Category: Current Affairs
A Romanian liability crisis?
A Romanian pensioner has lodged a complaint against a TV station claiming their horoscope is unreliable.
The woman, from Maramures, says the horoscope repeatedly predicted she would receive a big sum of money but it never arrived although she waited for three months.
Thanks to cronaca.com for the link to Ananova. Here is the clincher:
Officials said they will analyse the complaint and take a decision.
But they advised the broadcasters to include an announcement that the horoscope may not be 100% accurate and that they cannot warrant for the truth of astral predictions.
Perhaps they will consult their horoscope before rendering a final verdict.
Who are the uninsured?
As the Democratic candidates call for various versions of national health insurance, we will hear a familiar fact many times, namely how many Americans lack medical insurance. According to one estimate, it is over fifteen percent of the population, which amounts to about 43.6 million people.
But who are these people? In reality many of them are immigrants. Here are two simple facts:
Immigrants who arrived between 1994 and 1998 and their children accounted for an astonishing 59 percent or 2.7 million of the growth in the size of the uninsured population since 1993.
The total uninsured population is one-third larger (32.7 million versus 44.3 million) when the 11.6 million persons in immigrant households without insurance are counted.
Hispanics have by far the lowest rates of being insured, here are some visuals. 41 percent of adult Hispanics are uninsured, of course many of these are recent immigrants, Hispanics as a whole account for over 12 percent of national population.
I am all for a liberal immigration policy, but I do not feel we are obliged to offer health insurance to all comers. In fact I suspect that national health insurance would, in the long run, lead to fiscal pressures to limit immigration, thus damaging the health of potential immigrants.
Nor do immigrants rush to buy their own health insurance, in many cases I suspect they would rather send the money back home, where health care crises are likely more severe:
Lack of insurance remains a severe problem even after immigrants have been in the country for many years. In 1998, 37 percent of immigrants who entered in the 1980s still had not acquired health insurance, and 27.2 percent of 1970s immigrants were uninsured.
Many other Americans lack health insurance because they are out of work. True, a good health care system should be robust to macroeconomic disturbances, but with employment and productivity rising, these people do not represent much of a current case for reform.
It also turns out that many of the uninsured are uninsured for only part of the year. According to the CBO, those uninsured for the entire year amount to somewhere between 21 and 31 million, knocking a full 12 million off the original total.
Some of the uninsured are more accurately a counting error:
According to the National Center for Policy Analysis (NCPA), [a] verification question lowered the estimate of the number of uninsured living in households with annual incomes of $75,000 or more by 16 percent. The verification question lowered by 4 percent the number of uninsured living in households with incomes under $25,000.
Many of the uninsured are in fact college students, who either rely on their parents, or are covered under their parents’ policies, read here. One estimate suggests that one out of seven college students lacks insurance, but it is hard to believe that most of these people have no other resources supporting them.
Finally, the uninsured often have good access to medical care. Consider this:
15 million of the uninsured have incomes of $50,000 or more. The fastest-growing population of uninsured has incomes exceeding $75,000. About 14 million are eligible for Medicaid or the State Children’s Health Insurance Plan but are not enrolled.
The “entire year uninsured” receive about half as much care, in dollar-valued terms, as the fully insured. As a last resort, you can always show up at an emergency room and simply demand care. In the year 2001, uninsured Americans received at least $35 billion in health care treatments.
The bottom line: When you put all the pieces together, the crisis of the uninsured is not nearly as bad as it sounds.
Productivity gains: Can you top this?
The reported rate of productivity growth, for the last quarter, is estimated at 9.4 percent, here is one report. This is following earlier productivity growth rates of 8.1 and 7 percent, obviously this is good news all around.
But do these figures capture all the relevant productivity gains? Graham Tanaka, the author of Digital Deflation, argues that we do not measure all relevant improvements. He cites better medical technology and information technology, as embedded in standard goods and services, as two undermeasured components of true productivity. Or consider cell phones, which today are better than a year ago, maybe by as much as twenty percent in value terms. Yet not all such quality changes show up in the official statistics. For 1998 he estimates that the real but unmeasured gains would add another 2% to productivity growth. In his view the future will bring very rapid growth and low inflation.
The potential for nanotechnology may be much more amazing, read Brad DeLong’s excellent post on the topic. He writes:
The computer-and-communications technology revolution we have been living through transforms twice as large a share of the economy as did the British Industrial Revolution, looks to last three times as long, and proceeds at a pace three times faster than the revolution in spinning and weaving: it is, relative to the size of the economy, eighteen times a bigger deal than the original.
