Month: July 2012

Optimal product durability (Pakistani markets in everything)

…many rallies end in the same way: the burning of an American flag.

…The man who dominates much of the supply chain of American flags to religious groups, 30-year-old Mamoon-ur-Rasheed – who’s been publishing anti-American placards and hand-made stars and stripes since his school days, when he was angered by the Clinton administration’s sanctions on Pakistan following its nuclear weapons testing in 1998 – is now remarkably dispassionate about his services, as well as about the short shelf-life of his flammable goods.

“We work hard for our product, and we get paid for our product,” says Rasheed, clad in a camouflage baseball cap and seated behind a desk that takes up most of the space in his eight-by-six-foot office in Gulashan-e-Iqbal, one of the city’s oldest working class neighborhood.

“So what if it burns? The purpose of the flag is to last for an hour. It’s unfortunate, but if the demand is for an hour, then the supplier must meet such demand too,” he says.

The story is here, and for the pointer I thank Jake McGuire.

Assorted links

1. Sorority recruitment (and the limits of on-line education!).

2. Is the basketball “hot hand” true after all?

3. Spring 2013 Dan Ariely will do a Coursera course, and more on the spread of Coursera.

4. Sintetia interviews me about Spain and the great stagnation, and here from 2010 is my in-Spanish interview about what will happen in the eurozone.

5. The culture that is Singapore, and more here.

A short lesson about the history of U.S. employment

From Ray Fisman:

The wages of less educated men—which had been in decline since the 1970s—also enjoyed a brief reprieve in the late 1990s and into the following decade. Working with University of Chicago colleagues Kerwin Charles and Matthew Notowidigdo, Hurst found that these aggregate statistics for the United States as a whole have played out in miniature across the country (PDF), as one would expect if the housing boom were really behind the short-lived uptick in the employment and salaries for the bottom 20 percent. In regions where the housing booms were greatest, the employment prospects of low-skilled workers fared the best, while in places that the housing bubble passed by, the job prospects of such workers continued their inexorable decline. (The researchers also found that the increase in construction employment was only part of the explanation: Low-skilled service employment also went up in places with housing booms as local residents, feeling wealthier as a result of the increased value of their homes, spent more at restaurants, barber shops, and local retail establishments.)

Overall, Hurst and his co-authors estimate that roughly 40 percent of the increase in nonemployment (those who are unemployed but still looking for jobs, as well as those who have given up and exited the labor force entirely) since 2007 involves manufacturing jobs that were already lost during the earlier part of the decade. But the loss of these jobs was temporarily obscured by the housing boom that allowed low-skilled individuals to find work. (For the college-educated, there was at most a modest connection between the housing booms and employment.)

Once again, we are not as wealthy as we thought we were.  And there really is a significant structural component behind today’s sluggish labor market.

Aaron Carroll on Medicaid Wars

Enough people have linked to this piece that I thought I should write a response, which you will find under the fold…

To start with a general remark.  Often defenders of ACA request some kind of conservative engagement with the policy, rather than voting for the 34th (?) time for outright repeal with no coherent story of replacement.  I’ve laid out a coherent scenario of how ACA could evolve into something which I consider better, and actually with only modest changes to the law itself.  The mandate gets narrowed, the system as a whole evolves into means-tested vouchers (which proponents such as Zeke Emanuel favor), and possibly HSAs are given a larger role again.  I say states will try to limit Medicaid growth, not that they should but that probably they can over the longer run.  Defenders of the current ACA don’t have to favor my analysis, but in fact what I get back is sheer annoyance from Carroll, repetition of Carroll from various others, and an attack from Krugman, with no substantive engagement on the policy proposal at all.

Carroll writes five times that he is annoyed by my piece, but in hardly any of those cases is he disagreeing with any position I took.  Let’s go through them one-by-one:

I get a bit annoyed when people claim that we can’t “afford” more government intervention or, god-forbid, single-payer. That kind of statement willfully ignores the fact that every country that has MORE government intervention spends LESS.

