Friday, July 24, 2009

On Being Tall...

I'm 6'3" so I liked this article about tall people being happier. Other studies show higher salaries for tall people.

I suspect Greg Mankiw is not overwhelmingly tall. But, by Mr. Mankiws rationale is correct, why not tax being white, or male (after all, they tend to make more, on average, too)? I don't think Mankiw would support that. It might be because, even though it doesn't tax effort, discriminatory taxes that are based on the genes someone is born with would erode government credibility.

On a observartional note, I'm guessing if it were turned over to politicians, democrats would turn it into a short-person subsidy, and the republicans would make it a "tax credit" (which of course would be self-defeating as a redistributional matter since it would subsidize the short people who get paid highly the most). After all "tax" is a four letter word to politicians.

Of course, we all know what would happen here... Since, as conservative politicians point out, the whole financial-housing mess was caused by a law thirty years ago encouraging a small portion of loans to go to low-income homebuyers (somehow taking thirty years to work itself out), we can see the moral hazard here. Parents will deliberately malnourish their children to game the system and increase their chance of being eligible for the subsidy (or avoid paying the tax). Stop taking those prenatal vitamins, honey!

Wednesday, July 22, 2009

Insurance Generosity Curves

Economic theory doesn't deal well with discontinuities. Nevertheless, that is one thing that characterizes healthcare, according to a wide swath of the economic literature, summarized by Gruber (2008, Journal of Economic Literature). In fact the relationship between generosity of an insurance benefit and the amount paid is proposed to look something like this:
So, basically, 48 million Americans are on the horizontal segment; they don't pay for insurance, and they do not receive any benefits. Then if they pay some threshold per year (say, 2,000 for themselves and 5,500 paid by their employer as a "non-wage benefit") they get minimal coverage that increases in generosity as more is paid in.

So, what might happen if the "public option" were introduced? What if it was lower quality as critics suggest? It might look something like this:

Thus, there would still be a discontinuity in the relationship, but at the bottom could be lifted without necessarily changing the rest. But, you might say, what about people who get seduced by the cheaper option? Here I ask, "what's the big deal?" The fact that they choose it when there are more generous (and more expensive options) proves that they are better off, on average, by revealed preference, and they have money to save up in case they want to pay in for a big procedure that the big mean bureaucrats won't pay for. The curve might look something like this:

If there are no distortions, then maybe the Feds insure 70 million or so, instead of the 48 million that were uninsured (but they also insure another 45-50 million from other existing public programs for a total of about 120 million people) If there are distortions, it might shift the curved segment like this:

Here, the benefits for people paying might decline, but the question is how much, it is unlikely that rich folks won't still have a "Cadillac option" that is as generous as they want it to be. (Another question is who are these people receiving the lowest benefits "on the new curve?" Are they people who had private insurance before, or are they on medicare/aid or other publicly-funded benefits? Are they people who were already at that level on the curve but decide to pay for the private option in spite of an available public option, i.e. to what extent are the "payers" moving horizontally, receiving the same benefits, versus down, receiving less, but still paying?)

One thing that this doesn't suggest, is that assuming inferior care by the government private insurance would go out of business. For that to happen, it's almost as if you would have to admit that the government plan is at least as good as a marjority of the points "on the curve." If they offer higher quality they should be able to keep charging a profitable price and compete on quality. If you think the government would compete the private insurers out of the market entirely, it's hard to make the case that their quality wouldn't be somewhat comparable.

An interesting note on the "fairness" of the Tax System

House or senate

This is a pretty good empirical analysis of the 111th Congress by Nate Silver, and where the opposition to health care legislation might come from. (It's not predicted to be from where you might think.)

Budget Hawks?

The votes are in 0n the 2 billion dollar F22 project (which, by all honest accounts is a dated program that currently serves almost no purpose). Here's a crosstab of votes by party. Not a party-line vote, but not independent of party affiation, either. Oh, Ike, where art thou now?

Count of Vote Party

Vote D I R Grand Total
Yea 42 1 15 58
Nay 14 1 25 40
Not Voting 2

Grand Total 58 2 40 100
Chi-Squared Test for Independence: 15.207

From a Chi-Squared distribution with 4 [(r-1)*(c-1) with r = # of rows, c = # of columns) degrees of freedom, the 1% critical value is 13. 277, so since 15.2 is greater than 13.277, we can conclude in this case that there were differences. However, there may be lurking variables here, such as how much money gets sent to a district for the program. Maybe Republican states just get more financial benefit from defense-industry spending.

To control for this a bit, I looked at states where the party differed. Here's the new crosstab:
Count of Vote Party

Vote D R Grand Total
Nay 2 7 9
Yea 10 5 15
Grand Total 12 12 24
Chi-Squared Test for Independence: 4.44

Here, we have a Chi-Squared distribution with one degree of freedom (there weren't any abstainers and I counted Joe Lieberman as a Democrat instead of "independent democrat"). The critical value for a 5% level of significance (still pretty good) is 3.841, so since 4.44 is greater than that, we can say that even controlling for state, there were significantly more Republicans who voted to keep the 2 billion dollar fighter in the budget.

Tuesday, July 21, 2009

To the Moon

I wonder how many people who don't think the government can do anything were beaming with pride yesterday on the 40th anniversary of the moon landing?

Market Imperfections

Joe Stiglitz is an economist whose theories everyone probably should know (and many probably do without attributing them to him). Sometimes his passion for his crusade against the IMF and World Bank make him an outcast, but his "real" economic research touches on almost every subfield of modern economic theory.

Monday, July 20, 2009

Divided from Labor

I often have liked the conservative pro-market rants of Division of Labour, and their insights were once keen. I guess lately they've felt the need to play vitriolic foil to anyone thinking that markets aren't perfect. If I wanted straw-man logic and character assassination, I could just go straight to the Drudge Report...

Columbus, Trade, and the Moon

Today commemorates the 40th anniversary of the Apollo 11 moon mission. What's got me thinking about it is the invokations of how it compares with the "exploration spirit" of Christopher Columbus... or something. As an American who was brought up memorizing the "explorers" of the "New World" I want to say "hell yeah" and crack open a can of cheap beer. As a trade economist, I remember that many of these "explorers" never gave a hoot about finding anything new, or necessarily advancing knowledge. They wanted to find cheaper trade routes to Asia. So, really those things were mostly based on economic motives.

The moon missions were not motivated by economics or trade. As far as I know, no one believed there were little green men on the moon that we would want to trade with, or any strategic economic resources there that we could control. But, there were strategic reasons - we wanted to tout our technological superiority in order to taunt the Soviets and make them fear us.

Buzz Aldrin wants us on the Mars by 2035 so this generation can prove it's spirit for exploration. Why? What economic or strategic advantage would it serve, and at what cost would it be worth the trouble?