Does this Recession Make the World Look Fat?

In 2005 Thomas Friedman declared the world flat, but I always liked Ed Leamer's review in JEL, which points out the fact that it's a strange, and perhaps inapt analogy (he also makes pokes fun with some very esoteric "jokes" about different notions of what "flat" might mean, but that's besides the point). A new historical view by David Jacks (HT: Economix) shows us how the late 20th century decline in trade costs (and increases in trade) pales in comparison to those of the late 19th century (something I've observed in my undergrad classes already by the way!). Anyway, trade is down by greater proportions than those observed during the Great Depression and everyone has their culprit of choice. Some talk about oil prices (although I'm not sure that in real terms oil and fuel is all that much more expensive now than it was in the late 1990s); some blame a general downturn (although I'm pretty sure the downturn in the G.D. was much greater, without even checking the data); and others put it on governments and protectionism (although this too has been tame compared with the Depression Era).
The answer to me is twofold: (1) 1990s globalization centered on growth in components; and (2) trade is not a value-added concept like output is. For the first, the basic idea is that instead of countries specializing and producing all of certain finished goods that are consumed by end users, the recent explosion in trade was in components - countries specialized in a particular part of the finished good. Since trade is not a value-added concept, so within this integrated supply chain, you can have the value-added of a 20,000 dollar auto counted many times - the steel ($5,000) gets shipped from China to 3 other countries where components are made (at, say, $2,000 of value added in GDP per country), then to Mexico for assembly (another $4,000), then managerial, transportation marketing services by the US (for about another $3,000), and sold in Canada for $20,000 (the retailer's value-added is $1,000). If this car disappears from world trade, it amounts to a reduction of world GDP of exactly $20,000 because GDP only counts value-added. However, trade (imports plus exports is a common measure) is reduced by $(5,000 + 11,000 + 15,000 + 19,000)x2 = $80,000 due to the multiple counting of the total value at each stage of shipping instead of only counting each country's value-added.
So, the world is not getting fat (it's approximately as flat as it was last year) and I'm neither shocked nor alarmed at the decline in trade (at least, no more shocked or alarmed than I am about the decline in output generally).

Grad School?

So, why did I go through all that again? Oh yeah. The "job satisfaction."

Do Deficits Matter

Today, Becker writes:

To the extent that the source of the rise in a deficit is increased government
spending, then whether that rise is justified depends on how socially valuable
are these government expenditures. By that I mean the social rates of return on
these expenditures, such as longer lives for the elderly, relative to the
interest cost of raising the required funds, and relative to the returns on
other investments in the economy.

So, on this principle, if you have a trillion dollars to spend, would you spend it on 5 years of war in Iraq or 10 years of universal health care?

Economists' Views

Things Economists Agree on according to this article:

	Agree Strongly Agree	Neutral	Disagree Strongly Disagree	Hetero-geneity Index
The U.S. should allow payments to organ donors	15.60%	14.10%	70.30%	0.5384
A Wal-Mart store generates more benefits than costs.	14.60%	13.10%	72.30%	0.5612
Employers should be rq'd to provide all employees health insurance	71.70%	7.90%	20.40%	0.5619
The U.S. should ban genetically modified crops.	82.10%	10.90%	7.00%	0.6908
The U.S. should eliminate remaining barriers to trade.	9.80%	6.80%	83.30%	0.7081
Economic growth in developed countries increases well-being	2.30%	9.80%	87.80%	0.7810

What they don't agree on:

Sarbanes-Oxley should be repealed.	47.40%	27.60%	25.00%	0.3634
U.S. should eliminate the mortgage interest deduction.	38.00%	16.30%	45.70%	0.3798
U.S. should increase benefits to workers who lose jobs due to int'l comp.	27.70%	20.80%	51.50%	0.3852
Health insurance benefits should be taxed the same as income.	44.50%	13.50%	42.10%	0.3935
The U.S. should place more stringent caps on medical malpractice awards.	32.10%	16.40%	51.60%	0.3962
States should eliminate mandates about what health insurance must cover.	45.60%	12.00%	42.40%	0.4021

On the Probability of Acceptance

There was a certain professor at Illinois (who is no longer there) who once claimed, "Adding an integral sign to a paper will unambiguously increase the probability of acceptance." This confession of an economist offers more proof. The author revised a clear and simple paper (which, by the way, had been rejected) into an incomprehensible mathematical maze of equations and proofs (which, of course, was accepted by the very same journal that had rejected the clearer, simpler version). Sad, but true.

