The Show So Far
MR has many new readers, especially since the financial crisis, so I thought I would offer this brief guide to what we are all about. Plus one of the readers, under "requests," asked for a foundation statement for this blog. Here, in six easy steps, is "The Show So Far":
2. A "public choice" and indeed Straussian reading of Star Wars.
3. Alex ponders immortality and it changes his life.
5. The economics of relativity.
6. Alex explains the difference between Tyler and Alex.
For this New Year I remain thankful to have what I consider the very best readers in the world.
The Smart Grid and the Fiscal Stimulus
Earlier I pointed out that a) regulatory problems have prevented investment in the smart grid and b) subsidies to wind power in some states have driven prices to negative levels (yes, people are being paid to consume power). These two problems are closely related.
The states control whether transmission lines get built but states with a lot of wind energy don’t have an incentive to build transmission lines to move the power out. In effect, states with a lot of wind energy are preventing exports which lowers their own internal price of electricity but raises everyone else’s price and reduces the use of wind power.
A new article in Technology Review makes the point.
One effect of these regulatory moves was that companies had less incentive to invest in the grid than in new power plants, and no one had a clear responsibility for expanding the transmission infrastructure. At the same time, the more open market meant that producers began trying to sell power to regions farther away, placing new burdens on existing connections between networks. The result has been a national transmission shortage….
[Many states have a lot of wind potential]…But the existing transmission system doesn’t have the capacity to get that much electricity to the parts of the country that need it. In many of the states in the [wind] region, there’s no particular urgency to move things along, since each has all the power it needs. So most of the applications for grid connections are simply waiting in line, some stymied by the lack of infrastructure and others by bureaucratic and regulatory delays.
Hat tip to Andrew Samwick who writes:
The federal government is the entity that can resolve that failure, by taking the lead and making those expansions itself. It can recoup its costs by levying a fee on subsequent power consumed through the grid. I hope the fact that we need this investment isn’t a reason for it to be excluded from plans for fiscal stimulus.
Cass Sunstein to head OIRA
Mr. Obama also was poised to name Cass R. Sunstein,
an American legal scholar, to an existing White House post as the
administrator of the Office of Information and Regulatory Affairs. A
transition official said late Wednesday that Mr. Sunstein would oversee
government regulations and devise new approaches for government
efficiencies.
Here is the article. Here is Wikipedia on Sunstein; he is the co-author of Nudge and a very well-known law and economics scholar. He is now married to Samantha Power and he once had a pet Rhodesian Ridgeback. I have had many interactions with Cass Sunstein and he has been unfailing intelligent and gracious.
If you wish (and you are warned), here is a left-wing critique of Cass Sunstein.
Department of !
“We expect that discussion around entitlements will be a part, a
central part” of efforts to curb federal spending, Mr. Obama said at a
news conference. By February, he said, “we will have more to say about
how we’re going to approach entitlement spending.”
I am no expert at reading the political tea leaves, but given the political costs involved, it is unlikely he said this as a mere feint.
Fly by the minute
Taking a cue from the cellphone industry, an upstart South African
airline is selling flights by the minute and allowing customers to buy
tickets and book flights via text message.Airtime Airlines takes to
the sky later this month, offering three flights a day from its base in
Durban to Johannesburg, Cape Town and Port Elizabeth. Passengers
purchase minutes much like they would for a prepaid cell phone and
redeem them for a ticket. Fees are assessed according to the length of
the flight – say, 75 minutes for the run from Durban to Johannesburg –
and could save as much as half of what competing airlines charge.
Here is the article. It’s not yet clear whether they have managed to lease planes, but here is another part of the business plan:
The cost for Airtime minutes can fluctuate, presumably according to
promotions and market factors, so topping off
becomes an exercise comparable to fuel hedging. Buy a big block of
minutes when you think they’re at their cheapest and you look smart,
unless the price drops again the next day. Then again, it might go up.
The price recently rose from 3 Rand to 5 Rand, meaning the cost of a
round-trip flight from Durban to Cape Town climbed from about 750 Rand
($81) to 1,250 Rand (about $134). Still that’s cheaper than the $200 it
would cost on South African Airlines.
