The doc fix
Jon Chait has a column on the doc fix and he complains about some of the other policy analysts. I understand that the doc fix is not a net cost of ACA, since we have been doing it anyway, and I understand that the Republicans are being hypocrites on the issue. But I have a broader question. Should we be doing the doc fix at current levels? If I were a supporter of single payer, I would wish to cut the doc fix. That is, after all, how single payer systems save so much money, compared to the U.S. system. They use monopsony to lower reimbursement rates and the quality of outcomes does not always suffer much, if at all.
So are the single payer advocates in fact advocating an end or limit to the doc fix? That is a literal and naive question — I am not pretending I have caught anyone in a contradiction. Is Krugman here endorsing the doc fix? I am not sure, but he does call it "necessary."
One might argue "cutting reimbursement rates works only when you can do it to all rates." Otherwise doctors flock to the privately insured patients and ration the rest. Maybe so, but Medicare covers a lot of health care in this country and it's hard to see most doctors giving up on covering old people. Medicare ought to give the government some monopsony levers and even if supply is a constraint, pushing some elderly further back in the queue does not have to be a bad thing, all constraints considered. Furthermore we are often told that cutting reimbursement rates will work when it comes to pharmaceuticals, so why not doctors?
Why don't I hear more about this issue? I would consider joining a liberaltarian alliance to lower the doc fix. Is there one to be had?
Addendum: Here is Levin's response to Chait.
Why is labor hoarding diminishing?
Paul Krugman offers three good explanations of why today's recessions are involving larger labor losses than in the past. Bubble-based recessions are tougher to get out of, unions are weaker, and many leading firms face more volatility. All taken together, these mean the incentive for labor hoarding is weaker than before (yet Krugman cannot bring himself to mention that labor hoarding models are based on…a zero MP condition. And that a lot of the real work in the account of the cycle is suddenly being done by structural explanations.)
We can all agree with:
1. Some workers are temporarily zero MP because demand is low.
Are there additional factors behind ZMP-like conditions? Those might be:
2. Some workers weren't producing much to begin with and short of retraining they aren't worth so much.
3. Some workers were better than idle, but a one-time, post-firing reorganization of production (e.g., computerizing their task) has since rendered their efforts largely unnecessary. In other words, they are zero MP ex post but not ex ante.
4. Laid-off workers did not start off as zero MP but they will end up as zero MP as their skills and attitudes deteriorate.
5. The Garett Jones hypothesis: many laid-off workers were building up organizational capabilities, and so their perceived MP falls as the discount rates of managers rise.
6. Workers are like advertising: new developments in information technology allow us to better isolate the ones who are not adding value.
The bottom line is that we do not know how long these labor market predicaments will last.
For general background, here is a useful survey of hypotheses for the cyclicality of productivity pre-1990. Here is a good piece on how labor hoarding and productivity measures are related. From Arnold Kling, here are related comments from the structural side.
China Fear of the Day
This NYTimes piece on China and solar power is a must read as it touches upon environmentalism, protectionism, nationalism, the stimulus, the financial crisis and more! Here are a few grafs and comments.
Aided by at least $43 million in assistance from the government of Massachusetts and an innovative solar energy technology, Evergreen Solar emerged in the last three years as the third-largest maker of solar panels in the United States.
But now the company is closing its main American factory, laying off the 800 workers by the end of March and shifting production to a joint venture with a Chinese company in central China. Evergreen cited the much higher government support available in China…[and] plunging prices for solar panels. World prices have fallen as much as two-thirds in the last three years…
Good news, right? Plunging prices for solar is just what we want and shouldn't we applaud subsidies for green energy? Not so fast according to the article:
…solar power experts see broader implications. They say that after many years of relying on unstable governments in the Middle East for oil, the United States now looks likely to rely on China to tap energy from the sun…
China monopolizes the sun!
Ian A. Bowles, the former energy and environment chief for Gov. Deval L. Patrick…said the federal government had not helped the American industry enough or done enough to challenge Chinese government subsidies… “The federal government has brought a knife to a gun fight,” Mr. Bowles said.
I guess Bowles didn't get the memo about the new civility, or perhaps that only applies domestically. The reporters also seem to signal their views.
Evergreen’s joint-venture factory in Wuhan occupies a long, warehouselike concrete building in an industrial park located in an inauspicious neighborhood. A local employee said the municipal police had used the site for mass executions into the 1980s.
