Category: Economics

How is Obamacare doing?

Yes, it is more popular, but how is it doing?:

Obamacare has continued to devastate the individual health insurance market:

  • In March of 2016, there were 20.2 million people covered in the individual health insurance market according to a hard count of state insurance department filings done by Mark Farrah and Associates.
  • In March of 2017 that count was down to 17.7 million.
  • In March of 2018 the count was 15.7 million–a 22% drop in two years.

This means 4.5 million people lost their individual health insurance in just two years.

Hardest hit are the 40% of middle class individual market consumers who are not eligible for a subsidy.

  • In March of 2016 there were 7,520,939 people covered in the off-exchange individual health insurance market where subsidies are not available.

  • In March of 2017 5,361,451 were covered.

  • In March of 2018 4,004,522 were covered–a 47% drop in two years.

And, the Obamacare subsidies paid to consumers are hardly sustainable.

According to the CBO, the average Medicaid outlay for a non-disabled adult is $4,230–a program that virtually has no premiums and co-pays. But because the risk pool is so bad and therefore expensive in the Obamacare exchanges, the average subsidy cost for taxpayers is $6,300–and that doesn’t include what the consumer pays in premiums and out-of-pocket expenses for Obamacare coverage.

Why has the Obamacare individual market melted-down in these last two years? Because its premiums and deductibles are sky high–for all but the lowest income participants.

In Northern Virginia, for example, the cheapest 2019 Obamacare individual market Silver plan for a family of four (mom and dad age-40) making a subsidy eligible $65,000 a year costs $4,514. That plan has a $6,500 deductible meaning the family would have to spend $11,014 on eligible health care costs before collecting other than nominal first dollar benefits.

That same family, but making too much for a subsidy, as 40% of families do, and a typical family in the affluent Virginia 10th, would have to spend $19,484 in premiums plus a $6,500 deductible, for a total of $25,984 in eligible costs before they would collect any meaningful benefits.

That is from Robert Laszewski, with additional interesting points at the link.  Do see my earlier post on what does and does not make sense in Obamacare — the risk pool for the individual market simply isn’t big or robust enough.

Spain Debates Whether Left Hand or Right Hand Should Pay Tax

Spain is currently embroiled in tremendous debate over who should pay the AJD tax, a tax on the creation of a mortgage. Should the buyers (consumers) or the sellers of the mortgage (the banks) pay the tax? The Supreme Court, the President, and the legislature have all stepped in.

At the beginning of this year,  the civil division of Supreme Court clearly ruled that the tax on mortgages should be paid by consumers and not banks. However, on the 18th of October the Contentious-Administrative division pronounced the other way, that banks should pay. So two divisions of different jurisdictions of the Supreme Court (civil and administrative) have issued conflicting sentences producing a legal mess…

that was the situation as of October 24. But then on Tuesday:

The Spanish Supreme Court has done a U-turn again: it is the clients who must pay for a controversial mortgage tax, and not the banks

…The decision was reached on Tuesday evening in the Administrative Division of the Supreme Court after two days of intense debate, and with just two votes of difference: 15 justices were in favor of making the client pay the levy, and 13 voted to confirm a groundbreaking decision reached by this same court in mid-October that it should be the banks who pick up the tab.

Leaders are up in arms and street protests are threatened:

Leaders of the anti-austerity Podemos party have already announced protests over a decision that “calls into question” the court’s independence and undermines democracy, in the words of party leader Pablo Iglesias. …Alberto Garzón, head of the United Left coalition, went even further: “Private banks are thieves, they are the main enemy of democracy and they are responsible for gutting our economies. A majority of the Supreme Court sides with them, ratifying that justice has a price and that the system is rotten and spent,” he tweeted.

Under pressure, the socialist Prime Minister announced “a Royal Decree would be approved ‘so that Spaniards will never pay this tax again’,” and the Prime Minister pledged that the new law would be in place by Friday!

What’s amazing is that the Spanish uproar is over a decision that Econ 101 says does not make a whit’s worth of difference to anything of importance. Whether the buyers send the check to the government or the sellers does not change the true incidence of the tax. As Tyler and I say in Modern Principles, “Who pays the tax does not depend on the laws of Congress but on the laws of supply and demand.” The tax simply drives a wedge between what the buyers pay and what the seller receives. Since sellers typically post prices, when the sellers must send the check the posted price will include the tax but the price the sellers receive will be the posted price minus the tax. If buyers must send the check to the government the posted price will not include the tax but the buyers will have to pay the posted price plus the tax. Either way, the seller, buyer, and government all end up net the same amount. It’s little different than debating whether the right or left hand must pay the tax. See Tyler in the video below for the diagram and further details.

