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...

Opportunity Cost

The Minnesota Golden Gophers have a new $250 M. stadium (the article has a nice picture of fiscal-conservative wannabe Tim Pawlenty sporting a Gophers sweatshirt and a little bit of mullet-action going on while he signs the bill - priceless!). Whoopee. The great state of Minnesota paid almost 40% of the bill, which amounts to $10.25 M. per year for the next 25 years. Given that there is a negative net economic impact from public dollars spent on sports stadiums, how stupid was this? Well, at current tuition rates, that could have funded about 586.5 full-ride one-year in-state scholarships (including room and board). Blech. Here are the votes.

Careful about "incentives"

Free Exchange's Interactive Graphic of the Day

Tip to FE on this, and NYT for putting it up. This graph gets kudos for explaining the economy for 2 reasons:
1) if you just look at the first page of the thing, it's hilarious, because it's supposed to be about the economic situation and what it looks like is a three-year olds scribble. I could have stopped there and been delighted, but,
2) going through the interactive phases actually shows something informative (trust me), but you do have to be patient and look at what you're seeing carefully - industrial output and leading indicators.
Neato

"Look" signs

A few years ago there were a couple of pedestrian deaths caused by motorists near the University of Illinois. There were two legal responses to this: (1) reduced speed limits to 15 right around campus; and (2) signs at intersections saying you must yield to pedestrians (even in zones where speed limits weren't reduced). (1) was probably not a bad idea , but (2) never made much sense to me and predictably caused more confusion, not less (not to mention there were still a couple of pedestrians hit in the year or so following the posting of the signs).

First, the "yield to pedestrians" signs did was make less clear who had the right of way between a car on the street and a pedestrian who had not yet actually entered the crosswalk. Smart pedestrians will still pause when there is approaching traffic because her incentives are well-defined. But forgetting that relatively minor confusion, it created a Pelzman Effect and you would increasingly see dumb (sometimes intoxicated) undergrads wandering out into intersections without care, and sometimes talking on their cellphones.

U of I sent out surveys and I said then what I'll say now: They should have put up signs warning pedestrians to look both ways before entering the intersection. It's so simple we teach it to kindergartners. Anyway, they have such signs painted on the crosswalks in Vancouver (where I attended a conference last week) for pedestrians that say "LOOK ->." Maybe their health care system isn't what we want, but their attitude towards dummies who don't pay attention in traffic is admirable.

More nerdy stats stuff

Poor statistical communication, or lying with statistics?

Flipping Bias

Here's something that should make perfect sense, but most people don't believe. There's no such thing as a biased coin - only a biased toss, if there's a catch. No, not "but there's a catch," literally "if" there's a catch preventing the coin from bouncing or rolling and there is no rotational spin on the flat axis of the coin. The summary of the explanation can be found in Teaching Statisitics by Gelman and Nolan.

"But," you might say, "what if the coin's center of gravity is closer to the head side?" or "what if one edge is heavier?" or "what if it's slightly concave like a frisbee?" Still, the coin is not the source of any bias that results. As long as the coin does not bounce or roll after it lands, it has an equal chance of heads and tails (I've never observed a coin landing vertically on its edge but I won't completely rule it out!). Just think, a coin tossed with only "flipping" momentum spends 50% of it's time heads up, and 50% of it's time heads down. No bounce, no roll, no spin, no bias.

E.T. Jaynes is Professor of Physics (and, as it turns out teaches statistics to physics students) at Washington University in St. Louis. To illustrate, he used a pickle jar (to view this you need GSView for free or some other postscript file, *.ps, viewer), which is top-heavy and concave. Tossing it 100 times without spin, bounce or roll, he got results (p=0.54) that were not statistically different from 0.5 (z = 0.04/sqrt(0.5^2/100) = 0.8 --> P(z>0.8) = 0.424). He also tossed it to favor tails (allowing it to roll) and to favor heads (by appling rotational spin to it). When it was tossed in a way that made it roll, heads came up zero out of 100 trials, and when it was tossed with rotational spin, it came up heads 99 times.

So, the moral of the story is this. I've discussed before the notion of bias in flipping one versus two discs to determine the pull preceding an ultimate game. This tells us that the disc (uneven as it might be) is not biased unless the tosser applies bias. If the bias in the tosses is the same, then even is a dominant choice, even if the direction of the bias is unknown (but it should be known if you see the toss - will it spin or roll?). This can be proven as long as you know that the area of a square is more than the area of a rectangle with equal perimeter, i.e. it can be shown that p^2 + (1-p)^2 >= 2p(1-p), with equality only at p = 0.5. However, that point is now moot. If the tosser is not manipulating the toss, any single flip (heads or tails) and any double flip (odd or even) has "fair odds."

I'm convinced. Hope you are too.

Government's Net Worth?

This got me thinking:


US To Trade Gold Reserves For Cash Through Cash4Gold.com

What exactly is the net worth of the US Government? Yes, the deficit/debt are large, and should be reduced, but how much is the stuff lying around that belongs to the public (land, fighter jets, buildings, etc.) worth? Anyone know of a place to try to get a ballpark for this information?