Andrew Gelman weighs in

Mark Palko asked me to post a link to Andrew Gelman's really interesting discussion about "economics exceptionalism". 

My own take-away is that I had not thought about the intellectual dominance of Freudian thinking for a long time and I had never made the link to economics.  But there were occasional forays of economics into areas like education and public health that I have spent some time talking about.  By now we all know the idea behind Freakonomics (even if it might be largely a marketing ploy, it has some intelelctual cachet).   The issue with Ray Fisman and teacher retention policy (should we fire 80% of new teachers) has seen a lot of discussion on this blog and I consider it a classic example of this type of economics reasoning exported to a more general subject matter.  (which is not a dig at Ray Fisman who appears to be a brilliant thinker on his own turf). 

So go, read, and enjoy the comments! 

Futurism

Something that Mark and I have been talking about is how much less audacious we have been (as a country) since the 1950's.  Back then there was a real sense of inevitable progress and an idea that there were great accomplishments lurking around the corner.  Noah Smith weighs in with an example of this:

If we had found better ways to unlock the vast stores of energy that we know are lurking inside the nuclei of atoms, we'd have those flying cars and Mars colonies and everything people thought we'd have back in the 50s (OK, the Economist doesn't say that, but it's true).

When did we lose this ambition and can we get it back?  

Presented without comment

From Paul Krugman:

From KCRW:

Faced with state funding cuts, Santa Monica College can’t keep up with student demand. The school’s governing board has approved a plan to provide extra classes after the regular ones are full. But while regular classes will cost $46 a unit the extras will be $180.

Addendum

Daniel Kuehn has posted a clarification of his position on his blog making it clear that his post was not intended as a defense of Steve Landsberg's position on the Sandra Fluke issue.

There is still an interesting argument about how modern readers seem to give more weight to counter-intuitive arguments than intuitive ones.  Landsberg's career seems to be based on this approach.  Bayesian thinking says that we should do the reverse -- and I think that it would be useful to the debate if we remembered such things.

Not thinking like an economist vs. not thinking, like an economist

Noah Smith has an excellent post on the strange tendency of some economists to treat offensiveness as a sign of clear-thinking. You should read the whole thing, but first I want to take a moment to focus on this quote by Daniel Kuehn:

A lot of people don't get "thinking like an economist" when they see it, [In this case, the people who don't get "thinking like an economist" include Brad DeLong and Noah Smith, but I digress -- Mark*] and what I think Landsburg is doing here is "thinking like an economist", not being a jerk...

Thinking like an economist simply means that you scientifically approach human social behavior - which means that you approach them like any other species of animal. Nobody judges animals when they behave in ways that we would consider horrendous in other humans. They're just... animals. And that's what you really need for good social science. You need to look at your fellow humans as "just animals". Astonishing, wondrous animals to be sure - but just animals...

It's absolutely critical for good economists to see the world in this way...I suspect [Landsburg] was "thinking like an economist". The problem is, of course, it flowed over from scientific analysis of human behavior to a commentary on a single individual human being[.]

[Landsburg] dotted all his i's and crossed all his t's on the analysis, because he's good at thinking like an economist.

We've been through this before. Steve Levitt used the thinking-like-an-economist line to dismiss critics. I found it lacking at the time and it hasn't grown on me since then but it should be noted that even at his worst, Levitt is making an effort to approach questions scientifically. I don't believe that a majority (or even a plurality) of Levitt's critics disagree with him because he's too logical, but at least it's a claim that can be made with a straight face.

Landsburg's defense of Limbaugh is an entirely different beast. There's no trace of a scientific process here or of any thoughtful process at all for arriving at a position. Landsburg simply reacted angrily when he saw people he didn't like say things he disagreed with. Unfortunately, he expressed that anger with a spectacularly shoddy attempt at an argument that misrepresented the original facts, mangled the reasoning and required the reader to make up new definitions for most of the operative words.

By applying it to Landsburg's Fluke post, Kuehn has stretched the thinking-like-an-economist defense to the point that if covers pretty much any statement, no matter how incoherent, as long as it includes something offensive to the general public.

(for more to this topic, check out this post by Andrew Gelman.)


UPDATE: Daniel Kuehn argues here that Smith misrepresented his original post. Read both and come to your own conclusion.

* And just to be clear, this bracketed statement was an editorial insert by me, not an aside by Kuehn.

How sure are you that your models are correct?

Karl Smith makes a really good point:

Now imagine that you withheld a payroll tax cut or food stamp relief or any other program on the basis of fear about long term budgets. Depending on your macro estimates somewhere between millions and hundreds of millions of people suffered for this. 

