Results for “average is over” 1569 found
The public health insurance plan
Here is comment from Ezra Klein, who distinguishes different versions of the public plan idea and also links to further reading. Matt Yglesias comments in favor of the idea. Here is a Paul Krugman column. Arnold Kling is skeptical. Those are good introductions to the debate. On the economics, Ezra writes:
Rather, the theory here is simple: If you can't replace them, convert
them. If the public plan works, then private insurance will work better
as well. In this telling, the simple existence of the public plan
forces a more honest insurance market: Private insurers need to offer
premiums closer to their marginal cost, and they have to cut
administrative costs, and they have to work on their reputation for
cruelty and capriciousness. The existence of another option changes the
market. Individuals will have access to private insurers, but they'll
no longer be stuck with them.
I believe Ezra is assuming no direct cash subsidy to the public plan, lower marginal and average costs for the public plan, and some mix of market power and X-inefficiency in the private insurance companies. The existence of the public plan then "contests the market," which eventually lowers MC in the private plan and leads to lower prices and better service.
My question is what the equilibrium looks like. Say the public plan has a cost advantage (both MC and AC), as plan proponents suggest. If public and private plans are to coexist, the public plan must be attracting the higher-cost customers, namely the higher medical risks. (I am also assuming that the political equilibrium does not allow the public plan to reject these customers outright.) There is then market segmentation and it is not obvious that there are significant positive competitive pressures on private insurance companies.
Oddly, I believe in some models the public insurer constrains the private companies more tightly when the public insurer does not have an apparent cost advantage. Even here, the properties of the monopolistically competitive equilibrium would be very tricky.
You might wonder why the public plan does not attract all the low-risk customers and take over the whole market. I would say that either a) it does, or b) it is tailored toward the high-risk customers. Since public plan advocates sincerely and correctly claim the policy is not just a back door to single-payer, we are left with b).
Another question: is the "cruelty and capriciousness" of the private plans — cited by Ezra — driven by profit maximization? Presumably it is and again assume the government plan will not do the same. Why then would public sector competition force a private firm to throw out a profit-maximizing strategy? In fact "cruelty and capriciousness" would be a comparative advantage of the private companies and maybe it would be milked more strongly in a more competitive environment.
Another possibility is that the public company has a bigger cost advantage on AC than MC. For instance maybe it has a "head start" on the fixed costs, because everyone has heard of it, but its cost advantage for additional service dwindles at some point. The successive accretion of high-risk customers then threatens to put the public plan under (especially if there are lots of previously uninsured and they are high risks) and the public plan requires a subsidy simply to break even. I consider this equilibrium to be not totally unlikely.
Obviously I am missing some equilibria, but in many cases the public plan is mainly providing insurance to high-risk customers. There's nothing wrong with that (and indeed it is a major policy goal), but the resulting equilibrium needn't much improve the performance of private health insurance. I file this argument under "not yet established."
The forecasters and the forecasts
Hugo Lindren has just written a very interesting portrait of some of the major forecasters and their economic forecasts. In New York I was asked a number of times about my own forecast. I offer it with trepidation but here goes:
1. The next year will see significant recovery in terms of published economic magnitudes.
2. "Dormant inflation" will spring to life, at some point quite rapidly, and the Fed will choose to tighten. Five to six percent inflation for a while would be OK but we will be faced with the prospect of more than that and the Fed will choke it off and prevent it.
3. We will see a "double dip" recession, with the second dip more closely resembling the 1979-1982 experience than did the first dip. It's not just that the Fed may make an error in the timing of tightening; there may truly be no good path from here to there.
4. There will be yet a third dip to the recession, resulting from our current fiscal choices. At some point borrowing costs will rise and taxes will go up. There's a chance of a financial crisis for our government, especially if Chinese growth does not hold up.
5. Ten years from now, the United States will have settled into a lower long-term average growth rate, in part for policy-driven reasons and in part for demographic reasons.
6. There is still some chance that our current situation leads directly into a much bigger downturn. This will depend on international factors, not on the internal dynamic within the U.S.
I do not put any of this forward with great confidence.
Addendum: Arnold Kling comments.
Why U.S. health care policy is especially egalitarian
The "poorest" people are not those with low incomes but rather those with low human capital endowments. That includes the elderly because, even if they are very talented, on average they will die sooner. A typical 23-year-old lower-middle-class immigrant has a higher real endowment than does Warren Buffett.
Through Medicare, the U.S. government subsidizes the health care of the elderly. Given the embedded incentives in the system, the subsidy is especially large for people in the last year of life or so, namely the very poorest.
