Negotiating costs

A correspondent to Talking Points Memo makes a point that matches my experience:

I've spent years making medical decisions based on the out-of-pocket cost. I've passed on doctor-advised MRIs because they would cost me $1,000 (and don't even get me started on the myth of how patients can negotiate with providers--a notion propagated largely by people who've never had to try it), and just this week I had to decide whether to have a follow-up visit with a neurologist for vertigo or see a podiatrist about an ongoing running injury.

If there was a robustly competitive market then maybe it would be different.  But most people have insurance and there isn't really a whole lot of ability to bargain down prices.  I found it to be surprisingly challenging to be allowed in to see a medical doctor, paying the full (very high) sticker price. 

I don't want to say that it has never worked for anybody (the US is large), but most of the time you are happy to find a provider at all.

Weekend blogging -- supply your own metaphor

Directionality

There was a lot of concern that the Affordable Care Act would lead to fewer full time jobs.  The most immediate effect was the opposite: more full time and fewer part time jobs. 

Now this doesn't mean you can't find individuals or sectors who are affected.  But it does cast some doubt on the potential strength of these effects.  It is like lowering or raising taxes.  In the ranges that the United States has tried in the last 30 years we had high taxes with high growth (Clinton) and low taxes with low growth (Bush).  Now the underlying relation might hold, but over this range you begin to suspect that it cannot be a dominant effect. 

In the same sense, the ACA might eventually lead to more part time jobs than the counter-factual.  But the initial look suggests that we should update our priors as to the plausible effect size if it can be so easily swamped by natural market shifts. 

A Motley Fool uupdate -- the Avengers probably can beat up the Agents of SHIELD

Just to recap: about a month ago Motley Fool ran a post with the provocative suggestion that the television program Agents of SHIELD could be bigger than the movie from which it was spun off, The Avengers.

This was an extraordinarily ambitious target. The Avengers was one of the very few movies in film history to break $1 billion at the box office and it made God knows how much more than that when you take into account marketing, rental and streaming, and the tentpole effect on other films in the franchise such as the upcoming Thor and Capt. America movies.

Even when you take into account the fact that a strong show can indirectly generate additional revenue through its effect on the rest of the lineup, the idea that this program would be bigger than the movie that spawned it would require Agents of SHIELD to be a huge perhaps even unprecedented television hit.

To support the claim that this was a relatively likely outcome, the Motley Fool writer offered very little in the way of argument other than his assurance that these things were going to be big.

How have these assurances panned out so far?

On Tuesday night, S.H.I.E.L.D. had 7.1 million viewers and a 2.6 rating among adults 18-49 at 8 p.m. This is still a good rating in this slot, especially when ABC has also recently launched freshman dramas that are much weaker, like Lucky 7, Betrayal and Once Upon a Time in Wonderland. Yet here’s how the Marvel series has tracked so far in the adult demo: A 4.7 rating for the show’s premiere, then 3.3, 2.9, 2.8 and now a 2.6.

It’s common for even successful and long-running new shows to drop the first two weeks after their launch, or even for three weeks. But now we’re on Week 5. We’re seeing some new shows stabilize or even improve in the ratings — last night, under-achievers like Fox’s Brooklyn Nine-Nine and ABC’s The Goldbergs finally crept up a bit. On Monday night, CBS’ Mom went up for the first time and Hostages held steady. Yet S.H.I.E.L.D is still trending down. Can Melinda May pull the S.H.I.E.L.D. jet out of its dive? Comic veteran Jim Steranko says the show has found its groove creatively. So why are fans still ditching? ABC has ordered a full season of S.H.I.E.L.D., so it’s not going anywhere anytime soon. But those numbers must stop dropping at some point, hopefully sooner rather than later.

 [A quick side note: Steranko (who arguably deserves co-creator credit for the original S.H.I.E.L.D along with Kirby and Lee) has a weekly gig at the Hollywood Reporter reviewing the show and his take is a bit more negative than the "found its groove" line suggests.]

You'll notice the focus on the 18-49 audience. This is area of some controversy in marketing circles and I've heard a lot of smart people in the field suggest that, while a thirty-year-old set of eyeballs might be somewhat more valuable to an advertiser than a sixty-year-old set, the difference isn't big enough to justify dropping a huge segment of the population from your metrics.

