Ecomonies and Pharmacoepidemiology: today's link.

Beat the Press points out just how much health care costs are driving the United States fiscal situation:

But suppose we humor our friends at the Post. If our per person costs were the same as Canada's, or 53.1 percent of U.S. costs ($4,521.6/$8507.6) , then we would be looking at primary budget surpluses of more 2.0 percent of GDP over the next decade. These rise to more 3 percent of GDP in the 2040s and would eventually exceed 4 percent of GDP ($640 billion a year in today's economy).

If our per person health care costs were the same as in the U.K. then we would be spending just 40.0 percent as much on health care ($3,405.5/$8507.6). In this case our primary budget surplus would be over 3 percent of GDP for the next 15 years, rising to over 4 percent of GDP in the 2040s and eventually exceeding 6 percent of GDP by the end of the forecast period ($960 billion in today's economy).

I think that this rather dramatically illustrates that there are a lot of ways to meet the challenges of the long term budget deficit.  It's not that we can become Canada or the UK tomorrow, but that this difference in costs (with the attendant lack of access) is not ideal.  If we do decide that it is worth it to put this focus on medical costs then it makes sense to realize that taxes are needed.  In isolation, most taxes hurt somebody.  In isolation, most government programs benefit somebody.  The trick is to find a way to balance these two elements.

It is very much like pharmacoepidemiology.  Our focus on the adverse effects of medication use can often blind us to the real benefits of appropriately prescribed and used medications.  But balancing the two pieces is not at all trivial, so it can be too easy to just weigh one side of the equation. 

What does a position entail?

I am big fan of thinking through an argument from start to finish as well as assessing the implications of the argument.  Matt Yglesias did a good job with this approach with this post:

After all, the assumption that economic growth will continue undergirds conventional wisdom about economic policy in a really profound way—namely it's the key reason to limit political interest in redistribution of economic resources. There are a lot of metaphors about rising tides lifting all boats and baking a bigger pie instead of arguing about how to divide up a small one, and they're all pointing to the same issue—distributional issues matter, but in the long-term, economic growth matters much much more. Average living standards in the West are much higher in 2013 than they were in 1863 not because we abandoned capitalism and workers seized control of the factories, but because society as a whole is much more prosperous than it was 150 years ago.

It is an absolutely correct argument -- if there is no longer any potential for growth than pro-growth wealth distributions are kind of pointless and it becomes cruel to allow for high concentrations of wealth.  Now it is a different argument to claim that wealth concentration is required to encourage growth, but then the absence of growth should be a huge problem for low-tax/high-growth crowd.  Appeals to the long run get less compelling when the long run never actually arrives . . .

An interesting point on redistribution

Chris Dillow:

Now, libertarians might object that such redistributions are the effect of meddlesome government. In their ideal polity, we'd simply have secure property rights and no redistribution. I'm not sure. In a minimal state, we'd still have technical change. And this itself creates de facto rights. For example, in the 19th century mid-west, the invention of barbed wire (pdf) allowed land-owners to enclose large areas, thus strengthening their property rights. In the 21st century, file-sharing gives young people the idea that they have a right to free music. Faced with such technical change, even a libertarian state would have to choose how to allocate new rights - for example, the right to shared files versus the right to protect one's intellectual property. However it chooses, there's redistribution.

I say this to endorse Frances' claim; governments don't "defend" property rights but create them.

I think that there is a real sense that this point is very useful -- property is entirely a social construct.  There is no sense, in the state of nature, where a given piece of land is owned by a specific individual.  A system of property rights has many great features but the choice of what can be owned is, itself, rather important as are the socially acceptable steps that can be taken to defend these rights.

In practice going back to first principles on these types of rights can be very difficult and is likely to be somewhat misleading.  However, it is always worth noting that the outcomes that we currently have are because of system of values interested to maximize aggregate welfare and not some sort of natural entitlement. 

Solar: a continuing update

Brad Delong points us towards a great chart of the cost of solar energy.  The key quote:

The price of solar photovoltaic cells has dropped 99% in the past quarter century. So in an increasing number of markets around the country, solar is at or very close to grid parity.

In particular, the article focuses on a Colorado discovery that solar is looking competitive with natural gas fired plants.  And, in the United States, the heavy use of air conditioning likely means that peak sun and peak energy demand will line up reasonably well.

There remain technical challenges, but this is a very encouraging place to be. 

The obvious and the obviously obvious

This quote (cited by Andrew Gelman via a badly chosen URL), "The necessary conceit of the essayist must be that in writing down what is obvious to him he is not wasting his reader’s time." got me to thinking about what we mean when we say "obvious" or, more precisely, the different things that different people mean when they use the word in different contexts.

