Month: April 2011

Questions that are rarely asked

By email, from Joshua Miller:

Do you think there is an audience for a public policy game show? The idea would be to ask contestants to solve policy problems instead of asking them to navigate obstacle courses or eat spiders.

Much of my research is on deliberative democracy and civic engagement, but though Obama used that rhetoric in his campaign there haven’t been any major policy moves to increase civic engagement. So I wondered:

If you have any comments, I’d appreciate them. I don’t imagine this as some sort of televised town hall meeting; rather, I envision judging contestants’ policy choices according to realistic projections of their impact.

Here is Alex’s proposal for, So You Think You Can Be President?

Brazil fact of the day

In absolute terms, Brazilian elections are second only to America’s in their costs, and relative to national income can exceed them by a wide margin.  In 1996, Clinton spent $43 million to take the White House; in 1994 Cardoso laid out $41 million to secure the Palacio de Planalto, in a country with a per capita GDP less than a sixth that of the US.

That is from Perry Anderson, “Lula’s Brazil,” The London Review of Books, 31 March 2011.

Judging by review quality

Matthew Johnson directs my attention to the following:

In our recent (award-winning) WWW2011 paper “Towards a Theory Model for Product Search”, we noticed that demand for a hotel increases if the online reviews on TripAdvisor and Travelocity are well-written, without spelling errors; this holds no matter if the review is positive or negative. In our TKDE paper “Estimating the Helpfulness and Economic Impact of Product Reviews: Mining Text and Reviewer Characteristics“, we observed similar trends for products sold and reviewed on Amazon.com.

Agricultural Extortion and Terrorism

Single bottles of wine from La Romanée-Conti, the legendary vineyard of Burgundy, sell for upwards of $10,000. In 2010 the owner received a threat, the vineyard would be poisoned unless the owner paid one million euro. When the owner didn’t pay a map was delivered that identified several vines that had already been poisoned by drill and syringe. The French don’t want to talk about this and for good reason, agricultural extortion is very easy and they fear copycats.

I have thought about this issue on and off for many years beginning with the Chilean grape scare of 1989. In that scare an anonymous caller to the US Embassy in Chile announced that Chilean fruit had been injected with cyanide. The FDA found two grapes with evidence of cyanide poisoning. Exports of fruit from Chile were temporarily banned, millions of pounds of fruit were destroyed and the Chilean fruit industry lost millions of dollars.  Many people now think the call was a hoax and the FDA evidence mistaken but either way the point was demonstrated, it’s easy to create millions of dollars worth of damage.

A few other lesser known cases are even more concerning. In 1996, for example, the police were tipped off that liquid fat at a Wisconsin rendering plant had been contaminated doing some $250 million dollars worth of damage. The criminal probably would never have been caught had not more threatening letters and further contamination followed. Eventually a competitor was charged with the crime.

It would be easy to do billions of dollars worth of damage to crops and animals with little risk of being caught. As the Chilean case indicates, even a hoax can damage. Fortunately, criminals usually aren’t very smart. The vine poisoner mentioned earlier, for example, was caught trying to collect the money. A little bit of economics would have taught him that you can make lots of money from agricultural extortion without ever having to collect from the victim (and no, I am not saying how although it won’t be a mystery to most readers of this blog). Of course, a terrorist doesn’t even have to collect damages to succeed–just a bit of mad cow or corn rust and we are in trouble (and those aren’t even the biggest threats.)

I worry that this one of those dangers that is so threatening we are afraid to worry about it.