Without getting too far into the debate, I will say that it's a good idea to look at both numbers. In this case, pay particular attention to CBS. NCIS remains a powerhouse across all demographics. I'm not a fan of the franchise but Bellisario has been at this for a long time and he has perfected a tremendously successful formula of action, military culture, quirk-heavy characters and at least one scenery-chewing veteran thespian  per show. SHIELD is heavily targeted at 18-49 and it's not even winning there.

NET/TIME/SHOW				18-49 RATING	TOTAL VIEWERS
FOX	8:00P	DADS-		1.4	3,608
	8:30P	BRKLYN 9-9-		1.6	3,777
	9:00P	NEW GIRL-		1.8	3,759
	9:30P	MINDY PRJCT-		1.4	2,858
ABC	8-9P	MARVL-SHIELD-		2.6	7,126
	9:00P	GOLDBERGS-		1.7	5,264
	9:30P	TROPHY WIFE-		1.2	4,030
	10-11P	SHARK TNK	RS	1.1	3,450
CBS	8-9P	NCIS-		3.0	18,580
	9-10P	NCIS:LA-		2.6	14,870
	10-11P	PERSON-INT-		2.2	12,937
NBC	8-9P	BIGST LR15-		2.0	6,636
	9-10P	VOICE–		4.0	12,847
	10-11P	CHICAGO FIRE-		2.1	7,586
CW	8-9P	ORIGINALS-		0.9	2,152
	9-10P	SUPRNATURAL-		1.0	2,298

To be clear, we can't say definitively that the Motley Fool writer was wrong. After all, he only said this was possible, but it is important to remember a few things:

His suggestion was not just wrong, it was directionally wrong. He suggested that the series might wildly outperform expectations. Instead, it has at least mildly underperformed them;

His arguments for the suggestion were called out as being weak at the time;

Organizations like Motley Fool, CNBC, and other providers of stock tips are encouraging individuals to engage in an activity that is very risky. Almost no one who is getting their information from a post they see on Yahoo should be engaged in the business of stock picking.

Alternative thoughts

I read this passage:

For some people, disability insurance has become a way of exiting the labor force. It's hard for me to get into high dudgeon over these people, because I suspect that many of them have at least mild disabilities and also lousy job prospects, especially the last few years. But the hard fact is that the disability insurance program has limited funds, and is headed for bankruptcy. If it pays those funds to a substantial number people who are only marginally disabled,  and could be working, it cannot pay higher benefits to the more severely disabled.

in the context of this passage

There are private-sector consulting companies who are hired by states and paid several thousand dollars for every person who they manage to shift from a cash welfare program, which is partly funded by the state, over to disability insurance, which is funded by the federal government. 

And my reaction is very different than the original authors.  On one hand, I think that the possibility that disability funds might dry up is a call to raising revenue.  Helping the disabled (even the partially disabled) out is one of the characteristics of basic  human decency.

On the other hand, maybe we should just stop having the federal government subsidize state programs and simply run them directly. Because these games waste a ton of resources without actually making the system work any better.  A beggar thy neighbor strategy, in the long run, leads to everyone being poor.

Journalistic decline and GOP dysfunction

Picking up from Tactics, Schmactics...

When we talk about the mainstream media and the right-wing media and all the other little sliver media out there, there are all sorts of standards with which we can make our distinctions. The one I prefer, at least for this discussion, is axiom-based.

In the New York times, or Time Magazine, or slate, or in any section of the Wall Street Journal except the editorial pages, most of the writers start from the same basic set of assumptions. To a slightly lesser extent, you can say the same thing about the right-wing media: Fox news; Rush Limbaugh; red state. We could argue about the validity of each of those sets of assumptions, but the important part for the moment is the difference between the two sets.

Though there had always been right wing papers and left wing papers, it has only been in the past few decades that it is possible to completely immerse yourself in one set of assumptions while your neighbor is completely immersed in another.

That's part one of the story. Parts two and three are what happened to the two halves of the journalistic universe since then and how those changes have affected the breakdown of the Republican party.