The obvi-... er, first example that comes to mind is this anecdote I first encountered in The World of Mathematics."

A famous math professor was giving a lecture during which he said "it is obvious that..." and then he paused at length in thought, and then excused himself from the lecture temporarily. Upon his return some fifteen minutes later he said "Yes, it is obvious that...." and continued the lecture.

A slightly different form of this anecdote was cited by Paul Renteln and Alan Dundes in their essay on mathematical folklore, unfortunately, it seems fairly obv-... make that, fairly clear to me that they missed the point of the joke:

This metajoke says a lot about mathematicians. First, they are often very quick thinkers, able to reach conclusions far faster than others. Second, they can see the humor in some jokes but are easily bored by the routine or familiar. Third, they often dismiss results that are obvious to themselves as “trivial”, even though the results may not be trivial to others. The following joke vividly illustrates this penchant.

A mathematics professor was lecturing to a class of students. As he wrote something on the board, he said to the class “Of course, this is immediately obvious.” Upon seeing the blank stares of the students, he turned back to contemplate what he had just written. He began to pace back and forth, deep in thought. After about 10 minutes, just as the silence was beginning to become uncomfortable, he brightened, turned to the class and said, “Yes, it IS obvious.”

The problem with this interpretation is that the students' confusion is not only not a central feature of the joke; it's not even a standard element (note that it doesn't appear at all in the previous version).

The joke here isn't that what's obvious to a mathematician may not be obvious to mere mortals. Instead, it's the far more interesting point that mathematicians and their ilk (and if you're reading this...) often use the words like "obvious" in a way that, though relatively precise, is very different from the way normal people use them. In common usage, being obvious is itself obvious. Normal people sometimes wonder if something that seems obvious is really true but they never spend time wondering if something that is true is really obvious.

At the risk of speculating on the motives of the apocryphal (and keeping in mind that I haven't taken a pure math class in more than a decade), I'd say that 'obvious' in this context means 'does not require a lemma.' You will hear mathematicians use the word in this sense, even though the question of whether or not a proof is complete is often far from obvious inn the traditional sense.

You could make a similar point about the way economists use 'rational' but that's a topic for another post.

Weekend blogging -- TV spies and war games

I came across a Youtube channel dedicated to the late Sixties/early Seventies show Callan. In case you're not familiar with it, the show was basically British television's answer to The Spy Who Came in from the Cold and the other anti-Bonds of the period. It was also the role that brought Edward Woodward to prominence thanks to an extraordinary portrayal of a man eaten away with self loathing.

Callan lives a drab life and genuinely hates his work and most of the people he works with. The only consistent source of pleasure in his life is his collection of Napoleonic war game miniatures. Occasionally, stories revolved around actual gaming, like the episode, "Act of Kindness" from the third season.

Which is a pretty good excuse to post it as part of our ongoing gaming thread.

Other people get their allusions from classical literature; I use old Superbowl ads.

Like a lot of people, I've always looked at Grover Norquist as both dangerous and untrustwworthy. Certainly the last peerson I'd expect to balk at extremism, but recent events have made what were fairly fine distinctions plain. In the case of Norquist, this interview reminds us that even the hitchhiker with an axe draws the line at the one with the chainsaw.

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.

Amazing sentence of the day

Wow, just wow:

They analyzed the results of 305 randomized controlled trials involving 339,274 individuals and found no statistically detectable differences between exercise and drug interventions for secondary prevention of heart disease and prevention of diabetes.

I plan to review the paper today but remember that randomization protects against many possible sources of bias.  It doesn't mean that these recommendations apply to all patients at all times, nor does it address the possibility of additive effects.  If you are thinking of changing your activity level it is prudent to discuss potential risks with your health care provider in advance.

But it makes it clear that we under-utilize a really remarkable treatment. 

Orthogonality in political debates

I think that I feel the most like an expat at times like this, when the American political elite are talking about the size of government.  I have always thought that the size of government was secondary to the quality of government.  The comparison between states like Sweden and Singapore suggests to me that well run governments can be an important part of a society, almost irrespective of size.  Obviously there are limiting factors at the extremes, but the general principle isn't far out of line. 

Now this isn't a "pox on both your houses" moment.  It's a question about whether we are having the correct conversation at all.  Now there has been some reporting on things like the computer websites for the Affordable Care Act and whether they are working well.  This is a much more interesting debate, as it gets to the heart of how government can be made to work better. 

Why isn't good government the priority? 

