Monthly Archives: January 2013

Rewriting History: James Buchanan and the National Debt


It is customary not to say bad things about people when they die, but that is not a reason to construct an alternative reality, as the NYT appears to have done in its obituary for James Buchanan. The obituary tells readers:

“Dr. Buchanan partly blamed Keynesian economics for what he considered a decline in America’s fiscal discipline. John Maynard Keynes argued that budget deficits were not only unavoidable but in fiscal emergencies were even desirable as a means to increase spending, create jobs and cut unemployment. But that reasoning allowed politicians to rationalize deficits under many circumstances and over long periods, Dr. Buchanan contended.

“In a commentary in The New York Times in March 2011, Tyler Cowen, an economics professor at George Mason, said his colleague Dr. Buchanan had accurately forecast that deficit spending for short-term gains would evolve into ‘a permanent disconnect’ between government outlays and revenue.

“‘We end up institutionalizing irresponsibility in the federal government, the largest and most central institution in our society,’ Dr. Cowen wrote. ‘As we fail to make progress on entitlement reform with each passing year, Professor Buchanan’s essentially moral critique of deficit spending looks more prophetic.'”


This discussion turns the reality of U.S. budget deficits on its head. As can be seen, the debt to GDP ratio was consistently falling in the 35 years following World War II. This was the period when we seeing the indiscipline of Keynesian economics at its fullest bloom. As Richard Nixon famously remarked during his presidency, “we are all Keynesians now.”

The debt to GDP ratio began to rise again in the Reagan era as a result of his tax cuts and military buildup. Ironically the piece tells us that Reagan era was when Buchanan’s agenda became “ascendant.”  In the post-Reagan era the debt to GDP ratio again began to decline under President Clinton. It rose slightly under President Bush, who is not generally viewed as a Keynesian, and then exploded after the economic downturn caused by the collapse of the housing bubble. 

In short, if Buchanan’s argument was that liberal demands for an ever expanding welfare state would lead to chronic deficits, history has shown him to be wrong. If the argument is that the desire for tax cuts and increased military spending, coupled with macroeconomic mismanagement, could lead to large deficits, there is a strong case.  

Rewriting History: James Buchanan and the National Debt
Thu, 10 Jan 2013 14:04:49 GMT


Domestic Auto Sales Crack 12 Million


Motor Intelligence estimates a 6.49 million sales pace for domestic trucks in November and a 5.55 million sales pace for domestic autos for a total of 12.04M


While Feb was a stellar month for overall sales it wasn’t totally out of the box for domestics, which notched only. Imports sold 3.65 M in Feb, given a total sales rate of 14.50M.

However, since Feb imports have been weak. This month they only put in 3.50M despite a total sales rate of 15.54M.

This puts extremely heavy pressure on US manufacturers, especially in the truck space. Kentucky Truck, the largest auto assembly plant in the US and the home of the Ford F-Series, ran tight over the summer to keep up with demand and from the looks of it Ford dealers will still be running short on trucks.

With residential real estate picking up demand will only increase going into 2013. At this point, however, the truck space will soon hit industrial capacity constraints and we may be looking at substantially reduced incentives or as economists call them, higher prices.

Domestic Auto Sales Crack 12 Million
Karl Smith
Tue, 04 Dec 2012 01:13:44 GMT

Is the Healthcare Market like any Other and Reformed in the Same Way

What is nub of a major issue in health care reform?  I think  a lot revolves around the health care market.  Critics of Obama care seem to rely a lot on the idea that health care just needs to be deregulated like any other market and the power of choice harnessed.

Reforms that start from this notion are mostly based on making patients into consumers, that choose what treatments based on understanding of the benefits and costs.  Much of Obamacare is dismissed as centralizing choices to the detriments of patients.  Finally, its seems to this all assumes that patients differ in what they want, much like some customers want blue cars and other want read.  Give consumers sovereignty and wait for the great results.

What might be wrong with this point of view?  I think several things.  What follows are hypothesis, not empirically proved propositions or theoretically derived.

1. Healthcare consumer lack information – Our ability to act rationally as economic agents grows to some degree from experience.  We learn how to buy cars, appliances and so, because we buy these things more than once. 

Healthcare is different:  we don’t generally buy cancer treatment many times in our life.  We don’t have strong base of experience to fall back on.

The consumer choice is inherently quite complex.  The effectiveness of different treatment regiments is not easily discerned.  Among health professionals the ranking of the effectiveness of treatments is far from uniform.

2. Healthcare is a means to an end not an objective of desire in itself – We don’t make healthcare choices to enjoy the effect of the treatments.  We do so to be healthy.  When choose between a red and blue car, we do to a higher degree anyway want the car for itself.

