Month: October 2013

Texas fact of the day

…two-thirds of the 109 state prisons lack air conditioning in housing areas…

…corrections officers have complained to Texas prison officials that the heat index inside facilities is often as high as 130 degrees Fahrenheit, but haven’t been able to persuade them to make changes. They said they were driven to speak out after learning that the state spent $750,000 in June to buy six new barns with exhaust fans and misters to cool pigs raised for inmate consumption.

There is more here.

Assorted links

1. My quasi-debate with Greg Mankiw (Korean language account, imagine a dialogue between Average is Over and his JEP essay on inequality).  There is more here, and here, both in Korean.  There are brief excerpts in this Korean news video.

2. Robert Graboyes on supply-side innovation in health care.

3. Brasilia 1967+ Kraftwerk.

4. Trauma as a major medical issue in Africa.

5. Which are the world’s worst cities for air pollution?  More provincial than you might think.

6. Can a famous jeweller become a great philosopher?  By the excellent Oliver Burkeman.

7. Michael R. Strain reviews Average is Over at National Review.

Tyrone on why the government shutdown and the debt ceiling crisis were brilliant Republican strategy

Tyrone, my evil twin brother, was in town visiting the other day, after a long absence.  He was upset that I gave so little space to the recent machinations in Washington, and that I assigned the events so little importance, so he asked if he could offer his own coverage in a guest post.  Since Tyrone is occasionally a lunch guest of ours, against my better judgment I said yes, so here is my dictation of his midnight sermon:

Tyrone:  I read what a strategic disaster the fracas has been for the Republican Party and for the Tea Party movement in particular, but I don’t see it.  Where I grew up, this counts as a successful stare-down.  Most of the time, the pit bull does not in fact lunge for your throat, but it is hardly a mistake for him to snarl, even if that raises his borrowing rates.

Look where we stand.  In real terms government spending has been falling.  Sequestration appears to be permanent, or it will be negotiated away by Republicans in return for preferred changes in tax and spending policy.  Leading Democratic intellectuals are talking about future fiscal bargains with no new taxes.  The American public polls as increasingly conservative.

With this sequence of events, combined with 2011, the Republicans convinced some of their opponents that they are crazy and irresponsible, without actually being crazy (though they were irresponsible, but that is the whole point).  I peaked once into Tyler’s Twitter feed, and I found several accomplished Democratic economists — yes brilliant economists, as all economists are — suggesting that any day now markets are going to notice the truly crazy character of the Republican House and price that into interest rates and stocks.  Oh what a tale!  (A more accurate reading of the more radical Republicans would in fact be more cynical and ordinary than most of the pablum served up by their critics.)  Imagine that you control only the House and can manage to convince your opponents that you are stronger and more dedicated to your cause than in fact you are.  Only the truly strong and dedicated can pull such a caper off!

Someday, if the Democrats wanted to raise the exemption level for the payroll tax, and pull in a lot of new revenue, what kind of opposition could they expect?  Probably they will shy away from that battle altogether, for fear of another Ted Cruz filibuster.

Yes, Virginia (literally), protecting the brand does sometimes mean going down with the ship.

In the longer run the Republicans will have changed the Doug Overton window on most of these issues.  (Tyler interjects: My apologies loyal MR readers, Tyrone has no Ph.d., not even a Masters, and thus he misuses terminology as would a mere child.)  Even if most Americans do not agree, it is now considered common to believe and to argue publicly that Obamacare represents the end of freedom in our time.  If Obamacare turns out to fail in the eyes of the public, that condemnatory view is being held in the back of people’s minds, whether they admit it or not, whether they agree or not.  They will start to agree more and more, the less generous their Medicare benefits look as time passes.  The future counterrevolution in redistribution is going to have to come from somewhere and it is a major victory to cement the word “Obamacare” as a hypostatized “thingie” in people’s minds, for future reference.

The Republican tactics understand the importance of skewed pay-offs.  In an age of political gridlock, the goal is not to maximize the expected value of your image, any more than you would do the same on a date.  Rather the goal is to maximize the chances of moving your agenda forward, conditional on the existence of world-states where that might be possible.  The harder it is to pull off change, the stupider your strategy will look in most world-states, but hey that is the price of admission to this game.  Capital is to be periodically run down, and if in politics, as in management more generally, if you always look good you are doing something badly wrong.

Another fallacy is that no DC crisis would have focused more attention on the failings of the Obamacare exchanges in a useful manner.  People, that is small potatoes.  No one is going to repeal or even modify ACA because of a few weeks’ bad publicity at the opening.  (Recall the Medicare prescription drug bill, which took weeks to get off the ground but now is beloved and is part of the permanent furniture of the universe, like Supersymmetry or quantum gravity.)  If Obamacare is really going to do poorly, it is better if we build up high or least modest expectations for it.  Imagine the Christmas present of learning you don’t really have insurance coverage after all.  Or the New Year’s resolution that after you have been billed three times for the same policy, you vow to pay for only one of them and live with the bad credit rating until it gets straightened out.  How about extreme adverse selection into the exchanges, resulting in 50-100% premium hikes in the first year of operations?  (The lower premia are now, the better!  Bread, peace, land!  Ach du grüne Neune!)  That’s what will get further traction for the Tea Party on Obamacare, not a bunch of bad reviews on opening day, as if the policy were no more than a mid-tier Jennifer Aniston movie (I can no longer refer to Sandra Bullock in this context), to be swatted down by mild tut-tuts of disapproval and inconvenience.