On the mainstream side, simplistic narrative journalism, dogmatic centrism, and a increasing disregard for accuracy and for holding subjects to a high standard of honesty all acted together to weaken the press's traditional role in checking party extremes. Since these practices had long been coupled with a sense that the Republicans were the dominant power and a fear of conservative pushback, this primarily worked on the right,  allowing unpopular and extreme Republican policies to gain traction. This was particularly true in the area of governance. Unprecedented use of filibusters and other obstructionist techniques were practiced up until recently with relative impunity due to the "both sides do it" mentality of many journalists.

On the right wing media side, journalists traded off their normal role as providers of feedback in order to be more effective motivators. This is perhaps most obvious with Ailes and Fox News where the goal (after turning a profit) was clearly to shape (and in some cases, falsify) the facts in such a way as to keep the base loyal and energized. In the short term, the strategy worked well but it always had inherent risks, risks that have finally started doing serious damage.

You can read this partly as a cautionary tale of Straussianism gone awry. The first, the most fundamental assumption of any society based on the noble lie is that you have a hierarchy with well-defined classes of the liars and the lied-to and that all major decisions are made by people in the first class.

Here's an analogy: officers have been known to paint overly rosy pictures for soldiers ("Things are going great on the Western front." "The enemy's factories are in ruins." "Victory is near."). We can argue over the ethics of this kind of lying, but it's easy to see why some officers might do it.

Now imagine that through a combination of field promotions, broken lines of communication and general confusion,  strategic and tactical decisions start being made by people who actually believe all of the misinformation that was fed to the ranks. I'm no military historian but I'm fairly sure this would probably end badly.

We had a pretty clear example of this kind of a breakdown in the Romney team's analysis of poll data in the last days of the election. There was clear value for Romney in having his supporters believe that he was ahead but that value was more than negated by having his advisers believe the same misinformation. You can see similar dysfunction in the recent shutdown where many congressmen made what now appear to be disastrous decisions based apparently sincere belief in such Fox News talking point as "people won't get that upset about a shutdown."

Put more broadly, the processes that allow the right version of the truth to get to the right people – something that has been an integral part of the Republican strategy – has seemingly broken down entirely.

In addition to the largely random flow of misinformation, conservative media created an unforeseen problem in the rank and file with narrative momentum. When most members of a group get much of their information from outside, there's a natural friction on in-group narratives when members realize that their version is not shared by the general public. Conservative media is immersive to an unprecedented degree. Narratives like "the only time Republicans lose is when they become too moderate" are allowed to build unchecked.

On a related note, the immersive quality also greatly facilitates social norming. This greatly encourages extreme positions and widens the gap when members of the group try to communicate with outsiders.

More on this soon.

Efficient wage markets?

One grows increasingly skeptical of the claims that wages are a perfect reflection of market values:

The gap between skyrocketing CEO pay and relatively stagnant compensation for everyone else has been widening for decades. While annual CEO compensation increased by 726.7% between 1978 and 2011, average worker compensation only went up 5.7% during the same time, according to a 2012 study by the Economic Policy Institute.

 To make the argument that this is efficient you need to really think one of the following:

1) CEO wages were terribly depressed in the early post-war era
2) Markets have changed to allow CEO's to add more value than before

The first seems questionable: we do not think of 1945 to 1978 as a era of desperate stagnation and sub-optimal economic performance.  If it was hurting the United States, it was fairly subtle and swamped by other effects.

The second is only more plausible in that modern electronics and communications have made it easier for a CEO to influence policy.  But, interestingly, insofar as firms are themselves command economies, this actually suggests that the return to assets on command economies has improved.  I won't speculate further except to say that this is an interesting argument for the average free marketer to make. 

I suspect the real story is that barriers to entry (i.e. patents, ability to buy out competitors with market capital) are allowing senior people to reward themselves more without hurting the firms ability to compete.  Now that is not all bad -- extra resources have done a lot of things throughout history to improve matters, even when inequality is involved.  But it does make a mockery of the idea that the market can find the right price or wage in all circumstances. 

Tactics, Schmactics -- why I don't buy the latest trope on the government shut down

[I haven't seen anyone frame the discussion in the following way, but a lot of the points I want to make in this thread have been made recently by Josh Marshall and Jonathan Chait. Both are on my fairly short list of daily reads and both have a rare gift for, to paraphrase Orwell, seeing what's in front of their noses.]

