Electronic currency

It seems like Bitcoin is experiencing a bit of a set-back.  It is probably not that surprising that such a strong challenge to fiat currency has been met by federal investigators.  The more high profile the challenge, the easier it would have been to meet it.  It is the stuff that isn't advertising on Wall Street that might slip under the radar.

Climate change and air travel

I have heard this argument from Megan McArdle before:

The question answers itself, doesn’t it? Giving up air travel and overnight delivery is much more personally costly for the public intellectuals who write about this stuff than giving up a big SUV. If you live in one of the five or six major cities that contain virtually everyone who writes about climate change, having a small car (or no car), is a pretty easy adjustment to imagine. On the other hand, try to imagine giving up far-flung vacations, conferences, etc. -- especially since travel to interesting locales is one of the hidden perks of not-very-well remunerated positions at universities, public policy groups, nongovernmental organizations, and yes, news organizations.

But I tend to credit it as having at least a little bit of truth.  It would personally cause me a great deal of grief if it were to become a social norm, given how far away from my family that I live.  But it is true that air travel is a very tough source of carbon emissions to remove, given the need for high energy density fuel.

But I think that this fits in well with how nice it would be to improve train travel, which is a very carbon-friendly mode of transportation.

A couple more thoughts on Oregon

Aaron Carroll (writing for the Incidental Economist) points out one interesting result of the new study:

Not too long ago, ACA opponents were claiming that Medicaid was bad for health. Some even claimed it killed people. So I was eager to see if an RCT would find that. The initial results were positive and statistically significant.

All by itself this finding is a worthwhile addition to the discussion; the meme that Medicaid coverage could lead to worse health outcomes was always a bit tricky to understand.  Trying to illicit a causal mechanism where Medicaid was worse for health but private insurance/Medicare were not that led naturally to the policy of "end Medicaid" was always a bit dicey.  If it was malice on the part of medical doctors due to low reimbursement rates then that rather changes the discussion in important ways. 

So I think we should take this argument by Megan McArdle with a great deal of care:

And yet, we did find a significant improvement in catastrophic medical bills, which coincidentally also affect about 5% of the control group.  Yet the folks saying Oregon's sample of diabetics is too small to tell us anything do not think it is too small to tell us anything about catastrophic medical bills.

I think that there are two points here.  One, the point estimates of the changes for chronic medical conditions are well within the levels of clinical significance.  So it is odd to suddenly interpret the data like an extreme frequentist and claim that the only interpretation is "no effect". 

But the other piece that is more important is that this is actually a good result.  If we take Megan's 5% rate, that would mean that 5% of poor Americans have a catastrophic medical bill within a two year period.  How can trying to solve that problem not be a major priority?  Isn't this great evidence that (given how expensive medicine has gotten) that this was a massively successful intervention?

I'd have more sympathy for the situation if we were making hard decisions to bring down costs.  But that isn't a major priority right now.  Medicaid is a very cost effective way to deliver care in a country where care is very pricey.  Why isn't this a major and positive result? 

More fun with charts

Daniel Kuehn and Joseph previously discussed this post by Megan McArdle entitled "Department of Awful Statistics: Income Inequality Edition." They both make good points, but I'd like to approach this from the angle of appropriate visualization. McArdle supports her thesis that the middle class is neither disappearing nor getting poorer with charts derived from census table H-17 which you can and really should download here (the best way to keep us all honest is to play along at home).

The trouble is they're bad graphs.

To the extent that statistics includes data visualization, this is definitely bad statistics. When trying to depict trends and relationships, you generally want to get as much of the pertinent information as possible into the same graph. You don't want to force the reader to jump around the page trying to estimate slopes and compare magnitudes, nor do you want to take a few snapshots when you can easily picture all the data.

There are lots of acceptable ways of laying out the data table H-17, but I'm going just going to go with the simplest (partly because I like simple and partly because I'm doing this on Openoffice). As with McArdle's graphs, the numbers are inflation-adjusted.

I'm not that comfortable with this data (for reasons I'll get to in a minute), but this does look fairly consistent with the hollowing out of the middle class with 35K-75K (the top two lines) dropping more or less steadily for decades. Also check out the more than fourfold increase of people making more than 150K,

The two main things that make me uncomfortable with the data are the start point (with falls close to at least a couple of inflection points) and, on a related note, the failure to account for the baby boom which was at the bottom of its earning power forty years ago and should be close to the maximum now.

