Monthly Archives: June 2011

What’s a Ponzi Scheme: Karl Smith on Truth in Blogging

I think this is interesting for suggesting that there may be two ways of defining a Ponzi scheme.  One is a claim on future income not backed by an investment in an identifiable asset.  The other is simple claims on the future that ultimately can’t be made good.   If find my self thinking by the first definition could the family at least partially once a means of securing one’s old, a claim on the future be a Ponzi scheme.  I suppose not if children are thought of as capital assets.   That fits with capital theory but doesn’t give most people the warm and fuzzies.

Arnold Kling David Henderson revisits his claim that Social Security and Medicare are Ponzi schemes based on a comment by John Seater. John’s point was that Ponzi schemes are necessarily insolvent while Social Security would be solvent if the population was growing fast enough.

Arnold David replies:

It’s not necessarily the case that Ponzi schemes must circle around to the original people who invested in them. If the scheme offered modest enough returns and spread slowly, it could last forever in a country with a growing population. Therefore, Ponzi schemes, contra Seater, could remain solvent.

This actually brings to mind a point much deeper than the Social Security debate; a point that may be fundamental to intellectual disagreement in policy circles.

Arnold is using the term Ponzi scheme and I am certain that he feels its appropriate and meaningful. Yet, as best as I can tell he is stripping of its primary connotation: necessary insolvency and bankruptcy for the participants.

It is tempting at this point to say that Arnold is being “dishonest” about Ponzi schemes and Social Security. This is where lots of intellectual discussion go off the rails/

However, I don’t think “dishonesty” is accurate in the traditional sense. I think Arnold means what he says and is communicating in good faith. Leverage the negative affect of the term Ponzi scheme seems appropriate to him because Social Security and Medicare likewise leave him with negative affect. I am assuming because no investment is induced by the system even though its made to look like a savings system.

Yet the term Ponzi scheme leaves most people with negative affect for entirely different reasons. For most people, the negativity comes from the fact that you cannot win and sooner or later the entire thing must come crashing down.

My points in all of this are several

  1. This type of cross-talk happens all of the time in intellectual disputes and is responsible for a good portion of the disagreement that we think we are having.
  2. Though it can easily escalate to attacks on intellectual honesty there is no bad faith on anyone’s part
  3. It can be cut through with careful and calm reasoning. This is hard to achieve but we should strive for it.

Filed under: Bias and Rationality

Truth in Blogging
Karl Smith
Wed, 29 Jun 2011 17:09:49 GMT


TSA policies must change


CNN reports:

The Transportation Security Administration stood by its security officers Sunday after a Florida woman complained that her cancer-stricken, 95-year-old mother was patted down and forced to remove her adult diaper while going through security….

"While every person and item must be screened before entering the secure boarding area, TSA works with passengers to resolve security alarms in a respectful and sensitive manner," the federal agency said. "We have reviewed the circumstances involving this screening and determined that our officers acted professionally and according to proper procedure."

Jean Weber told CNN’s Fredricka Whitfield on Sunday that the security officers may have been procedurally correct, but she still does not believe they were justified, especially given her mother’s frail condition. "If this is your procedure — which I do understand — I also feel that your procedure needs to be changed," she said.

How much longer are we going to tolerate living in a police state where this sort of absurd security theater takes place? I simply don’t believe TSA makes us safer. What makes us safer are secure cockpit doors and passengers who will no longer stand by like sheep when terrorists strike. The rest is all costly bull sh*t.

TSA policies must change
Steve Bainbridge
Mon, 27 Jun 2011 22:28:56 GMT

Where are the Adults?

Well the deadline for the debt ceiling increase looms.  It seems to me that nobody is being an adult.  Namely no one is asking for a broadly share sacrifice to get our house in order.

Revenues are a problem especially.  The President and his allies are only willing to entertain taxes for the deficit aimed at “the Rich”.  This seems irresponsible in that it seems more interested in shifting a larger share of the cost government to the well off.  The issue is a need for redistribution, thought much of the President constituency wants that.

The Republicans seem even worse.  They are unwilling entertain any increase revenues even though it is impossible to see how to close the fiscal gap on the spending side alone.  Especially if you claim with a straight face you don’t want to wipe out the middle class.  Republicans sound like they think federal spending goes to the moon rather than real Americans.

Everyone wants throw someone else under the bus that their constituents don’t identify with.  The Democrats choose faceless millionaires, and billionaires.  The Republicans choose equally faceless welfare queen illegal immigrants, not recalling that welfare reform was done 15 years ago.