But can you sell minutes short? I thank Christopher Balding for the pointer.
Business cycle fact of the day
The TED spread is at 1.34, sharply lower. (improved)
Here is more on the progress of other economic indicators. None of it is sign of recovery, rather it represents progress toward having a "normal bad recession" rather than a major financial crisis.
The new iTunes pricing
Instead, the majority of songs will drop to 69 cents beginning in
April, while the biggest hits and newest songs will go for $1.29.
Others that are moderately popular will remain at 99 cents.
DRM will change too, here is much more information. This is first a way to raise prices, yet without the consumer seeing nothing in return. But it’s also a sign of the maturing of the market. The most popular songs will be less of a loss leader for the hardware. Relaxation of DRM suggests that Apple fears long-run competition from less regulated sources, including CD burning from friends. Most of all this is a sign that the music business continues to experience economic troubles. You could call it the "do anything to increase revenue now" strategy. For 30 cents a song you can make your entire current collection DRM-free.
By the way, on DRM and related issues, I recommend the new James Boyle book Public Domain. The book is free and on-line here. You can buy it from Amazon here.
Cancer and Statistical Illusion
The cover of this month’s Wired promises "The Truth About Cancer" but the article inside is a tissue of misleading statistics and faulty logic. The article begins with fancy graphics telling us "If we find cancer early, 90 percent survive" but "If we find cancer late, 10 percent survive." And this:
Find the disease early "and the odds of survival approach 90 percent…This reality would seem to make a plain case for shifting resources toward patients with a 90 percent, rather than a 10 or 20 percent, chance of survival."
Thus, the opening block of text commands, "Scientists should stop trying to cure cancer and start focusing on finding it early. It’s the smart way to cheat death."
The fallacy in all of this is painfully easy to spot. If we measure survival, which these studies do, with a 5 or 10 year survival rate then obviously people whose cancers are detected early will survival longer than people whose cancers are detected late.
The key question is whether people who are treated early survive longer than people whose cancers are detected early but who are not treated. In Thomas Goetz’s long article there is not a single piece of evidence which demonstrates that this is true. Indeed, quite the opposite. About 9 pages into the article, after the jump, we find this about CT scans for lung cancer:
As with the Action Project, these studies found that, yes, CT scans detected a huge number of early cancers–10 times as many as they would expect to find without scanning. In that regard, the scans did their job as a screening test. And as expected, the number of surgeries based on those diagnoses jumped. But when Bach looked at the resulting mortality rates, he found essentially no difference between those who received a CT scan and those who had not. Despite the additional surgeries, just as many people were dying as before.
Nowhere does the author mentions that this finding invalidates just about everything he has told us in the first eight pages.
Addendum 1 : Do note that I have nothing against early detection and I am not claiming that it never works. My problem is with misleading statistical analysis.
Addendum 2: Careful readers will note that this is an almost perfect example of the economicitis fallacy that I blogged about late last year.
Words I wrote yesterday about fiscal policy
The argument for fiscal stimulus is simply that it will stop things from getting worse by preventing further collapses in aggregate demand. That may be true but fiscal stimulus won’t drive recovery. Recovery requires that zombie banks behave like real banks, that risk premia are properly priced, and that the economy undergoes its sectoral shifts toward whatever will replace construction and finance and debt-driven consumption. Fiscal policy won’t do much toward these ends and in fact a temporarily successful stimulus might hinder these long-run adjustments.
Here is a very good piece from Hal Varian on fiscal stimulus.
The marginal value of health care in Ghana: is it zero?