As far as I can tell income distribution is not broken down by age in these tables (though I suspect the data are available on request). We can, however, answer the related question of what median income looks like when we control for age and extended over a longer interval. (Download table P8 from here)

You can see why I was nervous about starting in 1967.

The question of income inequality and what's happening to the middle class is a complicated one and is probably best addressed by people who know what they're talking about, but if you are going to try to argue one side of the case graphically, you should at least take the time to use appropriate graphs.

p.s. I picked 35-44 because it seemed like a good representative mid-career interval and because, since I wasn't comparing different age groups, an uncluttered one-line graph seemed sufficient. If you prefer, here's the multi-range version (though I don't know if it adds much information).

Of outhouses and automobiles

Both Megan McArdle and Matt Yglesias have interesting posts about how important network effects can be to the adoption of new pieces of technology (Megan is talking about indoor plumbing, Matt about automobiles).  An except: 

Saying that people are choosing the a cell phone over an outhouse is not the same as saying they’re choosing a cell phone over an indoor toilet. Maybe that’s the choice they’d make, if they had it—I don’t know! But as Kelly’s own account acknowledges, they don’t actually have that choice, and certainly not at anything like the same cost.

Indoor plumbing requires either electricity to pump the water, and a nearby well to pump it from, or a connection to a public system with enough pressure to force the water high enough to flush your toilet. That’s a lot of power, not a trickle charge off of a small solar cell; I believe my great grandparents used a gasoline generator when they installed indoor plumbing in the mid-thirties. Gasoline generators are fairly expensive, as is the gasoline to run them, and I gather that they were only able to do it because their newly married son (my grandfather) saved up to help pay the installation cost, and then paid them rent that covered the cost of the fuel. Most farmers, I am told, waited until rural electrification brought them grid power.
 

Mark also pointed out just how important these elements of infrastructure were in transforming American society.  It's humbling to think about just how much effort was required to actually do all of these things (and concerning that infrastructure moves much slower today). 

However, I am hoping that the shift to an information based economy will have other benefits.  In some sense, there is a possibility that information, stored as pixels, could be something of real value (think of books or television programs) yet require very little resources to create.  In that sense maybe we could end up being happier (overall) while using less resources.

That being said, I have also used an outhouse and have absolutely no interest in giving up my indoor plumbing.  I am not even all that happy camping, unless there is a rest area in the middle of the campground with flush toilets (essential) and showers (highly desierable). 

The perils of 401(k) accounts: a continuing series

Megan McArdle is back with this observation:

The 401(k) I started in the late 1990s, before I went to business school, is worth less than the money I put into it. And even when I look at the last decade, I don’t see 8 percent growth; after inflation, it’s more like 2 to 3 percent. Most of the money in my retirement accounts is the money I put in. Nor am I alone.
 

Potentially snarky comments about investment strategies aside, this is a lot like what I have been seeing lately as well.  Yield is extremely low these days.  While it is always possible it will spike up again, the wave of retirements suggests that there will continue to be some exit from the market (as retired adults dip into saving to finance their retirement) which should put some downward pressure on prices. 

Private market retirement is a tricky beast indeed. 

Why I believe in safety nets

Megan McArdle argues:

Who among the parents fighting so hard to get their kids into a good school is going to volunteer to have their kid give up the slot in the upper middle class? People are willing to accept a certain amount of slippage, but only as long as it comes with added job security (government) or special fulfillment (the ministry, the arts)--and even in the latter cases, Mom and Dad will often be strenuously arguing against following your calling. But how many doctors and lawyers would simply glumly accept it if you told them that sorry, junior's going to be an intermittently employed long-haul trucker, and your darling daughter is going to work the supermarket checkout, because all the more lucrative and interesting slots went to smarter and more talented people?

The lack of a safety net makes falling in social status a serious problem.  When basic medical care is linked to being a productive member of the middle class, people are willing to make enormous sacrifices to protect themselves from falling in social class.  If we mitigate the problems and torments of extreme poverty then maybe it won't be seen as terrible to have people shift around in social class.