Woah, a little gratuitous no?
See here for more of interest including a discussion of how the financial crisis and the Lehman bankruptcy are involved.
Hat tip: Daniel Akst.
Assorted links
1. Are more Portuguese experimenting with drugs?
2. Kevin Drum is not an economist but his explanation has many fine features.
3. Titles.
4. Dog bites man.
5. How to speed restaurant service?
6. Good Scott Sumner post on unemployment and output.
7. Obama' regulatory announcement: a good analysis.
What happened to all the hard-core left bloggers?
Some of you want more comment on this Freddie deBoer piece on why the harder left is underrepresented in the blogosphere. Here is RortyBomb, here is Matt, both good responses. Here is a one-sentence excerpt from the original:
The truth is that almost anything resembling an actual left wing has been systematically written out of the conversation within the political blogosphere, both intentionally and not, while those writing within it congratulate themselves for having answered all left-wing criticism.
My thoughts turn to the market-oriented and right-wing sides of the blogosphere. I see a few approaches out there:
1. Hold strongly to a pure free market line, but not much consider the toughest issues, starting with Social Security, Medicare, and Medicaid, and finishing with the inability of government to precommit to a lot of policies which might work as rules but never can be rules. There are plenty of easy issues to focus on, starting with farm policy and free trade and on those the market-oriented point of view is a slam dunk.
2. Hold forth on the really tough issues, take what is considered an extreme point of view, and not convince anyone who doesn't already agree with you. These bloggers also frequently find that their arguments are sufficiently a priori that a) they don't have much to say about new developments in the world, and b) their arguments end up being repeated and do not evolve much. Even if you think those are good intellectual qualities when truth is on your side, you probably can see that they will not attract the largest or broadest of audiences. A popular blog needs more of a plot.
3. Give ground on the tough issues, honestly and sincerely.
4. Focus on lowering the relative status of people on the other side of the debate. This serves some functions similar to #1 and of course there is a large supply of targets.
If a lot of left-wing bloggers are following #3, that is very good (I don't pretend to judge what is a very large canvas) and we can root for that practice to spread, including of course to non-left-wing bloggers.
Freddie deBoer seems to be very smart. I had never heard of him before, which I suppose means he is not extremely famous as a blogger. So let's see how he evolves when it comes to his critique that "labor rights are undercut everywhere for the creation of economic growth" in an ongoing debate with some people who know more about it than he does. He shows much better rhetorical skill than he does an understanding of labor economics.
Who exactly are the exiled left-wing (or right-wing) bloggers who deserve more attention? From deBoer, there is a mention of Daily Kos and I checked in there again (I hadn't for years) and I wasn't exactly awestruck at the content. Nor was it obvious to me that it was extremely left-wing.
I will readily grant that points of view can be stronger than they appear in a blogosphere debate and it is worth thinking through the biases here. Arguably the more serious corners of the blogosphere overencourage moderate, "defensible" positions, with few weak spots for obvious bone-crushing attacks, "gotchas," and charges of apparent moral turpitude from onlooking scolders. Still, that incentive is mostly a healthy one. Whether the blogosphere as a whole encourages moderation, I am not sure. But the better corners of it certainly do and that should be counted as one of its virtues.
China fact and sentence of the day
China has lent more money to other developing countries over the past two years than the World Bank, a stark indication of the scale of Beijing’s economic reach and its drive to secure natural resources.
Here is more. China, of course, is also one of the top borrowers from the World Bank. And here is a good sentence about China, from Frank Fukuyama:
Indeed, the Chinese government often overreacts to what it believes to be public opinion precisely because, as one diplomat resident in Beijing remarked, there are no institutionalised ways of gauging it, such as elections or free media.
What I’ve been reading
1. John B. Thompson, Merchants of Culture: The Publishing Business in the Twenty-First Century. By an order of magnitude, this is the best book on the economics of contemporary publishing. It covers the UK scene as well.
2. Adam Feinstein, A History of Autism: Conversations with the Pioneers. A lengthy and informative treatment of how thought on autism evolved, and most of all a tale of how badly science can misfire, even "these days." I am not sure how much the portraits of researchers are intended as positive, but overall I take away from this book the message that many of them are arrogant and also partially incompetent. It is possible that this is a better book (and for different reasons) than the author himself realizes.
3. Wallace Stegner, The Gathering of Zion: The Story of the Mormon Trail. An excellent book, based on a blockbuster combination of writer and topic.
