then become locked into place, but I'm seeing more clearly now that the health care reform simply isn't well timed to be very popular.

5. The differential payment rates across Medicare, Medicaid, and private insurance are becoming unsustainable more quickly than I had anticipated; see for instance the link in #4.  Further reforms will be required more quickly than had been anticipated, but it's not obvious how such reforms should proceed.  It's hard to either upgrade the Medicaid (and Medicare) rates or to downgrade the private insurance rates.  Monitor this one closely, because it is likely to prove the breaking point of our health care status quo, with or without the Obama plan.  (This is our version of the ticking time bomb within the eurozone, namely that natural rates of growth split apart a distortion, increasingly, over time.)

6. I am less worried about mandate enforcement than I used to be; Austin Frakt has had good posts on this at TheIncidentalEconomist, see here.

7. I am more worried about employers shedding employees onto the subsidized exchanges than I used to be; Reihan Salam has had good posts on this topic and how it could prove to be a fiscal breaking point for the new law.  You can argue that this is the actual long-run restructuring plan, but unless we are willing to go the "Medicaid for all reimbursement rates" route, I don't see how we afford it.

8. I have the new worry of uncooperative state governors trying to shed their Medicaid loads onto the federally-subsidized health insurance exchanges.  Could one or two rogue states on this issue create a crisis in the system?  I find this one hard to judge, both politically and logistically, but six months ago I wasn't thinking about it at all.

9. The Republicans still don't have a good alternative plan or compromise to offer, should a chance for renegotiation arise.

Overall, the policy is shaping up to be a mess more quickly than I had thought, though not through the mechanisms I had been expecting.  It still seems to have too many jerry-rigged pressure points.

I'm all for a compromise allowing greater state-level experimentation with health care policy.

An Irish-American disclaimer

In a footnote to his paper on Irish famines, Edward J. O'Boyle writes:

It is commonplace in economic research to assume that the investigator has removed all traces of personal values from his/her work. As Becker (1961, p.10) implies, that could be a serious error. For that reason, let me state at the outset that I am a first-generation Irish-American, holding dual citizenship in the United States and the Republic of Ireland. My mother and father both were born and raised in County Mayo — the poorest county in western Ireland where the toll in human lives lost during the Great Famine was staggering. I do not know how many of my own Irish ancestors suffered and died during the Great Famine. What I do know and acknowledge is that my selection of this topic clearly is related to that family background which also very likely influenced the way I have interpreted the evidence presented herein. I concede that someone else sifting through the evidence might come to different conclusions, but I know of no other way to proceed. Supportive comments by Hans Jensen and Peter Danner on earlier drafts are gratefully acknowledged, as are the suggestions made by the editor and an anonymous referee. Any remaining errors are entirely mine.

Observations about Rio

I'm no expert on Rio, but I have visited the city twice, have taken a favela tour, been in a police vs. drug gang shoot out (not as a shooter), and read quite a few books about the place, so here are my observations on the latest events:

1. The authorities will not win until they have a superior ability to supply local public goods in the favelas.  That is a ways away.  (The broader lesson is you should not take in more immigrants than you can supply local public goods for, and that is why fully open borders is not a good idea in every setting.)

2. On a day-to-day basis, the police are outmatched in terms of weaponry and also will to win.  The military cannot remain deployed forever and a tank cannot rule a neighborhood.  I am skeptical about current victory claims, which from my comfortable perch in Fairfax I suspect are temporary at best.

3. Sometimes the Rio police push out the drug gangs, but the alternative is paramilitary groups which then run the drug trade.  (Those groups, by the way, employ a lot of former policemen.)  A police victory is not always the solution.  Here are the different types of police in Brazil.

4. The Brazilian state has extended its governance, throughout the country, much less than you might think.  The current battles are, among other things, an exercise in nation-state building, which historically has not come easily to most regions.  Furthermore relying on the military for a (partial) victory is in the longer run a double-edged sword, especially in a nation with a history of military coups and military rule.

5. For a different and now shocking look at Rio (the hills are mostly empty), watch the stunning 1959 film Black Orpheus.  Very good trailer here.

6. One of my favorite non-fiction books is Nancy Scheper-Hughes, Death Without Weeping: The Violence of Everyday Life in Brazil, highly recommended.

7. The Brazilians are now building high-speed rail between Rio and Sao Paulo.

The last twelve years of reading fiction

A few weeks ago I shared a Mungowitz-organized meal with Michael Moses, whom I had not seen for about twelve (?) years.  The question came up what truly impressive or startling fiction we each had read since our last chat, what had really stuck with us.  My gut level, unreflective picks were the following, in no particular order:

Underworld, by Don DeLillo

Jonathan Strange and Mr. Norrell, by Susannah Clarke

Cryptonomicon

The Obscene Bird of Night, by José Donoso

Alice Munro, short stories, various collections.

V, by Thomas Pynchon.

The Year of the Death of Ricardo Reis, by Jose Saramago

Juan Rulfo, Pedro Paramo

Julio Cortazar, Hopscotch [Rayuela]

I also might have named Henning Mankell or David Grossman's latest book and perhaps I have forgotten other good picks.

Incentives gone bad

NYTimes: Today, when reading the dozens of comments about Deco#MyEyes, it is hard to decide which one conveys the most outrage. It is easy, though, to choose the most outrageous. It was written by Mr. Russo/Bolds/Borker himself.

“Hello, My name is Stanley with Deco#MyEyes.com,” the post began. “I just wanted to let you guys know that the more replies you people post, the more business and the more hits and sales I get. My goal is NEGATIVE advertisement.”

It’s all part of a sales strategy, he said. Online chatter about Deco#MyEyes, even furious online chatter, pushed the site higher in Google search results, which led to greater sales. He closed with a sardonic expression of gratitude: “I never had the amount of traffic I have now since my 1st complaint. I am in heaven.”

Would it surprise you that the owner once worked at Lehman Brothers? Much more of interest at the link.

Note that I added the # to block the name, the NYTimes did not.