Brad calls for greater investment in education, and an immigration policy aimed at taking in highly skilled labor.
But might Brad’s view be overly modest as well? In a recent paper, Robin Hanson considers the possibility of exponential growth modes. He argues:
World product history since two million B.C. is reasonably described as a CES combination of three distinct exponential growth modes: “hunting,” “farming,” and “industry.” Each mode seems to have grown over one hundred times faster than the relevant previous mode.
In other words, every now and then you get a discrete change in technology that sends the growth rate through the ceiling, relative to the past. Read this summary as well. If we get another such explosion, Robin mentions the extreme possibility that someday gdp could double in less than three weeks’ time, see this graph. It would have to be something like nanotechnology. In my view, long before this could happen, I would sooner say that growth rates had lost their meaning, they work best for relatively small comparisons across time and space. The point remains, however, that we have seen notable great transformations in the past, and they may recur in the future.
How does it matter?: I second Brad’s call for greater skilled immigration. A more interesting question is whether the U.S. government can get away with huge deficits, if mega-growth is on the horizon. I say we still ought to control spending. Future growth will not come evenly across the board, and unpriced quality improvements will not translate into capturable revenue for either the private or public sector. Imagine a cell phone that gave you immediate and wonderful orgasms, as well as other services, this would be a huge quality boost of sorts. But at the end of the day, stable institutions still will require our government to equalize long-term inflows and outflows. Furthermore we want to make sure we are stable enough to last until this future boom, which again suggests a measure of fiscal responsibility.
Which economists is Howard Dean listening to?
Joseph Stiglitz, Alan Blinder, and Jeffrey Sachs, in short, here is the brief story. Sachs is more market-oriented than the first two names, so this makes for a slightly odd pairing. It is hard to imagine him advising Dean to “re-regulate” the economy, as the candidate has called for. Stiglitz and Blinder are not the two names I would have chosen myself, but at least he is opting for smart economists. By the way, Dean’s primary advisors on domestic policy are Harvard law professor Christopher Edley, a well-known proponent of affirmative action, and Maria Echeveste, deputy chief of staff from the Clinton administration.
Addendum: The first link is now corrected. And here is another article on Dean’s inner circle.
Credit cards under your skin
Read Randall Parker on this new innovation:
Advanced Digital Solutions has announced their Veripay embedded radio frequency ID (RFID) cash and credit card technology.
Some day we may be able to walk into a store and be completely alone and not have to see a living person in sight, imagine walking out holding the items you want and being billed instantly just as you leave the store. No confrontations, no customer service, no cute check-out girl, isn’t our future grand…The chip is embedded in the arm.
Parker also quotes this more formal descrption of the technology:
VeriChip is a subdermal, radio frequency identification (RFID) device that can be used in a variety of security, financial, emergency identification and other applications. About the size of a grain of rice, each VeriChip product contains a unique verification number that is captured by briefly passing a proprietary scanner over the VeriChip. The standard location of the microchip is in the triceps area between the elbow and the shoulder of the right arm. The brief outpatient “chipping” procedure lasts just a few minutes and involves only local anesthetic followed by quick, painless insertion of the VeriChip. Once inserted just under the skin, the VeriChip is inconspicuous to the naked eye. A small amount of radio frequency energy passes from the scanner energizing the dormant VeriChip, which then emits a radio frequency signal transmitting the verification number. In October 2002, the US Food and Drug Administration (FDA) ruled that VeriChip is not a regulated device with regard to its security, financial, personal identification/safety applications but that VeriChip’s healthcare information applications are regulated by the FDA. VeriChip Corporation is a wholly owned subsidiary of Applied Digital Solutions.
By the way, the first 100,000 registrants to be “chipped” get $50 off.
My take: I don’t see this product taking off as a useful means of buying things, though of course it would no longer be a problem if you forgot your wallet at home. Too much talk about “mark of the beast” and all that, plus the general creepiness of the idea. As Parker suggests, more likely applications are for people at risk of having heart attacks (the device could send a signal, much like a cell phone call), diabetics, epileptics, Alzheimer’s patients, and children at risk of kidnap or running away from home.
