Category: Current Affairs

The new Medicare bill

I am growing tired of attacking this bill, but here is another good link, from The Boston Globe, for my other writings on the topic scroll down through the last two weeks. The authors write:

In the name of greater free-market competition, the legislation offers massive new subsidies to the pharmaceutical and insurance industries. In the name of providing greater protection, it threatens Medicare’s guarantee of universal benefits. (Indeed, it even provides more than $6 billion to support Health Savings Accounts outside of Medicare, risking the fragmentation of the broader insurance risk pool.) And in the name of greater cost containment, it encourages the expansion of private plans that have, to date, not saved Medicare money, while creating new budgetary rules that could very well make Medicare less equitable and affordable down the road.

Here is yet some more from this depressing story:

To be sure, politics usually requires compromises. But what’s shameful about the present bill is just how deeply the compromises — or, more accurately, the concessions to knee-jerk beliefs and private interests — undercut the stated goal of the bill: drug coverage for seniors. By our back-of-the envelope calculations, the roughly $400 billion in new spending over the next 10 years (not to mention the $140 billion in new premiums paid by Medicare beneficiaries themselves) will buy only about half as much coverage as a sensibly designed bill could. This is not only because of the subsidies for private health plans and for Health Savings Accounts, but also because of the higher overhead costs of private plans (about five to six times higher than for traditional Medicare) and the 20-to-30-percent higher prices for drugs that seniors will have to pay because Medicare is forbidden from using its bargaining power to negotiate better deals.

Indeed, a significant proportion of Medicare beneficiaries will almost certainly be worse, not better, off under the bill. This includes several million low-income seniors who will lose the generous coverage they now enjoy under state Medicaid programs. It also includes millions who already have pretty good drug coverage through their former employers — coverage which will likely be dropped, despite the bill’s subsidies for employers that retain coverage.

I don’t accept the authors’ implication that our main health care policy goal should be to subsidize seniors, most of whom are relatively wealthy. But it should not be to subsidize pharmaceutical companies either. Read the whole story to learn just how much special interests shaped the final legislation.

Why is there a shortage of flu vaccine?

Dr. Rangel offers one hypothesis:

Years ago there used to be several makers of flu vaccine but that number has fallen to just two. Why? These days the government buys and distributes most of the vaccine and it pays for it below cost. When profits from the vaccine dried up most of the other companies moved on and the two that were left produced only what they thought the nation would need based partly on how much the government usually purchases. Because the profit margin is so thin on vaccines, producing more than was needed would cost these companies millions. In a single payer system could this happen to other drugs? Do we want to find out?

Read his whole post on why national health insurance and single payer systems are bad ideas. Here is another juicy bit:

This problem of completely eliminating the free market would extend to the other sectors of the health care industry from testing to diagnostic equipment to innovative treatments and surgical techniques and on and on. Essentially what happens to an economic system when the government takes over and eliminates any free market is that the quantity and quality of goods and services in this industry goes down. Part of the reason is because competition and innovation are lost. The other part is that the single payer underpays in order to contain costs. Dr. Woolhandler doesn’t seem to understand that this happens when she was asked if rich and middle-class people would accept a single payer system.

Yes our medical care costs more, but that is for two reasons. First, our current mixed public/private system has a variety of screwy incentives. Second, we devote unprecedented amounts of time and money to patients in their last year of life.

Here is the clincher:

Actually waiting lists for medical care in countries with nationalized health care are on the average of six to seven hundred thousand and waits for elective surgery can last four years! Her solution like any other socialist responding to criticism of poor quality in nationalized health care is to raise funding, i.e. raise taxes. But how high? Tax rates in the UK are already among the highest in Europe and the NHS still suffers serious problems with quality and efficiency. Some European countries have tax rates as high as 60%. In these cases health care is not really “free”. It’s only free if you have little or no income, pay little to no taxes, and use a lot of health care services.

Amen.

