Month: July 2013

Austerity and Irish health

From Cormac Ó Gráda:

Dermot and Brendan Walsh have just published a provocative comment in the British Medical Journal on the link between health and austerity  [].

Momentary relief from the deliberations on Anglo!

The comment reads:

Ireland is – after Greece – the country where the post 2008 structural adjustment programme, aka austerity, has been proportionately most severe. Yet there are few indications that this has had a significant adverse effect on basis health indicators.

The crude death rate in 2012 was 6.3 per 1,000 compared with 6.4 in pre-austerity 2007. The suicide rate in 2012 was 12.8 per 100, 000 in 2012 compared with 13.2 in 2007. Admission rates for depressive disorders fell to 117 per 100, 000 in 2012 from 138 in 2007. The percentage distribution of self-assessed health status did not change between 2007 and 2010 (the latest available year).

Overall there is a striking lack of evidence that the major austerity programme implemented since 2007, and the concomitant trebling of the unemployment rate, has had a significant deleterious effect on the health of the Irish population. This evidence needs to be given due weight in international assessments of the impact of economic policies on public health.

The link is hereAccording to The Irish Times, citing the OECD, “Spending on the health system fell by over 5 per cent a year in 2009-2011…”  I should note that you will find significantly more negative results if you look at the experience of Greece with health care services.  By the way, I read some of the recent book Why Austerity Kills but found the level of argumentation to be weak.

How China is reshaping Hollywood

The German director’s [Roland Emmerich] “2012” movie was a hit in China with a plot that was gold for patriotic Chinese audiences: As the Earth’s core overheats, world leaders build an ark in the mountains of central China to house people and animals that can repopulate the planet. Scenes from the nearly three-hour movie feature a U.S. military officer saying that only the Chinese could build an ark of such a scale so quickly.

It was seen in China as a refreshing change for audiences after decades of unflattering portrayals of the communist nation in Hollywood movies.

Emmerich said he didn’t make “2012” specifically to appeal to Chinese.

There is more here.  You will note that in Pacific Rim they do not kiss, respect and loyalty to family are major motives in the plot, and there is nothing approaching a nude scene, except when the female lead sneakingly admires the torso of the male lead.

Some dangers in estimating signaling and human capital premia

Let’s say you signal your way into a first job, then learn a lot from holding that perch, and enjoy a persistently higher income for the rest of your life.  Is that a return to signaling or a return to learning?  Or both?

Maybe it matters that “the signaling came first.”  Well, try this thought experiment.

Let’s say you have to learn to read and write to signal effectively.  Can we run a causal analysis on “learning how to read and write”?  Take away that learning and you take away the return to signaling.  Should we thus conclude that the return to signaling is zero, once we take learning into account?  After all, the learning came first.  No, not really.

The trick is this: when there are non-additive, value-enhancing relationships across inputs, single-cause causal experiments can serve up misleading results.  In fact, by cherry-picking your counterfactual you can get the return to signaling, or to human capital, to be much higher or lower.  Usually one is working in a model where the implicit marginal causal returns to learning, IQ, signaling, and so on sum up to much more than 100%, at least if you measure them in this “naive” fashion.  If you think of a career in narrative terms, IQ, learning, and signaling are boosting each others’ value with positive and often non-linear feedback.  And insofar as these labor market processes have “gatekeepers,” it is easy for the marginal product of any one of these to run very high, again if you set up the right thought experiment.

Along related lines, many people use hypothetical examples to back out the return to signaling, learning, IQ, or whatever.  “Let’s say they make you drop out of Harvard and finish at Podunk U.”  “Let’s say you forge a degree.”  “Let’s say you are suddenly a genius but living in the backwoods.”  And so on.  These are fun to talk and think about, but like the above constructions they will give you a wide range of answers for marginal returns, again depending which counterfactual you choose.  A separate point is that many of these are non-representative examples, or they involve out of equilibrium behavior.

