Month: December 2010

“McAllen And El Paso Revisited: Medicare Variations Not Always Reflected In The Under-Sixty-Five Population”

The excellent Steve Sisson sent me that. The article is by Luisa Franzini, Osama I. Mikhail, and Jonathan S. Skinner. Here is the abstract:

Medicare spending for the elderly is much higher in McAllen, Texas, than in El Paso, Texas, as reported in a 2009 New Yorker article by Atul Gawande. To investigate whether this disparity was present in the non-Medicare populations of those two cities, we obtained medical use and expense data for patients privately insured by Blue Cross and Blue Shield of Texas. In contrast to the Medicare population, the use of and spending per capita for medical services by privately insured populations in McAllen and El Paso was much less divergent, with some exceptions. For example, although spending per Medicare member per year was 86 percent higher in McAllen than in El Paso, total spending per member per year in McAllen was 7 percent lower than in El Paso for the population insured by Blue Cross and Blue Shield of Texas. We consider possible explanations but conclude that health care providers respond quite differently to incentives in Medicare compared to those in private insurance programs.

How rich was Ireland really?

Not as rich as they thought.  I've been reading Fintan O'Toole's excellent Enough is Enough: How to Build a New Republic.  Mostly it is an expose of Ireland's crony capitalism and bad political institutions.  On economic issues, chapter five offers up the following:

1. During the boom years, property accounted for 72 percent of all assets.

2. For infrastructure, Ireland ranked 26 out of 28 OECD countries.

3. Ireland had a higher share of slow fixed internet connections than in any other comparable country.

4. In terms of R&D or patents, Ireland was well below the OECD average in per capita terms.

5. In the OECD "human and income poverty" rankings, Ireland was 23 out of 25 countries, sandwiched between the United States and Mexico.

6. The country's health care and educational systems are considered subpar.

The author asks: "Did anyone seriously believe the Irish were sixty percent richer than the Germans?"  Income is not wealth.

Unfortunately, the second half of the book collapses into polemics and generalities, but some of the earlier discussions are useful, important, and not available in most other sources.  Here is a review of the book.

Assorted links

1. More culturally untranslateable expressions, some of them obscene.

2. Blog symposium on behavioral law and economics, with many notables.

3. Against overlordship.

4. Ireland markets in everything, boxer shorts edition.

5. Should men or women staff Saudi lingerie stores?

6. Do scientific effects shrink over time?

7. The Taiwanese explain Ireland (video).

8. Why are there so few great women chefs?  (Or are there?)

9. The wisdom of Garett Jones, on the status of science.

10. Why I don’t blog the “tax cut deal” very much.

11. More backlash against the arsenic paper.

How to Make Friends Without Influencing People

Bryan Caplan had a great post last week combining statistics, biology, and parenting to lead to the conclusion that weird people should have more kids.  First, the statistics. If there is a zero correlation between parental and child traits then your child is as likely to be as similar to you as is a stranger. If the correlation between parent and child traits is greater than zero then you are more likely to be like your child than a stranger but only if you yourself are not normal. Here is Bryan:

Take a look:
 

 

Parent-Child Correlation

 

 

r= 0

r=.5

 

You

Stranger

Child

Stranger

Child

Percentile/

Expected

Percentile

50th

50th

50th

50th

50th

95th

50th

50th

50th

80th

99.99th

50th

50th

50th

95th

Notice that regardless of the value of r, normal people can expect to be like their kids.  But that's not saying much, because normal people can expect to be like any random person they meet!  The story's very different for weirdos.  By definition, weirdos never have much in common with random strangers.  With a zero parent-child correlation, weirdos will feel equally alienated from their children.  As the parent-child correlation rises, however, weirdos' incompatibility with strangers stays the same, but their expected compatibility with their children gets stronger and stronger.

Now let's look at these facts like a mad economist.  There are two ways to surround yourself with people like you.  One is to meet them; the other is to make them.  If you're average, meeting people like yourself is easy; people like you are everywhere.  If you're weird, though, meeting people like yourself is hard; people like you are few and far between.  But fortunately, as the parent-child correlation rises, weirdos' odds of making people like themselves get better and better.