Western European welfare states may be more efficient, because they do more to expand routine health care access for the relatively young and this may have a higher rate of return. But those same systems are in critical regards less egalitarian. Bravo to them.
Many people do not look at the contrast this way. They wish to think they believe in egalitarianism, they wish to be skeptical of the United States, they wish to condemn the U.S. for its inequality, and they wish to raise the relative status of people who are not very successful under capitalism. When you put all those wishes together, those people will be deeply allergic to my argument.
A few of these people also confuse "high social status" with "well off." Since old, high-bank-account white males have lots of social status and power, these onlookers cannot bring themselves to regard those males as holding very poor overall endowments. They substitute in assessments of social status for assessments of absolute endowments (another sign of the claim that "politics is not about policy" but rather it is about whom we should admire and condemn).
I am amazed (but not surprised) by how frequently people think of egalitarianism in terms of social markers of status rather than actual forward-looking endowments.
It is common for more egalitarian policies to be less efficient.
From the comments: "Let us say you are a twenty three year old immigrant living in New York. Would you want to trade places with Warren Buffett?
My answer is this- you couldn't pay me enough to make the trade."
Estimating Economic Growth
The answer is 238.64%. A good way of approximating is to use the rule of 70. If x is the growth rate then the doubling time is approximately 70/x. Thus, with a growth rate of 5% we expect a doubling (100% increase) in 14 years and a quadrupling in 28 years so a bit more than a tripling in 25 years (200% increase) is a good guess.
Waxman-Markey cost-benefit calculations
I haven't finished perusing the sources you all sent to me, but the debate is racing beyond where I started, so I will report in midstream. My current impressions are the following:
1. Whether you agree with them or not, there are reputable studies showing aggregate benefits from a significant cutback in carbon emissions.
2. Waxman-Markey makes only a very small dent in the overall climate problem.
3. If you carve up the aggregate benefits from #1 into parts, and
calculate an average product for various climate change policies, maybe
you can get positive net benefits from Waxman-Markey. But a true
marginal analysis of the bill will not yield the same benefits. A true
marginal analysis will yield benefits which are essentially zero in
terms of improved climate.
4. You can argue that taxing carbon is better than taxing work and savings, but that doesn't establish the proposition that we should be stingy enough with permits to force a (costly) move to a green economy. Furthermore it is already the case that 85 percent of the permits (and they're not finished revising the bill) are being given away, so the revenue argument applies less and less.
5. The bill allows for "carbon offsets," which lowers the climate benefits even further and makes the bill even more unworkable. For the most parts these offsets are not verifiable.
6. Even this watered-down version of the bill may not pass.
7. Climate benefits require that other nations follow suit and that we take numerous further costly actions over time. I haven't seen a case that this is likely to happen and the ongoing evisceration of the bill suggests it won't. Standard public goods arguments — beloved by environmentalists I might add — suggest that such collective action won't be forthcoming.
8. Waxman-Markey defenders argue "we must do something," "this is a first step and a framework," "the people who oppose the bill are fraudsters," etc. but all that non-marginal analysis does little to address the key problem. Those arguments may make you feel better about affiliating with Waxman-Markey, and opposing its critics, but they are not geared toward solving the problem. Beware when non-marginal moralizing becomes so prevalent in the case for a piece of legislation.
9. If you now favor Waxman-Markey, what would have to happen to convince you that we are on the wrong track with this bill? Is passing a positive-cost, zero-benefit measure really a good means to pave the way for future policy improvements?
10. One alternative approach is to have a revenue-neutral carbon tax (or other measures) kick in, but only if we have first captured the "low-hanging fruit," namely preserving various forests, limiting indoor emissions in poor countries, and limiting meat-eating. That way the major costs come only if we first show that we are even a wee bit serious about addressing the problem.
11. I am not sure that #10 is the best way forward but at least it tries to come to grips with the risk of getting only costs and no benefits. The people who are hurling moral rhetoric at Waxman-Markey opponents should try to come up with better versions of #10 and offer very clear assessments of the likelihood of success.
Addendum: Here is a new related post.
Ferguson on Regulation and Deregulation
Human beings are as good at devising ex post facto explanations for big disasters as they are bad at anticipating those disasters. It is indeed impressive how rapidly the economists who failed to predict this crisis – or predicted the wrong crisis (a dollar crash) – have been able to produce such a satisfying story about its origins. Yes, it was all the fault of deregulation.
