Monthly Archives: February 2013

Horace Walpole


“Nine-tenths of the people were created so you would want to be with the other tenth.”

Horace Walpole
Tue, 22 Jan 2013 06:11:14 GMT

Surprising candor at NYT on health care

I’ve supported Obama’s ACA, because I thought it got us off the dime on healthcare reform, it recognized the problem, rather than pretend the status quo is much better than it is.  I’m not so sure it was the best reform.  But it was better than what I thought the GOP would come up with which based on the experience of the 1990’s would ultimately be nothing or close to it.

This little item may illustrate at least one thing to consider as a change in direction of the ACA.   Should universal insurance be for largely catastrophic illness?  Maybe.

The one one drawback is that I think if we don’t make insurance a health package, the catastrophic costs may be overwhelming.  None the less I think this article raise question that should be considered as ‘Obamacare’ evolves.

The New York Times published a surprisingly sensible piece on health care on Sunday, “The health care benefits that cut your pay” by David Goldhill. A sample

We manage health care as if our needs were always urgent and unpredictable, ignoring how deeply this industry is integrated into our lives, with a vast amount of care now devoted to treating ongoing, chronic conditions.
Our system takes resources from all of us, pools the cost of certainties disguised as risks, extracts enormous costs of administration and complexity and then returns — to almost all of us — a fraction of the money we’ve put in.
Try to imagine what homeowners’ insurance would look like if we expected everyone’s house to burn down and then added coverage for each homeowner’s utility bills and furniture wear-and-tear. This would be insanely expensive without meaningfully reducing anyone’s risk. That, in short, is how health insurance works.
…Traditional health experts may repackage their ideas, but they are never discouraged by past failure. So the new Accountable Care Organizations are a reinvention of H.M.O.’s. The Independent Payment Advisory Board is the new Medicare Payment Advisory Commission, or MedPAC. Bundled payments are the new Prospective Payment System.
We often see some early benefit from the introduction of new ideas, but over time such initiatives are always subjugated by our system’s nefarious economic incentives. Implement cost control reforms and watch providers circumvent new rules and guidelines. Reduce reimbursement rates for procedures, and witness providers expand the definition of required services. Convert fee-for-service reimbursements into bundled payments, and soon more severe diagnoses are given. Attempt to use government buying power, and see providers turn to lobbyists to keep prices up. We are approaching a half-century of fighting this losing battle

Here’s a completely different idea, one that might actually work. Let’s give every American health insurance, but only for truly rare, major and unpredictable illnesses. In other words, let’s cover everyone but not everything. It would take a generation to transition fully to such a system, but eventually the most routine and expected medical treatments, from checkups and minor illnesses all the way to common chronic conditions and expected end-of-life care, would be funded from our individual health savings; only the most major needs — for example, cancer, stroke and trauma — would be paid out of insurance.
Defining insurable events more narrowly and enabling Americans to use the premium savings to build health savings would reduce the distortions inherent in our insurance approach. Most importantly, it will also compel providers to compete on the basis of price, quality and service, as they meet the one force that creates real incentives for good performance, innovation and safety: the consumer.

Sheer poetry, in few words accomplishing what took me many pages of “After the ACA.”  Newspapers often publish contrary views to show they are balanced (or so a WSJ editor once told me when I complained!) But that this can even get aired at the Times is pretty remarkable.

Surprising candor at NYT on health care
John H. Cochrane
Mon, 18 Feb 2013 00:40:00 GMT


Great sentences on the minimum wage

This from a blog focusing on monetary economics!

From Bill Woolsey. I’m not sure about the end of this one way or the other but its an interesting thought:

“My vision of the real world is that it is rife with monopoly, monopsony, and all sorts of price and wage discrimination. But, this is in the context of lots of competition. Competition is “imperfect,” but the gains and losses in efficiency are small and fleeting in world of creative destruction.
Still, I wouldn’t be surprised if the monopsony effect resulted in some firms hiring more workers due to a higher minimum wage. Unfortunately, that same increase in the minimum wage will push the wage above the marginal revenue product of labor for other firms so that they hire fewer workers.
The notion that government operates like an omniscient benevolent despot and could and would set a wage in each and every market so that competitive equilibrium is approximated is completely unrealistic. I think a more plausible starting place would be politicians trading off the loss of employment versus the increase in wage income. That would suggest that minimum wages would be set above the marginal revenue product of the current level of employment. Of course, reduced profits to firms, very significant politically relevant short run, and even higher prices to those purchasing the products might relevant.”

Our estimates are pooled across labor markets and firms. A zero effect really just means we’ve got about as many going one way as the other.
The wage discrimination point in the post is important to consider too, although its relative prevalence is obviously an empirical question (I’m guessing these places for the minimum wage discussion have take-it-or-leave it wage structures).