3. Patients in fact all want the same thing mostly – Advocates of customer choice in many markets can argue for allowing customers be able to satisfy different tastes and desires.  People like different kinds of entertainment; housing; transportation; and cloting to name a few.  Competition and consumer choice allows those differences to be rcognized.

Healthcare however as noted above is a means to an end.  People, I conjecture, want much the same things as patients:  good health; lack of illness; lack of pain; and to feel good.

This all so much conjecture, I admit again.  What would suggest any basis for it? 

For one I think we might see wide variation among poorly informed customers (patients) making different choices desiring the same end.  If these choices are also influenced by regional practice, then we might see a lot variation in health costs that don’t necessarily correlate well with health results, and we do.

From a new paper in the Journal of Health Politics, Policy and Law (JHPPL) by Sandra Tanenbaum:

The finding of variation, unlike much in health policy, confers a measure of hope. The project to reduce variation is buoyed by a sense of the possible. If different physicians, regions, even nations do things differently — and without apparent adverse effects — there are extant, reasonable alternatives to the status quo; these can be studied and replicated or adapted. In a health polity that is accustomed to alternatives that are never proposed, or proposed and not passed, or passed and not implemented, or implemented to no avail, the identification of an alternative that is already working somewhere is a heady experience. The Commonwealth Fund’s (n.d.) cross-national research has a similar effect. It is not only the finding that Americans have worse outcomes than nations that spend less, but the very fact that nations with better outcomes can spend less, that communicates that we can do better and shame on us if we do not. Atul Gawande’s (2009) treatment of cost variation in two Texas cities provides a twist on this argument when he finds that physicians in the higher-spending city participate in a culture of greed; here spending less is not only as effective but is morally superior. Still, even without the moral overlay, Gawande shows us that the lower-spending city exists and that its residents are equally healthy. This is the allure of the variations discourse. Lower costs and higher quality are not only possible. They are already here.

Though I would take issue with some of its content, the paper is an interesting read from beginning to end.



“Reducing Variation in Health Care: The Rhetorical Politics of a Policy Idea”

This suggest that the have patients make choice models may not fit reality.  In fact, using boards of experts “death panels” may not be so bad to make some health choices.  This recognize that information to make health decisions may be public goods, and should be provided publicly.  When the tastes of health care customers differ little, it may make sense to have these decisions made by centralized expertise.

Interestingly, I’m not sure this argument would say all health service should be provided this way.  Tastes on bith control may differ and justify the customer choice model for that service.

Music Mondays: Our Lips are Sealed

An Environmental Success: Property Rights to Fisheries

It seems to a couple of other issue arise:

Effectively you’ve set a quote on catch. Is there a risk of regulatory capture resulting in the limit being set below what the fishery could sustain, in order to boost the price above the marginal cost of capture. In other words can’t these mechanism be a way to enforce price collusion?

Can the fishermen exchange the ‘right’ to catch. That would be more efficient in that fishermen who can capture fish at the lowest cost would buy rights from less efficient fishermen lower the social cost of fish.

An Environmental Success: Property Rights to Fisheries

via Donald Marron

by Donald Marron on 1/25/13

Creating property rights has helped protect fisheries while making the fishing industry more efficient, according to a nice blog post by Eric Pooley of the Environmental Defense Fund

(ht: Dick Thaler

). Writing at the Harvard Business Review, Pooley notes the success of the ”catch share” approach to fisheries management:

The Gulf of Mexico red snapper fishery, for example, was on the brink of collapse in the early part of the last decade. Fishermen were limited to 52-day seasons that were getting shorter every year. The shortened seasons, an attempt to counter overfishing, hurt fishermen economically and created unsafe “derbies” that often forced them to race into storms like the boats in The Deadliest Catch.

This short window also meant that all of the red snapper were being caught and brought to market at the same time, creating a glut that crashed prices. Many fishermen couldn’t even cover the cost of their trip to sea after selling their fish.

A decade ago, the Environmental Defense Fund began working with a group of commercial red snapper fishermen on a new and better way of doing business. Together, we set out to propose a catch share management system for snapper.

Simply put, fishermen would be allocated shares based on their catch history (the average amount of fish in pounds they landed each year) of the scientifically determined amount of fish allowed for catch each year (the catch limit). Fishermen could then fish within their shares, or quota, all year long, giving them the flexibility they needed to run their businesses.

This meant no more fishing in dangerously bad weather and no more market gluts. For the consumer, it meant fresh red snapper all year long.

After five years of catch share management, the Gulf of Mexico red snapper fishery is growing because fishermen are staying within the scientific limits. Boats that once suffered from ever-shortening seasons have seen a 60% increase in the amount of fish they are allowed to catch. Having a percentage share of the fishery means fishermen have a built-in incentive to husband the resource, so it will continue to grow.

