Category: Economics
The need for hospital price transparency
Greater price transparency doesn’t have to cost much money upfront, as most of what is required is attention. A critical majority of Americans — including doctors, patients, politicians, media and hospital board members — needs to insist on this outcome.
And I do mean insist. Just as, at some point, a critical mass of Americans demanded that the US end the Vietnam War. Otherwise, change is very unlikely to happen.
Some parts of the Affordable Care Act provided for transparent hospital pricing of individual services, and further regulations took effect in 2021. These were steps forward, yet the law has not turned the tide. It does not price packages of services, and it does not make it easy to compare one provider to another.
Recent research shows it is hard to even get a single consistent answer from a single provider. For instance, prices posted online and prices quoted over the telephone do not correlate very closely. For 41% of hospitals, the price difference was 50% or more. Clearly, suppliers aren’t really trying.
And:
What if there were regular news coverage of the comparative transparency and standardization of hospital prices? Or more explicit and accessible quality ratings? Or a prominent non-profit, run by medical professionals, devoted solely to making price and quality more transparent? Employers also could evaluate health insurance companies based on their performance by these criteria, much as they currently use ESG analysis. There could be an index of progress, like those national debt clocks one sometimes sees.
Is it absurd to hope that this topic might regularly trend on social media? What if there were public marches in front of hospitals (they can chant, “How much cash for a heart bypass”)? Who will be the Greta Thunberg of price transparency?
That is all from my latest Bloomberg column.
The PayPal StableCoin
PayPal customers can now transact in PayPal USD, a crypto stablecoin tied to the dollar. So which type of PayPal dollar, regular or crypto, is safer to hold? Surprisingly, the crypto dollar is backed by safer assets, gives you better rights in the event of a bankruptcy and is more transparent. The reason is not so much crypto per se as because PayPal USD is regulated differently and the US’s convoluted system of money regulation regulates similar things in different ways. J.P. Koning has the details:
[First] PayPal’s crypto dollars, which are managed by a third-party called Paxos, are 100% backed by the safest sorts of short-term collateral: U.S. Treasury-bills, reverse repo (backed by U.S. government securities), and commercial bank deposits. In finance lingo, these assets are known as cash and cash equivalents. A big reason for this conservative investment approach is that Paxos is subject to a set of strict investment limits as determined by its regulator, the New York State Department of Financial Services (NYDFS). You can read about the NYDFS’s stablecoin regulatory framework here.
By contrast, PayPal’s regular dollars, which are regulated piecemeal under each U.S. states’ own peculiar version of a money transmitter license, can almost always be legally backed by riskier assets.
…The second drawback of PayPal’s regular dollars is that the assets underlying them don’t really “belong” to customers in any strong sense of the word. They belong to PayPal.
To understand what this means, let’s say that PayPal goes bankrupt. You, a long time PayPal customer, hold $1000 worth of PayPal dollars. You might think that you are guaranteed to be made whole because there exists a corresponding set of underlying customer assets that has been specially earmarked for you and other PayPal customers. But that’s not the case. Customers are what is referred to in finance as an unsecured creditor of PayPal, which means you’d be relegated to having to fight with PayPal’s other creditors (banks, bond holders, etc) to get a piece of the pie, and that’s only after PayPal’s secured creditors – those highest in the pecking order – get first dibs. That could potentially mean getting maybe $600 or $700 instead of your original $1000.
…By contrast, the regulator of PayPal’s crypto-based dollars, the NYDFS, specifies that the reserves backing any crypto-based dollar “shall be held at these depository institutions and custodians for the benefit of the holders of the stablecoin, with appropriate titling of accounts.” To translate, the assets underlying your $1000 in PayPal USD cryptodollars are not PayPal’s assets. Nor are they Paxos’s. They are yours. No need to squabble with competing vultures for what’s left.
…The last big difference between the two types of PayPal dollars is that the crypto version offers far more transparency to customers. If you want to get current information about the assets underlying your crypto PayPal dollars, all you need to do is open up one of PayPal USD’s soon-to-be published attestation reports. Published monthly, these reports must include market values of the assets backing PayPal USD’s, both in total and broken down by asset class. These values must be recorded on two separate days each month, or 24 times per year. Furthermore, these attestation reports must be prepared by an independent auditor.