The very best victories are often described as ignominious retreats.

Tyler again: Readers, I am sorry to subject you to such rants.  But Tyrone insisted.  In fact he threatened that, if I did not comply with his request, he would write a lengthy review of Average is Over, for which outlet I am not sure, perhaps an average outlet.  He threatened to shutter our common household.  He prophesied that cats would lie down with dogs.  He even threatened to default on our joint credit card bill, ruining my credit rating forever.  And people, you now all know just how powerful such threats can be.

Michael Pettis, *Avoiding the Fall*, and China’s economic growth

Last night I read the new and excellent Michael Pettis book Avoiding the Fall: China’s Economic Restructuring.  It is the single best treatment I know for understanding the dilemmas of the current Chinese economy and the need for restructuring.  My favorite bits are those comparing the current Chinese economy to the Brazilian growth of the 1960s and 70s, also investment-driven, and lasting longer than most people thought possible, and culminating in the crack-up of the 1980s, which turned out to be a lost decade for Brazil.

By the way, China’s economy continues to defy the China skeptics (a group which includes me):

China’s economy expanded 7.8 per cent in the third quarter from the same period a year earlier, marking an acceleration from the second quarter when it grew by 7.5 per cent.

The rebound in the world’s second-largest economy was largely the result of government efforts to shore up growth with looser monetary policy and a “mini-stimulus” of investment in infrastructure such as rail and subway systems.

The full FT article is here.  As Pettis stresses, such developments are likely to intensify the eventual “discontinuity,” but of course the China skeptics have not yet been proven right…

Does Texas portend the future of the United States?

I am pleased to have the cover story of this week’s Time magazine, please note that full story is gated.  Nonetheless here is one excerpt:

Jed Kolko, chief economist for San Francisco–based real estate website Trulia, says that from 2005 to 2011, 183 Californians moved to Texas for every 100 Texans who moved to California. “Home prices, more than any other factor, cause people to leave,” Kolko says.

…the federal government calculated the Texas poverty rate as 18.4% for 2010 and that of California as about 16%. That may sound bad for Texas, but once adjustments are made for the different costs of living across the two states, as the federal government does in its Supplemental Poverty Measure, Texas’ poverty rate drops to 16.5% and California’s spikes to a dismal 22.4%. Not surprisingly, it is the lower-income residents who are most likely to leave California.

On the flip side, Texas has a higher per capita income than California, adjusted for cost of living, and nearly catches up with New York by the same measure. Once you factor in state and local taxes, Texas pulls ahead of New York—by a wide margin. The website MoneyRates ranks states on the basis of average income, adjusting for tax rates and cost of living; once those factors are accounted for, Texas has the third highest average income (after Virginia and Washington State), while New York ranks 36th.

Here is a summary of some parts of the article, with numerous quotations from the piece.

Here is a good Timothy Noah piece on migration and real estate prices.  Here is another relevant piece.  Here is a good (AEA-gated) Ed Glaeser review of Enrico Moretti.

European energy fact of the day

…utilities have suffered vast losses in asset valuation. Their market capitalisation has fallen over €500 billion in five years. That is more than European bank shares lost in the same period.

The full article from The Economist is here, interesting throughout.  The article starts with this paradox:

On June 16th something very peculiar happened in Germany’s electricity market. The wholesale price of electricity fell to minus €100 per megawatt hour (MWh). That is, generating companies were having to pay the managers of the grid to take their electricity. It was a bright, breezy Sunday. Demand was low. Between 2pm and 3pm, solar and wind generators produced 28.9 gigawatts (GW) of power, more than half the total. The grid at that time could not cope with more than 45GW without becoming unstable. At the peak, total generation was over 51GW; so prices went negative to encourage cutbacks and protect the grid from overloading.

The trouble is that power plants using nuclear fuel or brown coal are designed to run full blast and cannot easily reduce production, whereas the extra energy from solar and wind power is free. So the burden of adjustment fell on gas-fired and hard-coal power plants, whose output plummeted to only about 10% of capacity.

One implication is that solar and wind receive implicit subsidies from coal and gas plants, through the medium of a backstopped power supply, and those subsidies will be harder to maintain as solar and wind become more important and the installed base of non-renewables weakens.

From this week’s Economist there is also a good piece on problems with water supply in northern China.