Bush to drop most steel tariffs
Bush decided in March 2002 to impose tariffs of 8 to 30 percent on most steel imports from Europe, Asia and South America for three years. Officials acknowledged at the time that the decision was heavily influenced by the desire to help the Rust Belt states, but the departure from Bush’s free-trade principles drew fierce criticism from his conservative supporters. After a blast of international opposition, the administration began approving exemptions.
The WTO’s ruling against the tariffs was finalized three weeks ago, clearing the way for the retaliatory levies, and Bush’s economic team concluded unanimously that the tariffs should be scrapped. The source involved in the negotiations said the consensus in the White House was that “keeping the tariffs in place would cause more economic disruption and pain for the broader economy than repealing them would for the steel industry.”
Here is the full story. The formal decision is expected to be announced later this week. This is the first piece of economic policy good news in some time, but it is sad that it required a WTO ruling and threats of European retaliation to come about.
France and Germany break the rules
The EU fiscal rules, that is. Each country using the euro is supposed to maintain a budget deficit of less than three percent of gdp. Earlier this week France and Germany announced that they had no real intention of meeting the target, here is the full story. What are the implications of this?
1. The euro hit an all-time high against the dollar, clearly the markets were not rattled and largely expected this outcome or some version thereof.
2. Many of the smaller countries in the EU are upset, most of all Netherlands, Austria, Finland and Spain, all of which went through painful fiscal restructuring themselves. It appears there are two sets of EU rules, one for France and Germany, one for everyone else.
3. France in essence has given up on its dream to provide significant leadership for the other EU countries, and can no longer expect to lead by example. Otherwise France and Germany will suffer no real penalties from this.
4. France and Germany have shown that they simply will not make significant spending cuts, no matter what.
5. France and Germany were right not to raise taxes to meet the targets.
6. The three percent rule is effectively dead. The rule was a bad idea in the first place. Rules based on strict targets, with trigger penalties kicking in at a predetermined level, are likely to fail in democracies (remember the Gramm-Rudman Act, first it was to control deficits, then spending, ha-ha?). The boundary lines are arbitrary, and if they start to matter the penalties are seen as arbitrary and unfair by voters. So no penalty is accepted and then the targets fall apart.
7. The old written rule mandating three percent will not be revised. The new system in practice will likely take the form of loose ranges, with penalties of moral suasion applied by other EU members.
8. The real question is what will happen when one of the smaller nations thumbs its nose at France and Germany someday, over some EU agreement, and then claims exemption from the relevant penalties. Until then, stay tuned…
Fact of the day
In 2001 American spent $25 billion on recreational watercraft, more than the gdp of North Korea.
From Gregg Easterbrook’s new and noteworthy The Progress Paradox.
Update on Medicare reform
Several days ago I predicted that the recent Medicare bill would turn out to be largely the prescription drug benefit, with little real institutional reform in the direction of privatization, for better or worse. An article in today’s New York Times provides a closely related argument.
Here is a summary:
The most politically charged feature of the Medicare legislation passed by Congress – its attempt to make the federal Medicare program compete with private managed-care plans – is also the least likely to come to fruition on the seven-year schedule set in the bill, according to health policy experts…Similar plans, the experts say, have failed to find support among patients, doctors and hospitals, or even some insurers. Even people who favor the idea say the potential for trouble this time is formidable…Many people enrolled in Medicare fear that they will end up with less generous benefits in a privately run program…Nor do hospitals and doctors like the idea of health insurers pushing down fees to make a profit for themselves, and health plans have balked at previous projects that threatened to squeeze their profit margins…In addition, many privately run Medicare plans, known as Medicare H.M.O.’s, withdrew from many areas of the country when government payments lagged, forcing millions of patients to scramble to obtain new coverage.
The bill passed by the House and Senate in the last few days calls for six-year demonstration projects in four to six cities, where private health plans would compete with the traditional Medicare program to enroll subscribers by offering a variety of new services with the goal of possibly reducing costs…But four previous attempts at experimenting with competition among Medicare H.M.O.’s were aborted before they began – blocked in Congress after members heard objections from health care providers and elderly voters.
Arguably this kind of “mixed privatization,” with strong public elements, and few real incentives for cost control, was not a good idea in the first place. But in any case it is unlikely to ever see the true light of day.
Thanksgiving thoughts
It is a central point of economics to suggest that people are rewarded for their marginal product, and not for their infra-marginal contributions. Similarly, people have no guarantee of compensation for the external social benefits they produce. In other words, expect less gratitude than you probably deserve.