By contrast, the only way to get vetted financial information about the assets backing traditional PayPal dollars is to read its audited financial statements, which come out just once a year. For the rest of the twelve months, customers are left in the dark.
Ayn Rand on the Antitrust Laws
Here is Ayn Rand on the antitrust laws:
Under the Antitrust laws, a man becomes a criminal from the moment he goes into business, no matter what he does. For instance, if he charges prices which some bureaucrats judge as too high, he can be prosecuted for monopoly or for a successful “intent to monopolize”; if he charges prices lower than those of his competitors, he can be prosecuted for “unfair competition” or “restraint of trade”; and if he charges the same prices as his competitors, he can be prosecuted for “collusion” or “conspiracy.” There is only one difference in the legal treatment accorded to a criminal or to a businessman: the criminal’s rights are protected much more securely and objectively than the businessman’s.
Exaggeration? Here is the FTC case against Amazon which has switched almost overnight from one theory to the diametrically opposite theory:
“It’s really hard to square the circle of the earlier theory of harm that Lina Khan enunciated with the current complaint,” said John Mayo, an economist who leads Georgetown University’s Center for Business and Public Policy. “The earlier complaint was that prices were going to be too low and therefore anticompetitive. And now the theory is they are too high and they are anticompetitive.”
More generally, the FTC under Khan seems to be a lost opportunity. There are abusive practices such as hidden pricing by hospitals that could be improved but the FTC is throwing it away on pursuing the greatest store the world has ever known. Why? I have liberal friends who quit the FTC because they wanted to work on real cases not political grandstanding.
They are solving for the equilibrium
Canada is pushing the United States and other major economies to follow through on pledges to phase out “inefficient” fossil fuel subsidies, which have soared despite the growing threat of climate change.
Such subsidies hit records last year, according to several watchdog groups, including one that estimated that major world economies — members of the G-20 cooperation forum — surpassed $1 trillion in subsidies for the first time in 2022. That’s a fourfold increase over subsidy levels in 2010, the year after G-20 nations agreed to phase out support for fossil fuels.
Tail risk in production networks
This paper describes the response of the economy to large shocks in a nonlinear production network. A sector’s tail centrality, measures how a large negative shock transmits to GDP – i.e. the systemic risk of the sector. Tail centrality is theoretically and empirically very different from local centrality measures such as sales share – in a benchmark case, it is measured as a sector’s average downstream closeness to final production. It also measures how large differences in sector productivity can generate cross-country income differences. The paper also uses the results to analyze the determinants of total tail risk in the economy. Increases in interconnectedness can simultaneously reduce the sensitivity of the economy to small shocks while increasing the sensitivity to large shocks. Tail risk is related to conditional granularity, where some sectors become highly influential following negative shocks.
That is a new piece by Ian Dew-Becker, via Alexander Berger.
Dynamic Graphs in Modern Principles
Achieve is the excellent course management system for our textbook, Modern Principles. With Achieve, teachers can assign videos, homework, exercises and so forth. One advantage of online education is that students can engage with interactive exercises that give them immediate feedback.
Achieve also includes an electronic version of Modern Principles and all the graphs are dynamic so students can interact directly with the textbook. Students, for example, can practice at shifting the curves and also see the data in visually appealing and meaningful ways. Here are two examples.
Contact your rep to get more information.
Patents, Intellectual Property and the Rise of the Rent Seeking Society
During the summer I had the opportunity to spend a week at a16z’s crypto lab in New York City where I gave a fun talk on intellectual property including patents and copyrights, the great stagnation, the diffusion of ideas, American economic dynamism and even some discussion of AI and copyright in the Q&A. Check it out!
What should I ask Patrick McKenzie?
I will be doing a Conversation with him. Patrick is a phenomenon of the modern age. He writes the excellent Bits About Money, which focuses on money, banking, payments, and more.
His blog is Kalzumeus. He has lived most of his adult life in Japan, and has many excellent posts about Japan. Here are his greatest hits on the blog. He has run national shadow vaccine location information infrastructure. On Twitter he is @patio11.
So what should I ask him?