Great sentences on the minimum wage
Sun, 24 Feb 2013 18:40:00 GMT

Even better though I think in the Woolsey piece is this:

With perfect wage discrimination, or just sufficient wage discrimination to exhaust all the gains from trade, a minimum wage will not increase employment.   On the other hand, as long as it is no higher than the marginal revenue product of labor, it would raise the wages of all of the workers being paid wages less than the marginal revenue product of labor without there being any decrease in employment.

A minimum wage (or a union) could increase the wage and not reduce the quantity of labor employed.    The only effect would be increase the wage of the least paid workers.  I think it’s a revelation.   Also, I tinink wage discrimination is more the norm than the exception.  Otherwise, why are employees encouraged to not tell others what they are paid?

The Resurgence in U.S. Manufacturing


Data recently released by the Bureau of Labor Statistics indicate that the U.S. ranked 7th among 19 countries in the increase in manufacturing output between 2009 and 2011.  Manufacturing output grew 16% in the past two years.  The highest growth in manufacturing occurred in Singapore and Taiwan.  Among European countries Sweden and the Czech Republic had the fastest growth in manufacturing.  Manufacturing output actually fell in the past two years in Australia and grew at the slowest rate in Denmark, Norway and France.


The U.S. ranked 6th in worker productivity gains in the manufacturing sector between 2009 and 2011.   The five countries with the fastest productivity growth were the countries with the biggest growth in manufacturing output.  Australia was the only country where worker productivity fell.  Worker productivity grew at the smallest rate in Belgium, Canada and Norway.


Manufacturing employment (measured by total worker hours) fell in 8 of the 19 countries reported by the BLS.  Manufacturing employment grew by 2.2% in the U.S. between 2009 and 2011 and that was enough to rank 6th.  The fastest growth in total employment in manufacturing occurred in Taiwan, Germany and South Korea.


In summary, the U.S. has ranked near the top of developed countries in manufacturing growth between 2009 and 2011.  The growth in manufacturing since 2009 in the developed world has been fueled primarily by productivity gains rather than by increases in manufacturing employment.  Output, employment and productivity in manufacturing has grown more rapidly in Asian countries such as Taiwan and South Korea than in Europe.  Australia has lagged other developed countries in terms of manufacturing growth since 2009.

The Resurgence in U.S. Manufacturing
Stephen Bronars
Fri, 07 Dec 2012 12:51:16 GMT

The Future of Free-Market Healthcare

via RealClearPolitics – Homepage by Holtz-Eakin & Roy, Reuters on 2/21/13

Holtz-Eakin & Roy, Reuters
Over nearly a century, progressives have pressed for a national, single-payer healthcare system. When it comes to health reform, what have conservatives stood for?For far too long, conservatives have failed to coalesce around a long-term vision of what a free-market healthcare system should look like. Republican attention to healthcare, in turn, has only arisen sporadically, in response to Democratic initiatives.Obamacare is the logical byproduct of this conservative policy neglect. President Barack Obama’s re-election was a strategic victory for his signature healthcare law. Once…

Music Monday: The Pretenders – I should have

Love neglected

If you’re in a relatonship, then don’t take it for granted.

Two cents on the minimum wage

I think he makes a pretty good case:  namely that the problem is so much low wages as no wages.  The minimum wage may well make that even worse.

Once upon a time, the minimum wage, like free trade, was a basic test of whether you were awake in the first week of econ 1. We put a horizontal line in a supply and demand graph. Minimum wages increase unemployment of poor people.

It still strikes me, that like much of the current policy discussion, we’re asking the wrong question. The question is not “is this great” or “is this terrible” but “does this have anything to do with current problems?”  The fiddling while Rome burns is worse here than the belief in minor economic magic.

President Obama’s state of the Union Address  was to me, an interesting peek into the Administration’s thinking, and a revealing piece of political rhetoric (I mean that in the good sense of “rhetoric,” i.e. “what arguments we use to persuade people”) 

…today, a full-time worker making the minimum wage earns $14,500 a year. Even with the tax relief we’ve put in place, a family with two kids that earns the minimum wage still lives below the poverty line. That’s wrong….
Tonight, let’s declare that in the wealthiest nation on Earth, no one who works full-time should have to live in poverty, and raise the federal minimum wage to $9.00 an hour. This single step would raise the incomes of millions of working families. It could mean the difference between groceries or the food bank; rent or eviction; scraping by or finally getting ahead. For businesses across the country, it would mean customers with more money in their pockets..…

… Is the first-order problem of these neighborhoods that its residents live in intact families with two kids, one full-time wage earner, trying to live on the wages from a full-time minimum wage job, but  having a tough time making ends meet? Is there anyone like this?
The tragedy of the neighborhoods around where I live, and President Obama used to live, is the vast number of people with no job at all.  How does raising the minimum wage for the few who have a minimum-wage job help the vast majority who have no job at all?
Minimum wages are about teenagers and young adults, most still living at home. It’s about the “dating” phase of work-force attachment, where people learn the skills and habits, and make connections by which they can move up to better jobs when they are ready to have families.
“Families” is an interesting word as well. Marriage among lower-income Americans is rare, as President Obama made clear when he came back to talk to students at Hyde Park High school and made some controversial remarks about the absence of fathers.