I most definitely did not say this and in fact I mentioned that single payer systems lower cost.  Spending more on Medicaid, however, will not save the U.S. money (the Oregon study shows this), whether or not we can normatively “afford” it.

I get a bit annoyed by the claim that an expansion of government insurance leads to lines and waiting when lots of countries have universal access and less of a wait-time problem than we do.

A significant influx of people into Medicaid, under current institutions, will lead to more queuing.  That is true whether or not you think other countries with single-payer have big queueing problems.  What I wrote was this:

Unfortunately, Medicaid has some of the worst features of single-payer systems. Typically, a single-payer system will bargain down medical prices, thus adding to affordability, but at the risk of having long lines of patients waiting for care. As it stands now, though, the low reimbursement rates of Medicaid already lead to long lines, or an inability to find a good doctor altogether, while the higher reimbursement rates of Medicare and private insurance keep health care costs high.

It’s even carefully worded “…at the risk of having long lines of patients waiting for care.”  Supply elasticities are positive and so single-payer systems do run this risk.  Yet I am clear that in critical regards the systems of other countries get the better end of this deal compared to the United States.

Another bit:

I get a bit annoyed by blanket claims that doctors won’t accept Medicaid. Such statements often ignore the fact that the majority of Medicaid beneficiaries are children and pregnant women. We don’t need all types of doctors to accept Medicaid patients in equal numbers. They also ignore the fact that lots of doctors won’t accept new patients with Medicare or private insurance, either.

It is very difficult to find a good doctor in northern Virginia who takes Medicaid and I speak from personal experience (helping others).  Or try any number of basic websites, with common quotations such as “Finding a Medicaid doctor constitutes a challenge…”  Medicaid dentists are hard to find.  Try calling say the Washingtonian “best doctors” list and see how many of them take Medicaid.  Large numbers of doctors do take Medicaid but overall they tend to be much worse and there are also problems with queuing.  Think about it: why would the lower payers end up first in line?

There is more annoyance:

I get a bit annoyed when people just claim government programs are “unpopular”. Like Medicare? I don’t think so. Is there any evidence that Medicaid is unpopular? I’d like to see it. Personally, I think that the fact that (a) all 50 states have bought in over time and (b) the Supreme Court just ruled that threatening to take it away is “coercive” speaks to the opposite. Additionally, polling shows the opposite of what Tyler (and lots of others) suggest.

I am sorry but this is a total “read fail.”  I am saying Medicaid (not “government programs” or “Medicare”) will become increasingly unpopular.  (In fact I am known for arguing that big government as a whole is quite popular.)  Every day in the newspaper there is handwringing by governors, not all Republican ones, about wishing to limit or escape Medicaid obligations.  A lot of them would prefer to get block grants and spend the money elsewhere (a simple question for Carroll: if Medicaid is so popular with voters, there is no reason to fear block grants to the states, right?  Voters surely will insist that Medicaid spending be kept at current levels or perhaps even increased.)  Daily Kos serves up plenty of evidence for the lukewarm support for Medicaid, as does Ezra Klein: “But, for a host of reasons, Democrats worry that Medicaid is more endangered than people realize.”  Also note how skimpy Medicaid coverage is in many states.  A lot of states don’t really try to cover poor adults, without children, at all.  Frankly this is standard fare, especially on the left, but somehow if I write it he gets annoyed.

If you poll people and ask them whether they favor health care for the poor, of course they will say yes.  The bottom line is this: right now we are borrowing about forty cents of every dollar spent.  As we move toward fiscal balance, which are among the most vulnerable programs?  Defense spending may be cut somewhat, but Medicaid is far more vulnerable than either Social Security or Medicare.  I didn’t know that was under dispute and in fact it really isn’t.

Some more annoyance from Carroll:

I get a bit annoyed at the blanket acceptance of the awesomeness of the free market in health care, when there is no phenomenal evidence of its success. And again, those countries with less free market are cheaper, universal, and often just as good. So why are we always trying to run away from them?

That is another “read fail.”  What did I call for in the column?

