*Prometheus* (some economic notes)

by  Tyler Cowen in

The years to 2090 show remarkable technological progress in transportation and health care delivery and artificial intelligence.  Labor-saving innovation eliminates even the job of Peter O’Toole.  Before departing on an interstellar mission, have each crew member read Richard Epstein’s Simple Rules for a Complex World.  Do not bring anyone who was brought up in a barn.  Not all animals are cute.  It is possible to signal that you have a really important message to be heeded.  When making a project shutdown decision, it is long-run marginal variable cost which matters.  Rates of capital depreciation are sometimes lower than you think.

The Stiglitz hypothesis

by  Tyler Cowen in

Today, persistent low interest rates encourage firms that do invest to use capital-intensive technologies, such as replacing low-skilled checkout clerks with machines. In this way, the Fed may still be contributing to a jobless recovery, when we finally do recover.

If you read these two sentences with sufficient brute literality, they may well be true.  And more generally I would admit, and indeed stress, that we are in an age of labor-saving innovation.  Still:

1. Fed policy is a minor factor behind that trend, and would be recognized as such by all empirical researchers in the area,

2. Never reason from an interest rate change (erect statue to Scott Sumner), and

3. A tighter monetary policy would be far worse for the labor market.  Furthermore weaker incentives for investment also would be worse for the labor market, although Stiglitz’s passage can be read as implying the opposite.

If you think Sumner-Avent-Yglesias-Soltas thought has taken over the world, Stiglitz shows a blindness to monetary options:

If we want recovery, there is no choice but to rely on fiscal policy.

Not “fiscal policy is better,” but rather “there is no choice.”  There is also no explanation.

The link is here.

China and Russia billionaire facts of the day

by  Tyler Cowen in

…two men who in the last decade held the title of richest man in China are now in jail on corruption charges of one kind or another.  That is not to say that the charges were baseless, only that in China’s freewheeling business culture, the authorities seem to pay particularly close attention when the deal-making generates fortunes approaching $10 billion. Deng Xiaoping declared that “it’s glorious to be rich,” but the message now is, not too rich. The government appears intent on generating competitive churn at the top, in part to contain social resentments.

Now look at Russia, where one hundred billionaires control fortunes worth an astonishing 20 percent of national GDP. Russia has nearly as many billionaires as China but they control twice as much total wealth in an economy one-fourth the size. Just as striking, Russia is missing not only a middle class but also a millionaire class; according to Boston Consulting Group, China ranks third in the world for number of millionaires, while Russia is not even in the top 15 for millionaires.

The growing business influence of the state is reflected in the fact that 69 of those billionaires live in Moscow, the largest concentration for any city in the world. Protected by their patrons, the richest face little competition. Eight of the top 10 are holdovers from 2006. More than 80 percent of the wealth of Russian billionaires comes from non-productive industries like real estate, construction and especially commodities, namely oil and gas, in which political ties can sustain fortunes indefinitely. In no other developing nation is this share greater than 35 percent. Even in Brazil, a commodity economy at the same income level as Russia, the non-productive share of billionaires’ wealth is just 12 percent.

The entire post, by Ruchir Sharma, is fascinating, and with some superb visuals, do read it.

Privatization in Sandy Springs, Georgia

by  Tyler Cowen in

Cities have dabbled for years with privatization, but few have taken the idea as far as Sandy Springs. Since the day it incorporated, Dec. 1, 2005, it has handed off to private enterprise just about every service that can be evaluated through metrics and inked into a contract.

To grasp how unusual this is, consider what Sandy Springs does not have. It does not have a fleet of vehicles for road repair, or a yard where the fleet is parked. It does not have long-term debt. It has no pension obligations. It does not have a city hall, for that matter, if your idea of a city hall is a building owned by the city. Sandy Springs rents.

The town does have a conventional police force and fire department, in part because the insurance premiums for a private company providing those services were deemed prohibitively high. But its 911 dispatch center is operated by a private company, iXP, with headquarters in Cranbury, N.J.