The future of dieting

Economist Ed Glaeser, a trim man, is a vigorous partisan of the Atkins Diet. Nonetheless he argues that McDonald’s brings social benefits, not social costs:

Glaeser’s rationale for suggesting that convenience foods are a social good is that, to judge from consumer behavior in the marketplace, people seem to prefer saving time to being thinner. And in economics, by and large, getting what you want is a good thing. Glaeser notes that until relatively recently, cheaper food (in terms of money as well as time) made us taller and healthier. Only in the past 25 years or so have diminishing returns set in.

Now that less is more when it comes to increased calorie intake, Glaeser expects the marketplace to correct the excesses he attributes to self-control problems. For one thing, food technology can’t advance much farther, “short of direct injection,” whereas weight-loss technology is only in its infancy, with vast room to grow. Glaeser can understand the need for regulation in the schools, or if food companies are misleading people. But he says: “I don’t think anybody ate at McDonald’s and thought it was good for them. I take a dim view of these lawsuits.”

Thanks to newmarksdoor.com for the link, and Daniel Akst for the article itself. See also Alex’s post on Three Oreo Cookies.

Inefficiency wages

Almost half of the new, American-trained, 700 man Iraqi army have quit over disputes over pay and conditions. Has the administration never heard of efficiency wages? We need to pay these guys more than the market wage in order to encourage loyalty and gratitude as well as funneling some money back into the economy. It’s not as if these soliders were costing us much. The pay scale in the new Iraqi army is $50 per month for a recruit, $60 per month for privates, and $180 for a Colonel.

Ralph Nader and the regulation of neuroscience

Ralph Nader’s Commercial Alert group seeks to restrict or prohibit commercial research into neuroscience. You might recall that researchers at Emory are hard at work on this problem:

Neuromarketing research uses a magnetic resonance imaging machine, or MRI, to determine which parts of the brain react to different types of advertising in an effort to help marketers develop more effective marketing techniques for selling their products or services.

The critics charge that the research is directed at finding a “buy button” in the mind. Critics also raise the specter of mind control and the loss of individual autonomy. Commercial Alert makes the following threat:

“It is wrong to use medical research for marketing instead of healing,” Ruskin said. “If Emory University doesn’t stop this immediately, we will do everything in our power to shut down Emory’s federal funding.”

My take: The neuroscience techniques remain unproven, but in the meantime corporations are subsidizing an important science. Many of our most significant scientific discoveries have been by accident, when people were looking for some other result altogether. The support for research may well have a real long-run payoff.

Furthermore the worries are overblown. Let’s say we found such a buy button and that corporations could use that knowledge in their ads. Would it really shift the marketing balance of power in favor of sellers? Over time I would expect buyers to compensate, as the knowledge would not stay secret for very long. We could imagine lists of products that were sold by manipulative techniques, and customers would know to stay away from such products. A technological arms race would be set off. We could imagine private entrepreneurs selling “counter-persuasion” techniques to customers, perhaps in the form of drugs, warning buzzers, or counter-subliminal images flashed into your eyeglasses (the latter product is already under development!). Or how about programming the microchip credit card embedded in your arm to discourage or prevent such manipulation-induced purchases? Or how about if consumers use neuroscience to learn how to be truly happy staying at home and cultivating their gardens?

Sellers seem to have the biggest advantage when manipulation techniques are less than transparent. So neuroscience research into buyer behavior may be a classic prisoner’s dilemma problem. Various sellers may pursue such knowledge, hoping to get a leg up on the competition. The long-run result may be an evaporation of business advantage and an empowering of consumers.

Thanks to Kevin McCabe for the pointer on this issue, check out his neuroeconomics blog.

The secondary consequences of car alarms

According to the Census Bureau, New Yorkers are now more bothered by false car anti-theft alarms than by any other feature of city life, including crime or bad public schools. If you ask me, it is the whooping ones that are worst of all, it is hard to stay overnight in Manhattan without hearing one. It also appears that the alarms do not hinder theft. First, most are false alarms and everyone now ignores them. Second, thieves have learned how to disable the alarms quickly.

False alarms also can make a community more dangerous, by signaling to everyone either that a) theft is common, or b) no one cares, or both. It becomes common knowledge that the community has poorly defined property rights. Here is the full story on this aspect of the problem.