What did you get in return for their suffering? 

Absolutely nothing. Nothing. Nothing. 

Every time you ask a real living person to suffer for some future goal you have to know that you are betting their well-being on your being right about the future. 

How sure are you that you are right? 

Austerity costs with probability one. Attempting to effect long term growth is always a gamble.

I do think that this point is worth remembering in policy discussions.  Models of distant time periods (say 30t o 50 years in the future) are subject to dramatic changes in assumptions.  Could the people living in 1890 (who had never seen a plane) have imagined what 1940 (and the air war of the Battle of Britain) would be like?

This is not to say that we should be reckless.   But policies like austerity in a time of high unemployment have immediate and real costs.  To presume that one is really preparing for the future one should be really, really confident that one can predict it . . .

EDIT: As a clarification, this is much more salient for things like Health Care costs where things like technological progress could completely change the growth curve and less of an issue for Global Warming where we have an observable and deterministic physical process.

And things get worse . . .

Avik Roy part 2:

The VA system could be turned into a huge asset for our nation's health-care system if it were privatized. One of the big drivers of rising health spending is hospital monopolies: when one or two hospitals dominate a particular region, those hospitals have the power to charge whatever they want to insurers and patients. If civilians were allowed to use VA hospitals, and vice-versa for veterans, we could significantly improve this problem. In addition, if the VA hospitals have indeed come up with operational efficiencies, competing private-sector hospitals would be forced to adopt those efficiencies, or lose patients.

If liberals are right, and the VA is a model, competition will force private hospitals to improve on both quality and cost. If conservatives are right, and VA hospitals are terrible, privatization would allow veterans to gain access to superior private-sector health care, while increasing provider competition. Seems like a win-win.

So if I think that a single payer model creates efficiency then the way to test that would be to privatize the system so that we could see if it was equally good as a multi-payer system.  The things that make a single payer system efficient -- less adminsitrative overhead, rationing, ability to implement cost-effective standards of care, no need to run at a profit -- would all vanish in a competitive market place.  Because each insurance plan would have different rules and paperwork requirements which would rapidly undermine a lot of the single payer efficiency. 

So how is abandoning the model used by liberals (single payer) to privatize VA hospitals going to work out as a "win-win"? 

The best analogy I can come up with is comparing a privately held company to one that is publicly traded.  The idea that the private company should become publicly traded so that one can judge if it is more efficient than the publicaly traded company ignores the possibility that it is more efficient because it is privately held. 

So I think that this idea isn't going to show what Mr Roy claims it will show. 

Megan McArdle is on hiatus

But there are people carrying on her work.  The argument in Avik Roy's most recent piece (a guest blogger at the Atlantic) seems to be less than well thought out.  It tries to argue that MedicAid is suboptimal insurance and that, therefore, increasing access to MedicAid will reduce health care access overall.  This is the ultimate straw person argument.  Nobody will enroll in MedicAid if they have private health insurance available to them as an option.  So the real issue is whether the uninsured would be better off under MedicAid or under no insurance at all.  Note that you could always choose not to enroll in MedicAid and stay uninsured, if that was your preference.  Nor is it guarenteed that private insurance will always be available to people as costs rise and employers rebel.   

So the real questionm here is whether MedicAid is worse than no insurance at all.  The good folks at the Incidental Economist have a post with a dense series of links as to the complete lack of evidence for this hypothesis. 

Now one could argue that it would be nice if MedicAid were better insurance, but that doesn't seem to the concern of the author of the post.  Instead, it seems to be about reducing support for health care reform without really positing a superior solution.

UPDATE: It seems that the Incidental Economist addressed this twice, with another post pointing out that reimbursements under MedicAid are set to increase (and that this should increase the number of physicians willing to accept MedicAid).

UPDATE 2: Karl Smith has a rather clever point here on the same piece:

Is the suggestion here that the fixed costs associated with running an office are so high that the breakeven point is achieved from a maximum throughput of full insurance patients? And, further that there is simply no way of operating an office with lower overhead? I can see how its not profit maximizing to accept Medicaid patients. I can even see how in a perfectly competitive market providers would have bifurcate into Medicaid and non-Medicaid providers. However, I do not see why the market cannot find a way to provide paying customers with some level of service.

A randomized test of welfare

In the Economist, no less. Consider:

When the results were in, the team found that the unpaid women had suffered more than twice the HIV infection rate experienced by the paid women over the course of the 18 months of the experiment, and four times the infection rate of genital herpes. Intriguingly, there was no difference between the infection rate suffered by those required to go to school and those who received the money unconditionally. Whether the actual amount of money mattered was not clear. For that to emerge a larger sample would be needed. What is abundantly clear, however, was that the money did make women behave differently. They had younger boyfriends than those in the control group, and had sex less frequently.