It is the poor who are lonely (on average)
Lower-income people are more lonely
Jiska Cohen-Mansfield did a literature review with Haim Hazan, Yaffa Lerman, and Vera Shalom of the statistical correlates of loneliness in older adults and found that being low-income is a strong correlate of loneliness. You see the same thing in surveys of middle-aged and elderly Portuguese people, in the Nova Scotia Quality of Life Survey, and in Eastern Europe.
Michelle Lim, Robert Eres, Shradha Vasan have the interesting finding that low income predicts loneliness not only on the individual level but also that “living in poorer neighborhoods” is associated with loneliness.
Sometimes scholarly literatures feature big disputes, or at least nuanced disputes, but in this case there seems to be no dispute at all: loneliness is associated with lower income and thus probably not caused by big houses or lack of huts. I also think it’s notable that at least among rich countries, loneliness seems higher in the poorer (or perhaps “less rich”) ones like Greece and Italy than in the United States and Switzerland.
The low rates of loneliness in egalitarian Sweden and Denmark, in particular, suggest that having more money pretty literally leads to less loneliness. Note as well that while the United States has a somewhat threadbare welfare state, this is data for senior citizens who do enjoy universal health care in the United States and a basic income via Social Security.
It may be, in other words, that being able to afford to do more leisure activities is a significant protector against loneliness. You go do more stuff and you make more friends. Or you have more opportunity to maintain your relationship with friends because you can afford to hang out and do stuff. I don’t think the exact nature of the causal relationship is clear from the studies that I’ve seen, but it bears more examination, especially because a lot of people seem to intuitively spin out to “paradoxical” accounts of loneliness that don’t seem well-supported.
That is from Matt Yglesias ($).
The Productivity of Online Education Increases
Teaching is a labor-intensive service industry for which it is difficult to increase productivity. Thus, the price of education rises over time, the Baumol effect. One of the reasons Tyler and I have put a lot of effort into online education is that it ties education to high productivity growth industries such as software and technology. Thus in the Industrial Organization of Online Education we argued:
…as more of the value of a course comes from software and less from live teaching, productivity will improve, thus removing the cost disease.
Here’s a case in point:
This is just a test but all of the videos for our textbook, Modern Principles, and our free online platform Marginal Revolution University are already subtitled in many languages and soon we will see more translations like the one above. Amazing.
Songs Sold for a Song
In our principles textbook, Modern Principles, Tyler and I discuss securitization and give the interesting example of music securitization with the picture at right (I’m pretty proud of the caption.)
But what has happened to these big purchases of song portfolios? Ted Gioia runs the numbers and finds that the rock stars sold at the top and the financiers are taking a bath!
On Thursday, Hipgnosis announced a plan to sell almost a half billion dollars of its song portfolio. They need to do this to pay down debt. That’s an ominous sign, because the songs Hipgnosis bought were supposed to generate lots of cash. Why can’t they handle their debt load with that cash flow?
But there was even worse news. Hipgnosis admitted that they sold these songs at 17.5% below their estimated “fair market value.” This added to the already widespread suspicion that current claims of song value are inflated.
Hipgnosis’s share price actually dropped after the announcement.
Last year, I predicted the following:
“Don’t be surprised if the folks at [private equity group] Blackstone end up owning all those songs. But if it happens, they will probably acquire the music at a sharp discount to what those songs were worth just a few months ago.”
Can you guess the buyer in the deal announced on Thursday? Yes, it was a Blackstone-backed fund. And they definitely got that discount.
But there’s one part of this story that I love.…It confirms my sense that karma is at work in the universe, and everything tends towards justice and fairness—if you’re willing to wait long enough.
Here’s that element of karma. The old rock stars actually did defeat the system. They screwed the man, and did it big time.
By my measure, Bob Dylan sold out at the top, and gets to laugh at the financiers who overpaid him. The same is true of Paul Simon and Neil Young and all the rest.
When I launch my hedge fund, I’m going to invite them to join me as partners. They are shrewd operators, every one of them.
The Zero Sum Idea Trap
In an excellent column, John Burn-Murdoch in the FT draws out some of the implications of zero-sum thinking, based on the new NBER paper Zero-Sum Thinking and the Roots of U.S. Political Divides.
Among the most striking Harvard findings was the discovery that there is a strong relationship between the extent to which someone is a zero-sum thinker, and the economic environment they grow up in.