Now it is true that my focus is on absolute levels of deprivation.  But if the you can be poor with dignity and have basic needs met then maybe that will make us a little more willing to address inequality in general.

Nice Observation

This post was hoisted from the comments in Megan McArdle's website and it makes a point that we often forget: the eventual chance of death is 100% and the hazard of death is tightly associated with how long you have lived so far.  Once you make it out of childhood, many people live their 20's and 30's free of serious health concerns.  It's not atypical to find such people, at least.  One the other hand, how common is it for 80 year olds to not have at least one health issue that effects either risk of death or quality of life?

When a model simply doesn't match reality

Karl Smith relates a story from Megan McArdle:

A woman called me out of the blue last week and told me her self-sufficiency counselor had suggested she get in touch with me. She had moved from a $25,000 a year job to a $35,000 a year job, and suddenly she couldn't make ends meet any more. I told her I didn't know what I could do for her, but agreed to meet with her. She showed me all her pay stubs etc. She really did come out behind by several hundred dollars a month. She lost free health insurance and instead had to pay $230 a month for her employer-provided health insurance. Her rent associated with her section 8 voucher went up by 30% of the income gain (which is the rule). She lost the ($280 a month) subsidized child care voucher she had for after-school care for her child. She lost around $1600 a year of the EITC. She paid payroll tax on the additional income. Finally, the new job was in Boston, and she lived in a suburb. So now she has $300 a month of additional gas and parking charges. She asked me if she should go back to earning $25,000. I told her that she should first try to find a $35k job closer to home. Also, she apparently can't fully reverse her decision to take the higher paying job because she can't get the child care voucher back (the waiting list is several years long she thinks). She is really stuck. She tried taking an additional weekend job, but the combination of losing 30 percent in increased rent and paying for someone to take care of her child meant it didn't help much either.

Ms, McArdle tries to make a supply side argument here, where she points out that we are failing to create policies to incentive work among the poor (who can suffer a marginal tax rate of > 100% in many circumstances). It is a really interesting question why we focus on the top marginal tax rate and not the marginal tax rate for people in lower income brackets (where there is less of a competition effect). However, Karl Smith notices the really interesting behavioral issue here:

She faced a marginal tax rate in excess of 100%. This meant as her earned income went up she got poorer. What did she do? She tried to earn even more income. It was only we she failed at the attempt to make ends meet by supplying ever more labor to the free market that she try to go back to making less money.

So, not only do we have evidence from Matt Yglesias and Felix Salmon that top income earners don't necessarily even know their marginal rate, but we see low income people (facing a > 100% marginal rate of taxes) desperately trying to get more income and not less. It is not the case that the woman in this heartbreaking story decides that she would prefer to spend more time in leisure (so we can't intice her into working more). It is that working actually costs her money.

And her response is to get a second job!

Is it really too late to put supply side economics into the "special circumstances only" bin and leave it there? It may influence the odd movie producer, consultant, or freelancer (who have the ability to take on work in discrete projects and who have income sufficiency already). But this conceptual model seems to be absolutely dreadful at making predictions about how real people will act in most employment situations.

Performance based teaching

Via Megan McArdle, comes this gem:

It would be naïve to assume that the persons subjected to variable pay-for-performance would accept the respective criteria in a passive way and fulfil their work accordingly. Rather, they spend much energy and time trying to manipulate these criteria in their favour. This is facilitated by the fact that employees often know the specific features of their work better than their superiors. The wage explosions observable in many sectors of the economy can at least partly be attributed to such manipulations, eg when managers are able to contract easily achievable performance goals.

Arnold Kling goes on to link this with education reform:

When a remote authority sets incentives, people respond by manipulating the system. This fact is poorly understood by education reformers who are fond of pay-for-performance and national standards, by health care reformers who are fond of paying for quality, and by financial regulators. In fact, the quoted paragraph provides an excellent description of the financial regulatory process under risk-based capital. The banks spent much energy and time trying to manipulate the risk-based capital regulations in their favor. They got what they wanted, in terms of risky portfolios backed by little capital.

The Hayekian story here is that effective compensation practices require local knowledge and tacit knowledge. In a large company, you give a middle manager a fair amount of discretion in compensating his or her staff. If instead you try to implement an automated bonus system, you will get gamed.