It seems to me that something like the Simpson plan with real increases in revenues and major spending cuts affecting almost all of us is what is needed.  This would require real leadership to call for sacrifice for the good of all in time.  After all one reason our response to this recession has been so lacking is that were in poor fiscal condition to do so thinks to Bush’s poor management of the budget over much of the last decade.

Breaching the Debt Ceiling…

Grasping Reality with Both Hands

via Breaching the Debt Ceiling….

What Would We Need for Persistent 5% Growth?

An aging population makes this goal unrealistic.  More immigration might be an antidote.  Did Pawlenty knowingly advocate that?  I doubt it.

Donald Marron

via What Would We Need for Persistent 5% Growth?.

Airplane of the Future

Higher education and health care

The post from Urbanomics explores the similarity of healthcare and higher education.  In addition to what he discusses, I think its fair to think of both as superior goods, that is as income increase they will take an increasing share of total spending and income.  It also seems that in some sense the value of a dollar spent for medical care or education brings more value.

This post will point to a striking similarity between higher education and health care – the sky-rocketing prices for services in both markets.
I have already blogged extensively about the steep increase in the price of health care services, which has far outstripped the rate of inflation. The Economist points to an article by Malcom Harris which highlights the spectacular increase in the cost of college education,

"The Project On Student Debt estimates that the average college senior in 2009 graduated with $24,000 in outstanding loans. Last August, student loans surpassed credit cards as the nation’s single largest source of debt, edging ever closer to $1 trillion… Since 1978, the price of tuition at US colleges has increased over 900 percent, 650 points above inflation. To put that number in perspective, housing prices, the bubble that nearly burst the US economy, then the global one, increased only fifty points above the Consumer Price Index during those years."

What are the reasons for the steep increases in prices in both these markets? Apart from the standard reasons, here are some observations
1. The college education premium has increased considerably in recent years. The returns to higher education has grown exponentially, especially with the emergence of the knowledge-based sectors into prominence in the last two decades. It is therefore natural that students and parents volunteer to cough up whatever it takes to accquire higher education degrees.
This premium has also increased between colleges. A degree from an elite college commands a greater premium in the market than that from an ordinary college. It therefore becomes natural for colleges to increase their fees.
2. Technological innovations of the last decade have increased the quality of service delivery in both markets. Not only has the range of services offered expanded, but also their quality. This trend is more pronounced in health care, especially in critical care and interventions which either increase life spans or improve the quality of post-treatment life.
In such cases, the marginal benefit is clearly a longer lease of life. The enormity of the benefit naturally raises the premiums attached to it. The fact that an increasing number of people are willing to pay these huge premiums only amplifies the increase in premiums.
3. There is a behavioural dimension to the increases. In both markets, the recipients of the service does not directly pay for the service received. In health care, the insurance provider covers the cost of the treatment and the patients’ exposure is limited to his periodic insurance premium payments. In other words, the cost of each treatment or service is not cognitively salient for its recipient.
Similarly, higher education is mostly financed with student loans. In most cases, the repayment of these loans are back-loaded and starts only after the student enters his high-paying job. This financing patterns ensures that the student is therefore not cognitively exposed to the full cost of his education.
In both cases, the absence of any direct connect of the patient and the student with the full cost of treatment and education respectively, mitigates the impact of increasing prices. The insurer and student loan agency act as cognitive smokescreens for the service recipients.

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Higher education and health care (gulzar)
Sat, 25 Jun 2011 00:37:00 GMT

How Superbugs Will Affect Our Health Care Costs


Remapping Debate has a very, very sobering piece on antibiotic resistance, and what it means for the future of health care.  Two graphs sum up the problem.  The first shows the rise of antibiotic resistance in various common infections.


The second shows the decline in the approval of new antibiotics.


These are not two trends you want to see moving in opposite directions. 

There are a lot of reasons for the decline of new antibiotics–the market incentives are hopelessly misaligned, we’ve already picked a lot of the low-hanging fruit, and we’re using way more antibiotics than we should in both humans and in animals.  But anything we do to reduce overusage actually makes the problem of new antibiotic development worse, because it reduces the potential profit.  At any rate, there’s no clear way to solve this terrible divergence.

I’ve been talking about this problem for a while, but I’ve mostly thought about things like the ear infections that would have left me deaf before the advent of penicillin, or people dying in childbirth.  I didn’t start to understand the radical implications that antibiotic resistance has for health care practice until I read the absolutely gripping Rising Plague, by an infectious disease specialist who points out just how much of modern medicine is dependent on being able to control bacterial infection.