And:

Applying for a business license? Speak to a woman with Severn Trent, a multinational company based in Coventry, England. Want to build a new deck on your house? Chat with an employee of Collaborative Consulting, based in Burlington, Mass. Need a word with people who oversee trash collection? That would be the URS Corporation, based in San Francisco.

Even the city’s court, which is in session on this May afternoon, next to the revenue division, is handled by a private company, the Jacobs Engineering Group of Pasadena, Calif. The company’s staff is in charge of all administrative work, though the judge, Lawrence Young, is essentially a legal temp, paid a flat rate of $100 an hour.

The full story is here.  The article has many interesting points, such as this:

Town leaders say race had nothing to do with it. Mayor Galambos said, “A 94 percent vote in favor of incorporation speaks to the broad community support for self-government and a desire to have local dollars remain local.”

And this:

To dissuade companies from raising prices or reducing the quality of service, the town awarded contracts to a couple of losing bidders for every winner it hired. The contracts do not come with any pay or any work — unless the winning bidder that prevailed fails to deliver. It’s a bit like the Miss America pageant anointing the runner-up as the one who will fulfill the winner’s duties if, for some reason, Miss America cannot.

In a stand-alone sense, the town seems to be working quite well.

Moneyball 2.0

by  Tyler Cowen in

Or should that be 3.0?:

The technology was originally developed to track missiles. Now, SportVU systems hang from the catwalks of 10 NBA arenas, tiny webcams that silently track each player as they shoot, pass, and run across the court, recording each and every move 25 times a second. SportVU can tell you not just Kevin Durant’s shooting average, but his shooting average after dribbling one vs. two times, or his shooting average with a defender three feet away vs. five feet away. SportVU can actually consider both factors at once, plus take into account who passed him the ball, how many minutes he’d been on the court, and how many miles he’d run that game already.

It’s big data in a relatively small pool, and it has the potential to impact everything about basketball, from how it’s coached, to how it’s recruited–even to how we calculate a player’s worth. Sportvision, another sports data collection system based on the same underlying big data idea, has already massively impacted baseball since it came into play in 2006. Now SportVU is generating more basketball data than anyone ever has. And its potential has only begun to be tapped–health care researcher Kirk Goldsberry, who recently wowed the stats geeks at MIT Sloan Sports Analytics Conference with his spatial analysis to determine the best shooters, has begun mining SportVU’s data for new insights. But only 10 teams in the NBA are currently using SportVU. Four of them made the playoffs. One even made it to the finals: The Oklahoma City Thunder.

Here is more, and for the pointer I thank Jim Olds.

Posner throws out Apple-Motorola Case

by  Alex Tabarrok in

As suggested by earlier rulings, Posner has thrown out the entire Apple-Motorola case. As I argued in Launching the Innovation Renaissance our patent system has became a weapon wielded by large corporations against competitor innovations. Posner’s ruling is complex but one point is clear he thinks that the courts should not act as a second in these corporate battles:

…The danger that Apple’s goal in obtaining an injunction is harassment of its bitter rival, requiring particularly watchful supervision by the court should it issue the injunction, is suggested by the fact that while a delayed injunction would in principle render no benefit to Apple besides harming its competitor by forcing it to waste time and money finding a new way of performing the functions now performed in an allegedly infringing manner, an ongoing royalty would yield significant income to Apple—yet which it wants to forgo in favor of imposing costs and litigation burdens on its adversary.

The notion that these minor-seeming infringements have cost Apple market share and consumer goodwill is implausible, has virtually no support in the record, and so fails to indicate that the benefits to Apple from an injunction would exceed the costs to Motorola. An injunction that imposes greater costs on the defendant than it confers benefits on the plaintiff reduces net social welfare. That is the insight behind the “balance of hard-ships” component of the eBay standard for injunctive relief in patent cases.