Megan McArdle points us to this scary report:
2,194 households containing 2,592 Ghanaian children under 5 y old were
randomised into a prepayment scheme allowing free primary care
including drugs, or to a control group whose families paid user fees
for health care (normal practice); 165 children whose families had
previously paid to enrol in the prepayment scheme formed an
observational arm. The primary outcome was moderate anaemia
(haemoglobin [Hb] < 8 g/dl); major secondary outcomes were health
care utilisation, severe anaemia, and mortality. At baseline the
randomised groups were similar. Introducing free primary health care
altered the health care seeking behaviour of households; those
randomised to the intervention arm used formal health care more and
nonformal care less than the control group. Introducing free primary
health care did not lead to any measurable difference in any health
outcome. The primary outcome of moderate anaemia was detected in 37
(3.1%) children in the control and 36 children (3.2%) in the
intervention arm (adjusted odds ratio 1.05, 95% confidence interval
0.66-1.67). There were four deaths in the control and five in the
intervention group. Mean Hb concentration, severe anaemia, parasite
prevalence, and anthropometric measurements were similar in each group.
Families who previously self-enrolled in the prepayment scheme were
significantly less poor, had better health measures, and used services
more frequently than those in the randomised group.
Economists v. Historians on the New Deal and the Great Depression
Writing at The Beacon Jonathan Bean nicely reminds us of Robert Whaples survey of economists and historians on questions in economic history. Among the questions that Whaples asked members of the Economic History Association to express agreement or disagreement on was the following:
Taken as a whole, government policies of the New Deal served to lengthen and deepen the Great Depression.
About half of the economists agreed (or agreed with some provisos) that the New Deal lengthened and deepened the Great Depression. Thus this point of view among economic historians is basically mainstream. Among historians there was much less agreement with the statement, although a significant minority, 27%, agreed, mostly with some provisos.
Assorted links
1. H5N1 update, per reader request; there is more here.
2. Me on fiscal stimulus on NPR.
3. What is the 11th best job?
A Matter of Life or Death
Also known as Stairway to Heaven, directed by Michael Powell. It’s one of the best movies, period, and it is finally on DVD, appearing today. I’ve been waiting for years and I just ordered mine; I’ll also be teaching it in Law and Literature this spring. It’s a law trial, a primer on Anglo-American relations, a love story, and a meditation on hope and death. Here is a review.
Department of No
Many organizations that spent years building large endowments to
provide more stable sources of support have seen them decimated. A
number of our most loyal donors have watched their own investment
portfolios be depleted and cannot provide their traditional funding.
Our audience members cannot buy as many tickets as they have in the
past. And our board members are less able to involve friends and
associates in our fundraising galas and other activities.This perfect storm has already weakened the fabric of our nation’s arts ecology. Over the past several months, the Baltimore Opera Company,
Santa Clarita Symphony, Opera Pacific, the Los Angeles Museum of
Contemporary Art and others have closed or come close to closing. There
probably will be a torrent of additional closures, cancellations and
crises in the coming months.
Of course they want a bailout but this is for me not a priority. Given the new distribution of wealth, arguably we need more culture for lower-income people and less culture for the rich. I don’t think the old distribution of wealth is coming back anytime soon.
It’s something to watch when the egalitarian and elitist tendencies of modern liberalism clash so strongly. When it comes to high culture it’s like this: "I don’t think they should have so much money, but I sure like what they spend their money on." Yet if deflationary pressures are going to benefit lower class individuals with jobs, something has to give and that is, in part, the discretionary arts spending of the wealthy.
The longer plea for aid is here. I thank Christopher Janak for the pointer.
Where is the geographic center of Johnny Cash’s moral and musical universe?
I was listening to the new and excellent Vince Mira CD of Johnny Cash covers (some of them in an elegant Spanish), when Yana asked me to explain Johnny Cash to her. "Does he sing about the South?" was a tough question to answer. I place the center of his moral and musical universe somewhere between Little Rock, Arkansas and Oklahoma City. (How about Fort Smith?) That locale rules out neither trains nor cattle. That allows him to straddle the South, West, Midwest, and Texas, while retaining the option of a rail connection to the North. The town even has a prison. (For the underinformed, here is a list of Johnny Cash songs.) Is there a more appropriate center?
Addendum: I now discover that Vince is only fifteen years old!
Here is Vince performing "That’s All Right"; phenomenal. Here is the overall YouTube listing.