Overbetting Longshots

HT: Andrew Gelman (link to the ref here)

we find evidence in favor of the view that misperceptions of probability drive the favorite-longshot bias, as suggested by Prospect Theory

I.e. it's not a love of risk in the utility functions of gamblers, it's statistical illiteracy. They can't figure out that a 29:1 longshot has at best a 1/30 probability of winning (if the odds are "fair").
One problem I have is that, to Gelman and others this research contradicts theories of rational choice. Not so. It suggests that people are either (a) poorly informed; or (b) process information poorly. To quote a Larry Summers finance paper, “THERE ARE IDIOTS. Look around.”
Go Chiefs!

Line of the day

From a story in the Post on the decline of grass-fed cattle in
Argentina and the rise of feedlots. One argument against feedlots is
that it is unnatural. The other side:

"What's natural is for a cow to grow, to reproduce and to die."

Fun stuff.

Stumbling Blocks or Building Blocks

While bilateral trade deals are increasing trade amongst countries in regions with lots of bilateral deals has not. Furthermore,

Countries may worry that a multilateral deal would erode the preferential terms they got through bilateral ones. If so, the flurry of bilateral deals may have come at the expense of a world trade agreement. Gary Hufbauer of the Peterson Institute of International Economics in Washington, DC, thinks that China and India have decided they would “rather pursue bilateral FTAs than make the necessary concessions to push Doha across the finish line.”

This is more disturbing than any specific national protectionist policies because it undermines the WTO, the MFN principle, and multilateralism.

Links

Teacher Pay in the US vs. Elsewhere
Choosing Checkout Lines
Failing Colleges, and Responses

NFL Rankings

by Me.

1. 1.Titans
2. 2.Vikings
3. 3.Steelers
4. 4.Saints
5. 5.Giants
6. 6.Chargers
7. 7.Patriots
8. 8.Colts
9. 9.Falcons
10. 10.Texans
11. 11.Bears
12. 12.Eagles
13. 13.Dolphins
14. 14.Packers
15. 15.Buccaneers
16. 16.Jaguars
17. 17.Cardinals
18. 18.Panthers
19. 19.Cowboys
20. 20.Redskins
21. 21.49ers
22. 22.Ravens
23. 23.Bills
24. 24.Seahawks
25. 25.Bengals
26. 26.Broncos
27. 27.Jets
28. 28.Rams
29. 29.Chiefs
30. 30.Browns
31. 31.Lions
32. 32.Raiders

Don't hold me to this. I figure if I set the bar low for the Chiefs, they are unlikely to disappoint.

The office kid

Markets in everything via MR: The office kid. It's an idea sprung by office workers thinking they were getting screwed into more work by people with kids (who were always having to leave for kid-related problems). The idea was to have a fake kid so you could get your share of paid time out of the office.

I have a better idea. Instead of cooking up a scam, organize the market so the single workers get paid to "take their turn" getting "time off" for dealing with their coworkers' kid-related problems.

Our Portfolio of Imperfect Institutions

Markets, nonmarket institutions, and governments. From Economix:

First, a large share of our economic output is now produced by large companies whose sales exceed the gross domestic product of many countries of the world. The vertically integrated supply chains of these large, often bureaucratic institutions seldom involve markets....

Second, market output represents a subset of total economic output. ...time and energy to caring for ourselves, our families and our friends ... activities that improve our own living standards ... men now devote more time to housework and child care than they once did. As we move toward more equitable sharing of unpaid work, policies designed to help wage earners meet their family responsibilities ... seem expensive to us in part because we have taken women’s unpaid work for granted in the past.

Third, the present and future costs of environmental degradation are on the rise.

Markets aren’t the only imperfect institutions in our world. Governments, families and Mother Nature are also susceptible to failure.

The point is, like it or not, we rely on a portfolio of imperfect institutions — a mixed economy.