The Richmond Times-Dispatch on *Average is Over*

Here is one excerpt:

“If you’re not a good [chess] player,” Cowen writes, “the fact that you studied with a top teacher doesn’t mean a thing. … There is nothing [in chess] comparable to the glow resulting from a Harvard degree: Announcing ‘I studied with Rybka’ [a powerful chess engine] would bring gales of laughter, since anyone can do that. … The company selling Rybka tries to make its product replicable and universal, whereas Harvard tries to make its product as exclusive as possible. Now, which model do you think will spread and gain influence in the long run?”

Before you answer that, consider this: A year of tuition, room and board at Harvard will set you back more than $50,000. You can get a copy of Rybka for about $50.

The full piece is here.

New Zealand vending machine markets in everything

Via Eric Crampton:

Oxford farmers Geoff and Sandra Rountree will start selling the controversial beverage through a refrigerated vending machine at their farm gate this week. The Rountrees are franchisees of raw milk company Village Milk, which has developed a network of six vending machines around New Zealand in just over a year. Managing director Richard Houston said his franchisees were the only certified raw milk suppliers in the country.

Assorted links

1. Is Marxism making an intellectual comeback?

2. Four-minute Robert Shiller video, interesting in both mood and content.

3. Robot petting zoo.

4. Interview with Ted and Dana Gioia.

5. Brookings review of Average is Over…”Not Afraid of Tyler Cowen? You will be…”  And here is Dorset Naga.  And Andrew Lewis reviews the book.  He understands the book quite well.

6. “…the average US automobile contains $1.65 in change when it arrives at the shredder.”

Do parents seek to maximize the social value of their children?

Let’s say a genetic test indicated a 90% chance that a child-to-come would be troubled with obsessions and unhappy and unsuccessful, and a ten percent chance that the child would grow up to be one of America’s leading entrepreneurs.  Or more modestly, in the positive scenario the child would be comparable to a worker or a scientist who creates $5 million in social value a year.  I believe most parents would feel uneasy about this genetic lottery, even though its expected social value is unambiguously high.  Telling the parents that the expected value of the child for society would be high would not distract them very much from the costs of the risk.

As I see it, many upper middle class parents desire their child to be slightly more successful than they are, and in related but not identical fields and ways.  They certainly would be happy if their child turned out to be the next Bill Gates (and more secure in their retirement), but not that much happier from a parental point of view.  Parents qua parents can get only so happy, and if your kid turns out well by your standards you are already pretty close to that maximum.

Notice how children differ from money.  Big dollar prizes induce risk-taking, at least from some entrepreneurs who have a strong desire for more and more money.  But big “parental prizes,” such a siring a true genius, might not induce much risk-taking with the identities or natures of children.

This is one possible institutional failure if there were “market-based” eugenics, namely that parents would be too risk-averse a social point of view.  We would end up with too much sameness, both across children and across the generations, and not enough monomaniacal creators.

How Medicare influences private payment systems (model this)

There is a new paper by Jeffrey Clemens and Joshua D. Gottlieb on this topic, the abstract is here:

We analyze Medicare’s influence on private payments for physicians’ services. Using a large administrative change in payments for surgical procedures relative to other medical services, we find that private payments follow Medicare’s lead. On average, a $1 change in Medicare’s relative payments results in a $1.30 change in private payments. We find that Medicare similarly moves the level of private payments when it alters fees across the board. Medicare thus strongly influences both relative valuations and aggregate expenditures on physicians’ services. We show further that Medicare’s price transmission is strongest in markets with large numbers of physicians and low provider consolidation. Transaction and bargaining costs may lead the development of payment systems to suffer from a classic coordination problem. By extension, improvements in Medicare’s payment models may have the qualities of public goods.

This paper, which seems quite sound to me, has a few implications.

First, if you are unhappy with the American health care system, government is more at fault for the problems of the private sector than it may at first appear.  We have a much more governmental system than most of its critics care to admit and that goes even beyond government health care spending as a percentage of total health care spending.

Second, we could cut Medicare reimbursement rates, by limiting the doc fix, without old people all very rapidly going to the back of the health care queue.

Third, the authors find that the larger Medicare becomes, the stronger this “pass through” effect generally will be.  In other words, this result will be all the more true in our future.

Fourth, the cross-sectoral price transmission result implies that long-run supply elasticities in the sector are not large, which also does not bode well for the future of health care access in an aging society.

Overall this is a depressing paper, although it implies that successful Medicare cost control could have significant cross-sectoral benefits, beyond Medicare itself.

The Quality Of Care Delivered To Patients Within The Same Hospital Varies By Insurance Type

That is the new paper by Christine S. Spencer, Darrell J. Gaskin, and Eric T. Roberts.  Let me excerpt the three most important sentences from the abstract:

We found that privately insured patients had lower risk-adjusted mortality rates than did Medicare enrollees for twelve out of fifteen quality measures examined. To a lesser extent, privately insured patients also had lower risk-adjusted mortality rates than those in other payer groups. Medicare patients appeared particularly vulnerable to receiving inferior care.

I don’t have a great deal of confidence in our ability to estimate the size of that effect, but keep that difference in mind next time someone tells you that Medicare is so much more efficient than private health insurance in this country.