You've been hearing it everywhere from Paul Krugman to the National Review: the growing rift in the Republican Party is strictly over tactics -- everyone on the right agrees on what they want; they're just fighting over how to get there -- but having looked carefully at this (and I've stared into this abyss longer than I should have), I'm convinced that it's not just wrong but wrong on multiple levels. I don't think it fits the facts but, more importantly, I don't even think it answers a meaningful question.

Here's a rough analogy. Let's say you're standing in a subway station and a man next to you has a seizure, falls to ground and rolls off of the platform. In that situation, "Why would he want to do that?" is not a meaningful question. The idea of explaining actions through desires only make sense if we make certain assumptions about rationality, vantage and control.

When we're talking about groups, particularly groups large enough not to be able to form fully connected graphs, checking similar assumptions becomes even more important. We have a tendency to anthropomorphize institutions. "The business community wants this." "The Tea Party is trying to do that."   Of course, we know this isn't true. The most you can say is that there's a strong consensus or that the group is following the lead of an individual. This doesn't mean that it can't be useful to analyze groups as if they were individual actors; it can often be the best approach, but only if certain conditions are met. The first of these is that the groups have to be, for lack of a better word, functional.

To be functional, the group has to have certain mechanisms in place and working reasonably well:

Mechanisms to bring information into the system, analyze it and make appropriate decisions based on it;

Mechanisms to disseminate instructions for implementing these decisions, and gathering feedback from members to allow adjustments in strategy;

Mechanisms to check those personal agendas when they threaten the overall goals of the group.

My take is that for quite a while now, the Republican party and the conservative movement have not been functional by these standards. I'm not saying that conservatives are stupid or unbalanced or are acting in an irrational or erratic manner. I am saying that the mechanisms needed for functional operation have broken down and, furthermore, they have broken down in entirely predictable ways, as long as you apply the right principles (game theory, social and individual psychology, voting "paradoxes," collective action and principal agent problem, organizational theory, etc.).

For example, the Romney campaign's inability to process poll information clearly indicates a breakdown in the way that information is suppose to flow through a system. More recently, many of the statements being made by prominent conservatives are clearly cathartic; They can only be seen as the actions of people seeking emotional release without regard to the larger strategic goals of the group.

I've got some suggestions as to why this is happening that I will try to flesh out more later (with the caveat that I have no special expertise in any of these areas and I will invariably get in over my head). I've got first drafts of the next couple of posts, but just to restate the underlying thesis, when it comes to recent developments in the GOP, I think that we are less likely to find useful analogies in the Art of War and more likely to find them in When Prophecy Fails.

An army of sock puppets

I'm working on a thread on the role of information and misinformation in GOP dysfunction. In the course of that thread, I'll probably be linking to this passage from NPR reporter David Folkenflick's "Murdoch's World":

On the blogs, the fight was particularly fierce. Fox PR staffers were expected to counter not just negative and even neutral blog postings but the anti-Fox comments beneath them. One former staffer recalled using twenty different aliases to post pro-Fox rants. Another had one hundred. Several employees had to acquire a cell phone thumb drive to provide a wireless broadband connection that could not be traced back to a Fox News or News Corp account. Another used an AOL dial-up connection, even in the age of widespread broadband access, on the rationale it would be harder to pinpoint its origins. Old laptops were distributed for these cyber operations. Even blogs with minor followings were reviewed to ensure no claim went unchecked.

One of the many problematic aspects of the increasingly self-serving ethics code of the mainstream press (yes, I'm back on that again) is the "professional courtesy" extended to organizations like News Corp. It's OK to be patronizing (at the NYT, it seems to be a job requirement), but you must always stop short of the five-letter-word for spade.

This "courtesy" is self-serving because:

Murdoch and Ailes like to hit back hard and dirty;

Many friends and former co-workers of mainstream journalists now work for Fox and honest descriptions would make for some very uncomfortable socializing;

The day may come when these journalists find themselves in the Howard Kurtz role, disgraced and largely unemployable anywhere but Fox.

Weekend blogging: spies and fugatives

Joseph and I are long time fans of the show Burn Notice and both of us were very pleased with the series finale. If you have watched the show, even intermittently, you should definitely check it out. It offered a genuine resolution to the story with considerable resonance. Matt Nix, series creator and one of the best of a truly exceptional generation of show runners, wrote and directed the episode and delivered on all fronts. On top of all that, he provided one of my favorite series-ending lines.