Silly Anti-Reagan Conservative Health Care Protesters

From MR via The Beacon. Just say no.

More Economist Humor

This came via Phil at Market Power:

Reminds me of the old Woody Allen line, "Those who can't do, teach. Those who can't teach teach gym."

Sentence of the Day

Tyler Cowen, answering the question, "What is Conservatism?"

Responsibility is a more important value than either liberty or equality.

The whole post is worth reading but that point (the last) is the keenest.

Damn Imported Bald Eagles

It's a sad day when the US has to import bald eagles... or a happy one that there is an abundance somewhere else that allows us to!

More on the similarities between Presidents Obama and...

Nixon?

Yup, I've covered it before: Nixon was a self-proclaimed Keynesian; Nixon proposed a "negative tax" that would effectively reform welfare and still help the poor. Now, I've seen it all. Nixon favored a national health program that offered universal coverage. Here's proof. The principles of it:

First, it offers every American an opportunity to obtain a balanced,
comprehensive range of health insurance benefits;
Second, it will cost no American more than he can afford to pay;
Third, it builds on the strength and diversity of our existing public and
private systems of health financing and harmonizes them into an overall system;
Fourth, it uses public funds only where needed and requires no new Federal
taxes;
Fifth, it would maintain freedom of choice by patients and ensure that
doctors work for their patient, not for the Federal Government.
Sixth, it encourages more effective use of our health care resources;
And finally, it is organized so that all parties would have a direct stake
in making the system work--consumer, provider, insurer, State governments and
the Federal Government.

If Tricky Dick were running for his old senate seat today, he'd probably either have to run as a democrat, or he'd lose in the primary to someone who has no shame in calling him a socialist. Interesting how the political tides in the Republicanist party have shifted to the extreme.

The Consumption Bubble

More on the benefits of globalization

By Alex Tabarrok at MR.

Economic History and the Variety Gains from Trade

Free Exchange highlights this from a new VOX paper on economic history and pre-industrial revolution welfare improvements:

Tea reached Europe from China in 1606, spreading to France in 1630, and finally to England in 1650...Coffee spread through the Middle East and arrived in Europe in 1615. Sugar, available before 1500 in limited quantities, only became affordable once production centres developed in the Caribbean starting in the mid 17th century.

By the end of the period, sugar, coffee, and tea constituted 7.2% of an average English household’s budget, and roughly 10% of their food expenditure...To put this in perspective, personal consumption expenditure on personal computers in the US in 2004 was only 0.6% of consumption expenditure, meaning that, by at least one metric, the average Englishman valued sugar more than the average American values his or her computer...

Prior to 1700, the average European consumed 182 kg of bread and 182 litres of beer per year...Half of all spending was on beer and bread, and fully three-quarters of all calories came from these two sources alone. The reason for massive beer consumption was simple – water was often contaminated. This was especially true in the cities. Brewed beer was safe. It is hence not surprising that it was consumed throughout the day, often with breakfast, and in all forms – including as beer soup in the morning...

Minivans, satellite TV, the internet, and mobile phones have made life better. The single biggest addition to welfare comes from the introduction of personal computers, credited by Greenwood and Kopecky with a gain of 3.5-4% of consumption expenditure. Compared to these figures, the gains for coffee, tea, and sugar look very large.

The thing to highlight here is the importance of TRADE. Without expanding trade, it is doubtful that tea, coffee, and sugar could have ever become available. Hence, variety gains from trade. It only took until 1980 for Krugman to formalize it in the trade literature.

Some Links

Not much time to talk about these, but they're interesting:
Bayesian analysis of support for school vouchers; it would be interesting to see for health care.
When supply is low, the price is high: Womens' attitudes towards monogamy and the relative supply of marriagable men.
Probability is the oil of rationalization: "To rationalise a choice you want to make, you choose costs and benefits that lead to your choice seeming like the rational conclusion."
And to complement the previous: Ice versus soda cost-benefit analysis.

Economic Indicator of the Week

Maybe we can put this under "timing of durable purchases." For those interested, I made a purchase that would count in this indicator just a week or two ago.

.... the Norm

Being at a military college, I could have told you this.

