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.

Markets in everything, high-frequency trading opera edition

by  Tyler Cowen in

London, 7th December 2012, PRNewswire – Reality TV is an old concept which we’re all familiar with. However, Alexis Kirke, a leading composer at the Interdisciplinary Centre for Computer Music Research at Plymouth University , and Dr Greg B Davies, Head of Behavioural and Quantitative Finance at Barclays, have taken reality performances to another level by partnering with Barclays to produce a reality opera. The performance, which was held on the 15th November 2012 at Egyptian Hall, Mansion House, focused on the drama unfolding on an “open outcry” stock trading floor, the type of trading floor on which traditionally traders shout and use hand-signals.

To view the Multimedia News Release, please click:
http://www.multivu.com/mnr/58659-barclays-opera

Thanks to melodies carefully crafted with evolutionary computer algorithms, during the performance singers sang what they wanted, when they wanted, within certain rules, just like the freedom people have in reality TV programmes. However, like a traditional opera, music was used alongside singers to demonstrate the emotion of the story.

The concept was conceived by Alexis and the opera brought to life in collaboration with
Dr Greg B Davies, Head of Behavioural and Quantitative Finance at Barclays. Alexis created the music while Greg applied his behavioural finance expertise to create the market within which the singer-traders were responding, generating the ebb and flow of emotion and money on a trading floor. Furthermore, the performance was directed by Alessandro Talevi, former winner of the European Opera Directing Prize.

To enable the music to express the emotional activity on the trading floor, Kirke composed what he calls “trading phrases” such that when most singers were buying, the harmonies between them were pleasant, and when most are selling, the harmonies clashed. When two performers sang ‘buy’ and ‘sell’ melodies for the same asset, the two sounded in time and harmonious.

‘Open Outcry’ featured 12 singers and a cellist, Joseph Spooner. The audience sat at tables among the “traders” (in the trading pit), and the conductor rang a bell to signify the market opening. As the cellist played, large screens displayed stock information and the conductor guided some aspects of the permissible actions of the singers. The performers sang one musical phrase to buy each asset and another to sell. The prices were largely driven by random market movements generated by a computer model, though the conductor did have some power to influence stock prices, as did the effect of the “trading” between the singers themselves.

I believe that is the only press release I have ever covered on this blog.  In general you press release people, unless you have something as important as Markets in Everything High-Frequency Trading Opera Edition, I don’t give a damn about what you send me!  You all bore me!  Really.

Steve Teles on kludgeocracy

by  Tyler Cowen in

This is a very interesting essay, here is one bit:

While liberals are harmed by the opacity of kludgeocracy’s successes, conservatives are hurt by the lack of traceability of its failures. The fact that so much of our welfare state is jointly administered — either inter-governmentally or through contracting with private agents — makes it hard for Americans to attribute responsibility when things go wrong, thus leading blame to be spread over government in general, rather than affixed precisely, where such blame could do some good. The consequence of complexity, then, is diffuse cynicism, which is the opposite of the habit needed for good democratic citizenship.

And this:

The last thirty years of American history have witnessed, at least rhetorically, a battle over the size of government.1 Yet that is not what the history books will say the next thirty years of American politics were about. With the frontiers of the state roughly fixed, the issues that will dominate American politics going forward will concern the complexity of government, rather than its sheer size.

There are many interesting points in this piece (pdf), with some comments from Reihan.

Albert O. Hirschman: Life and Work

by  Alex Tabarrok in

Albert O. Hirschman has passed away. Hirschman was a deep thinker whose work has been influential in many fields. Most famously with the must-read Exit, Voice and Loyalty. I am also a fan of The Passions and the Interests his study of ideological transformations in the 17th and 18th century which promoted the pursuit of material interests as a way to tame the passions and thus opened the way to capitalism (profitably read alongside McCloskey’s Bourgeois Virtues). Hirschman’s early work in development, on backwards and forwards linkages, is now being rediscovered and formalized. Tyler looks at Hirschman’s work as it relates to development in a video at MRUniversity. Tyler also wrote in 2006:

Albert Hirschman deserves a Nobel Prize in economics.  His early work on the unbalanced nature of economic development was pathbreaking.  The Rhetoric of Reaction is a brilliant study in intellectual self-deception.  As a historian of thought he integrates wonderfully, such as in his study of how commerce shapes mores.

But he would win the Prize for focusing the attention of economists and political scientists on the phenomenon of voice: the ability of consumer or voter complaints to induce improvements in supply.  Hirschman was the first modern social scientist to think about this mechanism systematically.

Hirschman first suggested voice gets stronger and more effective when exit is limited.  In his (earlier) vision, if you can leave you won’t complain.  Fidel Castro understood this and let many Cubans go, although of course they complained from Florida.  It is sometimes suggested that in a world of school vouchers fewer parents would show up at the school board meeting.  Don’t yap, just yank your kid.

In reality voice often works best when competitive pressures are strong.  HBO is more responsive than was East Germany.  You are not wasting your time to complain at Wegman’s, or for that matter at this blog.  Competition and voice are more likely complements than substitutes.  Hirschman admitted and indeed emphasized this point in his later writings.

Here is Paul Krugman on Hirschman….Here is Alex on the topic of voice.

Hirschman also led a fascinating life. He became a professor only late in life after fighting in the Spanish Civil War, volunteering in the French Army and working in Marseilles to help refugees escape the Nazis. His work in development economics was based on field work when field work still meant working in fields.

As he once said of his work and perhaps also of his life:

Attempts to confine me to a specific area make me unhappy.

Daniel Drezner at the FP annually gives out an award he affectionately calls the Albie. It’s an award for

…any book, journal article, magazine piece, op-ed, or blog post published in the [last] calendar year that made you rethink how the world works in such a way that you will never be able “unthink” the argument.

It’s a fitting award to be named for Albert Hirschman whose simple but powerful ideas do indeed cause you to rethink the world and never to see it the same again.

Mumbai vulture sentences

by  Tyler Cowen in

The cost of building the aviaries and maintaining the vultures is estimated at $5 million spread over 15 years, much less expensive than it would have been without the ready supply of food.

“Most vulture aviaries have to spend huge sums to buy meat, but for us that’s free because the vultures will be feeding on human bodies — on us,” Mr. Mehta said.

Here is more, interesting throughout, and for the pointer I thank Apoorv Trivedi.

Addendum: Here is further commentary on this story.