I call the methods discussed in the above few paragraphs the single-cause causal measures, because we are trying to estimate the causal impact of but a single cause in a broader non-additive, multi-causal process.

There is another way to analyze the return to signaling, and that is to leave historical causal chains intact and ask what if a degree is removed.  Let’s say I’ve held a job for ten years and my team is very productive.  But the boss can’t figure out who is the real contributor.  I get an especially large share of the pay because, from my undergraduate basket weaving major, the boss figures I am smarter than those team members who did not finish college at all.  If I didn’t have the degree, I would receive $1000  less.  So that year the return to signaling is $1000.  I call this the modal measure.  It is modal rather than causal because we take my degree away in an imaginary sense, without taking away my job (which perhaps I would not have, earlier on, received without the degree).

There are also the measures (not easy to do) based in notions from bargaining theory.  Consider IQ, learning, and signaling as coming together to form “coalitions.”  One-by-one, remove different marginal elements of the coalition in thought experiments, estimate the various marginal products, and then average up those marginal products as suggested by various bargaining axioms.  You could call those the multi-cause causal measures.  They are more theoretically correct than the single-cause causal measures, but difficult to do and also less fun to talk about.

Yet another method is to pick out a single counterfactual on the basis of which policy change is being proposed.  I’ll call these the policy measures.  Let’s say the proposal is to subsidize student transfer from community colleges to four-year institutions.  You can then ask causal questions about the group likely to be affected by this.  (It is possible to estimate the private return to education for this kind of policy, but hard to break that down into signaling and learning components.)  In any case the answers to these questions will not resolve broader debates about the relative importance of signaling, learning, IQ, and so on and how we should understand education more generally.

Usually when people argue about the return to signaling, they are conflating the single-cause causal measures, the modal measures, the bargaining theory measures, and the policy measures.  The single-cause causal measures are actually the least justified of this lot, but they exercise the most powerful sway over most of our imaginations.

The single-cause causal measures are especially influential in the blogosphere, where they make for snappy posts with vivid narrative examples and counterexamples.  But they are misleading, so do not be led astray by them.

How big is your chance of dying in an ordinary day?

A Micromort can also be compared to a form of imaginary Russian roulette in which 20 coins are thrown in the air: if they all come down heads, the subject is executed.  That is about the same odds as the 1-in-a-million chance that we describe as the average everyday dose of acute fatal risk.

That is from Michael Blastland and David Spiegelhalter, The Norm Chronicles: Stories and Numbers About Danger, which is an interesting book about the proper framing and communication of risk.

Assorted links

1. Some reasons why Evo Morales is popular.

2. Is Japan in a liquidity trap?

3. How to throw out the first pitch, Korean gymnast style.  Longer but still short video excerpt here.  I liked it.

4. Robin Hanson offers a simple theory of academia.

5. Must an invading army pay custom duties when it decides to leave?

6. Option value is higher than you think (a life-or-death situation).  Very good article, full of nuanced insight.

Drug Shortages are Killing

The shortages of injectable drugs that I have been writing about since 2011 (e.g. here and here) are continuing and they are extending to ordinary nutrients needed by premature babies:

Because of nationwide shortages, Washington hospitals are rationing, hoarding, and bartering critical nutrients premature babies and other patients need to survive.

..At the time of this writing—some shortages come and go by the week—Atticus’s hospital is low on intravenous calcium, zinc, lipids (fat), protein, magnesium, multivitamins, and sodium phosphate; it’s completely out of copper, selenium, chromium, potassium phosphate, vitamin A, and potassium acetate. And so are many other hospitals and pharmacies in the country, leading to complications usually seen only in the developing world, if ever.

The article in the Washingtonian covers problems with GMP regulations and the FDA, as I did earlier. The article also makes the following point. Many of these products, especially the simpler ones, are available in Europe but it is illegal to import them to the United States.

Many doctors are pinning their immediate hopes on Congress’s forcing the FDA to form a global pipeline to import an emergency supply. “I have friends in other countries who could get me some, but that would be illegal,” one doctor says. In fact, pharmacists note that the phosphorous Europe uses is a better product than that in the US because it’s organic and doesn’t interact with calcium in the PN, meaning more phosphorous could be included in the IV bag.