Pythagoras's Student

Interesting anecdote of the first known proof of the existence of irrational numbers.
I have to think today, instead of putting Hippasus to death, Pythogoras would have stolen the proof and claimed it for himself.

Hippie Deoderant

I almost feel like trying this out of curiosity.

Cheating goes Bionic

My first thought on seeing this: And I thought cellphones and blackberries facilitated cheating!

Gambling Statistics "Fun" Problems

Includes a neat one on a marriage game. (Via Geekpress and MR)

Secondary Environmental Impact of "Cash For Clunkers"

The main, primary effect of C4C is positive, but since the traded-in cars are scrapped, not sold in developing countries (for even higher-emission vehicles) is the environment help trumped (somewhat) by restricting trade in the used car market (by requiring the vehicles to be scrapped?

Bigshots on Financial Innovation

Tyler Cowen and Felix Salmon duke it out while Mike Konczal holds middle ground.

Sampling and Newsertainment Polls Dymystified

The Daily Show With Jon Stewart	Mon - Thurs 11p / 10c
Poll Bearers
www.thedailyshow.com
Daily Show Full Episodes Political Humor Spinal Tap Performance

For those who are interested, here's a link to the equally-funny "moment of zen..."

Best "Moment of Zen" Ever

This is from a ways back, but when it came up as a suggestion after watching clips from last night, I was reminded of its comedic beauty.

The Daily Show With Jon Stewart	Mon - Thurs 11p / 10c
Moment of Zen - Coulter Sells More Books
www.thedailyshow.com
Daily Show Full Episodes Political Humor Spinal Tap Performance

Hmmmm...

Interesting.

Perfect Information: The Movie!

"The Economics of Groundhog Day" (proposed alternate title: why perfect competition doesn't generally exist). Infer what you want about current-day debates.

Question about the housing bubble/financial crisis.

If the housing bubble and financial crisis can be attributed to a small incentive to give a small percentage of home loans to poor borrowers in the US, why did UK and Germany have bubbles and crashes, too, and why did UBS and RBS have their own subprime crises? I mean it seems like an obvious way to debunk the "deregulation and 'innovation' were great it was the liberals' fault for trying to help poor people."

Krugman's Pants

Ever wonder if the talking heads are wearing pants below the pan of the camera? This is Paul Krugman today before appearing on MSNBC. He posted it on his blog.

The usefulness of Venn Diagrams

A couple weeks ago at tennis, one of the people I had the pleasure to
lose to (who teaches junior high math) mocked the usefulness of Venn
Diagrams. Of course, they're pretty useful to illustrate logical
relationships, and according to Nate Silver at 538, Mr. Huckabee could have used them this past spring.  

Conspiracies and Economic Statistics

Menzie Chinn at EconBrowser writes,

In my view, the reason why so many hold onto these views is because it's so much easier to remain ignorant, and leap to the conspiracy view, than to do the hard work to understand why the statistics are imprecise measures of economic concepts, and why they are revised over time. After all, the former requires nothing more than taking somebody's word, the latter entails reading the supporting documentation, comprehending what the terms used mean, and applying some basic math and statistics skills...

In other words the reason conspiracy theories attract a nice crowd of supporters is because people are "rationally ignorant." Being informed takes a lot of effort, and it's easy to believe a plausible lie (along with a dose of paranoia that the other side is lying) than it is to be bothered with the facts.

Interesting Happiness Map

From Gallup, the well-being index has a map tool where the colors represent the quintiles of the distribution of states, districts, etc. Personally, I think the congressional district option is more informative because congressional districts are a little more closely normalized by population than states as a whole (and thus the quintiles are more meaningful, I think).

Pot is a NORML good

A normal good is a good whose demand increases with income. Here is the correlation between pot use and per capita gross state product (GSP).

Better Bones

More fun health information.

What?

Sauna is a competitive sport?

Improving Math Skills

Free Exchange cites new research showing better math skills lead to about a 15% increase in wages of black males since changes were made to required curricula. The theory is that there were high margins for gain for black students because their access to basic math classes had been limited. Great. So let's get more teachers and teach more math at advanced levels. Not so simple. Many high school math teachers did not even earn a minor in math at the bachelor's level. Why? Precisely because people with a quantitative degree (and are thus qualified to teach math) can earn higher wages! Those with math degrees (and minors) are busy doing things that earn better money than the parity negotiated by the teachers union. If we could do more in the secondary level to have market-based differentials between math teachers and teachers in fields with less lucrative outside options, then the math teachers we do end up with might be better qualified.