Thus, the whole Spanish imbroglio has been caused by a failure to understand Econ 101.

Addendum: Bank shares fluctuated as the tax jumped back and forth which might suggest non-neutrality but that is because an earlier proposal would have had the banks pay consumers “back” for taxes the consumers paid years ago. A retroactive tax would indeed be bad for banks because while the tax would be retroactive the price would not. Going forward, however, the price adjusts with the placement of the tax so there is little beyond convenience and transaction cost to prefer one system to the other. In fact, once it was established that the tax would not be retroactive, bank share prices recovered.

Hat tip: Mauricio Drelichman.

Acquisition Talk: A daily blog on the theory and practice of weapons system acquisition

That is a new blog by Eric Lofgren, an Emergent Ventures recipient.  Here is an excerpt from one post:

The story was from 1938. It sounds astounding to modern ears. Congress did not earmark money for special projects. Pitcairn was a bit of a political entrepreneur by convincing his representative to get a project funded that funneled money back to his own district.

Back then, the Army and Navy were funded according to organization and object. Project earmarking only started becoming routine with the implementation of the program budget in 1949 (and really not until the rise of the PPBS in 1961).

I often say that the budget should be the most important aspect of defense reform, not the acquisition or requirements processes.

By the way, the French parliament doesn’t earmark defense funding. There’s actually quite a bit to learn from the French experience.

Here is his post on cost disease in weapons acquisition, and more on that here: “It’s clear that defense acquisition costs are growing at least as fast, and probably much faster, than education and healthcare costs. Defense platform unit costs grow nominally from 7-11% per year. Doing some adjustments, DOD production costs probably grow twice the rate of inflation.”

Here is his general post on acquisition reform and the limits of decentralization, maybe the best introduction to his overall point of view.

My Conversation with Eric Schmidt

Self-recommending, here is the audio and video.  Here is the video, here is one excerpt from the dialogue:

COWEN: So you receive an offer to run Google. Why were you so skeptical about Google at first?

SCHMIDT: Well, I assumed that search wasn’t very important, and I assumed the ads didn’t work. I was so concerned about the ads that, after I accepted the offer — because it just seemed like it was interesting, and a lot of luck comes from doing things that are interesting, and sort of creating your own luck — I hauled the then–sales executive, whose name was Tim Armstrong, who you all know well, and I said, “Tim, prove to me that these ads work.”

So they showed me a set of ads, and they looked pretty foolish to me. So I said, “Well, let’s go find the finance person,” of which there was one, and the accounting system was done on QuickBooks. I said, “Prove to me that people are paying for these ads,” and they did.

We then did an ads conversion in the first year, which was called Project Drano, where we basically took three different ads databases, which were simple compared to today’s databases, and merged them into one. And I was terrified, absolutely terrified that the ruse that we had — because we had fixed pricing on our ads — that people would discover that our ads were not worth anything.

So I organized what I called the cash restriction period, where the only thing you could do if you wanted to spend money, is you could only spend money on Friday at 10 AM, and you had to come to me to justify it, which very much shuts down spending.

So we get to this conversion, we turn the thing over, and of course, we didn’t bother to build into the tools. We had no metrics. We didn’t know what was going on. I’m going, “Oh my God, the company is bankrupt. My first year, I’ve done a terrible job. What will the board think?” I did my best to notify everybody we were going to go kaput.

The auction produced a price that was three times higher than the previous prices. Very interesting. So much for the cash restriction period, and the rest is history.

And from Eric:

We did all sorts of things. My favorite example is that we would interview people to death. We interviewed this one gentleman sixteen times, and we couldn’t decide. So I picked a random number, which was half, and I said, “We should have a max of eight, and if we can’t decide after eight . . .” We’ve since done a statistical analysis, and the answer today is four to five interviews.

And here is my bit on Eric:

COWEN: Now early on, you were an intern at Bell Labs, and also PARC, which belonged to Xerox, and I think of those two institutions as stemming from earlier glory years of American science.