Alternative technologies do a much better job of stopping car theft. You can buy a silent pager that communicates the theft only to the car owner. This one works only for tough guys, though, if I knew that my (insured) car was being stolen, I would run the other way. Better is the “silent engine immobilizer,” which simply shuts down the engine when a thief is tampering with the ignition. General Motors and Ford are now using this technology.

How to conserve flu vaccine

The flu vaccine is now running very scarce, you can wait for weeks and there is no guarantee of getting it at all. Most of the supplies are already in the hands of doctors. Note also the following:

Random immunization is almost useless because, for many viruses, more than 95% of the population must be vaccinated to prevent the disease’s spread.

But things are not as grim as they might sound. First:

An alternative to the flu shot is FluMist, a more expensive inhaled version of the vaccine, which is recommended for healthy people between the ages of 5 and 49. There are about 4 million doses available of FluMist, health officials said.

Although those below 5 and over 49 are the at-risk groups, they are less likely to catch the flu if the rest of us are healthy.

Second, we could administer flu shots more wisely by targeting superspreaders, here is one proposal:

Reuven Cohen of Bar-Ilan University in Israel and his colleagues propose a simple modification of random vaccination that is more effective, according to their computer simulations. The idea is to randomly choose, say, 20% of the individuals and ask them to name one acquaintance; then vaccinate those acquaintances. Potential super-spreaders have such a large number of acquaintances that they are very likely to be named at least once, the researchers found. On the other hand, the super-spreaders are so few in number that the random 20% of individuals is unlikely to include many of them.

Using the team’s vaccination strategy, a disease can be stopped by vaccinating less than 20% of the individuals, in some cases, according to their computer model of a human population. The method can also be tweaked: if a larger sample is asked for names, and those named twice are vaccinated, the total number of vaccinations required can be even lower.

The trick may be getting these people to take the shots, but surely economists can come up with a useful incentives scheme for that, I would prefer a subsidy over a tax.

What does a top British artist earn?

Last year the highest-earning British artist was Damien Hirst, the creator who cuts up dead sharks and puts them in formaldehyde. He pulled in twelve million British pounds last year (over twenty million dollars), although dealer’s commissions may have eaten into this figure. As an aside, many buyers of Hirst’s early dot paintings, see the link for an image, are unhappy because most of those works were made with ordinary household paints and are now falling apart.

A close second on the earnings list was Andrew Vicari, now resident in Monte Carlo, since 1974 he has been the official painter to the Saudi Royal Family.

What a pair. Hirst I admire for his visceral impact but I could not live with most of his works, not the least because some of them involve live, buzzing insects. Would you wish to own “the beauty of a disused shop full of butterfly pupae, hatching from white canvases, feeding on sugar syrup, mating, laying eggs and dying”? Or rather would you call the exterminator to get rid of something like that?

I wouldn’t hang a Vicari on my walls, check out his painting of the first Gulf War. I now have a better understanding why the Saudi Royal Family is in such trouble.

But let us look at the bright side. No one (well, hardly anyone) ever said capitalism was about rewarding people in accord with their merits. An unequal distribution of rewards is part of the system that generates more diverse art of many kinds, click here to see a compelling portrait by Lucien Freud, or here for a broader choice of images. Click here for a sparkling Howard Hodgkin, here for a broader choice of Hodgkin images, which always bring a splash of color. They are the British painters I will buy when they start paying bloggers.

The earnings information is from The Art Newspaper, one of the highest quality periodicals of any kind.

The race to space

Everyone has his or her obsession, one of mine is collecting Mexican amate painting, for some people it is investing in space travel.

The tangible pieces of John Carmack’s dream are scattered around an 8,000-square-foot warehouse: industrial water-purification tank, aluminum cones, compressed air cylinders, used Russian spacesuit.

All are components of the software developer’s project to launch a manned rocket 62 miles up by January 2005.

What binds the pieces together are Carmack’s quiet intellect and considerable bankroll.

“We mostly look at it as a two-horse race,” the 33-year-old millionaire said of the international competition for the $10 million X Prize, offered by a St. Louis-based foundation.