Change the "Price"

I'm pretty sure if people had to give up something to get into a town hall meeting, you'd easily be able to weed out riffraff who don't want to actually gain information from the discussion. Now, it might be unreasonable to charge money for access (although I wouldn't oppose it), but what if you simply told people to fill out a form with their name and address, and show valid ID? Would that raise the "price" enough to bring some civility to the debate, and maybe tone down volume of the misinformation?

A lot of comparisons are out there, by the way, with anti war protests and their rancor. In a way, that's true, but those protesters generally kept their protests to the streets - they were seldom allowed into the "meetings" or "discussions" Bush and other Republicans held to preach to their base.

Stop picking on the USPS

Via Krugman: 89% of Americans have a favorable view of the Post Office.

Tyler Cowen on Progressivism

I'd suggest looking at all 11 points in favor of the idea, bearing in mind the second-to-last paragraph: "In due time I'll be writing more systematically about why those views are not, on the whole, my own. But not today!" I particularly like #6 and #8.

6. Limiting inequality will do more to check bad governance than will the quixotic libertarian attempt to limit the size of government.
8. We should support free trade, more immigration, and more foreign aid, but the nation-state will remain the fundamental locus for redistribution. That means helping the poor at home more than abroad; a decision to do otherwise would destroy political equilibrium and make everyone worse off.

Dr. Cowen is generally a skeptic of government interventions, so it will be interesting to see his critiques.

Mark Thoma on Economic Models

A map has always been a principles-level analogy for why models are useful. Mark Thoma gives us a nice twist on it:

But all the tools in the world are useless if we lack the imagination needed to build the right models. Models are built to answer specific questions. When a theorist builds a model, it is an attempt to highlight the features of the world the theorist believes are the most important for the question at hand. For example, a map is a model of the real world, and sometimes I want a road map to help me find my way to my destination, but other times I might need a map showing crop production, or a map showing underground pipes and electrical lines. It all depends on the question I want to answer. If we try to make one map that answers every possible question we could ever ask of maps, it would be so cluttered with detail it would be useless, so we necessarily abstract from real world detail in order to highlight the essential elements needed to answer the question we have posed. The same is true for macroeconomic models.

I may have to use that in class.

Worth Sharing

More dumb quotes, in case Art Laffer's credibility hadn't fully depreciated.

If you like the Post Office and the Department of Motor Vehicles and you
think they’re run well, just wait till you see Medicare, Medicaid and health
care done by the government.
- "Economist" Arthur Laffer during an appearance on CNN.

1. I've never had a problem with the Post Office.
2. The DMV is run by the states not the federal government.
3. Medicare and medicaid are the health care of almost 20% of all americans is already done by the government

Relating things back to Trade and FDI

I wonder if anyone has estimated the number of jobs offshored due to the fact that health insurance here is employer-paid, and not publicly-paid, like it is in other countries. How much would it decrease the total benefits employers would be paying if the current mandates were dropped?

4.9%

That is the percentage of the market presumably covered by individual non-employer, non-public health insurance in 2007, according to the CDC. In my view, these are the only folks who would lose their "choice" over health care, unless you count the 16.6 percent who have no insurance. I suspect that the "majority" of Americans who are happy with their insurance are either (a) in a public option already (medicare, medicaid, VA/Tricare/military); or (b) in an employer-provided plan, over which they have no choice, but are probably getting a good deal on, on average (because of independent selection into the pool). Has anyone polled just insurees who purchase insurance on the private market (or those who are uninsured)? I'd be curious to see how the "choosers" feel about public option.

More on Stupid Meetings

From Reuters' Felix Salmon. My quote of the day:

In a badly-managed business, you get massively-multiplying meetings: every
decision, no matter how tiny, ends up being debated and signed off on
by far too many people, who thereby get to feel (and show their bosses)
that they’re Doing Something.