What should be noted is that this was a randomized experiment so you can actually infer causality.  I am positive Mark will have a lot more to say about this experiment.

But let me note, for the record, that this is the opposite result of what conventional thinking would yield about giving young people cash subsidies.  It's also notable that requiring school did not change the good results so unconditional transfers are not inferior to conditional transfers.  Are we sure that a social safety net would result in worse outcomes?  What about giving grants to college students?  

Airports in the sky

2012 Skyscraper Design Competition



The idea of an airport suspended above a city was a plot point of the classic screwball comedy the Palm Beach Story. I find it remarkable that the wildly ambitious notions of seventy years ago are still the wildly ambitious ideas of today.

Remarkable and terribly depressing.

Back on the higher ed beat

Paul Krugman weighs in on recent comments from GOP candidates on the subject of higher education:

About that hostility: Mr. Santorum made headlines by declaring that President Obama wants to expand college enrollment because colleges are “indoctrination mills” that destroy religious faith. But Mr. Romney’s response to a high school senior worried about college costs is arguably even more significant, because what he said points the way to actual policy choices that will further undermine American education.

Here’s what the candidate told the student: “Don’t just go to one that has the highest price. Go to one that has a little lower price where you can get a good education. And, hopefully, you’ll find that. And don’t expect the government to forgive the debt that you take on.”

Wow. So much for America’s tradition of providing student aid. And Mr. Romney’s remarks were even more callous and destructive than you may be aware, given what’s been happening lately to American higher education.

For the past couple of generations, choosing a less expensive school has generally meant going to a public university rather than a private university. But these days, public higher education is very much under siege, facing even harsher budget cuts than the rest of the public sector. Adjusted for inflation, state support for higher education has fallen 12 percent over the past five years, even as the number of students has continued to rise; in California, support is down by 20 percent.

The choice of California is sadly apt. The state's three-tiered UC/CS/community college system is, even after these devastating cuts, a remarkable achievement. Residents have access to an impressive spectrum of educational options, ranging from inexpensive schools designed to be friendly to disadvantaged and non-traditional students to some of the world's best public universities (with surprisingly reasonable tuition).

In case you think I'm exaggerating, check out this post from Joseph:

From the Academic rankings of world universities:

1. Harvard University (private)

2. Stanford University (private)

3. Massachusetts Institute of Technology (MIT) (private)

4. University of California, Berkeley (public)

5. University of Cambridge (British)

6. California Institute of Technology (private)

7. Princeton University (private)

8. Columbia University (private)

9. University of Chicago (private)

10. University of Oxford (British)

11. Yale University (private)

12. University of California, Los Angeles (public)

13. Cornell University (private)

14. University of Pennsylvania (private)

15. University of California, San Diego (public)

16. University of Washington (public)

17. University of California, San Francisco (public)

18. The Johns Hopkins University (private)

19. University of Wisconsin - Madison (public)

20. University College London (British)

Some interesting patterns immediately jump out. Of the top 20 schools, 17 are American, which is pretty impressive given the share of the world population held by the United States. Of the 17 American schools, six of them are public (which is amazing given how many resources the private schools have). Of the public schools, 4 of them are in California.

If you check out the rest of the list you'll find all of the UC schools have respectable rankings. Given their caliber, they are also quite affordable. I took a grad course in Bayesian networks a couple of years ago at UC Riverside. It cost me eight hundred dollars and was an extraordinary bargain.

It should be noted that some pundits don't think much of California's commitment to great universities. Here's Kevin Carey:

If Berkeley’s star professors are lured away to Stanford, it’s bad for the university but not necessarily bad for America, particularly if (as is frequently the case) those professors teach few if any undergraduates. They’ll be the same people doing the same thing at another university an hour away.

Of course, Carey also believes Rick Perry Is a Higher-Education Visionary.

A perspective on Ayn Rand

This is worth reading.

The carried interest exemption

Carried interest as an exemption isn't easy to defend:

The other problem is that private equity partners are not actually like Dan the carpenter. If Dan and Ms. Moneybags are in a true 50-50 partnership, then Dan is on the hook for half of their losses, as well. The great thing about 2 and 20, for private equity partners, is that they get a cut of the profits but they don’t absorb a share of the losses. This means that the 20 is more like a performance bonus than like a partnership share. So if the 20 is in a gray area, as Mankiw argues, it is even closer to ordinary income than Dan’s partnership share—which, as Mankiw shows (although he doesn’t quite come out and say it, for obvious reasons), should be treated as ordinary income

I have begun to wonder if capital gains should be taxed at a different rate than income, especially if we have exemptions on gains resulting from housing (as transaction costs with housing can reduce mobility).  But the only argument for capital gains exemptions (that people have to risk losing their money) clearly isn't applying to hedge fund managers.