4. Jean-Christopher Valtat, Aurorarama. Think French steam punk, Inuit characters, a strange dark ship hovering over an ice-locked retro-futuristic town, and a plot which might have come from an incoherent Japanese anime movie. So far I like it and it's also my favorite book cover in some time:
There were other books which I put down quickly or not quickly enough. I'm also reading more Thomas Bernhard, never a mistake.
Duvalier returns to Haiti
Duvalier's years of living in a chateau outside Paris and a luxury Riviera villa ended in costly divorce and tax disputes, leaving him near broke.In recent years journalists tracked him down to a small, sparsely furnished two-bedroom apartment in a far from chic arrondissement. The modest rent of a few hundred euros a month was paid by supporters, including Haitian taxi-drivers and waiters living in France who propped up Duvalier morally, physically and financially.
At one point the former president was so desperate he took university classes to improve his "leadership skills" and placed an advertisement seeking work in a local paper in the south of France. [TC: which of those two acts is more desperate? You could think about that question for a while.]
He has not been arrested in Haiti. Haiti is demographically a young country, and many Haitians do not remember, or never lived through, the tyrannies of his regime, which ended in 1986. For those who do remember, the standard of living then probably was higher. Furthermore, it is not obvious that anyone is currently in charge of Haiti, so who is to make the decision to arrest?
Is Duvalier shrewd enough to understand that, or is this simply desperation and the desire for an approving audience? Years ago, when you went to a Michelle Martelly (Sweet Mickey) concert, the audience was full of Duvalierists, and now he is in the run-off to lead the country. Richard Morse is covering Duvalier's visit on Twitter.
Request for movie opinions
From DL, a loyal MR reader and correspondent and link sender: "Mine [request] would be: what movies have you seen recently and were they good or not? I have recently seen Black Swan, The King's Speech, The Fighter, Rabbit Hole, Casino Jack and Somewhere."
I wrote: "Aronofsky's *Black Swan* = *Red Shoes* + *Repulsion* + Cronenberg + Tchaikovsky + something else too." Overwrought, but I liked it. The King's Speech was an extremely well done hammy manipulation, tugging on all the right strings and targeting the American soft spot for Brits. True Grit suggests the Coen brothers are more superficial than they seem, rather than the contrary; rewatch the original for a better time. The rest remain below my watch threshold for now, though Somewhere is due to come to Fairfax. Even good movies about boxing I don't seem able to enjoy. Political biopics I never like.
U.S. fact of the day
American schools are more segregated by race and class today than they were on the day Martin Luther King, Jr. was killed, 43 years ago. The average white child in America attends a school that is 77 percent white, and where just 32 percent of the student body lives in poverty. The average black child attends a school that is 59 percent poor but only 29 percent white. The typical Latino kid is similarly segregated; his school is 57 percent poor and 27 percent white.
Overall, a third of all black and Latino children sit every day in classrooms that are 90 to 100 percent black and Latino.
That's via Ezra Klein, Dana Goldstein post here, source here. In the meantime, and quite on point, here is one of Chris Christie's biggest mistakes.
Addendum: Here is from Matt Yglesias, another contender for U.S. fact of the day:
If the country as a whole had the same average population density as New Hampshire (!) it would contain about 522 million people…
Assorted links
1. Is this evidence against Heckman? This?
2. More on the Hispanic paradox and life expectancy.
3. How to order Indian food in Hindi (video).
4. Paul Collier reviews Dambisa Moyo's statist prescriptions for America.
5. How much value do scientific superstars carry?
6. How much of libertarianism is cheap talk?
7. MLK day.
Where in the federal government do the economists work?
There has been so much talk lately about ethics and economists and now there is a whole new book out it, the new and useful The Economist's Oath: On the Need for and Content of Professional Economic Ethics, by George F. DeMartino. I was intrigued and surprised by the p.24 chart about where economists (as defined by title, not Ph.d.) work in the federal government, not counting the Federal Reserve System.
1. Department of Labor, 1262 economists, 30.5 percent of the total, 1208 of those are at the Bureau of Labor Statistics.
2. Agriculture, 533 economists
3. Treasury, 473
4. Commerce, 462
5. Defense, 225
6. Energy, 168
7. EPA, 163 (is that enough?)
8. HHS, 137
9. Transportation, 88
10. Interior, 86
11. FTC, 74
12. HUD, 62
13. Justice, 61
14. FDIC, 61 (do bank examiners produce the real value there?)
15. All others, 275. The total is 4130 economists in the Federal government, as of 2008, and I believe those numbers are not counting consultants.