I think that this hits at the heart of the concerns Mark has been expressing for a while. Test-based systems that are implemented at a very high level encourage all sorts of behavior, and it is quite possible that manipulating the system will be easier than actually improving performance. Even worse, bad performers (gaming the system) have an advantage over good performers as they can get top scores for less total effort.

Bed performance drives out good performance and things get worse. I think Megan is very right to be skeptical about how easy it is to reform systems once they adopt this management style as the new backbone of the labor force are the people who thrive in gaming the system and they will resist change back to older approaches.

I wish we'd look more at the history of countries like Russia for how difficult it is to make top-down reform and economic control work at the national level.

When a toothache is fatal

This post by Megan McArdle is absolutely required reading for anybody interested in arguing for true free markets in health care. An excerpt:

A commenter says that according to local news reports, he was quoted a price of $27 for the antibiotic (sounds like erythromycin, then), and $3 for a painkiller. I believe the former, but I have a very hard time swallowing the latter. I mean, I guess I could be wrong, but I am very skeptical that there is a pharmacy out there that sells more than a dose or two of any prescription painkiller for $3. If he chose to take two vicodin over antibiotics, when he must have known that this was not a long-term solution, I have to question his decision-making even more deeply.

But what this illustrates is just how hard it is to make a decision when in extreme levels of pain. I believe the legal term is "diminished capacity". Now, this sort of tragedy can happen under nationalized health care too. But imagine what happens if this type of decision making is extended to emergency rooms?

How to improve health care for the poor

I really want to make sure that this post from Megan McArdle isn't overlooked in the discussion of the debt ceiling. There are not a lot of bloggers who have been in my situation in my 20's -- desperately poor and with a difficult medical condition (that was not my fault). But she has.

As a result, she has the correct instincts for services that would really assist the poor:

This is actually not inconsistent with other findings. For example, every time we get a health care expansion, people predict large falls in emergency room usage. Supposedly, we'll save huge sums by shifting people from expensive ER visits to cheap primary care sessions. Unfortunately, the savings have been elusive; in Massachusetts, the largest such experiment we have to date, ER visits actually rose.

Why? ER's are much more convenient. The working poor usually have much less flexibility in their schedules than the middle class. They work shifts, they may need a doctor's note to miss work, and if they don't work, they often don't get paid.

Note that this implies a totally different solution to the problem of "non-emergent ER visits": urgent care or "Minute Clinics" that work odd hours. Otherwise, you just cram even more people into the same ER space*. It is easy to come up with "Just So" stories in health care. The reforms always sound wonderful, and the benefits always unfold in a beautifully logical way. Unfortunately, people, and reality, are rarely as predictable as the models.

When you are short of money for food, leaving work to sit in an MDs office is a major sacrifice. If you are here in the Southeast and do not drive then the cost in time to make it via public transit can be huge. I have seen sick days used as a part of evaluations. I have worked in a small business where I was the only person in the store and leaving it would cause a crisis.

If you are dying of a myocardial infarct then leaving your job is clearly the right decision. But I would leg infections that started small . . . and sometimes did not progress. If I was able to get an antibiotics prescription then I'd avoid the ER.

I have tried going to "minute clinics" but they all refuse to treat because it was not on the symptom list. A last minute appointment at an MDs office was a huge issue.

I saw some good signs of improvement in Seattle where they put an urgent care clinic (open until something like 1 am) right next to the ER. I joined that HMO and it made a huge difference in my quality of life when a medical event happened.

These days I am a professor and these issues are lessened. But I think it is worth keeping in mind just how crucial these services can be for the poor, even if they are unpopular with people who work a 9 to 5 schedule.

A surprisingly blunt view of finance

I really need to blog on a health policy post by Megan McArdle. But in the meantime, here is a surprisingly sane point of view on the debt ceiling crisis:

My reading of what the ratings agencies have said is that if the GOP somehow manages to force the Democrats to do everything their way, this will not secure our AAA; it will guarantee that we lose it, because it will show that we are currently unable to make the ugly bipartisan compromises that long-term budget balance requires, and raises the risk that sometime in the not-very-distant future, the other party will retaliate by threatening default. That's what Wall Street cares about. Not saving social security. Not lower spending. They just care about getting enough consensus to keep the checks flowing.

