Math issues

Felix Salmon's last two posts are brilliant. I strongly recommend reading both of these posts. Seriously!

Heck, I am likely to come back and post on them later today if I have enough time. Paul Krugman and Mark Thoma might be representing the outrage of progressives, but Felix is documenting the damage coldly and dispassionately.

However, this is a statistics blog. So I wanted to visit a comment on one of Felix Salmon's posts:

The top 10% of Americans pays 45% of all taxes, a higher proportion by far than any other country, while the American top 10% earns only 33% of total income.

By comparison, the 10% of the UK earns 32% of total income and pays only 38% of all taxes. And the UK is one of the more progressively taxed countries. The taxes paid by the top 10% of other European countries are on average around 30% of total taxes.

As an epidemiologist (a field that is in love with proportions), I realize how misleading they can be. In the example above, the rich earn roughly the same amount of income. But they pay a higher proportion of taxes. However, is it the proportion of taxes that matters or the absolute tax burden?

Consider a simple example. In two countries there are 10 people. Of these people, nine make 10 units of income per year and one makes 50 unites of income. This is pretty close to the income distribution of the US and UK cited above.

In country A, the nine people pay 2 units of tax per year and the rich person pays 16 units of tax. Total tax revenues are 34 units (or 24% of GDP). The rich definitely pay more as a proportion of taxes but pay 47% of the taxes overall.

In country B, they pay something more like the OECD average (35%). So the nine people pay 3.5 units of tax (31.5) and the rich pay 17.5 units of tax. That is 49 units of tax collected (exactly 35%). The rich pay 36% of the tax burden.

Which country is a low tax country for rich people to live in? One where they pay an effective tax rate of 32% versus 35%? Or one where they pay a higher proportion of total taxes collected?

The trick here is that the US total tax burden is so light that the top 10% can both pay a higher proportion of taxes than in other countries and, at the same time, still pay less absolute tax. That can make proportional analysis potentially misleading.

Apologies to Mr. Raz

I've never been a big fan of NPR's Guy Raz but his handling of the coverage of the debt crisis was very good today, peaking with this interview with Felix Salmon.

Overly-trusting Straussians

There is a strong strain of Straussianism in the conservative movement. Of course, not all prominent conservative intellectuals believe that you have to lie and oversimplify to move the masses in the best direction for society, but pretty much all have accepted and, more importantly, internalized the fact that many of their colleagues do believe in the need for these noble lies.

Once you've internalized the idea that people in your circle are smart and sane but occasionally make ludicrous statements for the benefit of the crowds (call it the Elsinore strategy -- feigning madness), it becomes easy to ignore craziness in your own party, particularly when there's a penalty for suggesting the alternative (see Bartlett and Frum).

In other words, we have something like conservation of cynicism. The Straussian assumes the worst about the masses, but has an excuse to assume the best about allies, even when they give every indication of being crazy and/or stupid. The result is that it has taken smart, sane conservatives far too long to acknowledge what's going on with House Republicans.

The consequences of this lack of cynicism is spelled out in detail in excellent posts by Jon Chait and Paul Krugman.

A view into the queue

Still in the middle of a move but here are some of the posts I'm trying to find time for. Given the speed at which events are moving, I thought I should at least get something out in preview form.

-- The worst thing about the Tea Party from a Republican perspective is not the movement's extremism. If a (slightly modified) modified stag hunt is an appropriate analogy, players who decrease the chances of a successful hunt (by demanding you take unpopular positions) and who are disloyal (bolting to third party candidates when offended) are the worst possible allies.

-- When Straussianism makes people insufficiently cynical. Conservative thinkers may have underestimated the danger of a default crisis because they assumed the rhetoric coming out of the Republicans in the house was fodder for the masses rather than sincere statements.

-- Fox News and flawed control systems.

-- Political science models may tell us that spouses don't effect candidates' chances, but how far out of the range of data is Michelle Bachmann's husband?

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.

"Looks like I picked the wrong week to quit sniffing glue"

A busy, busy end of July here on the West Coast, professionally, personally and socially. The movers come tomorrow. Perhaps I can get the OE posting queue moving shortly after that.

Words of Wisdom -- Weekend Edition

Felix Salmon is unimpressed with Alan Greenspan and suggests a different perspective:

In fact, the opposite is true — ask anybody who has experienced both wealth and poverty. When you’re wealthy — when you have a nice capital buffer to absorb mistakes — you don’t worry so much about running risks, and you’re significantly happier than when you’re poor and you have to be much more worried about where your money might end up. Insurance improves living standards, it doesn’t detract from them. Let’s have more of it.

Too busy to give this the write-up it deserves

But NPR's morning edition has been doing a great series on failing schools. Having taught in the Mississippi Delta, this piece on rural schools struck particularly close to home.

Restoring my faith in public radio

Just when I was losing faith in the medium on this story, American Public Media's Marketplace had segments today digging into the impact of the (manufactured) debt crisis, both in terms of immediate unemployment and long term effects.

Definitely worth your time.

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.