The Crash of the "Hotness" Market

Fun stuff. HT: Free Exchange

More on the Political Compass

One of the problems with survey data (especially the Likert-scale type of survey represented in the Political Compass) is that magnitudes are almost meaningless. Statistically, in order for me to compare, say, my dad, with, say, John McCain or Barack Obama it has to be the case that: (1) both of those figures took the test (they didn't); and (2) the magnitudes on the scale are meaningful (they're not).

Economically, putting magnitudes on preferences (cardinal utility) is something that has been recognized as fruitless for some time, although political scientists and psychologists still try to do so. This leads to the crux of the various "impossibility theorems" in the various critiques of the notion of "social welfare" in economics.

Inter-personal comparisons of "utility" or magnitudes of preference in a survey like the Compass requires me to assume that both people know what is meant by "Agree" as opposed to "Strongly Agree" in the Likert Scale, that they agree on that meaning, and so on. Usually, people don't agree on the intensity meant by "Strongly" in these surveys and the study faces the problem of not having "Inter-Rater Reliability." For a statement like, "If economic globalisation is inevitable, it should primarily serve humanity rather than the interests of trans-national corporations," it can be hard to have strong feelings for or against because "serve humanity" can mean different things to different people. Also, are the interests of "humanity" and "corporations" necessarily conflicting? I put "agree" on this because I think that freer trade and factor movements do serve humanity even if they serve corporations in the process. How intensely to I believe this? I guess pretty strongly, but the loadedness of the question makes me tentative.

My suggestion for the authors would be to make the survey binary - "agree" or "disagree." That way, their index would map to a well-defined and well-calibrated as a ratio-scale varilable. The current scale for the responses maps to a poorly calibrated interval-scale variable (and probably give a better dispersion of views for comparisons. Here are some pictures of their comparisons of various leaders:

Leaders:
2008 US Presidential Candidates:
2004 Presidential Candidates:
UK Political Parties (Current and Over time):

WMRA: Unconstitutional Religious Tests for Political Office (2009-07-31)

WMRA: Unconstitutional Religious Tests for Political Office (2009-07-31)

Shared via AddThis

Welfare and Liberty

I was talking about the Arrow "impossibility theorem" with a friend the other day, and was reminded of a paper by Amartya Sen (1976, Economica) that proves an application of the result. It basically goes like this: The principle of Pareto Efficiency (Optimality, that if everyone is at least as well-off under a certain policy than the status quo it should be pursued) is not completely compatible with personal liberty (that each person should be free to choose for themselves). In other words, he proves "the impossibility of the Paretian Liberal" (liberal in the classical sense, i.e. "libertarian"). The crux of it is that you can ideologically favor liberalism, but in certain circumstances this will lead to a loss in welfare, or utility for certain individuals. Politically, any party will argue for either side, depending on how it suits their perceived constituencies or predetermined preferences.

Political Compass

This is interesting to gauge your social-political leanings. Here are my scores:

Your political compass

Economic Left/Right: 1.00
Social Libertarian/Authoritarian: -2.87

More reasons to be suprised the south opposes better health care

Y'all are bringin the averages down!

Life Expectancy Arguments

Data coming out is convincing me more and more that we do get better quality health care in the US. For example, Tyler Cowen at MR cites a study comparing life expectancy at birth and life expectancy conditional on reaching age 65 for the US and the Netherlands:

At birth, someone living in the Netherlands can expect to live 2.35 years longer than someone born in the US, but at age 65, the difference is reversed, and someone living in the US can expect to live 0.4 years longer than someone living in the Netherlands. This difference can be explained by assuming that semi-socialized health care is better for young and worse for old people, or, at least as likely, different policies are not the main cause of the difference

Sources: CDC national vital statistics 2004, www.cdc.gov/nchs/data/nvsr/nvsr56/nvsr56_09.pdf and RIVM 2007 levensverwachting, www.rivm.nl/vtv/object_document/o2309n18838.html (in Dutch)

So, the question still remains on distribution. Is it better to increase the likelihood that citizens are able to reach the age of 65 or that those who do (either because they are congenitally wealthier or healthier) live even longer? There are a lot of interesting tradeoffs in the debate, and the politicians are not focusing on any of them because the old conflicts over class and culture play better to less affluent voters (remember more than half of all Americans have below-average incomes).