…The lesson: As your weirdness increases, so does your incentive to have kids.  If you like football and American Idol, you're never really alone.  You don't need to build a Xanadu for yourself.  But if you're a lonely misfit, oddball, freak, or weirdo, then find a like-minded spouse and make new life together.  Let the normals laugh at you.  You'll have each other.

Markets in Everything: Name a Theorem

You can name your very own mathematical theorem, newly generated by one of the world's most advanced computerised theorem provers (a kind of robot mathematician), and you can immortalise your loved ones, teachers, friends and even yourself and your favourite pets.

I would be afraid that I would not understand my own theorem (see here for an example).

I will stick with Tabarrok's Wager (original paper here).

Hat tip: Boing Boing.

The culture that is Wisconsin

The state of Wisconsin has gone an entire deer hunting season without someone getting killed. That’s great. There were over 600,000 hunters. Allow me to restate that number. Over the last two months, the eighth largest army in the world – more men under arms than Iran; more than France and Germany combined – deployed to the woods of a single American state to help keep the deer menace at bay. But that pales in comparison to the 750,000 who are in the woods of Pennsylvania this week. Michigan’s 700,000 hunters have now returned home. Toss in a quarter million hunters in West Virginia, and it is literally the case that the hunters of those four states alone would comprise the largest army in the world.

That is from Apollo, via Andrew Sullivan.

Bank assets as a percentage of gdp

Via Megan McArdle (from a good post on why it's hard to leave the euro), we are offered this list:

Bank assets as a percentage of GDP

Luxembourg 2,461
Ireland 872
Switzerland 723
Denmark 477
Iceland 458
Netherlands 432
United Kingdom 389
Belgium 380
Sweden 340
France 338
Austria 299
Spain 251
Germany 246
Finland 205
Australia 205
Portugal 188
Canada 157
Italy 151
Greece 141

(For comparison, total banking assets in the U.S. are equal to approximately 82 percent of GDP.)

File under "Too Big To Save."  Do be a little careful, however, since countries such as Ireland have financial institutions based there, for tax reasons, without the Irish government feeling responsible for them. 

A simple theory of product purchase and the low value of on-line ads

Matt writes (see also Tom Lee):

To those of us on the editorial side of online media this is a very frustrating dynamic. It’s hard to make money writing online because the advertising rates are pathetic compared to what was historically available in print. And the rates are pathetic because the utilization rates are pathetic. But what kind of click-throughs did those glossy magazine ads get? Something here doesn’t add up.

For a lot of products, my model of the purchase decision is fairly simple.  If you hear about it two or three times from relatively "cool" or prestigious sources – which can be ads, friends, institutions, and so on – you will take it seriously and at least think about buying it.  Even then it is often an "impulse" purchase and need not follow directly upon viewing any one of those ads or mentions; you may be in Barnes & Noble and wishing to cheer yourself up and what do you look for?  Something you've heard about a few times.  (This also leads to an equibrium where people are predominantly interested in new books, music, etc. and in turn those are the advertised products.) 

On-line ads, precisely because they are so plentiful, and look so pitiful, do not count in this regard.  Thus their main value comes when a click follows and that isn't so often.  If there were many fewer on-line ads, those that remained would stand a better chance of being focal.  But there is no way to get to that equilibrium, given the expanding supply of ad space and its relatively cheap cost.

Here is an interesting post on on-line ads.

How the Public Views the Inflation-Unemployment Tradeoff

The public really hates inflation, probably due to money illusion, which is one of the reasons we are in the current situation. Circa 1996 Robert Shiller asked a group of 113 randomly chosen responders the following questions:

Imagine that you faced a choice for the United States between the following two extreme possibilities, which would you choose?

1) The US would have in the next 10 years an inflation rate of only 2% a year, but an unemployment rate of 9%, thus about 12 million unemployed.

2) The US would have in the next ten years an inflation rate of 10% a month, but an unemployment rate of only 3%, thus about 4 million unemployed.

The results: 75% chose option 1, the low inflation, high unemployment option.

Similar results were found in Germany.

Addendum: The Brazilians, who have the most experience with high inflation, were the most likely to choose 2 (46%).

Why did global trade fall so much during the Great Recession?