People who offer gratitude to others, however, tend to be much happier and more productive. This is a recurring theme throughout Gregg Easterbrook’s just published The Progress Paradox: How Life Gets Better While People Feel Worse. So on this Thanksgiving let us put aside the marginal product theory for a day, and feel gratitude for all that we have, which is indeed so very much. Without everyone else’s infra-marginal contributions, our lives would be sorry, short, and sad indeed. Perhaps, if only for a day, we should retitle this blog InfraMarginal Revolution.
Medicare, continued
Debates over the Medicare bill focus on two key aspects. First, it is fiscally irresponsible. Second, will the encouragement of competing private health plans raise or lower costs?
Where is Medicare cost inflation coming from?
The major elements in the Medicare program’s overall rise in costs have been increased enrollment (from 20 million beneficiaries in 1970 to 40 million this year) and the same factors that have led to increases in health care spending in the nation as a whole–most notably, the development and diffusion of new medical technology. Other contributors to cost growth have been program expansions as a result of legislative and administrative changes.
In dollar terms, inpatient hospital care accounts for the largest portion of the Medicare program’s growth. Expenditures for skilled nursing care and home health services, though constituting only 5 percent each of current program spending, have grown particularly rapidly. Real spending for those services increased at an average annual rate of about 12 percent from 1975 to 2001, compared with an average annual rate of about 7 percent for total Medicare spending.
From testimony of Douglas Holtz-Eakin, former head of the Congressional Budget Office, a well-respected economist.
It is not obvious that private insurance companies will lower these costs, at least not under current institutional structures. Here is one balanced analysis:
Whatever its faults as a heavily regulated program, Medicare is efficient at holding down costs because it can set prices, has unmatched purchasing and negotiating power because of its size and virtually no overhead. Its administrative costs are about 2 percent.
Administrative, marketing and overhead costs for private insurers were 16 percent last year, according to the government’s Centers for Medicare and Medicaid Services. They also have to set aside reserves and still make a profit.
Reischauer said private insurers can make up a great deal of those costs through market efficiencies and innovations — such as preventive care and disease management, which could be particularly important with chronically ill Medicare patients. But even then, if costs are not far below traditional Medicare or slightly above, seniors are unlikely to be attracted, he said.
This problem is what led the nonpartisan Congressional Budget Office to project that only 10 percent more seniors would enroll in managed care plans by 2010 — which would constitute an abject failure in moving seniors into a supposedly more efficient managed care plan. That figure is in stark contrast to projections by the administration of 43 percent.
In other words, the bill may not mean the end of Medicare as we know it, as some critics have charged. Here is another estimate that switches to private plans will be modest. In this regard the bill may matter less than many people think. I’ll go out on a limb and predict that we have voted in prescription drug benefits, but without fundamentally changing the system as a whole or doing anything to control costs.
What is the key problem on the cost side? Medicare, however low its overhead, serves political constituencies and cannot be expected to cut people off from emergency measures in their last year or so of life. And given the existence of the Medicare option, private health plans cannot get tough on these costs either and still draw customers. Right now, for better or worse, we have no institutional option to stop people from spending large sums of money on health care in the last year of their lives.
As for prescription drugs, the new bill will displace private alternatives over time, read this analysis:
Of the just over 40 million Medicare beneficiaries, almost half (46 percent) already have fairly comprehensive drug coverage through an employer-sponsored retirement plan. Another 29 percent of Medicare beneficiaries have some drug coverage from another private or public source. It is only the remaining 25 percent of Medicare beneficiaries (about 10 million) who have no drug coverage at all.
I will also predict that employers, seeking to cut health care costs, will withdraw these benefits over time, making the bill an even worse fiscal nightmare than has been expected.
The bottom line: Ugh. But unless we are willing to be mean and nasty to dying old people, in the interests of drastically lowering costs, we have no one to blame but ourselves for the current problems. We can, however, in addition still blame the Bush administration for political pandering and lack of fiscal discipline.
Addendum: Read this article on whether the new bill will stick, thanks to David Levy for the pointer.
The Medicare bill
Daniel Drezner offers an excellent analysis, replete with useful links. His bottom line: it is poorly designed and a fiscal catastrophe. He reproduces a Heritage graph with the rather tragic heading: “A Drug Benefit Will Add $2 Trillion to Medicare’s $5 Trillion Shortfall by 2030,” see the link for the visual. Drezner, who describes himself as a “pragmatic libertarian,” is, like myself, depressed at the current political climate and the willingness of the Republicans to abandon principle and fiscal discipline.