Should we make them swear an oath not to act against the truths of their discipline for political gain?
ZMP v. Sticky Wages
I find myself in the unusual position of being closer to Paul Krugman (and Scott Sumner, less surprising) than Tyler on the question of Zero Marginal Product workers.
The ZMP hypothesis is too close to a rejection of comparative advantage for my tastes. The term ZMP also suggests that the problem is the productivity of the unemployed when the actual problem is with the economy more generally (a version of the fundamental attribution error).
To see the latter point note that even within the categories of workers with the highest unemployment rates (say males without a high school degree) usually a large majority of these workers are employed. Within the same category are the unemployed so different from the employed? I don't think so. One reason employed workers are still fearful is that they see the unemployed and think, "there but for the grace of God, go I." The employed are right to be fearful, being unemployed today has less to do with personal characteristics than a bad economy and bad luck (including the luck of being in a declining sector, I do not reject structural unemployment).
To see the importance of sticky wages consider the following thought experiment: Imagine randomly switching an unemployed worker for a measurably similar employed worker but at say a 15% lower wage. Holding morale and other such factors constant, do you think that employers would refuse such a switch? Tyler says yes. I say no. If wages were less sticky the unemployed would be find employment
By the way, the problem of sticky wages is often misunderstood. The big problem is not that the wages of unemployed workers are sticky, the big problem is that the wages of employed workers are sticky. This is why stories of the unemployed being reemployed at far lower wages are entirely compatible with the macroeconomics of sticky wages.
Although I don't like the term ZMP workers, I do think Tyler is pointing to a very important issue: firms used to engage in labor hoarding during a recession and now firms are labor disgorging. As a result, labor productivity has changed from being mildly pro-cyclical to counter-cyclical. Why? I can think of four reasons. 1) The recession is structural, as Tyler has argued. If firms don't expect to ever hire workers back then they will fire them now. 2) Firms expect the recession to be long – this is consistent with a Scott Sumner AD view among others. 3) In a balance-sheet recession firms are desperate to reduce debt and they can't borrow to labor hoard. 4) Labor markets have become more competitive. Firms used to be monopsonists and so they would hold on to workers longer since W<MRP. Now that cushion is gone and firms fire more readily. What other predictions would this model make?
It would be interesting to know why Paul Krugman thinks productivity has become counter-cyclical but I believe he has yet to address this important topic.
Addendum: Paul Krugman gives his answer and The Economist offers a review with many links.
How to become sophisticated?
J., a nascent MR reader, requests:
Which journals, magazines and blogs should a 15yo read in order to be considered a widely sophisticated and educated person 20 years later (not necessarily to show off or to impress others but for one's own good feeling)?
I do not have a concrete answer. When I was 12-13, I was very interested in chess and not so interested in culturally sophisticated outputs, unless you count the Beatles and jazz guitar and baseball. I am glad that I spent most of my time then reading in those areas because I cared about them deeply at the time. Those investments will then help us learn other areas, so it is learning about how to learn. At age 21 it was all about German Romanticism for me, and at 22 analytic philosophy. Find grooves, and push on them until your ardor abates. Until the very end, there is always time to learn more areas, and always a very large number of areas one does not know at all.
It has become a cliche, but Samuel Johnson was close to the truth when he wrote:
"A man should read as his fancy takes him, for what he reads as a chore will do him little good."
I don't recommend that attitude for mastering technical subjects, but for general sophistication it is right on. The most sophisticated person is someone who really loves an area and has pursued it, and that's also the best magnet for attracting interested and interesting others. On related topics, here is Modeled Behavior and here is Robin Hanson.
The silent bank run continues
Ireland’s central bank increased its provision of emergency liquidity support to its domestic banking system in December, as the country’s financial crisis intensified and bank deposit withdrawals rose.
Irish banks have become increasingly dependent on central bank support to fund their balance sheets, as they lose business and retail deposits and are unable to refinance maturing bank borrowings.
The article is here. This is one reason why the status quo cannot last forever, unless you think Ireland has the political will to transition to not having its own banking system. If you're a business or even Irish upper middle class, why put most of your money in an Irish bank?