Jonathan Eaton, Sam Kortum, Brent Neiman, John Romalis report:

The ratio of global trade to GDP declined by nearly 30 percent during the global recession of 2008-2009. This large drop in international trade has generated significant attention and concern. Did the decline simply reflect the severity of the recession for traded goods industries? Or alternatively, did international trade shrink due to factors unique to cross border transactions? This paper merges an input-output framework with a gravity trade model and solves numerically several general equilibrium counterfactual scenarios which quantify the relative importance for the decline in trade of the changing composition of global GDP and changes in trade frictions. Our results suggest that the relative decline in demand for manufactures was the most important driver of the decline in manufacturing trade. Changes in demand for durable manufactures alone accounted for 65 percent of the cross-country variation in changes in manufacturing trade/GDP. The decline in total manufacturing demand (durables and non-durables) accounted for more than 80 percent of the global decline in trade/GDP. Trade frictions increased and played an important role in reducing trade in some countries, notably China and Japan, but decreased or remained relatively flat in others. Globally, the impact of these changes in trade frictions largely cancel each other out.

In my view they have nailed it.  To the extent international trade consists of durables, that is why trade declined so sharply, because durables purchases fell.  Contractions in trade credit had much less of a role.

I should add, by the way, that this paper proves the value of real business cycle theory.  Even Keynesian economics (and other AD-deficiency theories) rely on RBC for many of the core mechanisms of business cycle transmission and persistence.  

Rebounds per game, or rebounds per minute? (not a post about basketball)

When someone wins the Cy Young award with a 13-12 record, you reconsider the reliability of particular statistics and also the meaning of the award.  In economics we are taught, correctly, that Ronald Coase is a world-class economist, despite his relatively small number of publications.  Virtually each piece is a gem.

In the NBA, which is a better or more important stat?  Rebounds per game, rebounds per minute, or how about "total rebound percentage"?  Should not some measure of rebounding rate win out here?

Nonetheless, I still look first to total rebounds, whether in a game, in a year, or even in a career.  How much time you are on the court is endogenous.  If you are a superb rebounder but cannot play more than ten minutes a game — because of injury, uncooperativeness, or other missing skills — you will have a low number of total rebounds and that will reflect your broader deficits.  

Greg Oden has a high rebound rate but he hardly plays, due to recurring injury.  No one calls him the Ronald Coase of rebounding.

Similarly, Yao Ming has high success rates, but cannot stay on the court for very long, due to his bad feet.  His team has plenty of talent but has not won much and it probably needs to be dismantled at this point.

In other words, it is often "brute total" statistics which are underrated (think about evaluating a potential spouse).  And brute total statistics are most important when you must cooperate with others in complementary fashion and maintain their productivity as well as your own.  They are least important when, like Wittgenstein, Coase, or Sraffa, you occasionally issue a missive of brilliance and then retreat for years.  Coase did make his Chicago colleagues much more productive, but that effect would be weaker today in this age of specialization and co-authorship.

Both experimental economics and field experiments involve a lot of researcher cooperation and both are fields on the rise.  Does this mean that total output statistics will/should become more important for assessing economists?

Circa 2010, should we be looking more for economists who are more like Nolan Ryan and less like Ronald Coase?

Addendum: Angus comments.

Sentences to ponder

Here is where some of the Republican economic thinkers are at:

"You're pushing back the subsidies and putting money back in Medicare where it belongs," [Douglas] Holtz-Eakin said Tuesday, speaking at a health reform conference sponsored by The Galen Institute and the American Action Forum, for which he runs Operation Healthcare Choice. "That's a very effective budgetary strategy."

The full story, mostly boring, is here.

*Bourgeois Dignity*

The author is Deirdre McCloskey and the subtitle is Why Economics Can't Explain the Modern World.  It is on the cultural and intellectual foundations of the Industrial Revolution and I am convinced by the major thesis.  Here is one version of it:

My libertarian friends want liberty alone to suffice, but it seems to me that it has not.  Changing laws is not enough (though it is a good start — and rotten laws can surely stop growth cold.)  True, from 1600 on the new dignity and the new liberty normally reinforced each other, and such a reinforcement is one possible source of the economist's "non-linearities."  Dignity and liberty are admittedly hard to disentangle.  But dignity is a sociological factor, liberty an economic one.

Here is a very good interview with McCloskey about the new book.