*Before the Revolution*

The author is Daniel K. Richter and the subtitle is America’s Ancient Pasts.  I admit I am a sucker for books on this topic, but so far it is one of my two or three favorite non-fiction titles of the year.  Excerpt:

The end of the Chesapeake chiefs’ efforts to use prestige goods to build power in the traditional way resulted from a more basic factor than the violent refusal of the English to play along.  Once substantial numbers of European and Native people began living near each other, it became virtually impossible for any chief to control the flow of goods to his people, even if, as Powhatan apparently tried to do, he redefined prestige in ever more esoteric directions.  As early as January 1608 — only a few months after the establishment of Jamestown — Smith complained that ordinary colonists and visiting sailors were trading so much metal to ordinary Indians that corn and furs “could not be had for a pound of copper, which before was sold for an ounce.”  Archaeological excavations confirm that the jewelers and metalworkers textbooks have long derided as useless appendages to the lazy Jamestown colonists worked busily to make copper and other metal items to trade with Native people.  This might have been the colony’s only productive enterprise in its earliest years.  All along the costs — and soon along the interior rivers — of eastern North America, this kind of unregulated trade between commoners was bad news for chiefs like Powhatan, whose power depended on European goods remaining rare and under their personal control.  But the opportunities that such trade represented — for both Europeans and Native people — were enormous.  Some chiefs found ways to turn the new conditions to their advantage.  Others did not.

Definitely recommended.  My favorite parts are about the agricultural revolutions experienced in native American societies, before the arrival of the colonists.  Here is part of the Amazon summary:

Richter recovers the lives of a stunning array of peoples—Indians, Spaniards, French, Dutch, Africans, English—as they struggled with one another and with their own people for control of land and resources. Their struggles occurred in a global context and built upon the remains of what came before. Gradually and unpredictably, distinctive patterns of North American culture took shape on a continent where no one yet imagined there would be nations called the United States, Canada, or Mexico.

China arbitrage story of the day German flight attendants arrested in quantitative easing scheme

Six Lufthansa employees, including four flight attendants, have been arrested after sneaking in more than 63,000 pounds of out-of-circulation, €1 and €2 coins from China back to Germany over the last four years.

Euro coins have two color tones, gold and silver, and when the German Central Bank takes the coins out of circulation, the two colors (see picture to the left) are separated then sent to China to be melted down into scrap metal.

A wily group in China reassembled the coins rather melting them, then sent them back to Germany with four LH flight attendants serving as “mules.”…The FAs would then take the coins to the Bundesbank (only the central bank in Germany accepts damaged coins) and turn them in for bills.

The story is humorous throughout, and for the pointer I thank none other than Air Genius Gary Leff.  Here is further detail (NYT) as to how the arbitrage worked and relied on low Chinese wages to reassemble the coins in a cost effective manner.

China Grave Bubble

I cannot afford to buy a house while I’m alive and now cannot afford to buy a grave for when I’m dead.

The soaring price of land in China is spreading to burial plots which now can cost more per square foot than luxury homes. And here:

Some Chinese call themselves fen nu (grave slaves), derived from fang nu (housing slaves) – those burdened with huge housing mortgages.

Hat tip: Helen Yang.

Assorted links

1. Good profile of Eric Schadt, “he wants to be a “master of information” instead of simply a scientist.”

2. Diane Coyle reviews the new book by Dean Karlan and Jacob Appel.

3. There is no Great Stagnation (the haircut clinches it).  Or try this video.

4. Paul Krugman on the Ryan numbers, and on the real estate assumptions.  And revision on Ryan and the ACA Medicare cuts.

5. Optimal taxi strategies.

The Paul Ryan budget plan

I’ve now read it and here are a few comments:

1. The macro projections are very weak, not worth the time of criticism (more here).

2. Ryan nails our dysfunctional, “who is really responsible for paying for Medicaid?” structure.  That said, I’ve long preferred the federalization of Medicaid.  Block grants to the states may be better than the status quo, however (the size of those grants is a logically distinct question).  Within state budgets, police and education are often the alternative to Medicaid costs.  Are we so sure that Medicaid produces the maximum benefit for the money?  Low-quality moralizing about the poor is not an answer to this question.

3. That said, Medicaid should be one of the last parts of the health care budget to cut.  More of our health care aid should be like Medicaid, which is relatively cheap and also targeted at those who really need the assistance.  The correct Medicaid decisions depend on other budget choices, but ideally Medicaid is low on the list of recommended cuts, even if it may require some cuts.