Of course, given my diagnosed pop-culture affliction, all this talk of finales immediately got me thinking about Roy Huggins and the Fugitive.

Often working under the pen name John Thomas James, Huggins created one of the most memorable bodies of work in television. His specialty was casting some of the most charismatically masculine actors working in film and television  -- in shows like Maverick, the Fugitive, Run for Your Life, and the Rockford Files -- then carefully deconstructing the standard definition of a masculine hero. Heroes were supposed to be brave and invulnerable (the second somewhat undercutting the first) and to always fight fair,* none of which you could count on in a Huggins production.





James Garner was arguably the definitive Huggins hero, but it was David Janssen's Richard Kimble who veered the farthest from the macho standard. Janssen spent the run of the show being as forgettable and nonconfrontational as possible and running away at any sign of trouble. It was an extraordinary performance, balanced by nuanced and occasionally (and improbably) sympathetic work by Barry Morse as Lt. Gerard. Morse and show runner Alan Armer somehow managed to make Gerard obsessed with duty without having him lose his objectivity. Other than one obvious blind spot he kept a clear and realistic view of the man he pursued. In the end, he even... but I'm getting ahead of myself.



In addition to an innovative and much imitated structure, Huggins had another groundbreaking idea. The Fugitive was always meant to be a story with an ending. After four seasons (hit shows had much shorter runs inn the Sixties), a two-part episode wrapped up all of the loose ends in a way that guaranteed that TV executives would take notice.

Part two of the finale was the most-watched television series episode at that time. It was viewed by 25.70 million households (45.9 percent of American households with a television set and a 72 percent share), meaning that more than 78 million people tuned in.

For those far too interested in television, here's Huggins' account of the unlikely origin of the show:



* as always, I reserve the right to unapologetically split my infinitives.

NYT correction watch: Did Dickens meet Dostoevsky? -- Opinions still differ

About six months ago, University of California Berkeley Prof. Eric Naiman revealed that much of the literary world, including the New York Times, had been taken in by massive hoax.(you can read my take here but you should read Naiman's piece first. It's exceptionally good). When scholars first started raising questions about the hoaxster's claim, which appeared in the NYT, that Dickens met Dostoevsky, the paper published a weaselly update:

Correction: October 29, 2011

The Books of The Times review on Tuesday, about “Becoming Dickens: The Invention of a Novelist” by Robert Douglas-Fairhurst, and “Charles Dickens” by Claire Tomalin, recounted an anecdote in Ms. Tomalin’s book in which Dostoyevsky told of meeting Dickens. While others have also written of such a meeting and of a letter in which Dostoyevsky was said to have described it, some scholars have questioned the authenticity of the letter and whether the meeting ever occurred.  

The "some scholars" line badly understated the case but it was at least technically accurate at the time. Now, though, we know that all of the primary sources for this anecdote came from a serial fantasist writing under a string of assumed identities and we've known this since last April (the story even made Slate). That would seem to be plenty of time for the NYT to update their correction so I googled "Dickens Dostoevsky" and Michiko Kakutani (the writer in question). Here's what I saw:

Correction: October 29, 2011

The Books of The Times review on Tuesday, about “Becoming Dickens: The Invention of a Novelist” by Robert Douglas-Fairhurst, and “Charles Dickens” by Claire Tomalin, recounted an anecdote in Ms. Tomalin’s book in which Dostoyevsky told of meeting Dickens. While others have also written of such a meeting and of a letter in which Dostoyevsky was said to have described it, some scholars have questioned the authenticity of the letter and whether the meeting ever occurred.  

Maybe they'll get around to fixing it next year.