For example in zip code 60619, just south of the University, there are “4,967 married couples with children, and 12,745 single-parent households (2,655 men, 10,090 women).” Here’s the marital status chart.

The final line also caught my eye: “For businesses across the country, it would mean customers with more money in their pockets.”  I wonder who signed off on that one.
Even if the Administration’s theory works, it is exactly the same as a tax on sales of local businesses (i.e. cost passed on as higher prices) to subsidize employment. This is an interesting harbinger of things to come in the politics of budgets: Passing a national sales tax on businesses that employ minimum wage workers, to fund an on-budget subsidy of those workers’ wages, would obviously go nowhere politically, and would count on the budget. But forcing businesses to do it, though economically equivalent, makes it looks as if the government is not taxing and spending as much as it is. 
cents on the minimum wage
John H. Cochrane
Tue, 19 Feb 2013 17:47:00 GMT



A human is a system for converting dust billions of years ago into dust billions of years from now via a roundabout process which involves checking email a lot.

Wed, 13 Feb 2013 00:00:00 GMT

Turning Japanese

via Limericks Économiques by Dr. Goose on 2/15/13


Said Krugman: “It boggles me how
Any long-term concerns may allow
Our political corps
To mostly ignore
The depression we’re living in now.”

Ev’ryone calls for a plan
On inflation, which isn’t at han’.
If we tighten too soon,
We won’t be immune
To a Lost Decade à la Japan.”

Appearing on the Bloomberg Surveillance program with Tom Keene and Sara Eisen this morning, Princeton University economics professor Paul Krugman repeated his tireless message that the US is no longer in a debt crisis, but a jobs crisis. As he explains in his most recent book, End This Depression Now, Prof. Krugman emphasized that, in a depression, short-term considerations take precedence over the long term, and the usual rules don’t apply. It’s not that the long term isn’t important, it’s just that you have to get there first. As John Maynard Keynes famously said, “In the long run we’re all dead.”

So what should we do now? We should use the government’s fiscal powers to rebuild our infrastructure, thereby providing the basis for jobs today and growth in the future, which will make the longer-run deficit problems easier to resolve. What we should not do is implement fiscal austerity while expecting the Federal Reserve, which already maintains zero interest rates, to stimulate jobs through monetary measures. Prof. Krugman has only bewilderment for his Stanford rival John Taylor, who is correct in his concerns regarding excessive long-term unemployment, but, says Krugman, resists the policies that would ease the problem. The inflation fears of so many, and the related worries over the risk of tightening a moment too late, are reminiscent of the “lost decade” of Japan, in which nascent recoveries were repeated cut off by the central bank’s premature rate hikes.

The Absurdity of U.S. Air Travel: Baggage Fees Revisited

Catching up on President’s day weekend.

This appeared earlier without comment.  My bad.  I had intended to comment on it a bit.  I don’t quite buy the logic in the piece.

He suggests that lack free accommodation of bags imposes costs on flyer and makes money for the airline.  Price theory 101 would suggest no.

If indeed for example:  ‘ To double the airlines’ profits, the social benefit of which is highly unclear…We spend time and effort schlepping luggage through the airport’; then does a new entrant stand to profit?  If the costs enumerated to passengers are less than the cost to the airline of providing bag service, then why doesn’t an airline offer the bag service at a lower fee more approaching the costs of providing it and below the cost to passengers of avoiding it?  Passengers would flood to this offer wouldn’t they?  The new service would be profitable.

Gains from exchange would be realized.

There are some property rights issue that might complicate this picture I think.  Another consequence of bag fees is:  ‘ we jostle for the few spots in packed overhead bins.’  The overhead bins are still un-priced!  This would suggest that they are not allocated to those who value them most, they may be overused as well (think stuff falling on your head, or things broken due to the bins being overfilled.

Perhaps the problem isn’t the pricing of checked bags, but the lack of pricing for space for unchecked bags!  That might encourage more parsimony in choosing what to take on trips to the benefit of all.

In the end though, maybe I’m not the one to comment as I don’t like flying.

The Absurdity of U.S. Air Travel: Baggage Fees
Sanjoy Mahajan
Wed, 09 Jan 2013 14:34:27 GMT