4. With either the block grants or the Medicare vouchers, I would urge maximum transparency.  Health care costs are increasing by about five percent a year.  That means a fixed value voucher loses about half its real value, in terms of command over health care resources, within fourteen years.  (It’s a bit more complicated than that, since not all health care costs are proportional price increases to currently available services.)   If that is the decision we are going to make, let us understand it as such.  I would add that Ryan’s opponents don’t avoid this kind of dilemma nearly as much as they think they do.

5. It would be nice to have a scientific estimate of how much fixed value vouchers would lower the rate of growth of health care costs.  I’m not convinced the effect here is large, but I’d like to see it studied more closely.

6. Ryan’s budget repeals ACA and thus in the semi-short run it could considerably increase Medicare costs.  There is no reason why Ryan’s plan shouldn’t keep the most fiscally responsible aspects of ACA.  Ryan exempts the current elderly from any Medicare cuts at all, see David Leonhardt’s remarks.

7. Over a ten-year time horizon, the Ryan plan increases the debt rather than decreasing it.  Take that as a sign of how hard fiscal reform is going to be.

8. As I’ve already blogged, the vouchers idea won’t help cut health care costs.  Let’s create some multiple public options within Medicare, some of which would allow people to trade health care benefits for cash.  Democrats are supposed to be “pro-choice,” right?  Or is that only for abortion?

9. I’m all for cutting the corporate income tax, but 35 to 25 percent isn’t impressive.  Let’s eliminate it altogether.

10. There’s not nearly enough on reforming the dysfunctional supply-side of our health care institutions.  Nor does science or basic research receive much discussion.

11. The plan does some strange things, such as repeal Dodd-Frank resolution authority, which most people, even Dodd-Frank critics, think is a good idea.  Ezra summarizes the entire list of budget changes.

12. The more the Democrats criticize this plan, the more it helps Ryan and the more it hurts the Democrats.  It reframes sticker shock, and the entire debate, simply to argue about $6 trillion in budget cuts.

13. #12 is the bottom line here, since the plan is not intended to be enacted into law.  Points #1-11 pale in comparison to #12-13.

Here is Reihan, and Megan, and Ezra on the CBO.

Do private vouchers help control health care costs?

Basically not.  Austin Frakt writes:

Why is the market-based Advantage voucher system not helping to control Medicare costs? The answer is that health care cost control is tough, technically and politically. Provider groups typically resist it. When it pertains to Medicare, beneficiaries resist it too. By adding another private-sector layer to the program–health insurers–the Advantage program invites a third source of political pressure. Rent-seeking by providers and insurers, as well as the power of the beneficiary constituency, align in their encouragement of higher Advantage payments. Congress, apparently, is willing to yield to that encouragement.

So, it’s really no surprise that Advantage plans have not, to date, been part of a Medicare cost control solution. Congress has not consistently been willing to say no to the combination of powerful interests that advocate for higher payments to private plans. Given the track record, it is also not unreasonable to conclude the mandatory voucher program Ryan advocates wouldn’t save money either. As Krugman suggests, it could even be worse because in time 100% of beneficiaries would be enrolled in vouchers, not the 24 percent that are enrolled today.

The politics of Medicare are such that Ryan’s idea, paying for care entirely through private plans, costs more. That’s not due to a market failure, but a political one. Congress likes to spend money; insurers, providers and beneficiaries like to receive it. Congress spends even more when it can satisfy those interests under the guise of a seemingly pro-market, pro-competitive program.

Yglesias and Krugman have a good public choice critique of this aspect of the Ryan plan.  Ezra says the Ryan plan will end up reviving Simpson-Bowles, and more comment here.  Here is praise for the Ryan plan from Chris Edwards.  Here is Arnold Kling on morality.

The way to turn the Ryan plan into genuine cost control is to offer people a choice of 5-10 “public options,” some of which involve converting future Medicare benefits into current or future cash.