Medical Innovation is expensive

Megan McArdle has some strong opinions on how high drug prices have managed to help drive medical innovation:

Drug development is essentially a giant international collective-action problem. The U.S. has kept it from being a total disaster because we don’t have good centralized control of our insurance market, and our political system is pretty disorganized and easy to lobby. If that changes -- and maybe we just changed it! -- we’ll knock down the prices of drugs to near the marginal cost using government fiat, and I expect that innovation in this sector will grind to a halt. Stuff will still be coming out of academic labs, but no one is going to take those promising targets and turn them into actual drugs.

and

There are some promising alternatives. The main two that have been suggested are prizes and having the U.S. government get into the business of developing actual drugs, rather than just funding basic research. I’m in favor of trying both of these approaches. But so far, prizes have not proved themselves as ways to fund what is essentially commercial product development -- at least, not at the same level that patents do. Nor has the government. As we’ve just seen from the government’s attempt to develop a Travelocity-like site for health insurance, there are reasons to think that government might not be very good at that sort of thing. I don’t mean to slur the government -- governments absolutely have developed drugs in the past. But these are not the majority, and government processes often make it hard to do things that companies do easily.

Now I don't want to knock pharmaceutical companies.  A lot of good work is done by these companies.  On the other hand, medical costs in the United States are really, really high.  And the National Institutes of Health has proven itself as a really effective model of targeted and efficient medical research.  Now it is true that the cost of doing this would not be trivial.  Randomized controlled trials are extremely expensive and crucial to ensuring that only safe medications reach the open market. 

So this would be expensive.  But I am unclear as to whether it would be more expensive than the current model of drug development.  And these subsidies could go to many of the same companies that develop drugs now.  I think that this conversation would be much better informed with some actual calculations as to cost/benefit.  This is a bit outside of my expertise, but I see it as a key step to really advancing the conversation. 

Did Andrew Gelman catch me doing something I've complained about other people doing?

Maybe. In reply to this post where I suggested that Motley Fool's Netflix Emmy coverage was an example of the following:

One of Motley Fool's favorite strategies is to pick a hot company like Netflix or Disney and relentlessly talk it up. Unlike the traditional pump-and-dump, the goal isn't to drive up that individual stock (it's hard to move a Disney); instead what's being pumped is the idea that you're losing money by not being in. This frame of mind makes readers receptive to buying MF's investment books and $199 newsletters even though, based on their columns, they have little to offer other than conventional wisdom and questionable analysis. 

 Gelman offered an alternate suggestion:

But I wonder if there’s something else going on. I don’t read The Motley Fool—actually, I’ve never looked at it before, but I did click on it just now when preparing this post—but I do subscribe to the New York Times. The Motley Fool’s motto is “to educate, amuse & enrich.” The Times is not enriching me, but I do read it to be educated and amused. I wonder whether the Fool’s pushing of Netflix is part of the educate-and-amuse bit. Okay, the story is not very amusing and apparently not educational at all—but, from the reader’s perspective, what the Fool is providing with the Netflix story is an ongoing saga, a mini-soap-opera.

The best analogy might be the newspaper coverage of a sports team. Yeah, the Tigers are gonna go all the way this year, check out their new pitching staff, etc. These kinds of stories have their own internal logic and they can be pegged to local news. Thus, the Emmys can be spun as evidence for a pre-existing story where Netflix is a hero, just as the local newspaper can spin a hot streak by the third baseman as good news for the home team.

I generally get annoyed with people who read hidden meaning into a story element when there's an obvious narrative or commercial reason for including that element. My go-to example is critics who read puritanical agendas into teen-slasher films, ignoring the facts that:

Exploitation film-makers are constantly looking for a way to incorporate sex and nudity or "the suggestion thereof" into scripts;

They are also looking for ways to scare the audience and for directors of limited talent, one of the easiest methods for making an audience jump is to spring the monster out when the victims have been lulled into a false sense of security;

In order to stretch this kind of story out to feature length, it helps if you can find an excuse to have one or two character at a time slip away from the group.

Under these constraints (and generally assuming none-too-gifted screenwriters composing as fast as they can type), it would be surprising not to see the sex-then-death plot device showing up in cheap horror films.

So am I guilty of the same kind of over-reading with Motley Fool and Netflix? Maybe a little but there are a couple of caveats that need to be thrown in.

First of all, a good sales pitch is generally a good story but it has to be a special kind of story, one that ends with the customer in just the right frame of mind. Unless I'm missing a revenue stream here, these MF posts exist solely to drive people, directly or indirectly, to purchasing an MF publication. They have to be entertaining enough to hold the readers' interest but, unlike a movie or a TV show or a magazine article, they have to do more than just entertain; they have to sell. Given that constraint, you can't analyze the story without analyzing the pitch.