When Miguel Sáenz de Pipaón, a neonatologist at a prominent hospital in Madrid, arrived in the US for a research visit, he was stunned by the nutrition shortages.

“It’s crazy,” he says. “That doesn’t happen in Europe.” He noted that the US relies on a 25-year-old lipid emulsion, which is in shortage, while European hospitals use a newer version that’s readily available. Rather than import the newer emulsion, the US has left many patients without any lipids at all.

Hat tip: Kurt Schuler.

Bounty hunter markets in everything?

The farming and ranching town of Deer Trail, Colorado, is considering paying bounties to anyone who shoots down a drone.

Next month, trustees of the town of 600 that lies on the high plains, 55 miles (34km) east of Denver, will debate an ordinance that would allow residents to buy a $25 hunting licence to shoot down “unmanned aerial vehicles”.

…”We don’t want to become a surveillance society,” he [Phillip Steel, the architect of the proposal] told Reuters in a telephone interview.

He said he had not seen any drones, but that “some local ranchers” outside the town limits had.

Under the proposal, hunters could legally shoot down a drone flying under 1,000 feet with a 12-gauge or smaller shotgun.

The town would also be required to establish a drone “recognition programme” for shooters to properly identify the targeted aircraft.

“In no case shall a citizen engage an obviously manned aerial vehicle,” the draft proposal reads.

It is admitted that the idea is a symbolic one and may not pass.  But perhaps teachers in particular should be encouraged to participate?  The story is here, via Michelle Dawson.

Here are Alex’s earlier posts on bounty hunters.

China allegory of the day

The subtitle of the article is:

A Chinese museum has been forced to close after claims that its 40,000-strong collection of supposedly ancient relics was almost entirely composed of fakes.

Here is one good excerpt:

Wei Yingjun, the museum’s chief consultant, conceded the museum did not have the proper provincial authorizations to operate but said he was “quite positive” that at least 80 of the museum’s 40,000 objects had been confirmed as authentic.

“I’m positive that we do have authentic items in the museum.”

Here is another bit:

Mr Wei said that objects of “dubious” origin had been “marked very clearly” so as not to mislead visitors and vowed to sue Mr Ma, the whistle-blowing writer, for blackening the museum’s name.

“He [acted] like the head of a rebel group during the Cultural Revolution – leading a bunch of Red Guards and making chaos,” Mr Wei claimed.

Shao Baoming, the deputy curator, said “at least half of the exhibits” were authentic while the owner, Wang Zonquan, claimed that “even the gods cannot tell whether the exhibits are fake or not,” the Shanghai Daily reported.

China is in the midst of a museum boom, and it is believed that eighty percent of the fossils in Chinese museums are fake.

Here is a very good piece by Kate Mckenzie on the Chinese economy.

How does insurance eligibility affect labor supply?

There is a new paper by Craig Garthwaite, Tal Gross, and Matthew J. Notowidigdo, the abstract is this:

We study the effect of public health insurance eligibility on labor supply by exploiting the largest public health insurance disenrollment in the history of the United States. In 2005, approximately 170,000 Tennessee residents abruptly lost public health insurance coverage. Using both across- and within-state variation in exposure to the disenrollment, we estimate large increases in labor supply, primarily along the extensive margin. The increased employment is concentrated among individuals working at least 20 hours per week and receiving private, employer-provided health insurance. We explore the dynamic effects of the disenrollment and find an immediate increase in job search behavior and a steady rise in both employment and health insurance coverage following the disenrollment. Our results suggest a significant degree of “employment lock” – workers employed primarily in order to secure private health insurance coverage.  The results also suggest that the Affordable Care Act – which similarly affects adults not traditionally eligible for public health insurance – may cause large reductions in the labor supply of low-income adults.