But no matter how one looks at this situation, the best that can be said is that some people may sneak labor wages in as capital gains.  But should we not be trying to limit the cases where this happens and not encourage them?

Food Stamps

I was reading this piece by Ed Glaeser (the danger of following links posted at Noahpinion) and came across this rather interesting sentance:

The childhood obesity problem should also make us wonder whether food stamps are really good for kids.

My question is rather simple: how do we know that these two factors are causally related?  Chuldhood obesity is a complicated problem, but one possible driver is low quality food (such as potato chips) that is cheap, easily stored and (per calorie) relatively inexpensive.  Is it not plausible that reducing food budgets could increase obesity by focusing food intake even more on these foods? 

I worry when we attribute a complex phenomonon (seen at all sorts of socio-economic levels) with a single government program.  I am not saying that this statement is incorrect (and it is phrased as speculative), but it seems like too important of a proposition to be confinded to a single sentance.  In particular, I would be interested in the counter-factuals:

1. Food Stamps
2. Cash Transfers
3. No Assistence

And a comparison of childhood outcomes (obesity but also starvation) under these three different scenarios. Or am I missing the relevant research and we already know the answer? 

Landsberg's latest

Noah Smith points out a Steve Landsburg column that doesn't make a lot of sense.  I am going to try (although it is hard) to ingnore the moral dimension here (although I am very much on Sandra's Fluke's side) and focus on the inherent logic of the positions being staked out.  Consider Landsberg's comments:

To his credit, Rush stepped in to provide the requisite mockery. To his far greater credit, he did so with a spot-on analogy: If I can reasonably be required to pay for someone else’s sex life (absent any argument about externalities or other market failures), then I can reasonably demand to share in the benefits. His dense and humorless critics notwithstanding, I am 99% sure that Rush doesn’t actually advocate mandatory on-line sex videos. What he advocates is logical consistency and an appreciation for ethical symmetry. So do I. Color me jealous for not having thought of this analogy myself.

There’s one place where I part company with Rush, though: He wants to brand Ms. Fluke a “slut” because, he says, she’s demanding to be paid for sex. There are two things wrong here. First, the word “slut” connotes (to me at least) precisely the sort of joyous enthusiasm that would render payment superfluous. A far better word might have been “prostitute” (or a five-letter synonym therefor), but that’s still wrong because Ms. Fluke is not in fact demanding to be paid for sex. (Not that there’s anything wrong with that.) She will, as I understand it, be having sex whether she gets paid or not. Her demand is to be paid. The right word for that is something much closer to “extortionist”. Or better yet, “extortionist with an overweening sense of entitlement”. Is there a single word for that?

But whether or not he chose the right word, what I just don’t get is why the pro-respect crowd is aiming all its fire at Rush. Which is more disrespectful — his harsh language or Sandra Fluke’s attempt to pick your pocket? That seems like a pretty clear call to me.

 Noah Smith comments that:

First, from an economic efficiency standpoint, in-kind benefits are inferior to direct cash payments, as Ed Glaeser will tell you. Instead of giving Rush a sex tape, it would be more efficient to simply hand Rush some cash and let him buy whatever he wants with it. 

But I think that this critique also misses the point of the most relevant exmaple given.  In this case (a lesbian student who wanted to be prescribed these medications to prevent cyst growth on her ovaries -- which led to surgery to remove an ovary) -- the rationale for taking the drug had nothing to do with sex and everything to do with preventing unnecessary surgery.  From a strict cost perspective, Landsburg should be praising Fluke for trying to save the state money by improving medical efficiency.  From a utiliatarian perspective, it's probably worth a few thousand dollars to preserve a person's otherwise healthy organ.  So this policy (in this case, at least) is costing extra money for all parties involved. 

So I am mystified by Landsberg's clear call.  He wants to spend more money on unecessary medical procedures that could be avoided with inexpensive and commonly available drug therapies?  Is this because Landsberg thinks his personal tax rate is too low? 

Not only do I find the substance of the argument repugnant, it seems to fail on even on it's own terms.  So I am confused by what Landberg is trying to accomplish wit it.  Is he hoping that we will turn it around and support open access to oral contraceptives?  Is he advocating for higher tax rates to enable a greater degree of social engineering?  Or am I missing something here?