The NYT is Upset that Wages in China Are Rising


Wow this is really getting incredible, yet another piece about how China is going to be suffering because it has a declining labor force. The big problem seems to be that we may not be able to count on cheap tee-shirts from China. The prescription is that Chinese people should have more kids so that we can have more cheap labor. The downside is that it will take 20 years before the kids born today will be able to join the labor force. 

That is only a slight caricature of the blogpost by the usually insightful Vikas Bajaj. The obsession with the declining labor force in China, and the nearly universal conviction that it is bad, displays a seriously confused view of economics.

Let’s say that China’s labor force declines at the rate of 1 percent annually for the next four decades. So what? This means that the price of labor will rise and the least productive jobs will go unfilled. This is what happened in the United States when people left the farms for better paying jobs in manufacturing. Farmers no doubt felt there was a labor shortage, but that is how market economies work. Less productive businesses go under, do Bajaj and his fellow China worriers want to stop technological progress?

In terms of being able to support a rising population of dependents, it is important to keep productivity growth in this picture. China’s economy had been growing at the rate of 10 percent a year. Even if this slow to 7 percent as many predict, it will allow workers to enjoy much higher after tax income even if an increasing portion of their wage is diverted to supporting China’s elderly population.

The arithmetic here is simply. If wages rise in step with productivity growth, then after 20 years wages will have risen by 287 percent. Even if the tax burden on workers increased by 20 percentage points over this period they would still have far more after-tax income than they had when the dependency rate was lower and the economy was less productive.

What is especially bizarre is that the obsession with the prospect of a declining population takes no notice of the horrible pollution problem that China faces in Beijing and other major cities and also the problem of global warming. A declining population will help to directly address both problems. The fact that China slowed its population growth was an enormous service to humanity. 

The NYT is Upset that Wages in China Are Rising
Sat, 19 Jan 2013 21:49:34 GMT

Music Mondays–My Baby–The Pretenders

Best in the world, my a**


By now, I’m sure you’ve read an article on how we’re dying at higher rates of so many, many things compared to the rest of the world. All that is from an IOM report that I haven’t had the time to read fully yet.

But Austin pointed me to a site which allows you to look at some of their data in charts. Honestly, I’d like to post them all. Since I can’t do that, I’ll focus on some of my favorites. Let’s start with pregnancy and birth.

This is deaths from maternal conditions related to pregnancy:

Maternal Conditions

That’s moms dying, not kids. Look at how many more mothers – women – die from pregnancy related conditions in the US than in any other comparable country.

Here’s deaths from perinatal conditions:

Perinatal conditions

Here’s deaths from prematurity and low birth weight:


Here’s deaths from birth ashyxia and birth trauma:

Birth Asphyxia

Here’s deaths from neonatal infections and other conditions:

Neonatal Infections

Here’s how much we spent on health care per person, relative to other countries, leading up to 2008:

Spending per capita.007

Best in the world? Keep on telling yourself that.



Best in the world, my a**
Aaron Carroll
Thu, 10 Jan 2013 11:40:53 GMT

Have Your Taxes Gone Up? (1980-2010)


An excellent annotated analysis by the NYT looking at federal, state, and corporate tax brackets.







Have Your Taxes Gone Up? (1980-2010)
Mon, 03 Dec 2012 16:00:32 GMT

Gun Control isn’t Practical–But a Less Violence Would be Ideal

In the end, gun control likely won’t achieve its ends. People are very attached to guns and they aren’t likely to comply with anything approaching confiscation of guns. Making it work would be worse than the alternative. Criminal will still have guns especially, and I’m pretty sure that like on a lot of issues there evidence on both sides as to whether fewer guns means less violence.

So if the President’s gun initiative go nowhere, I don’t think much damage will be done.  Armed schools as an alternative?  I like that even less.  I do like the idea of a less violent world with fewer weapons.  Libertarians who sympathize with gun rights, also in the end oppose coercion in all forms, or should.  As such, I’m uncomfortable seeing libertarians defending not just the rights to guns, but MORE guns.  In the end all that seems likely to do is to insure that the “right” people end up dead.

Guns as a protection of liberty?  Likely, its practical in a world where coercion isn’t going away.  Under the right circumstances weapons may be a defense of liberty. But lets call a spade a spade. All this righteous talk about liberty is basically asserting a right to terrorism in pursuit of liberty. I get it, but I’m finding the piousness of the defense of tools of violence a little tiresome. Guns and violence are nothing but a necessary evil.  Could we be less romantic about weapons?

This whole post is reaction to Reason snarkily dismissing children supporting gun limitations.  There are plenty of reason to doubt the practicality of their views, but do we have to so categorically deny the beauty of their ideals unsullied by the cynicism of adulthood.