A problem of measurement

Trying to actually measure outcomes is a very tricky business when you are looking at things like educational outcomes.  It's harder when you have competing measures that you have to try and arbitrate between.  However, the worst possible way to deal with this type of measure is to only pick the one that best supports the story you want to tell. 

At a larger level, I would be interested in looking for ideas from countries that have higher ranks.  Finland, for example, seems to have been doing the opposite of the United States and seems to rank highly. 

Charter schools

Okay, this piece in Forbes about the money to be made in charter schools is really pointing out the potential hazards of these sorts of movements.  It is not that they can't necessarily improve outcomes (at least in a theoretical sense) but that there can be a lot of potential to shift the focus from educating students to making profits.  It is a classic principal agent situation as the person paying (the government) is not the person receiving the services (the students). 

Consider:

Nor does the evidence show that charters spend taxpayers’ money more efficiently. Researchers from Michigan State and the University of Utah studied charters in Michigan, finding they spent $774 more per student on administration, and $1,140 less on instruction.

About the only thing charters do well is limit the influence of teachers’ unions. And fatten their investors’ portfolios.

In part, it’s the tax code that makes charter schools so lucrative: Under the federal “New Markets Tax Credit” program that became law toward the end of the Clinton presidency, firms that invest in charters and other projects located in “underserved” areas can collect a generous tax credit — up to 39% — to offset their costs.

So basically they are hiding the costs of operation in tax credits (reducing tax revenue) to look like they are efficient.  I think it would be helpful to everyone if we counted tax expenditures as a form of spending.  So how is this plan to earn profits via education working out?  Just how good is this plan?

So attractive is the math, according to a 2010 article by Juan Gonzalez in the New York Daily News, “that a lender who uses it can almost double his money in seven years.”

or the salary of the CEO of one of the few publicly traded Charter School companies:

The story also revealed CEO Ronald Packard collected a salary in 2011 — $5 million — nearly double that of the previous year. And that his bonus is linked not to student performance, but to enrollment.

So the real issue here is that costs are not especially transparent and outcomes, on average are not especially wonderful:

Too bad the kids in charter schools don’t learn any better than those in plain-vanilla public schools. Stanford University crunched test data from 26 states. About a quarter of charters delivered better reading scores, but more than half produced no improvement, and 19% had worse results. In math, 29% of the charters delivered better math scores, while 40% showed no difference, and 31% fared worse.

Unimpressive, especially when you consider charter schools can pick and choose their students — weeding out autistic kids, for example, or those whose first language isn’t English. Charter schools in the District of Columbia are expelling students for discipline problems at 28 times the rate of the district’s traditional public schools — where those “problem kids” are destined to return.

So, even ignoring peer effects, these look like similar outcomes (the bias will be towards public schools doing worse because they cannot refuse students as easily).   

So I think two issues arise as matters of policy from these sorts of discussions.  One, it is hard to imagine why we need to disassemble a working system just to create lucrative investment opportunities.  Two, teacher job security and salary become much more salient as issues if they are compatible with decent student outcomes (one average, anecdotes will exist in all directions). 

I am not against innovation in education.  But I tend to be suspicious of drastic transformations of complex systems as they are hard to implement.  Nor is it reassuring that a business magazine is pointing this area out as a profit making opportunity.  Insofar as we have data, it isn't all that reassuring when we compare costs and benefits.   

h/t Mike the Mad Biologist and thanks to Mark Palko for comments

Weekend blogging -- the political cartoons of Dr. Seuss

As TPM pointed out, Ted Cruz made an odd choice when he invoked Theodor Geisel, a lifelong liberal who served as a political cartoonist for the left-wing PM.

Here at West Coast Stat Views, we're always hunting for an excuse to waste time looking at cartoons, so...

Which was also an reference to an earlier and very successful ad campaign

Hunger, homelessness and the George Foreman Grill

In the recent discussion of food stamps (see here, here, and here), one of the recurring points was that the price of food available in an area often played a relatively small role in the problem, particularly compared to the difficulties associated with not having access to flexible transportation or a decent kitchen.

Which brings up one of this blog's favorite villains, the dangers of having policy debated and decided by an economically and regionally homogeneous group. It's not just a case of not seeing things from other perspectives; it's a case of not seeing things from other perspectives and not knowing that you're doing it. When a well-meaning CEO recently tried to live on a SNAP budget for a week, he screwed up the easy part, but more importantly, he skipped the hard part, not because he was trying to cheat but because things like having a car were simply part of his world. 