Is it fair to think of your career as in some sense, you’re the person who spans those two eras, the Bell Labs-PARC era of doing things, and then the tech era of manipulating information, and that your ability to bring expertise from those two areas together is what has made you a unique figure? Is that a fair assessment of how you fit into the picture?

And there is this bit:

COWEN: How did it influence you having a father who was a famous economist? He wrote on balance of payments crises. What did you draw from him? Did that have a role in using so much economics in Google?

SCHMIDT: Well, what’s interesting is, I asked my father, “If you’re such a good economist, why are we not rich?”

I very much enjoyed doing this event, which was for Village Global, a new venture capital firm.  Here is a Village Global post on lessons from the event.

The Mobbing Game

Klaus Abbink and Gönül Dogan have a horrific new paper. Horrific because despite being in a safe, experimental setting the results are all too realistic:

We introduce the experimental mobbing game. Each player in a group has the option to nominate one of the other players or to nominate no one. If the same person is nominated by all other players, he loses his payoff and the mob gains. We conduct three sets of experiments to study the effects of monetary gains, fear of being mobbed, and different types of focality. In the repeated mobbing game, we find that subjects frequently coordinate on selecting a victim, even for modest gains. Higher gains make mobbing more likely. We find no evidence that fear of becoming the victim explains mobbing. Richer and poorer players are equally focal. Pity plays no role in mobbing decisions. Ingroup members – introduced by colours – are less likely to be victims, and both payoff difference and colour difference serve as strong coordination devices. Commonly employed social preference theories do not explain our findings.

In short, the authors give experimental participants an opportunity to nominate a victim and redistribute towards themselves. Willingness to do this is common even in cases where the victims lose a lot and the bullies gain only a little. In some cases, the redistribution increases social welfare but these are also the cases where the bullies get a lot. Overall, it’s pretty clear that motivation is greed rather than increased social welfare but it would have been good to have an experiment that distinguished better the greed and social welfare cases. Importantly, distinguishing one of the players by making them poorer/richer/yellow also increased mobbing of that player.

I loved this footnote:

The labels [M,T, G, P] are also a hidden homage to the inmates Mather, Travers, Greenhill and Pearce, who escaped from a Tasmanian prison camp in a group of eight in 1822, only to get lost in the forest. When food ran out, the four conspired to apply the Custom of the Sea to the others. When no-one else was left, they turned to killing and eating one another, until only Pearce survived. All victims were chosen in decidedly non-random ways. This story is one of the great Australian foundation myths, and it was an inspiration for this study (for a dramatic reconstruction, see Van Diemen’s Land (2009)). We are confident that none of our Northern European subjects made that connection.

Hat tip: Rolf Degen.

Will a low price actually prove good for crypto?

That is the topic of my latest Bloomberg column, here is one bit:

Now the time has come for crypto to go on a diet. No more easy money. No more thoughts about ICOs leading to quick riches. The rhetoric is shifting toward a more cautious or even apologetic tone. The corresponding reality can perhaps be one of greater focus and relevance.

We’re at the point where crypto finally has to prove its social worth. But what might that mean? Imagine using crypto as a medium of micropayments to pay for media on the internet. Or perhaps you’ll use the blockchain to verify your identity, rather than telling some stranger on the phone the last four digits of your Social Security number. Or how about a system for self-executing, zero-cost contracts? (For example: I will give $10,000 to a charity if 10 other people do.) Maybe the burgeoning field of virtual reality will rely on crypto to support some of its transactions, starting with virtual sex, which the major banks might stay away from. Alternatively, I might use crypto assets to send money to Mexico, avoiding the steep charges from current money transfer systems. In the more utopian visions, crypto leads to the rise of entirely self-governing systems, powered by the blockchain.

And this:

By the way, if you are confused by the terms “proof of stake” and “sharding” (and others), that is probably a good thing. As the tech guru Stewart Brand is reported to have said, the proliferation of terminology in crypto is a sign that new ideas and possibly important new technologies are afoot.

Stay tuned…

How much do the experts wish to discount the future by?

…we find that expert opinion is particularly varied on the rate of time preference.  The modal value is zero, in line with many prominent opinions.  But with a median (mean) of 0.5 percent (1.1 percent)…

And:

…while we find that experts recommend placing greater weight on normative than positive issues when determining the SDR, most believe that the SDR should be informed by both.