I think it is easy to over-estimate ideology among members of wall street because a few of them have decided to spend their wealth on political activism. But, for most businesses (especially in banking), the goal seems to be getting paid and it is worth remembering that. Narrowly averting a disaster is only of limited value if structural incentives (and poor journalism) ensure that it happens again and again.

Implications of not raising the debt ceiling

Even Megan McArdle is asking hard questions about the debt ceiling and the consequences of paying just interest on the debt, medicare, social security and military salaries:

•You just cut the IRS and all the accountants at Treasury, which means that the actual revenue you have to spend is $0.
•The nation's nuclear arsenal is no longer being watched or maintained
•The doors of federal prisons have been thrown open, because none of the guards will work without being paid, and the vendors will not deliver food, medical supplies, electricity,etc.
•The border control stations are entirely unmanned, so anyone who can buy a plane ticket, or stroll across the Mexican border, is entering the country. All the illegal immigrants currently in detention are released, since we don't have the money to put them on a plane, and we cannot actually simply leave them in a cell without electricity, sanitation, or food to see what happens.
•All of our troops stationed abroad quickly run out of electricity or fuel. Many of them are sitting in a desert with billions worth of equipment, and no way to get themselves or their equipment back to the US.
•Our embassies are no longer operating, which will make things difficult for foreign travellers
•No federal emergency assistance, or help fighting things like wildfires or floods. Sorry, tornado people! Sorry, wildfire victims! Try to live in the northeast next time!
•Housing projects shut down, and Section 8 vouchers are not paid. Families hit the streets.
•The money your local school district was expecting at the October 1 commencement of the 2012 fiscal year does not materialize, making it unclear who's going to be teaching your kids without a special property tax assessment.
•The market for guaranteed student loans plunges into chaos. Hope your kid wasn't going to college this year!
•The mortgage market evaporates. Hope you didn't need to buy or sell a house!
•The FDIC and the PBGC suddenly don't have a government backstop for their funds, which has all sorts of interesting implications for your bank account.
•The TSA shuts down. Yay! But don't worry about terrorist attacks, you TSA-lovers, because air traffic control shut down too. Hope you don't have a vacation planned in August, much less any work travel.
•Unemployment money is no longer going to the states, which means that pretty soon, it won't be going to the unemployed people.

I think that this post highlights just how desperately we need to increase tax revenues. Even if we might one day repeal them in the face of a lower burden of government spending, the most logical equilibrium seems to be to pay more now and reduce taxes once we work out what we don't want the government to do.

I also have no patience for the dynamic Laffer Curve -- as Noah Smith so nicely pointed out, that line of argument rather suggests Sub-Saharan Africa should have emerged as the great power after the horrible tax policy of the European, Asian, and American nations. Taxes can have bad effects but so can persistent unemployment!

Is Megan McArdle abandoning the Chicago School?

In the previous post, Joseph directed us to this piece by Megan McArdle. As with almost everything McArdle writes, there was much that was worthy of comment, but this passage struck me as especially interesting:

People really underweight the role that norms play in sustaining a modern economy. I suspect that if the "default option" folks got their way and people started regarding default as a commercial decision with no more moral weight than changing cable vendors, the advocates of this position would be unpleasantly surprised to find that the only thing less fun than being young and burdened with student loans is being young and completely unable to access any form of credit at all.

My first corporate job was building models to decide who got unsecured loans and, based on that experience, I'm pretty sure she's wrong in the particulars. A change in attitudes would affect default rates somewhat but there are a number of powerful external incentives here that would limit the impact of a new set of norms.

I agree, however, with McArdle's larger point, which is strange, since I don't believe that McArdle agrees with it herself.

As noted before, freshwater economics is essentially a reductionist approach that relies heavily on a number of simplifying assumptions. If you claim that social norming plays a significant role in the economy, then you have to allow for local optima and plateaus and collective action problems and all sorts of behavior that is not rational in the economic sense and which will not average out when you look at things in the aggregate. That way lies madness and perhaps even Keynesianism.