We would then have government-subsidized and mandated catastrophic insurance, and a freer market for other health care expenditures. We might even return to a health savings account approach on the noncatastrophic side.

I also note in the column that is not my first best, but we Americans probably cannot get easily to a first best system (for me a Singapore-style system, with single payer on the catastrophic side rather than mandates for private insurance purchase).  My accompanying blog post even noted that the HSAs could be supplemented with government funds, if it was so desired.

The real argument of the column is that ACA will fall apart for political reasons because it creates too many different groups with different treatment.  The “mood affiliation” of the column is something other than celebration of ACA, and so Carroll pulls out all of the old chestnuts and attacks them, rather than responding to the actual argument.  Basically he should go back and reread the piece itself.

The new John Broome book

Climate Matters: Ethics in a Warming World.  Excerpt:

What is the role of experts in democracy?…Their views, supported by arguments and evidence, help individuals and their representatives to form judgments.

This is not how economists typically see their democratic role.  They do not see themselves as participants in public deliberation, helping people to make their judgments.  Instead, they think their role is to help ensure that the preferences of the people prevail.  They do this by basing their valuations on market prices, which reflect people’s preferences.

Outsourcing and the welfare state

A new meme I have been seeing around Twitter is something like “It’s OK to criticize job outsourcing as long as we don’t have a good enough welfare state to protect the losers.”  Maybe no one holds the view in exactly that form but for now treat it as a foil.

Take your attention away from the effect of outsourcing on a single job or single worker and consider it more systemically.  If the critics of outsourcing are correct, and for purposes of argument let’s assume they are, outsourcing lowers real wages for some reasonably large class of U.S. workers.  That’s a permanent negative shock to wages.  Ceteris paribus that may suggest a lower rate of spending on transfers.  For instance if unemployment insurance becomes more generous, the negative incentive effect on workers is stronger when real wages have fallen.

In general we usually argue that higher-wage countries should have more generous transfer programs.

You could argue “the returns to capital are higher, we [they] now can afford this more easily.”  Or you could argue “I believe government training programs will elevate the disadvantaged workers into a higher and better wage class.”  Or maybe you just favor higher subsidies to community colleges.  Try “Even more than EITC already does, we should restructure our welfare state to encourage work.”  There are numerous possibilities.

The key point, however, is that permanently lower real wages have some direct and indeed negative first-order effects on how easy it is to run a well-functioning welfare state.  No one said you had to like that, but let’s not forget about it either.

*The Great Persuasion*

That is the new book by Angus Burgin and the subtitle is Reinventing Free Markets since the Depression.  As I had suspected, it is interesting.  Here is the core thesis:

To Hayek and the other founders of the Mont Pelerin Society, Friedman’s ascent within its orbit reflected the collapse of its attempt to integrate a restrained defense of free markets into a traditionalist worldview.  In the broader social environment Friedman’s rise portended, and precipitated, the triumphant return of laissez-faire.

One thing which strikes me reading this book, as it does when I reread Friedman’s 1962 Capitalism and Freedom, is how much market-oriented writers of that era were not focused on the problems of old people, even though today those problems take up a huge chunk of the budget of the federal government.

I found this excerpt interesting:

In stark contrast to the early post-war years, Friedman would conclude near the end of his career that “there are too many damn think tanks now,” adding that they simply “don’t have the talent for it.”

Growth tigers of the 1950s

If we pull out Japan, Israel, and postwar European catch-up, and do per capita growth, B.R. Shenoy’s list of top performers looks like this:

Jamaica, 6.9%

Trinidad and Tobago, 5.9%

Algeria, 5.7%

Puerto Rico, 5.5%

Rhodesia and Nysaaland, 4.1%

Turkey, 2.9%

Philippines, 2.5%

If you do absolute rather than per capita, many of those numbers go up by a few percentage points, for instance the Philippines becomes 5.8% and Algeria becomes 8.0%.

Those numbers are from B.R. Shenoy’s book Indian Economic Policy.  Are there lessons?  One is that parts of the Caribbean are in fact wealthier than many people think.  Another is that the 1950s were a very good decade for the Caribbean, culturally too.  A third lesson is that the top performers in one period may not have legs.  Finally, looking at this table makes one realize, yet again, how good it was to more or less rid the world of communism.

