Smoking less doesn’t always help
Many smokers manage to smoke fewer cigarettes. The problem is that they often puff all that much harder. In the long run they may not end up much healthier, read this account. By the way, Sam Peltzman has studied this phenomenon more generally. We can do things to make people safer, but they respond by taking more risks. Thanks to Jon Klick for this latter link.
A wonderful Australian painting
Click here for an image of a painting by Fred Williams. Here is a more general site about the painter.
The case for lifetime savings accounts
Glenn Hubbard, former chair of the CEA, argues that we should not tax savings:
While the Lifetime Saving Account (LSA) offers substantial simplification benefits, it also offers a vehicle to save more easily for a downpayment on a home, children’s education, or for medical expenses. With no withdrawal penalties, the account’s greater liquidity will encourage individuals to save, particularly moderate-income households worried about tying up funds for a long period of time. Like the president’s proposal to eliminate investor-level taxes on dividends, the LSA lays claim to the idea that income should be taxed only once. Indeed, given the generous contribution limits, most households could avail themselves of a consumption tax akin to the Flat Tax. They would pay taxes once when they earned wages or business income, but not again on returns to saving. This is an important step toward fundamental tax reform, particularly if the administration continues its recognition of the costs of double taxation of corporate income.
How much would capital accumulation go up?
To assess the impact on capital formation, one should compare the present value of additional private capital formation to the present value of lost tax revenue. Jonathan Skinner of Dartmouth College and I estimated that with even 25 cents of each dollar contribution as new saving, IRA contributions generate $2.21 of new capital per dollar of net revenue cost. If, as suggested by Harvard economist Martin Feldstein, one includes corporate income tax revenue from the higher capital stock made possible by the saving incentives, the ratio rises to $4.84 of net capital per dollar of new revenue cost. If each dollar of contributions contains 40 cents of new saving and one incorporates higher corporate income tax receipts, the savings incentives are actually self-financing.
My take: I’m totally on board kind of sort of. Until we address runaway government spending, tax changes will only bust the budget in the shorter run. Even with elasticity optimism, we won’t ever arrive at the self-financing equilibrium. Furthermore I will never have that much faith in any particular numerical projection. My main worry is stopping the current drain of resources from the private sector. And no, a trip to Mars is not just what the doctor ordered. Right now U.S. fiscal policy needs credibility and needs it badly. Won’t markets just think that any revenue boost will fly out the window as quickly as it comes in? Isn’t politics, and thus economics, first and foremost about subjective perceptions? Hubbard’s proposal, for all its merits, doesn’t address the core problems.
Addendum: Here is Brad DeLong’s recent post on the fiscal costs of social security privatization plans.
In Canada, the quality of mercy is strained
Loni Wells has required 8 ½ hours of dialysis every day since her kidney failed completely in February of 2000. After a publicity effort by her father, 36 complete strangers offered to fly to Edmonton to donate to her one of their kidneys. But, writes Adam Young,
[when] these potential matches contacted the local branch office of the Stalinist medical system in Canada, their benevolence was brushed away….The transplant monopoly, however, insists living donors be either family or close friends.
“There has to be an emotional bond, a close relationship to proceed to any further steps,” explained Ed Greenberg of Capital Health in Edmonton.
What an arrogant bastard. How dare this bureaucratic peon sit in judgment on the quality of mercy?
Fact of the day
The States and Puerto Rico, combined, spent $24,875,170 on lobbying the federal government, in the 1998-2002 period. About four-fifths of this money – $19,804,609, was spent by Puerto Rico. Much of the lobbying is directed at either statehood or greater federal benefits. One (partisan) source estimates that Puerto Rican statehood would involve a $3 billion welfare tab, in addition to food stamps for half of the island’s population. Here is the full story.
Hayek and the Reconstruction of Germany
At first, the U.S. POW camps for captured Germans were dominated by Nazi’s who threatened and even killed anti-Nazi “traitors.” But as American thoughts turned to the post World-War II era the camps were cleaned up and a reeducation plan was begun. In other countries, this might have been a euphemism for torture and forced labor but in the U.S. camps it meant libraries filled with books that the Nazi’s had banned and open discussion sessions led by professors from Harvard, Brown, Cornell and elsewhere. The story is told in The Washington Post Magazine article, Learning Freedom in Captivity.
Here is one interesting quote:
By mid-1944, new leadership had been installed at Concordia and many of the worst Nazis had been removed. Concordia’s canteens and library were filled with books that had been banned by the Nazis. Treichl read and reread the American bestseller The Road to Serfdom by Friedrich Hayek, which detailed the flaws in socialism and contrasted it with democracy.
Treichl went on to become head of Austria’s largest bank and honorary president of the Austrian Red Cross. To this day he has kept his beloved copy of The Road To Serfdom.
I find this story heart-warming and a fascinating tidbit of history but it also troubles me. What are we to make of a reeducation camp with The Road to Serfdom as text? Clearly, we cannot dismiss such a thing as a contradiction in terms because apparently it did some good. More broadly, Hayek warns against the hubris of social engineering – yet what was the post WWII reconstruction of Germany and Japan but social engineering on a grand scale? How do these lessons apply to Iraq? Could we fail in Iraq precisely because we do not have the power to reeducate?