Credibility problem

There's no such thing as a free lunch, folks. You must choose: higher taxes, fewer public services (roads, education, health care, military), or higher deficits.

Today's reason neither politicians nor doctors want to lower costs

From Marginal Revolution and the New York Times:

From a very good piece in the NYTimes on lobbying:

One of the largest sources of campaign contributions to Senate Democrats during this year’s health care debate is a physician-owned hospital in one of the country’s poorest regions that has sought to soften measures that could choke its rapid growth.

According to the Times, the hospital has been quite successful in its efforts. And where is this powerful hospital with all the lobbying money located? Why in the metropolitan area of McAllen, Texas. McAllen, Texas? Hmmm...now where I have heard that name before?

Hint: McAllen Texas has the highest health care costs in the country.

Hmmm.

This article in the Chronicle of Higher Education purports that "There's no Power in Power Point" and advises teachers to "Teach Naked" (without technology). Then there's this:

It's worth pointing out that PowerPoint presentations are generally better than many older classroom technologies, like slate chalkboards or overhead transparencies filled with hand-scrawled notes that students struggled to decipher. So computers have probably led to a slight improvement in teaching.

So, as usual, it's not really so much the technology as much as it is how you use it. Technically, I use "smart boards" and "Power Point" but I almost never use pre-made slides anymore. I use the laser pen and palatte to draw and write the main points while I mention them. Over the last couple of semesters, students who complained about "boring power point" lectures were usually ones who had other issues with the difficulty of statistics generally or their grade specifically.

Also, I've been reading some studies on so-called "active learning." Much of it finds that active learning does not improve mastery of concepts. However, it does improve student perceptions (and teaching evaluations), and thus I have been investigating various gimmicks to introduce more "active learning" in my classes.

From Economix and according to The 2009 Small Business Economy:

Small businesses also pay more for health insurance than large companies. According to the Commonwealth Fund, small businesses now pay 18 percent more than large businesses pay to obtain comparable insurance.

Adverse selection?

Kenneth Arrow

Another in a set of interviews with great economists by Conor Clarke at Atlantic Monthly:
Part one: Economics and business cycles
Part two: Health Care
I guess this is one of my favorite quotations from it:

One point was that health is a random event. It's not like buying automobiles. Whether you're sick or not is hard to predict. Some get sick and some don't. That uncertainty makes it an ideal scenario for insurance. Some houses burn and some don't, but you know whose. So you have fire insurance. (And by the way, financial problems have the same characteristics, and I was always interested in the subject -- the uncertainty.)

Later,

But in the case of health care there are three players: the insurance company with the health plan, the physician, and the patient. The physician presumably has a better knowledge of what the patient needs -- at least better than the insurance company does. So the insurance company could never put together a bill. There is also a Physician and patient relationship, but the physician knows more than the patient.

There are information asymmetries in this story. Health insurance is limping along. It's limited in scope, and then you other consequences. Insurance companies have high premiums to protect themselves. The ones who come to the insurance company are sicker and the people have to pay more. You have adverse selection. You have moral hazard. And the doctor does what's on the safe side -- defensive medicine -- without regard to cost. These are fundamental conditions that make health insurance difficult.

In other words, even if a 2 quart bottle of ketchup costing twice the price of a 1 quart bottle shows market efficiency for ketchup, insurance (and financial) markets work much differently. Of course, I've made these points about adverse selection and moral hazard casually myself, too, but getting them from a Nobel (who isn't Krugman) probably adds more weight.

On the policy side, Arrow had a nice result in his 1951 Ph.D. thesis known as the impossibility theorem.

Life Expectancy Math by Bill O'Reilly

I thought yesterday was funny. Bill-O shows his complete lack of statistical literacy in this clip.

Rational Explanation for Hating Meetings

From Paul Graham via Freakonomics. Here's a quotation that didn't make the summary:

I find one meeting can sometimes affect a whole day. A meeting commonly blows at least half a day, by breaking up a morning or afternoon. But in addition there's sometimes a cascading effect. If I know the afternoon is going to be broken up, I'm slightly less likely to start something ambitious in the morning. I know this may sound oversensitive, but if you're a maker, think of your own case. Don't your spirits rise at the thought of having an entire day free to work, with no appointments at all? Well, that means your spirits are correspondingly depressed when you don't. And ambitious projects are by definition close to the limits of your capacity. A small decrease in morale is enough to kill them off.