Why we're where we are

When journalists are determined to find a way to assign equal blame to both sides in every crisis and foul-up, there can be no real accountability and without accountability, a democracy cannot function. If reporters were willing to go where the story led them instead of slavishly following a perverted view of 'fairness,' then politicians would face some consequence for gross irresponsibility.

Paul Krugman recently said

And look at what this does to incentives: no matter how badly Republicans behave, they don’t draw condemnation from the Very Serious People. All you get is tut-tutting about how politics is awful, and if only we had a third party to install Mike Bloomberg as dictator president all would be well.

Pundits who won’t call out extremism without pretending that it’s symmetric aren’t a big part of our problem, but they are a part of our problem.

He's wrong. They and journalists like the Washington Post's Felicia Sonmez are a big part of our problem and more; they are a necessary condition for the mess we're in.

Josh Marshall takes an in depth look at this idea here.

Virtuous Circles

The ever interesting Felix Salmon has reasons for optimism about the future of Paywalls. In particular, he notes how the porous paywall of the NYT beats the FT paywall (which is consumer unfriendly and annoying).

But even better is the marketing opportunity that this sort of paywall creates:

Those paying digital subscribers, however, are much more valuable than their subscription streams alone would suggest. They’re hugely loyal, they read loads of stories, they’re well-heeled, and advertisers will pay a premium to reach them. Judging by the second-quarter results, which is admittedly early days, it seems as though total digital ad revenues are going up, not down, as subscriptions get introduced: the holy grail of paywalls.

This is a principle worth keeping in mind -- there are virtuous circles as well as vicious ones. Not only does the NYT get to collect predictable revenue from a steady stream of subscribers (and predictable revenue is worth a lot), it also gets an advertising boost from being able to identify these readers. It's an amazing outcome and I remain delighted that it worked out for them.

Now I wonder if we could try and apply these principles to public health. How can we create incentives where patients identify themselves in ways that save money and are happy to do so? Because when you manage to get these sorts of two for one punches, efficiency is massively improved.

When all of your studies are ecological

Consider this example:

By contrast, in England during the same period, the nobility and gentry didn’t conspire with the crown to exempt themselves from taxation. Instead, thanks to a number of factors—greater social solidarity, a keener sense of foreign threats, reforms that made the government itself less corrupt, and the principle of taxation only with the consent of Parliament—the wealthy of England willingly accepted higher taxes on themselves. As a result, government spending in England rose from 11 percent of GDP in the late seventeenth century to 30 percent during some years in the eighteenth century. That’s higher than U.S. federal spending today. These higher taxes on the wealthy in England, Fukuyama notes, “did not, needless to say, stifle the capitalist revolution.”

This is a persistent problem in the evaluation of programs: how do you determine the direction of causality in an ecological study? Did England become wealthy and thus feel free to raise taxes or did raising taxes allow England to prosper and become wealthy? The same issue arises with debating points made closer in time:

The idea that the economy will suffer if we modestly raise taxes on upper-income Americans is belied by recent history: we increased tax rates on the rich in 1993 and the economy created more than twenty-two million jobs; we cut them in 2001 and the economy created fewer than seven million jobs.

But it is clear that there were a lot of confounding variables between the two time periods. Still, it is interesting that most people seem to immediately see a link between raising taxes and lower economic growth. Why are we so sure about this link, given the weak relation seen historically?

It's a really challenging problem and, worst of all, one that data can't really help us with.

Mr. Glass vs. the Patent Troll

This American Life takes on Nathan Myhrvold's Intellectual Ventures. What more do you need?

A busy morning

But I'm going to try to find time soon to say something about:

This could be a mistake, argues Paul D. Spudis in “The Case for Renewed Human Exploration of the Moon.” In his study, Spudis argues that Moon exploration could reinvigorate the space program and provide a starting point for future research missions. Spudis suggests using the Moon as a testing ground for new technologies and strategies. He says the Moon’s geological make-up can teach us more about other planets and Earth’s own history. And since it has no atmosphere and a dark sky, the Moon could serve as a better home base for astronomical observation. Furthermore, Spudis specifically makes the case for human exploration, rather than just unmanned missions. As an example, he argues that trained scientists can give context to the evidence they collect, whereas robots just pick rock samples at random. He writes, “[Robots] cannot undertake scientific study, make new observations and let these observations guide subsequent work and iteratively apply the lessons learned to an evolving conceptual paradigm […] Although significant gathering of data can be done with robots, conducting science in space requires scientists.” While Spudis is realistic about the political and financial hurdles, he maintains there’s only one way to prevent NASA’s demise: “We must return people to the Moon.”

from TNR

and

There are trigger issues in which the GOP no longer reflects the thinking of mainstream Americans of either party. In Tuesday's charade as the House put the Tea Party debt legislation to a vote, what we saw was an example of the kind of coalition voting common in Europe, where separate parties arrive at an agreement to govern. There are now essentially three parties in Congress: Democrats, Republicans, and the Tea Party. Reasonable Republicans with a sense of the possible do not subscribe to the Tea Party's implacable ideology, but they feel they must deal with it to placate its zealots. They are essentially in a coalition with a third party.

from Roger Ebert

And of course, this.