Equality within black communities
The gap between rich and poor blacks is smaller in Maryland than in almost any other state, click here for the full story. Black households in Maryland scored a Gini coefficient of .430, only in Alaska is within-black inequality lower, counting only the states with a black population of three percent or higher. Most of the middle class black communities are concentrated around Washington D.C., much of the black poverty in Maryland comes from Baltimore.
David Dishneau notes the following: “The numbers reflect a relatively large black middle class, supported by good-paying, stable jobs in government, biotechnology and related industries, social scientists say.” In other words, the government as employer has done more for black communities than the government as purveyor of affirmative action. Yes our government has played a heroic role in helping stamp out unjust racial inequalities, but let us assign the credit to the policies that deserve it. When it comes to Alaska, seventeen percent of adults are veterans, the highest percentage of any state. Once again government employment, in this case mostly through the military, may play a significant role in reducing inequality and helping to create a black middle class.
The economics of on-line dating
Yesterday’s New York Times Magazine offers a lengthy look at on-line dating. This article is longer than most links I offer, it is not full of economic reasoning though the interesting and salacious content may keep you reading.
The bottom line, however, is simple. On-line dating seems to serve (at least) two major constituencies. First, many people use it to marry or otherwise find a monogamous relationship. Match.com claims to have lost 140,000 members, by enabling those people to find partners. Second, many people use internet dating to find casual sex or serial partners. The article quotes a “Greg,” who enjoys a first date with quickie sex at the end, and then offers the following remark: “I liked her, but not enough to merit fireworks. Given the seemingly endless selectoin, I get to be a little less forgiving.”
Since I suspect that on-line dating is more effective than not, people will increasingly choose one category or the other. Those people who are willing and able to marry, will find their partners and marry. After some period of time, the stock of marriageable people will be smaller. (Note: I believe that some decent chunk of the unmarried are simply emotionally incapable of marrying, for whatever reason.) The remaining unmarried will then find relatively higher returns from the serial dating and casual sex routes. So the distribution of the number of sexual partners will become more bimodal over time.
Furthermore, the last two years have been an especially good time to marry through on-line dating. The new technology is being applied to a large stock of unmarried people who could marry and be happy, but who otherwise could not find the right partner. Yes, an ongoing flow will replenish the stock but arguably the stock has been at a peak in recent times, given that on-line dating has just taken off. So if you want to marry, hurry up and get on-line. If you are just looking for casual sex, well, you have a greater luxury of waiting and in fact your options will likely improve with time.
The new medicare bill
This is one debate I simply have not had time to follow. Brad DeLong, however, offers two posts, the first notes that the prescription drug benefit has no funding source. The second, drawing on Henry Aaron, notes that the insurance component of the bill is far from ideal, here is one excerpt, Brad quoting Henry Aaron:
The design of the bill’s drug insurance makes little sense. Any plan that covers the three-hundredth dollar a person spends on drugs in a year, but provides no coverage for that person’s three thousandth dollar of spending has to be regarded as a bit wacky. Yet that is what this bill would do. It would end federal support for Medicaid drug benefits if patients are also eligible for Medicare, even where the new Medicare coverage would be narrower than existing Medicaid coverage. At the same time, it does nothing to remedy Medicare’s other major failings. It does not cap out-of-pocket costs, even though almost all policies covering the nonelderly provide this essential “stop-loss” protection. It provides no additional help to pay crippling nursing home costs, which are poorly covered under the current program. And it does nothing to help the half of the poor elderly and disabled who now receive no help with premiums and cost sharing they can ill afford.
Even worse, the conference committee bill could single out Medicare for unfair benefit cuts or payroll tax increases in the future. Currently, Medicare hospital benefits (part A) are covered by a dedicated payroll tax. Revenues from this tax now exceed costs and, together with the excess collections from past years (which are deposited in the Hospital Insurance trust fund), are sufficient to cover benefits through 2026. Under current law, three-fourths of the cost of Medicare’s Supplemental Medical Insurance (SMI or part B), which covers doctors bills, durable medical equipment, and certain other expenses, are paid from general revenues and the balance by beneficiary premiums.
I’m still a bit baffled by the whole issue, but it appears we have to write down yet another case (e.g., profligate domestic spending increases, various protectionist measures, the stalled energy bill, etc.) of bad economic policy from the people downtown.