There are just three problems with this story. First, deregulation began quite a while ago (the Depository Institutions Deregulation and Monetary Control Act was passed in 1980). If deregulation is to blame for the recession that began in December 2007, presumably it should also get some of the credit for the intervening growth. Second, the much greater financial regulation of the 1970s failed to prevent the United States from suffering not only double-digit inflation in that decade but also a recession (between 1973 and 1975) every bit as severe and protracted as the one we’re in now. Third, the continental Europeans – who supposedly have much better-regulated financial sectors than the United States – have even worse problems in their banking sector than we do. The German government likes to wag its finger disapprovingly at the “Anglo Saxon” financial model, but last year average bank leverage was four times higher in Germany than in the United States. Schadenfreude will be in order when the German banking crisis strikes.
Niall Ferguson writing in the NYTimes. Recommended.
Defining Fat Down
Americans are more overweight than ever but Burke, Heiland and Nadler find:
…that the probability of self-classifying as overweight is significantly
lower on average in the more recent survey, for both men and women, controlling
for objective weight status and other factors….The shifts in self classification are not explained by differences between
surveys in body fatness or waist circumference, nor by shifting demographics. We
interpret the findings as evidence of a generational shift in social norms
related to body weight, and propose various mechanisms to explain such a shift,
including: (1) higher average adult BMI and adult obesity rates in the later
survey cohort, (2) higher childhood obesity rates in the later survey cohort,
and (3) public education campaigns promoting healthy body image. The welfare
implications of the observed trends in self-classification are mixed.
The decline of chewing
According to Gail Civille, in the past Americans typically chewed a mouthful of food as many as twenty-five times before it was ready to be swallowed; now the average American chews only ten times.
That is from David Kessler's The End of Overeating: Taking Control of the Insatiable American Appetite. This is a good book even if you've already read seven prior books on exactly the same topic. It's the best applied study in behavioral economics to date. I do object, however, to how the author aggregates fat, salt, and sugar, as if they were equally bad for you.
Via John Nye, here is a good article on how French baguettes are succumbing to the global trend for softer foods:
Bakers say that they are merely responding to market forces,
determined by the growing proportion of customers who demand a baguette
pas trop cuite (not too cooked). They argue that they cannot
impose a crunchy surface on a society that has grown accustomed to the
notion that food should melt in the mouth .
Mr Kaplan is appalled. “The question is: do the French care any
more, do they care about taste? When you eat their tomatoes, their
carrots and their merlotised wine, you start to wonder. Are they not
collaborating in their own cultural demise?”
…According to Kaplan, bakers are cutting cooking time – usually
between 18 and 22 minutes at 250C to 260C – by 60 seconds or more in
search of a less crusty crust.
The upshot is the loss of the Maillard reaction, a chemical process
occurring at high temperatures and leading to browning and crispiness,
that Kaplan says is vital to the production of a good loaf.
Here is Alex's earlier post on the declining quality of French bread.
What I’ve been reading
1. Brian Boyd, On the Origin of Stories: Evolution, Cognition, and Fiction. If you've read Geoffrey Miller, Karen Dissanayake, Denis Dutton, and Comeuppance, this is the next book in line. It's well-written and intelligent, but also a little underwhelming. The main point is that the arts are an extension of the play instinct. Blog audiences, who expect rapid delivery of the main points, may be especially frustrated.
2. Richard Goldthwaite, The Economy of Renaissance Florence. Dull for some, definitive for others. If the thesis about commerce sounds a little late to the party, it is only because of Goldthwaite's own previous work.
3. John Reader, The Potato: A History of the Propitious Esculent. Not as good as his excellent book on Africa, but I liked the sections on potatoes in the Incan empire. This book could have been great, it isn't, but it is still above average.
4. Portfolios of the Poor: How the World's Poor Live on $2 a Day, by Daryl Collins, Jonathan Morduch, Stuart Rutherford, and Orlanda Ruthven. A good overview of how the world's poor intersect with financial institutions at the micro level.
5. Twenty Thousand Roads: The Ballad of Gram Parsons and His Cosmic American Music, by David N. Meyer. A serious and excellent book, noting that every now and then the reader is hit by a strange sentence like: "Of course the temptation to get all bourgeois on Gram's a** is irresistible." Meyer underrates the album Burrito Deluxe, however.
How agreeable are econ bloggers?
Leigh Caldwell offers up some data:
Surprisingly (at least to me), economics bloggers are more
agreeable than not. "Agree" articles (category 3) showed up more than
twice as often as "disagree" (category 4). When measured by titles, the
trend is not so clear, with a majority "agree" articles (category 1)
when measured over the last two months but more "disagree" (category 2)
when taking the last 7 days alone.