  • Without antibiotics, there would be very little elective surgery.  Before sulfa drugs, surgery was a very serious business with a high risk that a patient might die of some complicating infection.
  • Without antibiotics, forget organ transplants.  The immune suppression would almost certainly be fatal in a pretty short time period.  HIV would also be more dangerous.
  • Without antibiotics, retirements would get shorter again. Before antibiotics, the average 60 year old who caught pneumonia was more likely than not to die of it than not.  That’s why they used to call pneumonia the "old man’s friend".  Nor is pneumonia the only potential killer.
  • Without antibiotics, maternal mortality would be a lot higher.  So would mortality from abortions, dramatically. While backalley abortions were horrible, and did kill people up until legalization, the theatrical figures thrown around by the pro-choice movement were mostly due to the lack of antibiotics, not the butchery of the freelance abortionists.  Between 1936 and 1960, the number of deaths from abortions seems to have fallen by something between 80-95%.  Looking strictly at mortality, you’d probably be much better off getting an illegal abortion with antibiotics than a legal one without.
  • Neonates would also be much more likely to succumb to infection, since their immune systems are underdeveloped.
  • Chronic infections can lead to various sorts of cancer (H. Pylori, the bacteria that causes ulcers, also causes stomach cancer).  These would take more people before they got Alzheimer’s.
  • The severely disabled would have much shorter life spans.  Without antibiotics, there would be no way to treat the bed sores, or the lung and urinary tract infections that are common for people with limited sensation or mobility.
  • Strep and its evil cousins, scarlet and rheumatic fevers, would once again be a major killer and disabler of children.

These are by no means all the problems, only the ones I can think of off the top of my head.  What this means for health care costs is a lot more spending on infection–but a lot less spending on everything else.  It wouldn’t be crazy to see health care costs heading down if we didn’t have a reliable means of germ control.

Of course, that’s a world in which antibiotics mostly just don’t work–and by the time that happens, if it happens at all, most of us will be dead.  What happens in between now and then?

Trickier to say.  Infectious mortality will go up, reducing our costs for longer, more expensive diseases–and making people less willing to undergo marginal surgeries. 

On the other hand, when the first-line antibiotics fail, the second line means admitting people to the hospital for intravenous antibiotics.  This is obviously much more expensive than giving them a pill, even if we make all the doctors take pay cuts and use the awesome monopsony power of the federal government to buy all our antibiotics at a discount.  We might be able to worry less about those huge health care costs in 2060–but we might need to worry a lot more about our health care costs in the next twenty or thirty years. 

The superbugs have not only gotten bad fast–from "not really an issue" in 1980 to a major problem today–but they seem to be getting badder faster, as they merrily borrow resistance-conferring genes from each other.  Researchers now say they’re seeing resistance show up in the lab, before they even put the stuff into people.

Of course, the most worrying thing is not the effect on the budget.  It’s the effect on the people.  A world without antibiotics is a world of vast suffering and early death.

Update: Commenter jmgalanter notes

Oh, it gets even more depressing. You haven’t even mentioned tuberculosis; the susceptible bacteria is hard enough to treat (6 months of three or four antibiotics). Now imagine multidrug resistant (MDR) or extensively drug resistant (XDR) bacteria. There are now even strains that are resistant against every anti-tuberculous antibiotic out there.

From the Wikipedia entry on TB:

One-third of the world’s current population has been infected with Mycobacterium tuberculosis, and new infections occur at a rate of one per second. About 5-10% of these latent infections will eventually progress to active disease, which, if left untreated, kills more than half of its victims. Annually, 8 million people become ill with tuberculosis, and 2 million people die from the disease worldwide. In the 19th century, tuberculosis killed an estimated one-quarter of the adult population of Europe; and by 1918 one in six deaths in France were still caused by TB. By the late 19th century, 70 to 90% of the urban populations of Europe and North America were infected with M. tuberculosis, and about 40% of working-class deaths in cities were from TB. During the 20th century, tuberculosis killed approximately 100 million people. TB is still one of the most important health problems in the developing world.

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How Superbugs Will Affect Our Health Care Costs
Megan McArdle
Tue, 14 Jun 2011 17:21:30 GMT

Storage vs Bandwidth (1986-2012)

I’m confused.  Doesn’t this suggest cloud computing shouldn’t be on the rise???  Maybe it’s effectively greater geographic availability.


Chart Porn


via Storage vs Bandwidth (1986-2012).

Biggs Junction Wind Farm