That is from the latest issue of American Economic Journal: Economic Policy, “Discounting Disentangled” by Drupp, Freeman, Groom, and Nesje.  You will of course find a lengthy discussion of these issues in my own Stubborn Attachments: A Vision for a Society of Free, Prosperous, and Responsible Individuals.

How does paid maternity leave affect children?

Abstract: This paper provides the first evidence of the effect of a U.S. paid maternity leave policy on the long-run outcomes of children. I exploit variation in access to paid leave that was created by long-standing state differences in short-term disability insurance coverage and the state-level roll-out of laws banning discrimination against pregnant workers in the 1960s and 1970s. While the availability of these benefits sparked a substantial expansion of leave-taking by new mothers, it also came with a cost. The enactment of paid leave led to shifts in labor supply and demand that decreased wages and family income among women of child-bearing age. In addition, the first generation of children born to mothers with access to maternity leave benefits were 1.9 percent less likely to attend college and 3.1 percent less likely to earn a four-year college degree.

That is the job market paper of Brenden Timpe, a brave man from the University of Michigan.

“Displacement in the Criminal Labor Market: Evidence from Drug Legalizations”

Legalizing drugs harms some black markets but spurs activities in others:

It is widely hypothesized that legalization disrupts illicit markets and displaces illegal suppliers,  but the consequences for those who are displaced remain poorly understood. In this paper, I use comprehensive administrative data from three states that legalized marijuana covering all individuals released from prison in the years immediately before and after the policy change to estimate the effect of legalization on the subsequent criminality of convicted dealers. I find that marijuana legalization increased the 9-month recidivism rate of marijuana offenders by 6 percentage points relative to a baseline rate of 10 percent. The increased recidivism is largely driven by a substitution to the trafficking of other drugs, which is consistent with a Becker-style model where individuals develop human capital specific to the drug industry. To learn about potential mechanism behind these results, I use detailed drug transaction price data to estimate the effect of legalization on average prices and price dispersion, and I find suggestive evidence that both the average level and residual variance decline following legalization, which is consistent with legalization eroding rents earned in the illicit marijuana market. Lastly, I explore the generalizability of my findings in a distinct legalization experiment from history: the end of National Prohibition. I replicate the main insights at an organizational level and show that, in response to the repeal of Prohibition, the Italian-American Mafia shifted personnel from bootlegging to narcotics. Overall, the results in this paper suggest that an unintended consequence of drug legalization is a re-allocation of drug criminals to other illicit activity.

That is from Heyu Xiong, who is currently on the job market from Northwestern.

MR sentences to ponder

Also, I finally had a chance to meet Tyler Cowen and tell him that his blog played a bit part in how I ended up dating my now-wife. Back when we were messaging on OKCupid (to clarify: my wife and I were messaging; I have not contacted Tyler Cowen on OKC), I wanted to establish my Internet-nerd bona fides, so I mentioned that I’d been linked by a prominent economics blog. She mentioned that she had been linked by a very prominent economics blog. It was Marginal Revolution, both times. (Her post: on taking oneself seriously. My post is lost to history, but I believe it was about the causes and consequences of onion futures being illegal.)

Since Cowen is an expert on many topics, it should come as no surprise that he’s an export on MR lore, so he informed me that at least one couple has gotten married on the site. One economic story you can tell about the last hundred or so years is that, as economies globalize, we compete head-to-head with more people, and need to define our domains ever more narrowly if we hope to be #1. Apparently “used Marginal Revolution to get married” was, in fact, far too broad a domain for me to have any hope of excelling.

That is from Byrne Hobart, with the essay mostly on his recent visit to Bloomberg and the Bloomberg AI panel.

Why do women earn less than men? Evidence from train and bus operators

Even in a unionized environment, where work tasks are similar, hourly wages are identical, and tenure dictates promotions, female workers earn $0.89 on the male-worker dollar (weekly earnings). We use confidential administrative data on bus and train operators from the Massachusetts Bay Transportation Authority (MBTA) to show that the weekly earnings gap can be explained entirely by the workplace choices that women and men make. Women value time and flexibility more than men. Women take more unpaid time off using the Family Medical Leave Act (FMLA) and work fewer overtime hours than men. Men and women plan to work similar overtime hours when they are scheduled three months in advance, but men actually work nearly 50% more overtime hours than women. Women with dependents value time away from work more than do men with dependents. When selecting work schedules, women try to avoid weekend, holiday, and split shifts more than men. To avoid unfavorable work times, women prioritize their schedules over route safety and select routes with a higher probability of accidents. Women are less likely than men to game the scheduling system by trading off work hours at regular wages for overtime hours at premium wages. Conditional on seniority, which dictates choice sets, the weekly earnings gap can be explained entirely by differences in operator choices of hours, schedules, and routes.