Each type of schedule works fine by itself. Problems arise when they meet. Since most powerful people operate on the manager's schedule, they're in a position to make everyone resonate at their frequency if they want to. But the smarter ones restrain themselves, if they know that some of the people working for them need long chunks of time to work in.

Emphasis added by me (for no particular reason).

Health Care Quality is Better in the US

According to Becker, who cites enough careful research for it to be believable. There might be some bias in the choice of which diseases to study, and how the empirics of those studies are conducted, but I'm pretty convinced. But then, Becker does a cocktail-napkin calculation of a year of life versus the cost of 'providing' it through high-quality care. I don't think he really uses realistic numbers, and I certainly don't think he compares the quality of life well by not considering the number and value of years that would be provided to younger adult uninsured Americans to the number and value of years that are already being publically 'provided' through Medicare (or other uses of those public dollars). Of course, it would be easy to say how crass it is to think about it this way, but a health insurance bureaucrat already does, for profit.

What People Don't Know Could Fill the Oceans

HT to Marginal Revolution's "Funniest Sentence I Read Today."

At a recent town-hall meeting in suburban Simpsonville [SC], a man stood up and told Rep. Robert Inglis (R-S.C.) to "keep your government hands off my Medicare."

"I had to politely explain that, 'Actually, sir, your health care is being provided by the government,'" Inglis recalled. "But he wasn't having any of it."

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!

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

http://economix.blogs.nytimes.com/2009/07/22/the-regressive-tax-that-does-the-work/

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			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.

UPDATE:
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.

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.

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?

Guess High

I came across an example for teaching statistics from Gelman and Nolan (2002), Teaching Statistics: A Bag of Tricks that was interesting (here is a link to a journal article published on it in The American Statistician). Suppose that there is a jar of quarters filled to a certain line. We don't know how many are in the jar, but after pooling information from a lot of guesses we have an average "guess" of 160, and the standard deviation of the guesses is 60, so let's take that as the distribution, supposing it is "normal." Now, if I want to guess the number of quarters in the jar (and the payoff is fixed at, say $50), it is a simple matter of maximizing the likelihood function, L() (which is equivalent to minimizing your squared losses):
max{(1/sqrt(2²))*exp((-1/2²)*(x-)²)}.
Maximizing, and plugging in 160 and 60 for  and , respectively, you get back the intuitive guess – 160, the average you started with.

But that's not how these carnival games typically work. The guesser gets what's in the jar, usually. So, to find the guess that maximizes x times the likelihood function:
max{(x/sqrt(2²))*exp((-1/2²)*(x-)²)},
which is equivalent to maximizing the natural log of xL(q), i.e.
max{ln(x)- (1/2²)*(x-)²)},
since the natural log is a monotonic function. The first-order condition is:
1/x - (1/²)*(x-) = 0,
and plugging in 160 and 60 for  and , we get:
x = 180.

This is related to the moral hazard involved with stock and asset pricing (or, the recommendations and ratings put out to customers by banks, brokerages, and ratings institutions). Sure, we could estimate an accurate value for an asset, but when your payoff is positively correlated with the value of your guess, you'll have a systematic incentive to guess high. If enough of these "high" guesses accumulate over time, eventually it becomes obvious that the "guesses" being collected in the market are way off from the "true" expected value.

Why doesn't the South Support Health Care Reform?

Economically, they should, because they're more likely to need it (8 of the "top" 10 and 10 of the "top" 13 fattest states are in the south), and more likely to not have it (13 of the top 14 highest incidences of poverty are southern states). Yet (and I have no data on this) it seems southerners get a real bug where it don't belong when they hear about health care reform. Hmmm

... and Earnings

... and what about "real rigidities," (i.e. wages resist falling even while unemployment rises)?

Inventories

Maybe there's something to the Keynesian inventory-accumulation/recessionary-gap model we teach the principles students...