So far, so good and indeed Leigh is a smart fellow to see the truth of that. There is, however, a villain in the piece and dear reader it is you:
However, blog readers are
not so magnanimous. On the content measure, the mean number of comments
on an "is right" article (category 3) is 3.66, while there are an
average of 6 comments on an "is wrong" article (category 4).
When
the title filter is used, the difference is even greater: there are no
comments at all on the category 1 ("genius") articles, and an average
of 21.6 on category 2 ("idiot")!
Are bloggers simply nicer people than readers? (Or should I say "all you idiots"?) How would blog comments change if they were attached to your real name like glue and came up any time someone googled the commentator? Which of us is the real human, the blog reader or the blog writer?
Ben Casnocha theorizes as to which is the most natural "you."
What does the Dale and Krueger education paper really say?
It was reported in the media as showing that, controlling for all the right variables, going to an elite college or university as an undergraduate doesn't really matter for your future prospects or income. But Robin Hanson, with money on the line, investigated further. After reading the relevant pieces closely, he reports [what follows is Robin, not me, but with the multiple indentations I haven't indented everything again]:
"In fact his original 1998 working-paper abstract said:
Half Sigma screams from the rooftops:
23 percent is quite a bit of money, it’s almost like getting two college degrees instead of one! They also discovered that there was a benefit to attending a more expensive school. The more expensive tuition resulted in a lifetime internal rate of return of 20% for men and 25% for women."
Keynes’s General Theory, chapter ten
The velocity of money can vary, aggregate demand matters, and the multiplier is real. Let's get those preliminaries out of the way. That all said, this is one of the least accurate chapters in Keynes's General Theory. To pull out one key quotation (pp.116-117, in section II):
It follows, therefore, that, if the consumption psychology of the community is such that they will choose to consume e.g., nine-tenths of an increment of income, then the multiplier is 10; and the total employment caused by (e.g.) increased public works will be ten times the primary employment provided by the public works themselves…
AARRRGGHH!
Empirically a typical estimate of a multiplier might be 1.3 or 1.4, not 10, not even in a deep slump. (Valerie Ramey points out that the key issue in estimating a multiplier is to determine when the fiscal innovation actually occurred; this is not easy.) One theoretical problem in generating a high multiplier is this. Say you have a debt-financed increase in government spending. You can get some dollars out of low-velocity pools into high-velocity pools on the first round of redistributing the spending flow. Do not expect complete crowding out and so nominal aggregate demand can increase, thus boosting output and employment. But the second and third round effects of the redistributed money are usually a wash and the boost to velocity dwindles. Why should it stay in a high-velocity sector of the economy?
It is common in the GT that Keynes confuses marginal and average effects and, for all of his explicit talk about average and marginal in this chapter, he is making one version of that error again. Rothbard and Hazlitt are not in general reliable critics of Keynes, but
they do have a good reductio (see chapter XI) on crude interpretations of the multiplier and that is what Keynes is serving up here. You can't just take a partial derivative of an accounting identity and call the result a causal relationship.
In addition to velocity/spending effects, there are also multiplier effects through real production. The most insightful analysis of supply-side multipliers comes from the work of W.H. Hutt.
The multiplier is a legitimate concept but often it is overestimated in its import. This chapter in Keynes is a step backwards from Richard Kahn, the father of the multiplier concept.
Here is one critique of Keynes on the multiplier.
Don't forget Alex's comments on fiscal policy and velocity.
Patents versus Markets
Long ago Jack Hirshleifer pointed out that markets can reward innovative activity even in the absence of patents (H.'s point was actually that markets could over-reward such activity but the point was clear). If an inventor discovers a new source of energy that requires the use of palladium, for example, he can buy palladium futures, announce his discovery and wait for the price of palladium to increase. Of course, this only works if the discovery is credible so betting (contra Tyler) is an important way to test the credibility of a theory (e.g. here and here and of course Hanson's key paper Could Gambling Save Science).
All this is by way of introduction to a new paper in Science, Promoting Intellectual Discovery: Patents Versus Markets (press release here). Bossaerts et al. compare a patent system with a market reward system in an interesting experimental setting. The innovation is the solution to a combinatorial problem called the knapsack problem. In the knapsack problem there are Z items each with a certain value. You must choose which items to put into the knapsack in order to maximize it's value but each item also has a weight and you cannot go over a fixed weight which is set such that you can't carry all the items. The solution to a knapsack problem is not obvious since it's not always best to include the most valuable items. The authors argue that solving the knapsack problem is like combining ideas to create a new innovation. The authors, of course, know the optimal solution to each knapsack problem.