Hat tip: @postlibertarian.

Markets in everything

by  Tyler Cowen in

If you, like me, sometimes wander around Sephora and find that all the perfumes seem to smell the same, I bring you the odor of change.

It’s called Money. It’s the nosechild of Microsoft VP of Sales Patrick McCarthy. And it gives off a fragrance of brand new bills.

His Money Cologne and Her Money Eau de Parfum are, quite clearly, what the material world has needed for a long time.

Here is more, and for the pointer I thank Chris F. Masse.

Yana reviews the new John Goodman book

by  Tyler Cowen in

You can buy Priceless: Curing the Health Care Crisis here, her comments are under the fold…

Goodman’s *Priceless: Curing the Healthcare Crisis* is an excellent treatise on the healthcare industry and how our political solutions are making that world increasingly perverse, ineffective, and stagnant. Tyler has written before about how healthcare is one of the few remaining industries with low-hanging fruit for innovation. In my work I am consistently struck by how many great healthcare delivery ideas are illegal and Goodman showcases many examples of healthcare entrepreneurship which aren’t allowed to take off because of the regulatory environment and the entrenchment of major players.

Goodman at once lays a strong foundation for healthcare as a system “too complex for any single individual (or group of individuals) to grasp or understand” and makes a strong case for how much hubris policy has had in trying to address the problems of the industry. Herein lies the most powerful lesson of the book: while it is impossible that any entrepreneur will devise an overarching solution for our healthcare problems we have forgotten how to let process innovators test solutions and chip away at problems the way they do to roaring success in other industries.

Goodman pinpoints various turns the US has taken to bring existing private coverage and provision of services under the government umbrella. Woven together, these examples provide a vivid picture of systematically government payers have crowded out private sector solutions. This has led to stagnation while propagating the myth that the government is the only capable provider of services for everything from prescription drug coverage (with the passage of Medicare Part D) to comparative-effectiveness research ($1.1 billion allocated under the stimulus bill alone). This has led to a price system so broken that it does not exist. Goodman’s discussion of time prices exposes that we cannot simply push prices down without shifting the costs to other means of rationing. Similarly, his comparison of Medicaid to food stamps showcases how ridiculous Medicaid’s prohibitions on supplementing care with cash are, even within the internal logic of a robust welfare state.

Goodman is not shy about exposing the politics of healthcare and how it stands in the way of treating those who need care the most, including the poor and elderly, but this book is no exercise in partisanship. Rather, he homes in on one of the biggest insurmountable obstacles that the political debate brings to bear:

“Normally I do not comment on the motives of people I disagree with…Yet through the years I have discovered that the most important differences people have over health policy have little to do with facts, reasoning or logical argument. The most important differences stem from differences in fundamental world views. There are a very large number of people in this field who find the price system distasteful – at least for medical care…For well-intentioned reasons perhaps, they are emotionally predisposed to favor the suppression of normal market processes.”

Goodman has a strong grasp of realities such as the fact that many acute care services will always be sticky to being provided locally but that ambulatory and elective procedures make up the majority of the market and have the potential for reinventing how healthcare is delivered. Many will disagree with the ideas presented but the book will push the thinking of anyone involved in healthcare. This is especially true since Goodman has a thoroughgoing understanding of healthcare as an industry, a quality which most of the loudest voices in policy sorely lack.

European Vacation

by  Alex Tabarrok in

From the NYTimes:

For most Europeans, almost nothing is more prized than their four to six weeks of guaranteed annual vacation leave. But it was not clear just how sacrosanct that time off was until Thursday, when Europe’s highest court ruled that workers who happened to get sick on vacation were legally entitled to take another vacation.

I predict more people will be getting sick during their vacations.

The case originated in Spain but applies to all the European Union.

Hat tip to the author, Paul Geitner, who ends with this line, “The ruling does not apply to the 25 percent of the Spanish labor force that is currently unemployed.”