The entrepreneur has a background in computer games and works with a team out of a warehouse, sometimes using the parking lot for small-scale launch attempts. Rather than pursuing secrecy, progress is publicized on the project website, there you can even see videos of failed launch attempts.

NASA had the following response:

NASA has no official comment on the civilian attempts.

“It’s certainly a complicated business. Sometimes [sic] we make it look easy,” said Melissa Mathews, a space agency spokeswoman.

Is Carmack crazy? Beats me, read this interview if you want more data. The whole point is that there is only one way to find out, which is to let him try. Maybe he is right that “Aerospace is plumbing with the volume turned up.”

Thanks to Marko Siladin for the pointer.

Should we renorm IQ tests?

The year in which IQ is tested can make the difference between life and death for a death row inmate. It also can determine the eligibility of children for special services, adults’ Social Security benefits and recruits’ suitability for certain military careers, according to a new study by Cornell University researchers.

That’s because IQ scores tend to rise 5 to 25 points in a single generation. This so-called “Flynn effect” is corrected by toughening up the test every 15 to 20 years to reset the mean score to 100. A score from a test taken at the end of one cycle can vary widely from a score derived from a test taken at the beginning of the next cycle, when the test is more difficult, says Stephen J. Ceci, professor of human development at Cornell.

In other words, our definitions of intelligence and mental retardation are more relativistic than we would like to think. Yet the law, and various institutional categories, look to IQ scores as if they were fully objective. Here is the full story.

The Flynn effect implies, if you take it literally, that most people were morons as recently as a few generations ago. Just think, “someone who scored among the best 10% a hundred years ago, would nowadays be categorized among the 5% weakest. That means that someone who would be considered bright a century ago, should now be considered a moron!” So much as I believe in the idea of progress, I don’t think we can take the numbers at face value. If you are not convinced, try reading David Hume. Here is another survey of hypotheses, and why they fail to explain the data.

We’re past the point where nutrition can explain the rise in IQ scores, and more generally the Flynn effect numbers are inconsistent with more general data about the limits on environment for improving IQ scores. The less culturally specific the test, the stronger the Flynn effect appears. Bill Dickens and Flynn offer some interesting evidence on how genes and environment interact.

My favorite hypothesis, which has no hard data to support it, cites “the impact of the visual and spatial demands that accompany a television-laden, video-game-rich world. ” In other words, TV helps us do well on IQ tests. This does not explain why the Flynn effect predates 1950, but perhaps the more general increase in world complexity forces our brains to adapt. In earlier times people were “smart enough” for their environments, and still could create brilliant achievements on the frontiers they faced, still they might have been ill-suited to live in modern times.

Putting things in perspective

How much investors lost, over the last ten years, by attempting market timing, rather than “buy and hold”: $1 trillion

How much investors lost, over the last ten years, from high mutual fund fees: $20 billion

How much investors lost, over the last ten years, from crooked trades: $10 million

All of the estimates are from the December 22 Forbes, p.84. The last number seems far too low to me, but the point remains: investors are their own worst enemy, they inflict far more damage on themselves than they ever lose through outright fraud.

Should we privatize the National Zoo?

In recent times the National Zoo, of the Smithsonian, has been beset by one scandal after another. First large numbers of animals have died due to incompetent management. Then we discovered that Zoo management forged records for how those animals were being treated. The performance and credibility of the Zoo are arguably at an all-time low.

Marc Fisher of The Washington Post now suggests privatizing the zoo.

…there is a healthy middle course that a number of cities have already explored with encouraging results. By contracting with a private nonprofit, often one built up from the local zoological society, cities have ensured better management, more modern exhibits and caring support from local animal lovers.

“The best success story is in New York City,” says Hyson. In 1980, three municipally run zoos — in Central Park, Brooklyn and Queens — were turned over to the New York Zoological Society, curator of the world-renowned Bronx Zoo, and the result has been nothing short of spectacular. The zoos were completely remade, with more effective designs, better animal care and more pleasing exhibits. The zoos still get a city subsidy, and they did have to add an admission fee, but the result is vastly better for all concerned.