The NBER version of this piece is here, ungated hereCraig writes to me:

Applying our estimates to the ACA, this would mean a reduction in labor supply of about 0.3 to 0.6 percentage points (or about 500-900K people) just from this feature.

Is this a feature or a bug?  Reihan adds comment.

The Puzzling Return of Glass-Steagall

I am puzzled by the renewed demand for the return of Glass-Steagall. I am puzzled not because Glass-Steagall might be bad policy but because it is so clearly a policy that doesn’t deal with the problems that created the financial crisis. If one had to sum the crisis up in one sentence it would be hard to do better than “a run on the shadow banking system.” The shadow banking system is that collection of mostly non-bank financial intermediaries who base their credit creation not on deposits but on repo, money market funds, SIVs, asset backed securitizations and other financial structures. The big new fact that I learned from the financial crisis and that I thought someone like Elizabeth Warren would surely also have learned is that the shadow banking system is larger than the regular banking system.

Separate commercial and investment banking? Please. The problem was that investment banking, in the form of shadow banking, become so separated from commercial banking that the Fed no longer had any idea where a majority of credit was being generated. Credit creation separated from banking as understood by the Fed, and moved into the shadows, hence, the term shadow banking.

Compare Glass-Steagall with the Gorton-Metrick proposal to reform banking. GM would in essence extend deposit insurance to the shadow bank system, i.e. instead of separating commercial and investment banking, Gorton and Metrick would erase the distinction entirely by making all credit creators regulated commercial banks. (I exaggerate, but only slightly). If you don’t like that idea then consider Larry Kotlikoff’s limited purpose banking. Kotlikoff, in essence, goes the full Rothbard–separate lending from money warehousing (i.e. transaction-cost reducing money services) (Tyler offers some criticisms here).

Now whether you think the Gorton-Metrick or Kotlikoff proposals are good ideas, and I am not arguing for either, these ideas at least addresses the important issues. In contrast, Glass-Steagall would merely shuffle around organizational boxes in the less important regulated banking sector. Indeed, why would anyone think that 1930s policy is the solution to a 21st century problem?

Addendum: Here are previous MR posts on Glass-Steagall. FYI, my paper on the public choice aspects of Glass-Steagall showed that the public reasons for the original Glass-Steagall were not the private reasons. Is something like this going on today?

The Property Rights of Private Communities

I am one of the amicus curiae, along with Richard Epstein, James W. Ely, Donald Kochan, Adam Mossoff, and Ilya Somin, in an amicus brief urging the Supreme Court to hear Mariner’s Cove Townhomes Association v. United States. The case is about whether the right that a homeowner’s association has to collect dues is a compensable right in a government taking. The U.S. Court of Appeals for the Fifth Circuit held that “the right to collect assessments, or real covenants generally” is not a compensable right under the Takings clause. The brief, consistent with many lower court rulings, argues that it is a compensable right. The case is important as Ilya Shapiro and Trevor Burrus explain:

The U.S. housing market has seen a major shift in the past 30 years: the rise of the community association. In 1970, only 1 percent of U.S. homes were community association members; today, more than half of new housing is subject to association membership, including condominium buildings.

…Such associations often shoulder the burden of providing and maintaining infrastructure, services, and utilities, which allows for more diverse and customizable amenities for homeowners than if those decisions were left with remote municipal governments. Because of these benefits, and because they increase the tax base, local governments are increasingly requiring developers to structure developments as community associations.

…The perverse implications of the Fifth Circuit’s ruling are clear: it would allow for local governments to require the creation of a community association, benefit from the resulting private delivery of services while collecting taxes from its members, and later take the property without even paying back the very fees that enabled the government’s benefit.

…The ruling also clashes with the Supreme Court’s recent decision in Koontz v. St. John’s River Water Management District: that an income stream from real property is a compensable interest under the Fifth Amendment. For these reasons, we urge the Supreme Court to take the case and to recognize the compensable property rights of the Mariner’s Cove Townhomes Association and the millions of other Americans choosing—and paying—to live in a community association.