Second, are stories of glamorous successes  a good way of giving investment advice? I recall Peter Lynch saying that he preferred unglamorous companies that other investors were likely to overlook (if memory serves, he specifically said that the corniness of the name "Moe" in the Pep Boys logo made him much more eager to buy the stock). Given that the vast majority of us have no business picking stocks, is it responsible to sell the amateur investor on buying the superstars corporations that everybody's talking about?

The importance of measurement

Exactly how you measure a parameter is both important and difficult:

Well, one of the reasons some Americans feel they’re being taxed to death is that if you add up our taxes, which are low compared to other modern countries, and then you add in private expenditures for things the tax system pays for in other countries — a lot of our health care costs, higher education costs, admissions and fees and tickets and licenses for a lot of things — lo and behold, we end up being a relatively high-tax country. But it depends on how you analyze the data.

And let me give you one killer figure: We spend so much money on our health care in this country — or as I prefer to think of it, sick care in this country — that for every dollar that the other 33 modern economies spend for universal coverage, we spend $2.64. And this is done using something called “purchasing parity dollars,” so they’re truly comparable. So we spend $2.64 per person and still have almost 50 million people with no coverage and 30 million with limited coverage, and these other countries spend far less with universal coverage.

This is definitely a different perspective than I have had on this issue before.  In a way I have been trapped in the paradigm of public versus private provision (and so a small public sector seems to suggest a low tax country to me).  But a basket of goods and services can be difficult to break into such pieces. 

An excellent example of this problem is the extraordinary costs of health care in the United States.  Finding ways to properly tackle the problem of medical expenses is difficult, frustrating, and has some really nasty trade-offs. Trying to solve it is important. 

But in the meantime, pushing economic growth for the lower and middle classes is a good second best way to proceed forward while we seek solutions to these fundamental issues.   

Deficits and Climate Change

Larry Summers makes the link and it is not the one you might expect; instead he is looking at the innate uncertainty in policy projections:

These figures lie well within any reasonable confidence interval for deficit forecasts. The most recent comprehensive CBO evaluation found that, leaving aside any errors due to policy changes, the expected error in projections out only five years is 3.5 per cent of GDP. Put another way, given the magnitude of forecast uncertainties there is a chance of close to 40 per cent that with no new policy actions the ratio of debt-to-GDP will decline over 25 or 75 years.

Of course, debt problems could also be much worse than is now forecast.

But in most areas policy makers avoid taking strong actions unless there is statistically compelling evidence to support them. Few would favor action to curb greenhouse gas emissions without evidence establishing that substantial climate change is overwhelmingly likely. Yet it is conventional wisdom that urgent action must be taken to cut the deficit, even as prevailing short-run deficit forecasts suggest no problems and long-run forecasts are within margins of error.

When the variance in the projection models are explicitly discussed, it makes the whole matter seem more prosaic.  After all, if we were frequentists we would reject the hypothesis of an increase in debt to GDP deficit at 10 years as not statistically significant (versus the null hypothesis that this change = 0). 

Much of this uncertainty is on the growth side of the equation, which may actually be the easiest policy lever to move in the short term.  It seems to me, as a student of history, that it is rarely the case that a country has been ruined by a burst of prosperity, growth, and development of human capital.

But the second part of Dr. Summers' argument is really the best -- Climate change is at least as likely as an increase in the debt to GDP ratio in the next 75 years.  I think the balance is much higher and the possible side effects of climate change are pretty dire for some really key places in America (think Miami).  Yet it is not the flashpoint for this discussion and that, I believe, is what gives the game away. 

Whatever people are fighting about, it is not the long term state of the debt.  Sure, it would be nice to reduce it but obvious tactics (raising taxes) are completely off of the table and there is a constant return to trying to cut specific government programs.  This has all of the hallmarks of a policy duel and not a real worry about the long term future.

But one way or the other, the discussion has been way too focused on the point estimates of the statistical models and not the confidence intervals.  Epidemiologists have already learned, to their regret, how dangerous that can be. 

P.S. And no, I am not suggesting a p-value based approach either, but rather measures of certainty that are explainable in ordinary language and make clear that these are projections, so that the level of sacrifice to improve the point estimate can be properly evaluated.