That is the Harvard job market paper of Valentin Bolotnyy, co-authored with Natalia Emanuel.

Can Token Curated Registries Actually Work?

A Token Curated Registry (TCR) is a mechanism to incentivize the creation of high quality lists in a decentralized setting. TCRs are becoming popular in the token space. As part of advisory work on mechanism design for the startup Wireline, I wrote a research note on TCRs. I am not as enthused as many others. Here are some takeaways:

Token Curated Registries can work but there is no guarantee that voters will coordinate on the truth as a Schelling point so care needs to be taken in the design stage to imagine other Schelling points. The less focal or more costly it is to discover the truth, the more vulnerable the mechanism will be to biases and manipulation via coordination or collusion.

To understand whether a TCR will work in practice attention needs to be placed on the information environment. The key practical issues are the cost of acquiring high-quality information and the value to an applicant of getting on the registry. Put simply, TCRs are likely to work when high quality information is available at low cost. Vitalik Buterin’s examples of Schelling points were (wisely) all of this kind. Extensions of the Schelling point model to TCRs which are trying to surface information that is much more uncertain, variable and disputed need to recognize the limitations.

It will often be more important to put effort into lowering the cost of acquiring high quality information than it will be to modify the particulars of the mechanism. If high-quality, low-cost information is available many mechanisms will work tolerably well. If high-quality, low-cost information isn’t available, perhaps none will.

Read the whole thing at Medium.

And do check out Wireline. Wireline isn’t going to Mars but it is creating what could be a significant and very useful protocol to find and connect software services to quickly produce decentralized applications that can scale on demand.

Blockchains in Space!

As far as I can tell, this is Not From the Onion.

Blockchain venture production studio ConsenSys, Inc. has acquired the pioneering space company Planetary Resources, Inc. through an asset-purchase transaction. Planetary Resources’ President & CEO Chris Lewicki and General Counsel Brian Israel have joined ConsenSys in connection with the acquisition.

…Ethereum Co-founder and ConsenSys Founder Joe Lubin said, “I admire Planetary Resources for its world class talent, its record of innovation, and for inspiring people across our planet in support of its bold vision for the future. Bringing deep space capabilities into the ConsenSys ecosystem reflects our belief in the potential for Ethereum to help humanity craft new societal rule systems through automated trust and guaranteed execution. And it reflects our belief in democratizing and decentralizing space endeavors to unite our species and unlock untapped human potential. We look forward to sharing our plans and how to join us on this journey in the months ahead.”

As Eli Dourado quipped, cryptocurrency mining, asteroid mining, pretty much the same thing, right? ¯\_(ツ)_/¯

The best job market paper I have seen so far this year

From Hyejun Kim at MIT”s Sloan School:

Knitting Community: Human and Social Capital in the Early Transition into Entrepreneurship

The process by which individuals become entrepreneurs is often described as a decisive moment of transition, yet it necessarily involves a series of smaller steps. This study examines how human capital and social capital are accumulated and deployed in the earliest stages of the entrepreneurial transition in the setting of “user entrepreneurship.” Using the unique dataset from Ravelry—the Facebook of knitters—I study why and how some knitters become entrepreneurs. I show that knitters who make the entrepreneurial transition are distinctive in that they have experience in fewer techniques and more product categories. I also show that this transition is facilitated by participation in offline social networks where knitters garner feedback and encouragement. Importantly, social and human capital appear to complement each other with social capital producing the greatest effect on the most skilled users. Broader theoretical implications on user innovation, the role of social capital, and entrepreneurship research are discussed.

Here is part of the concluding summary:

…the critical factor explaining why some creative knitters transition to designers is the feedback and encouragement they receive from fellow knitters and friends. With a carefully matched sample, difference-in-difference analysis verifies that the participation in an offline local networking group increases the likelihood of transition by 25%. Furthermore, the results suggest that social capital effect is largest among those with entrepreneurial human capital, as social capital complements human capital in knitters’ transition to
designers.

I have read through the entire paper and the whole thing is a gem.