Why do parents adopt so many girls?
The evidence suggests that fathers prefer boys over girls. For instance a couple is more likely to stay married when they have a boy rather than a girl. Here is my earlier summary of the research.
At the same time couples are far more likely to adopt girls rather than boys? How can this be?
A recent Slate article offers some figures:
Numbers vary, but it’s pretty safe to say that somewhere between 70 percent and 90 percent of parents looking to adopt register some preference for a girl with an agency. It doesn’t matter if they’re adopting from China, where girls far outnumber boys; from Russia, where the numbers are about even; or from Cambodia, where there is typically a glut of orphan boys and a paucity of girls. Everywhere, demand tends to favor the feminine.
Steven Landsburg had suggested an adverse selection argument. Yes boys are favored but if a boy is put up for adoption, you can figure there is something wrong with the boy, for precisely that reason.
Or perhaps it is easier to nurture girls, and the nurturing motive may be central to the adoption decision. It also may be the case that mothers prefer girls and mothers also drive adoptions:
“The extent to which women are the driving force in most adoptions is probably a factor,” he says. “It’s usually true that the women are filling out the paperwork, going to the conferences, the support groups.” He adds, “If I speak at a conference–whether it’s on adoption or family issues–at least 80 to 90 percent of any of these audiences are women.”
My take: Having a boy is a riskier investment than having a girl. The risk rises dramatically with adoptions, given the associated genetic uncertainty. Males are more likely to have genetic roots for criminality and mental illness. So if you don’t know much about the parents, better to play it safe and opt for a girl.
Why can’t you find your favorite song?
… fans who venture onto any of the pay music sites will not find the most popular band ever, the Beatles. They will not find other top-selling acts, such as the Dave Mathews Band, Garth Brooks, the Grateful Dead, AC/DC and the Cars.
They will find that top-selling acts Madonna and Red Hot Chili Peppers sell their songs by the album, but not as singles.
They will find some musicians on one service, but not on others. They will find puzzling choices: Led Zeppelin fans can buy a 47-minute spoken-word biography of the band online, but no Zeppelin songs because the band has not licensed them for sale on the Internet.
Why are these potential gains from trade not being exploited?
1. Some artists are holding out for a higher price or better terms. This can mean either a better cut for the artist, or the artist does not like the “all songs for 99 cents” model of iTunes.
2. Many artists feel that selling songs on an individual basis takes them out of proper context or cannibalizes sales for the album.
3. Pre-1998 contracts do not specify Internet rights to the songs. Assignment of Internet rights can require the underlying contract to be renegotiated.
4. Renegotiations must involve both the performer and the songwriter.
5. Often the relevant parties cannot be found or are otherwise difficult to deal with. One executive said: “You can be sure the heirs are a son and daughter who aren’t talking to each other and one of those two is getting divorced.”
Here is the full account. You will find stories of high transaction costs, poorly defined property rights, and stubborn holdouts, all the classic predictions of institutional failure theories.
The bottom line: Selection, not just price, remains a big advantage for non-legal downloading. If iTunes and related services are to make it in the long run, they will need to offer near-universal choice of music.
Live – from Dubuque, Iowa!!
Readers with XM radio are encouraged to tune to channel 132 – C-Span radio! There is a live democratic caucus in Dubuque, Iowa. If you have ever wondered what it’s like in a famed Iowa caucus, this is your chance. It’s noisy and chaotic – people argue over the rules and the candidates and it’s hard to decipher what’s happening. People wander from group to group looking for enough people to give their guy a delegate. People are trying to pull each other from group to group.
People just clapped when a Kucinich person migrated to a Dean group… followed by a football fan style “EDWARDS!! EDWARDS!! EDWARDS!!” chant… heady stuff… tune in before you miss it!
Bottom lines:
The strategy of bankrupting the country to appease various interest groups hasn’t worked too well.
Andrew Sullivan on the Bush administration, read the whole post.
What is the most corrupt state?
In a recent study Louisiana only comes in third, Mississippi takes top honors, followed by North Dakota. The District of Columbia has a disproportionate share of convictions, but it does not count as a state. Nebraska is measured as the least corrupt state, Oregon, New Hampshire, and Iowa are also near the bottom. Here is the story, here is the source account and study.
A Baton Rouge headline reads “La. not No.1 in Corruption.” Former governor Edwin Edwards received ten years in prison for corruption-related charges, one case of many in Louisiana history. The last three insurance commissioners have gone to jail for corruption.
Crime, cocaine, and marijuana
Serious and violent crimes dropped more than forty percent during the 1990s, more than can be explained by demographic shifts. One reason for the crime drop has been the shrinking trade in crack cocaine, here is one account and a more detailed treatment. For whatever reasons, crack has turned out to be a one-generation drug. As crack fell in popularity, crime rates have fallen in turn.
Richard Rosenfeld, writing in the February Scientific American, raises but does not answer the question why crack markets have bred so much violence compared, say, to marijuana markets. I have thought of several possible and related hypotheses:
1. Cocaine supply, which requires processing in Colombia labs, is more centralized in nature. Centralization leads to monopoly profits and thus a greater incentive for violence to protect territory. There will be mobs and mafias at the top of the supply chain. They will feel threatened if anyone invades their turf, and the tendencies for violence work their way down to the retail level.
