The most important economic policy in the world is only weeks away

by  Tyler Cowen in

At the very least this is in the top five most important economic policies and yes it is from India:

D-day is 18 days away. On January 1, the Congress-led UPA government will start migrating the delivery of welfare services to a new architecture: straight into an individual’s bank account, verified by a unique identification (UID) number called Aadhaar.

It’s a soft launch. The first of the three stages will unravel in 43 districts where a large percentage of people have bank accounts and Aadhaars. Also, in the programmes earmarked for stage I, worth about Rs 20,000 crore, transfers to bank accounts is already happening; what will change is that they will now be linked to the Aadhaar number to reduce, if not eliminate, duplication.

The complexity of the exercise will increase manifold as more of India is covered in the other two stages, in April 2013 and April 2014. This will also increase as more programmes are added, especially food, oil, fertiliser and employment. In full flow, the money flowing through those pipes could go up to Rs 300,000 crore. So, is the government ready?

This will likely prove part of a much larger move to a reliance on cash transfers and conditional cash transfers.  Eyescans will be used to create unique identification numbers for individuals and in theory 800 million people will be enrolled in this program over the next fifteen months.  (Don’t count on that pace.)  The government is easing the procedural barriers to creating bank accounts.  I am mostly hopeful although I do worry about privacy issues, this kind of identification becoming a more generally used network, and government misuse of the information.

You can read much more at the link.  The virtuous Tim Harford covered some of it here, but most of you have been pretty silent.

The Tom Coburn samizdat Medicare reform proposal

by  Tyler Cowen in

As reported by Ezra Klein:

“If I had the magic wand,” he told me, “I’d change how we pay for Medicare.” That’s a common enough sentiment, but the policy Coburn has in mind is a bit more radical than what’s typically offered in Washington.

“I’d change all physicians to time instead of fee-for- service,” he says. “What we’re doing with fee-for-service, and most people don’t realize this, is when you go to the doctor, they have this pressure to see X number of patients a day to meet their numbers.”

If we cut payments to doctors, Coburn says, “they’re going to cut the time they spend per patient. When a patient is in a room and you haven’t used your skills as a physician to really listen, you walk out and cover that absence of time by ordering tests. So if you say here’s all the hours we’ll pay for if you’re a Medicare doctor, and we can actually audit that time, doctors would have to demonstrate proof that they’re spending this time with patients.”

That wasn’t, I noted to Coburn, a policy that appeared in any of the bills he had sponsored, a fact he acknowledged with a laugh. “I didn’t put that in there,” he said, admitting the idea has little political support. “It’s just something I’ve thought about a long time. Nobody should be seen for less than 20 or 30 minutes if you’re doing this properly. And if I knew I was going to get paid for my time I wouldn’t be in a hurry to see the next patient.”

Here are further ideas on Medicare reform.

Police, Crime and the Usefulness of Economics

by  Alex Tabarrok in

In 1994 the noted criminologist David Bayley wrote:

The police do not prevent crime. This is one of the best kept secrets of modern life. Experts know it, the police know it, but the public does not know it.

Economists were skeptical based on intuition but in truth the empirical work from economists at that time was mixed with some papers showing little or no effect of police on crime, just as Bayley argued. Since Levitt’s pioneering paper, however, there have been many papers applying a wide variety of more credible research designs like natural experiments, regression discontinuity, matching and other techniques. Any one of these papers is subject to criticism but as group the results have been remarkably consistent: police reduce crime with a 10% increase in police reducing property crime by about 3-4% and violent crime a little bit more perhaps by 4-5% (average elasticities of .35 and .48 from my review paper).

Two interesting new papers add to this literature. The University of Pennsylvania has a large private police force, some 100 officers who patrol the Penn campus and a substantial fraction of the surrounding neighborhood. The city police also police the Penn neighborhood but the UP police stay within a known (but not demarcated) region. Thus, there are more police on the Penn side of the border than on the other side. MacDonald, Kick and Grunwald apply regression discontinuity to look at what happens to crime around the border region and they find that it drops as one crosses the border. Their measures of the elasticity of crime with respect to police are similar to those found elsewhere in the literature.