It's possible that McArdle is starting to question what she learned at the feet of her Booth School professors, but I think it's more likely that she's willing to engage in a bit of intellectual inconsistency to reach her desired conclusion.

Some reflections on student loan debt

I have a mixed set of feelings about Megan McArdle's Atlantic column. Sometimes I could not disagree with her viewpoints more (mostly when she rails against government spending without a good discussion of what a "public good" really is). Other times I think she does a very good job of thinking through the issues. A recent case in point is her posts on student debt. In these posts she does a really commendable job of pointing out two things that are important:

1) It is very hard to settle student loan debt and the lenders have ruthless policies to singificnatly increase what you owe

2) There is a problem with a social norm that makes default a trivial event

That being said, I must admit that the elephant in the room is probably the increasingly draconian state of US debt law. The stories of police raids over student loans (actually not owed by the person being put in handcuffs) may be missing important facts but the general picture is not pleasant.

But, at a more prosaic level, the inability to fail has a lot of serious issues. I have little sympathy for Elie Mystal , per se, but I do see a broad culture of making things worse when one experiences adverse life events. If one should end up unemployed they may well have no health insurance, limited access to bankruptcy for large debts (student loans), and have issues with basic necessities.

I am all for civic virtue and personal responsibility. These are both things that I wish we had more of. But I worry that we are creating a culture of cascading failures where one thing going wrong can set off a series of disasters. In a world with long term unemployment, is this really a good direction to be going?

Firing Teachers

Yikes.

In the same blog post we have:

But I also recognize that this is no panacea. At a minimum, making teachers easier to fire needs to be paired with extensive reforms: a move towards defined contribution rather than defined benefit plans (which make a mid-career job loss catastrophic); elimination of seniority and useless credentials as the primary criteria for setting pay; broadening the recruiting base by eliminating a requirement for ed degrees; and a shift towards paying teachers more, especially in math and science. I also think it's absolutely crucial to set up some sort of Federal bonus to recruit high-performing teachers to the lowest-performing districts--a bonus sizeable enough to attract top teachers, and available only on one-year contracts.

and

Let me start by saying that I think there are some jobs that are too important to let any consideration intrude other than the best way to get the job done. Nuclear power plants, firefighters, poison control--I don't want to let other social goals, no matter how laudable, hamper their mission.


Teaching is one of those jobs. I just can't prioritize making teachers' work environments fair, interesting, or pleasant for them--not if there's any potential conflict with the goal of providing the best possible education for kids. Particularly disadvantaged kids, since I basically assume that educated and competent parents are going to ensure that their offspring are educated and competent. But where there are needy kids, my entire focus is on them. I want to make teachers' lives pleasant only insofar as this advances the goal of helping kids who need a lot of help.

and

Contra E. D. Kain, however, I don't think that all organizations should strive to minimize turnover. Why do fast food restaurants have turnover rates in excess of 100%, when they could lower them substantially by paying higher wages? Answer: because in a dirty, stultifying job like fast food service, it costs a lot in wages to reduce turnover a little, and people won't pay enough for a hamburger to justify those wages.

Okay, this seems like a slippery analogy but let us go with it. Ms. McArdle would like to make teaching into a high turnover profession. Okay, I can deal with that. She also thinks that it is so high priority that considerations like humane treatment are secondary to child outcomes. Curiously, I can deal with that too.

But what are the low job security professions with a high level of responsibility, high educational requirements and no limits on costs? Medical doctors come to mind but it's unclear to me that they represent the wage level that we should be shooting for.

I think a much more plausible story is that we have cut education to the bone. It's a large part of many state budgets (see California as a key example). The lack of resources has been partially helped by using job security and a sense of vocation in order to keep employee costs low. So what precise program cuts are we considering to raise wages or to pay "some sort of Federal bonus"? Or are we talking actual tax increases?

After all, according to Wikipedia, we spend $11,000 per student and have 76.6 million students in the United States. Is this really a place where we want to increase costs from?

Or, is the alterative to make education low cost and low skill? It has had this model in the past in the US (with the one room school house model) but that seems to contradict the importance of teaching. A lot of things are important and should not be trivialized. But is this really the best way forward?