*Keep from All Thoughtful Men: How U.S. Economists Won World War II*

That is a new book out by Jim Lacey.  Here is one good review by Christopher Tassava:

…Lacey (a retired U.S. Army officer and current writer on defense matters) describes the bureaucratic fights between civilian experts and military staff over the extent and speed to which the American economy — hardly firing on all cylinders as war began in Europe — could be reoriented to produce the munitions necessary for a serious military effort. At the center of Lacey’s story are three economists who, he shows, had far-sighted views of the true capacity of the American economy: the reasonably well known Simon Kuznets and two nearly forgotten figures, Robert Nathan and Stacy May.

Lacey capably uses archival and secondary sources to show that these three men, along with a small group of other civilians inside the federal bureaucracy, were able to use social-scientific methods, including, crucially, statistical techniques, to assess how large the U.S economy could grow, how quickly that growth could occur, and how much war materiel the economy could produce for use by the U.S. and Allied militaries. Lacey persuasively shows that Kuznets, Nathan, and May were able to forecast in late 1942, before the first anniversary of Pearl Harbor, that June 1944 would be the moment at which the American “arsenal of democracy” would be able to produce sufficient materiel to launch a substantial invasion of Europe.

The new tug of war over Medicaid

My New York Times column is here, it has two parts, a prediction and a proposal.  The prediction:

Medicaid has never been especially popular, and when its expanded role becomes more widely understood, it is likely to become less popular still.

I am not expecting that governors will turn away nearly-free federal dollars outright.  (Though probably some will, here is an update on how the governors are reacting, which as I see it involves lots of bargaining.)  I am predicting that the extreme subsidies for states to hop on to the expansion will at some point weaken or go away.

Change might come soon. If Mitt Romney wins the presidential election, and if Republicans control both houses of Congress, they could turn Medicaid into a block grant program, where states can spend the money as they wish.

Even if President Obama is re-elected, some state governments will work hard to reduce the number of people covered by Medicaid. State officials know that limiting Medicaid will place more individuals in the new, subsidized health care exchanges, and that those bills will be paid by the federal government. The basic dynamic is that state and federal governments have opposite incentives as to how many people should be kept in Medicaid.

The proposal?  Here is my best take on how Obamacare might evolve into something more practical:

1. Many of the states slip out of expanded Medicaid obligations and many employers slip out of expanded mandate obligations to cover their employees (waivers, willingness to pay fines, lobby to have the law altered).  The system evolves toward a form of means-tested vouchers, sold on the exchanges.

2. The subsidies for the private exchanges become so expensive that the individual mandate is limited in scope.  Eventually the mandate applies to catastrophic coverage only.

3. For catastrophic coverage, we move toward a mandate and subsidized exchanges, and for non-catastrophic coverage there is no mandate and health savings accounts, the latter supplemented by public contributions if needed or if you wish.

I am not predicting that, nor is it my first or even preferred second-best solution.  It is however the best solution I can see evolving out of ACA in its current form.

Will it be drones that end the great stagnation?

Will we deregulate drones?  Should we?  When might that become possible?:

There are very few drones over our cities. Commercial interests are not allowed to fly overhead. Nor most local governments. Hobbyists can, if they keep their drones under 400 feet. And the skies will eventually open up to everyone. “Ironically, my nine-year-old can fly drones, but the police department can’t.” Anderson says.

The problem is that our airspace is governed by a policy called sense-and-avoid. Flying vehicle control systems — be they people or computers — are ultimately responsible for avoiding other vehicles. And today’s drones, as a rule, have no facility to make them aware of other aircraft.

Anderson says there is still a long way to go when it comes to autonomous vehicles. The videos we’ve seen of quadcopters flying through tiny slits or playing instruments are taken in highly-controlled environments, he says.

Out in the real world, GPS and wind leads to much less precise positioning.

Here is more.  I enjoy following @GrishinRobotics on Twitter.