Chalfin and McCrary take another approach. I always assumed that the reason standard (OLS) techniques do not pick up an effect of police on crime was reverse causality, places with a lot of crime also have a lot of police. Chalfin and McCrary argue that an even more serious problem may have been measurement error. The usual measure of police is produced by the FBI and the Uniform Crime Reports. CM find another measure produced by the Annual Survey of Governments. The two measures are close enough in levels but the relationship is surprisingly weak when looking at growth rates. Although we can’t say which measure is correct (or if either are correct) just knowing that they are different tells us that measurement error is important and measurement error will bias results downward (i.e. away from showing a significant effect of police on crime.) Moreover, if you know that measurement error exists it’s also possible to correct for it (surprisingly one can do this even without knowing the truth!) and when CM do this they find large and significant effects of police on crime, very much in line with earlier results. CM also show that there is lots of variability in police numbers that is not accounted for by crime so reverse causality is not as big a problem as one might imagine.

Using a range of reasonable elasticity estimates from the new literature and a back of the envelope calculation, Klick and I argue that it would not be unreasonable to double the number of police officers in the United States. At current levels, it’s also my belief that police are much more effective than prisons at reducing crime and with far fewer of the blowback effects. Chalfin and McCrary do a more detailed cost-benefit calculation for individual cities and they also find that many cities are severely underpoliced (and some are overpoliced–the police force of Richland County, South Carolina probably does not need a tank).

Estimates of the elasticity of crime with respect to police are largely consistent across many papers which suggests that the new techniques are more credible.  The elasticity estimates are also important because their size implies that major changes in policy could improve social welfare. I see the empirical economics of crime as one of the more useful areas in economics in which substantial progress has been made in recent years.

Swedish migrant workers to Norway

by  Tyler Cowen in

She offered to find me a cleaning job, telling me if I worked in Norway, I’d become “rich like a troll.” I’d always thought it was the dwarfs and goblins that were rich, but I wasn’t about to quibble. Facing the reality of undergraduate student loans and the nigh-on uselessness of an M.A. in the humanities, I ate my pride, packed my bags, and endured the 30-hour train ride up to Lofoten.

Here is much more, interesting throughout.  I also liked this part:

“And I would say that many Norwegians enjoy the fact that so many Swedes are here doing menial jobs.”

When the Norwegian cross-country skier Petter Northug beat his Swedish rival across the line at the 2011 World Championships, he used opportunity to taunt Sweden about the low value of the Swedish currency. The Swedish media, on the other hand, laments the fact that Swedes are reduced to literally peeling bananas in Norway—albeit for about $23 an hour.

And this:

The stereotype of Swedes in Norway is that they live in dirty “collectives,” packing as many people into a house as possible. We did little to mitigate this stereotype.

For the pointer I thank Mike Dang.

Assorted links

by  Tyler Cowen

1. Erik Voeten with some remarks toward a theory of treaties.

2. Milton Friedman on the popularity of the Fed.

3. What V.S. Naipaul thinks of Jane Austen.

4. New paper on Albert Hirschman and the World Bank, and Rajiv Sethi on Hirschman.

5. Further skepticism on productivity increases in U.S. manufacturing.

6. Raj Chetty video lectures on taxes and redistribution, not viewed but self-recommending.

The Korean practice of “booking”

by  Tyler Cowen in

Typically, around four or five men will sit down at a table and be served expensive whiskey and fruit.  They are assigned a waiter, who will go around the other tables to find a group of women, whom they bring over to the men’s table…The waiter does this in return for a tip.  The larger the tip, the prettier the women he will bring.

…Waiters maintain lists of attractive women’s phone numbers and will call them up and offer free, or very cheap, tables and drinks for them and their friends.  This is more than compensated for by the price men will pay.  Men will happily lay out 150,000 won (almost US$150) each in table fees and tips.  Despite the cost, some men go very often.  In fact, there is an expression, night-jukdoli, for a man addicted to booking and nightclubs.  The female equivalent is a night-juksooni.

That is from Daniel Tudor’s very good book, Korea: The Impossible Country.

Tyler and Alex in Delhi

by  Alex Tabarrok in

Here is the information for our public talk in Delhi which is hosted by the Center for Civil Society and will be on Thursday December 20, 3-5 pm at the Heinz Auditorium, YMCA, New Delhi. Register here or email [email protected], +91-9910667576 –this is a public talk open to everyone.

We are also pleased to be speaking later that evening to the fellows at the Young India Fellowship, an exciting and innovative program of liberal education that connects some of the best young minds in India with a star-studded faculty in India and abroad.