Rewards for creating the innovation are offered in two ways, in the patent method the first person to produce the optimal solution gets the entire reward. In the market system each participant is initially given an equal number of shares in each item. The item-shares trade on a market. After the markets close a $1 dividend is paid to each item-share if the item is in the optimal solution, other shares expire worthless. Thus, the price of the item-shares can be thought of as the probability that the item is in the optimal solution. (i.e. is palladium in the optimal solution to the energy problem? If so, it will have a high price.) Dividends are set such that the total reward is about the same in the two treatments. Proposed solutions were also collected in the market setting although the solutions per se were not the basis of any reward.
Important findings are that the problem was solved just as often in the market setting as in the patent setting. Indeed, in the market setting more people solved the problem on average. There are two possible explanations. First, the winner-take-all nature of the patent system may have deterred some of the weaker participants from exerting effort. Second, and more interesting, is that the prices in the market system did in fact incorporate information about the optimal solution – thus market prices may have given people hints about the optimal solution, much like seeing a partial solution to a jigsaw puzzle.
Problems are that the market system can work only if there are rents to be had from market prices. A new computer chip design, for example, won't change the price of silicon (although even here side-bets may be possible, the inventor knows the manufacturer to whom he sells the invention for example). Also, the price of an input, like palladium, can be influenced by many things other than the innovation so the market system will typically often involve more risk. Still this is an interesting experimental approach to a deep problem.
Thanks to Monique van Hoek for the pointer.
John Hempton’s radical view of banking
I genuinely do not know the extent of U.S. bank insolvency, but I do wish to pass along this contrary opinion:
Then he [Buffett] says the problem of American banks are not overwhelmingly toxic assets. This is a radical view – but it is in my view correct. The problem with the banks is that nobody will trust them and they have not been able to raise funds. The view that this is a liquidity crisis – and not a solvency crisis – has long been a staple of the Bronte Capital blog. It is radical though. Krugman, Naked Capitalism and Felix Salmon think alike – asserting – seemingly without proof – that the problem is solvency. Buffett doesn’t even think the US banks (on average) require capital – a view that most people would find startling (though again I think is correct provided appropriate regulatory forbearance is given).
And this:
Krugman is finally coming to the view that the important technical question is whether to issue that guarantee [to bank creditors]. He is right. Provided the guarantees can be issued at reasonable cost they should be issued. Both Warren and I think the cost would be reasonable in the USA. By contrast I am not sure the UK has the blanket guarantee option because the UK banks are very large relative to the UK economy and they started highly capital inadequate. US banks by contrast started with a lot of capital.
Here is Hempton's previous radical post. I thank William Utley for the pointer. Perhaps I will be pilloried for posting this, but maybe the conventional wisdom can be wrong twice in a row.
If you want a ray of hope, possibly based on lies, try this article; opening line: "Stocks are rising after troubled Citigroup said it operated at a profit during the first two months of the year."
Do people get more depressed in winter?
Some people do, but is it true on average? Maybe not, says Ben Goldacre (via Andrew Sullivan):
Back in 1883
Esquirol commented on the higher incidence of suicide in spring and
early summer. Swinscow showed the same thing with all UK suicides from
1921-1948. So that’s not really winter blues. A study in 2000 looked at all UK suicide data from 1982-96 and found that even this seasonal pattern had pretty much disappeared.
What about elsewhere? A 1974 study on all suicides in North Carolina
(3,672) and admissions to their Veterans Hospital Psychiatry Service
(3,258) from 1965 to 1971 showed no seasonal variation. A 1976 Ontario
study found peaks of suicide and admissions for depression in spring
and autumn. Suicide is highest in Summer, says a paper from Australia in 2003. I’m really not getting this Blue January thing.
Maybe you want data from the general population on mood. A study in 1986
looked at 806 representative males from Finland and found low mood more
common in the summer. Some studies do find higher rates of depressive
symptoms in the winter (Nayyar and Cochrane, 1996; Murase et al.,
1995), but then, some find the opposite results, like a peak in the
spring (Nayham et al., 1994) or summer (Ozaki et al., 1995). One study
from just last month proactively asked 360 patients to rate
their mood regularly, rather than waiting for an event, and found no
relationship, again, between mood and season.
Maybe there are other sources of data you could explore? A paper
looking at GP prescriptions for antidepressants in 1984 found a spring
peak. An earlier paper from 1981 (Williams and Dunn) looks at
prescriptions from 1969-75 and finds peaks in February, May and
October. Another
from the same year looked at GP consultations for depression and found
peaks in May-to-June and November-to-January (they found similar
results for osteoarthritis, oddly).
Hail Ben Goldacre! Here is my previous post on Ben Goldacre.