If someone’s formative years were spent against a backdrop of abundance, growth and upward mobility, they tend to have a more positive-sum mindset, believing it is possible to grow the pie rather than just redistribute portions of it. People who grew up in tougher economic conditions tend to be more zero-sum and sceptical of the idea that hard work brings success. These attitudes are perfectly rational.
…Every five to 10 years, the World Values Survey asks people in dozens of countries where they would place themselves on a scale from the zero-sum belief that “people can only get rich at the expense of others”, to the positive-sum view that “wealth can grow so there’s enough for everyone”.
The average response among those in high-income countries has become 20 per cent more zero-sum over the last century. Moreover, two distinct rises in the prevalence of zero-sum attitudes have coincided with two slowdowns in gross domestic product growth, one in the 1970s and another in the past two decades.
The same pattern holds within individual countries. Britons and Americans have become significantly more likely to believe that success is a matter of luck rather than effort precisely as income growth has slowed.
The problem, of course, is that zero-sum thinking can causally lead to lower growth because it leads to anti-growth policies such as tariffs, anti-immigration, NIMBY, low-trust, high taxes, redistribution, identity politics and so forth.
All of this is reminiscent of Bryan Caplan’s Idea trap model. See also my earlier posts on how distrust leads to more regulation, even when people distrust the government!
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Modern Principles!
The best written, most innovative and most modern principles textbook is now even better! Very excited about the new edition. More to say in the coming weeks!
See the Invisible Hand.
Understand Your World.
Robert Barro and Rachel McCleary to Heritage
The Heritage Foundation announced today that Harvard University professors Robert Barro, Ph.D., and Rachel McCleary, Ph.D., will join the organization in September.
Barro will serve as a distinguished fellow in economic thought and McCleary will be a senior visiting fellow in religion and political economy for the Thomas A. Roe Institute for Economic Policy Studies.
Both will continue their research in the fields of economics and culture. In addition, they will advise the Center for Data Analysis, contribute to policy research work, especially in the areas of debt, inflation, and economic growth, and mentor upcoming economists and policy researchers.
Here is the full press release.
EU May Ban Payments for Milk, Sperm and Blood
BrusselsSignal: The European Parliament has approved a draft regulation banning payments for breast milk, sperm, blood and other “substances of human origin” (SoHO).
Billed as an attempt to increase safety across the bloc, the ban allegedly aims to ensure that those who are financially disadvantaged within the bloc are not subject to undue pressure to donate their cells and bodily fluids.
Hmmm. Why not ban the sale of labor to protect financially disadvantaged labor donors from undue pressure? Indeed, why not require that dangerous jobs like mining pay low wages so we can be sure that no one is induced to do these jobs by financial pressure?
More prosaically, the European Union falls short of producing all the blood plasma it needs to meet its demand for life-saving medicine. Consequently, the European Union depends on imports—primarily from compensated donors in the United States—to address its plasma deficit. Should the proposed EU legislation be enacted, the deficit is likely to get worse because Germany, Austria, Hungary, and the Czech Republic, currently permit financial compensation. Indeed the U.S. and these EU countries together account for 90% of the global plasma supply. A ban on paid donations within the EU will thus decrease the quantity of plasma supplied from Germany, Austria, Hungary, and the Czech Republic and force the EU to rely even more on imports from the US.
The US is also the world’s biggest exporter of human sperm because US sperm donors can be compensated and remain anonymous (depending on the state). US donors are also carefully screened for quality, in part due to US regulations and in part due to market demand for information about the donors. Denmark is also a major exporter of sperm, in part because it, too, allows financial incentives to donors. Reduced donations from Denmark will make the European Union increasingly dependent on U.S. sperm supplies. Indeed, after Canada banned paid sperm donors in 2004, the supply of Canadian donors plummeted to just 35 (!) and US sperm exports to Canada increased. Unintended consequences, eh?
Creating EU wide standards for testing of blood, sperm and breast milk to allow greater flows across borders is a good idea. Shortages of baby formula in the US, for example, led to a valuable increase in breast milk donations and sales but it would probably be better if more breast milk donations went through a qualified milk bank rather than through Facebook (and the same is also true for sperm banks and sperm donations). But there is no call for banning paid donation.
Paying donors of blood, sperm and breast milk is an ethical way to increase the quantity supplied and it can be done while ensuring that the donations are high-quality and safe.