About 40 percent of the 165 zoos accredited by the American Zoo and Aquarium Association are run by private nonprofits now, the result of a wave of privatization over the past generation. Seattle just finished transferring control of its zoo from the city to the local zoological society. San Diego’s world-famous zoo is privately run, depending on government for only 2 percent of its funds.

Yes, this probably would mean admission fees, rather than the current null tariff. But why should admission to the zoo be free? If poor urban children need a price break, or free admission, this can be granted. In the meantime, the best way to give customers a say in how the zoo is run is to make them significant financiers.

What would it cost to send a man to the moon?

Recently the Bush administration has been making noises about sending a man to the moon again. Gregg Easterbrook offers some cogent critical points:

A rudimentary, stripped-down Moon base and supplies might weigh 200 tons. (The winged “orbiter” part of the space shuttle weighs 90 tons unfueled, and it’s cramped with food, oxygen, water, and power sufficient only for about two weeks.) Placing 200 tons on the Moon might require 400 tons of fuel and vehicle in low-Earth orbit, so that’s 600 tons that need to be launched just for the cargo part of the Moon base. Currently, using the space shuttle it costs about $25 million to place a ton into low-Earth orbit. Thus means the bulk weight alone for a Moon base might cost $15 billion to launch: building the base, staffing it, and getting the staff there and back would be extra. Fifteen billion dollars is roughly equivalent to NASA’s entire annual budget. Using existing expendable rockets might bring down the cargo-launch price, but add the base itself, the astronauts, their transit vehicles, and thousands of support staff on Earth and a ten-year Moon base program would easily exceed $100 billion. Wait, that’s the cost of the space station, which is considerably closer. Okay, maybe $200 billion.

What can a man do on the moon that automated vehicles cannot? Virtually nothing, and of course he requires far more maintenance and protection.

Given all that, where should we go from here?

NASA doesn’t need a grand ambition, it needs a cheap, reliable means of getting back and forth to low-Earth orbit. Here’s a twenty-first century vision for NASA: Cancel the shuttle, mothball the does-nothing space station, and use all the budget money the two would have consumed to develop an affordable means of space flight. Then we can talk about the Moon and Mars.

Mostly I agree, though I expect private enterprise can beat NASA in this latter project, at least provided we allow the privatization of space.

Wal-Mart in Mexico

Wal-Mart is now the largest private employer in Mexico, with over 100,000 workers on its payroll there. Only the United States has more Wal-Mart outlets (3,499) than does Mexico (633), Britain is next with 266 outlets. Last year Wal-Mart did $11 billion of business a year in Mexico, more than the entire tourism industry. That is two percent of Mexican gdp, about the same as the percentage in the U.S. The influence of Wal-Mart alone has lowered Mexico’s inflation rate, read here for more details.

A Wal-Mart cashier in Mexico makes about $1.50 an hour. This may not sound generous, but a significant portion of the country does not make that much in a day. Wal-Mart is also a boon to poor and rural Mexicans, who can afford to buy more at the store’s low prices, or who receive goods that were otherwise unavailable or required a trip to Mexico City. If you are looking for an example of how globalization benefits the world’s poor, go no further than Wal-Mart.

I smell a rat?

The World Bank very recently held a contest to award innovative ideas for fighting poverty. One of the winning ideas involved the use of rats to smell and detect disease:

One of the winners was a scheme to use rats as a cheap diagnostic tool for tuberculosis in Tanzania.

Rats are already being used by the Apopo organisation to detect landmines in Mozambique using their acute sense of smell.

Apopo’s Bart Weetjens told BBC News Online that the rats could also be trained to sniff out TB from saliva samples.

A group of rat detectives could process more than 2,000 samples a day compared with just 20 for a human technician with microscope, he said. Using a set of rats should mean 100% accuracy and a quick diagnosis, he added.

“The TB problem in Tanzania is very widespread… but when it’s detected early it can be treated and it makes a big difference.”

To read about the other winning ideas, click here for a BBC news report.