2. Marijuana is closer to a constant cost supply drug. You can always grow some in your backyard. The power of mobs is limited correspondingly and the incentive to invest in marketing and addicting your customers is weaker.
3. Marijuana is more of a depressant than is crack. Users are less likely to turn violent when deprived of the drug. Marijuana is less addictive in the sense of inducing total desperation.
4. Crack, which was essentially a new drug, required greater marketing than did marijuana. Marketing led to fights over turf and to violence.
5. Marijuana is used by many members of the middle and upper middle classes. Crack has been more popular in ghettos and with lower income groups, in part because it is potent and cheap. The reasons for the violence differential are found in the nature of the respective clienteles, rather than in the nature of the drugs per se. For instance, when drug carriers walk through a ghetto to supply their customers, they are at greater risk, more likely to carry a gun, more likely to meet with a gang, and so on.
Further ideas from readers are welcome.
The bottom line: When it comes to crime, it matters a great deal which drugs people are taking. Furthermore, if we are able to legalize some but not all drugs, we should consider legalizing the most objectionable drugs, not the tamest ones. Legalizing marijuana, whatever its merits and demerits, would not make a huge dent in the crime rate.
Addendum: Ed Lopez adds the following:
1. Crack is split up a lot more than marijuana so it has (had) far higher markup once it hit the street.
2. The early profiteers were the street distributors who discovered how to multiply the number of doses from the uncut cocaine. That gave suppliers higher up the chain something to grab at.
I think a lot of the violence question boils down to risk-takers competing for rents that weren’t protected by contract.
3. Crack is more ephemeral than pot and used with greater frequency, so users are more prone to commit crimes to acquire additioanl doses.
What are the Democrat health care plans?
Dr. Rangel offers a summary:
1. Universal coverage with the Federal government as the single payer. Proponents; Braun, Kunicinch, and Sharpton. Cost; over a Trillion per year at least. Needless to say, none of these candidates are anywhere near the front runners in the polls. Do these people even remember Hillary Clinton and the early ’90s? Under such a system costs would be contained via price controls, restrictions, and rationing and for all this reduced care most Americans will be hit with either higher taxes and/or higher consumer prices (in order to raise most of the trillions needed to pay universal health care many of these plans would target businesses and investments with massive tax increases and these costs would in turn be passed on to the consumer).
2. Universal coverage via employers. Proponent; Gephardt, who would mandate that all employers pay for health insurance for their employees. Employers would be able to deduct 60% of the costs of the insurance premiums (the 60% would also be for the self employed and for government workers). Requiring all employers to provide for some type of health insurance for their employees is a great idea but in it’s current form as proposed by Gephardt it is potentially the most disastrous as far as containing health care costs is concerned.
What he is essentially proposing is that we massively expand the same system that has effectively insulated patients from the real costs of health care, prevented any type of competition or market forces from controlling costs and allowed health care expenses and usage to get out of control in the first place (see my post on this issue)! Without any market forces or direct governmental restrictions to control costs, usage of health care resources would expand ad nauseum and ultimately bankrupt the system. Cost; $215,000,000,000.00 a year assuming that health care costs remain level (likely to be several hundred Billion above these estimates).
3. Expansion of current programs or new government programs. Proponents; Clark, Dean, Edwards, Kerry, Lieberman. Costs; Anywhere from about $50 to $100 billion a year. With minor differences most of these proposals would expand coverage for children, provide for more coverage for people in between jobs, and increase tax relief for employers providing health insurance coverage (though not as much as Gephardt’s plan).
What is the bottom line?
None of these plans would institute any meaningful market reforms that may help to control health care costs. They claim their plans would make health care “more affordable for all Americans” but it all amounts to little more than political slight of hand. Health care wouldn’t be made cheaper nor more affordable. The costs would just be shifted and spread around. Higher costs for employers would be passed off to consumers and the rest would be paid by taxpayers in one form or another.
The danger of many of these plans is that the more money they pour into the system the more they will stimulate health care usage and this will lead yet again to large cost increases. I would be willing to bet that any one of these plans to expand health care coverage will be costing two or three times as much as projected in the next few years alone.
Government, when it simply transfers money (e.g. Medicare), can face lower marketing and administrative costs than does a private insurance company. Or government can save money by simply getting out of the way. These cases aside, the only way government can save real resources on health care is to restrict access, typically through some form of rationing. See also my earlier post on who are the uninsured.
NFL Economics
The NY Times has a nice article on NFL coach Bill Belichik’s use of economics to recruit players for the Superbowl bound New England Patriots. He credits Wesleyan economics professor Richard Miller for teaching him the importance of thinking in marginal terms.
Your family’s share of the national debt
For Greg Ransom’s family of four it is $100,000, and as I read the account that does not include various unfunded liabilities of our government, arguably a far larger figure. Thanks to www.2blowhards.com for the pointer to the link. Check out the Ransom post for further links to information about government spending.