Assorted links

New Design

We have now successfully moved from Typepad to WordPress; most of the kinks of the move and the new design appear to have been worked out. Here is the place to report, however, any remaining issues that you may be experiencing. By the way, if you are interested in moving your own blog, see here.

Will the government shut down?

Here are the Bookmaker’s odds:

Will the U.S. Congress reach an agreement on the federal spending cut bill for the rest of the fiscal year before March 4th?

YES -140 58%
NO -110 47%

[The +/- Indicates the Return on the Wager. The percentage is the likelihood that response will occur. For Example: Betting on the candidate least likely to win would earn the most amount of money, should that happen.]

For the pointer I thank Samuel Arbesman.  Why is there no InTrade.com market?

Addendum: InTrade now shows a 39 percent chance of a shutdown before the end of June.

Choice-based Medicare cost controls

Let’s say it’s 2027 and I’ve just turned 65.  I fill out a Medicare application on-line and opt for a plan with superior heart coverage (my father died of a heart attack), not too much knee coverage and physical therapy (my job doesn’t require heavy lifting), no cancer heroics (my mother turned them down and I wish to follow her example), and lots of long-term disability.

Is that so terrible an approach?  Is it obviously worse than having the Medicare Advisory Board make all of those choices for me?

Over the next few days you will read a lot of “downgrade and dismiss” directed at Paul Ryan and his plan and indeed it is quite possible his proposal is not a workable one (I haven’t read it yet).  But don’t fall for the downgrade and dismiss bait, keep on returning to the question of how much individual choice should be allowed into health care cost control.  Why not divvy up the cost control work between the Board and some degree of individual choice across Medicare benefits?  You don’t have to combine that choice with the cost-increasing aspects of Medicare Advantage-like plans.

Many ACA defenders simply do not want to enter into a debate where the framing is “we’re all for cost control, when it comes to Medicare benefit selection it’s a question of government board vs. individual choice.”

I can think of a few reasons why individual choice will sometimes fail as a method of cost control:

1. Individuals have serious misconceptions about the science, or the badness of a particular condition, even in light of government or other third-party advice.  Or perhaps individuals simply do not understand the nature of all of the choices at hand.

2. Perhaps an individual will choose “no coverage for lung cancer,” but the government cannot precommit to the outcome of no coverage.  Of course as cost control becomes more pressing, we’ll have to learn precommitment for at least some issues, one way or the other, so this cannot be a decisive objection. The entire premise behind the discussion is that we cannot cover all treatments through government subsidy.

3. Over time, perhaps a government Board can rebalance the mix of coverage better than an individual can.  People age, possibly lose some mental faculties, science advances, costs change, and so on.

Those are good arguments.  They are good arguments for a mixed system.  They are not good arguments for ruling out all individual choice of benefits.  They are not good arguments for ruling out a scenario like that outlined in the first paragraph of this blog post.

Here is Megan McArdle on the difference between boards and individual choice:

It seems quite likely to me that vouchers are going to be better at controlling health care cost growth than a central committee.  Every committee decision that cuts off a potentially useful treatment (and I’m afraid it can’t all be back surgery and hormone replacement therapy) will trigger a lobbying explosion from affected groups.  Each treatment is a decision with a small marginal cost to the taxpayer; it’s in aggregate that they become expensive.  Which means that the congressional tendency is always going to be to override–and while there are supposed to be structural barriers against this in the bill, they aren’t very strong . . .

Whereas if you put the decision about what treatments to cover in the hands of the patient, the lobbying you face is to increase the overall value of the voucher.  To be sure, this will have a larger (and therefore more powerful) group behind it.  But it will also come with an enormous pricetag, making it much harder for our politicians to rationalize the decision.

There are lots of comments from Reihan here.  Ezra associates the Ryan reforms with Medicare Advantage.  Maybe so, and maybe that’s bad, but we return to how much individual choice should we allow into health care cost control, with or without the cost-increasing aspects of the Ryan plan.

We shouldn’t let “downgrade and dismiss” distract our attention from that fundamental question about individual choice.