I've been focusing on transportation, but having an adequate kitchen can be as or more important. I heard an interview with a man who had just gotten off the streets who explained it with the following example: if have a kitchen, you can get a dozen eggs for less than two dollars and have breakfast for a week; if you have to go to a restaurant, that same money will get you one egg sandwich. 

This 2004 NPR story illustrates the point beautifully and it also shows the resourcefulness people can show under difficult circumstances. 

So many immigrants, homeless people and others of limited means living in single-room occupancies (SROs) have no kitchens, no legal or official place to cook. To get a hot meal, or eat traditional foods from the countries they've left behind, they have to sneak a kind of kitchen into their places. Crock pots, hot plates, microwaves and toaster ovens hidden under the bed. And now, the latest and safest appliance, the appliance that comes in so many colors it looks like a modern piece of furniture: the George Foreman Grill. It is, quite literally, a hidden kitchen.
...
This story also led us to the streets. We called our colleague, Steve Edwards at WBEZ, to see if he could help us locate any hidden grills in Chicago. He contacted The Chicago Coalition for the Homeless, which in turn put us in touch with Jeffrey Newton. Jeffry has been homeless or in shelters most all his life, from boy's homes, to reformatories, to prison by age 17. Then he moved out on the streets, where every day he goes "trailblazing" — looking for food, shelter, work, the resources he needs to make it through the day.

Jeffry learned to cook from his grandmother. He feels an urge to cook, especially for other people — under the overpass on Chicago's Wacker Drive; on a George Foreman Grill plugged into a power pole; with a hot clothing iron to toast a grilled cheese sandwich.

We also called Glide Memorial Church in San Francisco's Tenderloin District. We knew they would know. They offer a stunning array of services to the poor, to those in recovery, to those needing assistance, both spiritual and physical.

Pat Sherman lived for quite some time in SROs with no kitchen, where cooking was forbidden. She now has a home and works in Glide's walk-in program. Sherman — whose recipe for "Hidden Beans & Rice" is linked to above — was quite ingenious when it came to cooking. Her Crock-Pot doubled as a pencil holder and a flower pot — nothing that would arouse suspicion. When nobody was around to check, she would slow-cook her beans while she went to school, then come home to a hot meal.

Reactions to DeLong's piece on Global Warming

I am sure that this section will be roundly ignored, but it was the most interesting to me: 

Even half a generation ago, economists interested in global warming like Thomas Schelling saw natural justice to this argument, and expected the North Atlantic to finance the carbon-neutral industrialization of the Global South--an environmental Marshall Plan for the 21st century. Global politics has not been kind to such dreams. I do not know of a way to represent a number as small as the probability that the next generation will see large-scale transfers from the North Atlantic to the Global South to fund its carbon-neutral industrialization.

But it may well be that continued inaction on dealing with global warming itself has mammoth antiegalitarian distributional consequences for the world. There are 2 billion peasants in the great river valleys of Asia from the Yellow to the Indus. Few of them have the human capital or the relationship chains needed to do well in the cities of Asia. For most of them, the economically valuable asset that they have the land that they farm--the land that requires for its economic value that there be enough melting snow off the Tibetan plateau but that the snow not melt too quickly. Global warming means either more or less snow on the Tibetan plateau. Why the governments of East Asia and South Asia are not now screaming about the consequences for their 2 billion peasants of global warming seems to me explicable only as the result of a strange kind of political myopia. To wait for large-scale transfers from the North Atlantic to begin carbon neutral industrialization in East Asia and South Asia seems to me likely to be viewed by historians a century from now as a classic dog-in-the-manger story.

I think that there are two levels that I really like this argument.  One, probably not surprising, is the public health argument.  The biosphere is under a lot of pressure -- pushing on it hard right now is likely to result in all sorts of adverse public health outcomes as things like water supplies become more constrained.  I think that the economic value argument (the melting snow makes the land economically valuable) is less salient than the potential for human suffering if there is a loss of food and clean water in this area.  DeLong doesn't address this directly, but I presume it is subsumed into the consequences of the economic changes. 

The second, though, is to think about the net present value of improved renewable energy sources.  Even with a modest discount rate, the development of improved solar, wind, or water energy production is huge because it extends the likely window of exploitation far into the future.  It is plausible that there might not be petroleum used as fuel in the future; the horizon over which the sun will stop providing energy likely exceeds the expected lifespan of the human race.  Heck, even Nuclear, with known disadvantages, has a much longer time horizon for viability.  This creates a real value to investment in these technologies as small improvement in efficiency could well pay large dividends. 

Of course, Mark would point out that existing technology is also potentially helpful as well.