Arguments that generalize poorly

If only Megan McArdle would make the same argument for medical care that she does for congestion pricing:

But that brings us to the heart of the populist argument against congestion pricing, and even express toll lanes, and I think ultimately supports Tim's argument that this is never going to be democratically popular: most people don't pay. And they tend to resent the people who do. It is not an accident that congestion pricing is a system most beloved of people who are a) relatively affluent and/or b) don't drive to work. This tells us empirically why congestion pricing is unlikely to ever get enough political support to be implemented in America. But maybe it also tells us, maybe, why it shouldn't be implemented. Who are we to tell people that they ought to prefer prices to queuing?

The is a reflection of how conservatives often seem to (oddly) switch sides when the question is one of transportation. Clearly, a single payer medical system is the most fair (see Canada). Canada's single payer system has also got issues with efficiency, being one of the few countries to have worse physician wait times than the United States.

But with health care we always see the reverse argument (efficiency > fairness), which strikes me as an odd mixture of priorities. Or am I missing something?

Is geography destiny?

From the comments in Megan McArdle:

It is totally unsurprising that ground zero for the locavore and electric car movements is northern California, where you can find anything you want, from cacti to chunks of glacial ice, within a couple of hundred miles. And where the climate is such that electric cars don't face battery-killing subzero nights, don't need to run big heater loads during winter driving, and don't require big air conditioner loads half the year.

and from Penelope Trunk:

When I moved from LA to NYC, I was horrified at the lack of yoga studios in NY. Yoga was already huge in LA, but not yet in NY. I was also scared that New Yorkers were always a little bedraggled, and I had just spent ten years learning how to look perfect everywhere I went in LA. It’s fun. It’s fun to have no weather and no fat and no rushing in LA. It’s fun to get a day off from work to prepare for watching the Oscars. I grew up in Illinois, but I got used to living in LA.

The panic about New York was unnecessary, though. After ten years of living in NYC, when I imagined leaving, I thought I could never leave because the cultural opportunities are so amazing. The expertise people have in NYC is so vast and varied and I thought I’d never get that anywhere else.

When I left NYC I didn’t care about looking perfect everywhere I went. I didn’t care about the kind of car I drove. I was a New Yorker.

I have been thinking about this issue after visiting Northern California for the first time last week. Like Seattle, it seems to be an exceedingly pleasant place to live and seemed to be very walkable. But it lacks the freezing winters of the mid-west and the stifling summers of the south-east. Maybe it is just easier to live an environmentally friendly lifestyle there?

So I wonder just how important geography really is determining lifestyle? I am not sure but maybe the answer is that it is a lot more important than I might have previously thought.

Mortgage Questions

This post had a very perceptive take on a question from Megan McArdle:

McArdle: “Let’s turn it around,” I asked. “What if the bank decided that it wanted to exercise the same sort of option?…What if the bank foreclosed on your house, even though you made the payments, because it figured it could make more money taking the house and selling it?” (Not a likely scenario, I know, but a useful thought experiment.).

Response:

Banks exercise the same sort of option all the time when they resell mortgages (and hopefully notes!) from one entity to another entity. That’s the problem we have right now, that this reselling option banks use was so sloppy it’s tearing up the economy.

This is why if you are the type of person who thinks markets self-regulate through consumer demand and reputation there’s a major problem, as consumers have no choice over their mortgage servicer. If you don’t like your servicer, and refinance your mortgage with another bank, that bank can still sell off your mortgage and you can still end up serviced by the same institution.

I never quite thought of the decision to resell mortgages in this light, but this is a remarkably good point. It's not quite the same scenario as "seize the house" (which I think was the actual tactic that McArdle had in mind) but it certainly does put the decision to resell mortgages in perspective.

In a more pragmatic light, the decision to try and do regulation by reputation (long a bad idea) has even less relevance in the modern world. First of all, job tenures at banks may be quite short so the people making decisions that undermine a firms reputation may be elsewhere at the end of this period. Second, firms themselves often vanish or are absorbed by other firms (consider Washington Mutual as an example). These features of the modern corporate environment make it difficult to use a reputation based system as the primary check on the system.

This is not to say that homeowners who are in default should be given free houses (I'd think that was obviously an incorrect conclusion) but rather that we should give the regulatory structure of banks some serious thought.