Paul Krugman should continue doing more productive things than watching TV

I think this anonymous commenter may be having a little fun here (The "I said good day" seems a bit over the top), but in case my fondness for obscure references really did go too far, let me close caption my earlier post.

Recently Paul Krugman wrote a smart piece decrying the proliferation of appeal to authority arguments which he closed with the following:

But in any case, this is never an appropriate way to argue — least of all at a time like this, when events have strongly suggested that a lot of work in economics these past few decades, very much including the work on which these guys’ reputations are based, was on the wrong track.

Do I do this myself? Probably on occasion, when I don’t catch myself. But I try not to. I would say that commenters who begin with “I can’t believe that a Nobel prize winner doesn’t understand that …” might want to think a bit harder; mostly, though not always, I have actually thought whatever you’re saying through, and the obvious fallacy you think you’ve found, isn’t. But “Me big famous economist, you nobody” is not a valid argument.

(See John Quiggin and Noah Smith for more on the incident that prompted this)

Having a weakness for snark, I immediately started looking for a silly criticism of Krugman that I could preface with the phrase “I can’t believe that a Nobel prize winner.." I got an opportunity today when Krugman referred to gibberish that sounds like Swedish. The theatrical term for this sort of thing is doubletalk and the acknowledged master of the form is Sid Caesar.

I'm also always on the lookout for excuses to bring in a favorite video clip, like this one from Whose Line Is It Anyway which provides a great example of the form and nicely shows the respect and affection the cast feel for Caesar.



Just to be absolutely clear, I was:

1. Looking for an excuse to use the "Nobel Prize winner" line in an obviously silly and trivial context;

2. Post the Caesar clip;

3. Link to yet another sharp and well-written Krugman post.

In other words, it was a joke.

(And for the record, if I make a disparaging comment about Felix Salmon followed a Kovacs clip, I'll be joking then too.)

Worth keeping in mind

Predictions are hard and sometimes the completely unexpected happens:

You Know, If You Had Told Me a Year Ago That on August 5, 2011 S&P Would Downgrade the U.S, and the 10-Yr Treasury Would Yield 2.5%... I would have laughed at you. I would have said that while there were possible futures in which each of those things happened, they were disjoint futures.

It is humbling to recall just how different events can be from our best possible projections.

A classic natural experiment

This post was requested by Mark.

One interesting natural experiment in diet and exercise was rationing in wartime Britain where the population ate less and exercised more (petrol was also rationed). The results were fairly impressive:

As a result of the balanced diet provided by rationing, children's health improved and on average they were taller and heavier than before the war.

The incidence of anaemia and tooth decay dropped - while the average age at which people died from natural causes increased, despite the stresses and strains of war.

The principles behind rationing sound surprisingly similar to today's health messages: reduced consumption of meat, fats and sugar and more of the sort of foods, such as vegetables, which provide essential vitamins and minerals.

this led to other health benefits:

A war-time regiment would also help reduce your risk of heart disease, Type 2 diabetes and high blood pressure, as well as cancers such as post-menopausal breast cancer, kidney and colon cancer.

The same outcome of rationing was seen in Australia:

The government feared that rationing would result in deterioration in health on the home front but, in fact, the outcome was positive. Rationing resulted in a decline in diet related problems like obesity, diabetes and heart disease.

So it is clear, that whether or not the wartime Commonwealth diet was optimal, there is a known population-level intervention that will result in better health outcomes: restriction of food.

Now, as a matter of public policy, I am clearly opposed to doing this in a coercive manner (but then I still see tobacco smoking as a personal choice). But it is clear that relatively simple diets can have surprisingly positive health benefits.

Paul Krugman needs to watch more TV

From today's Conscience of a Liberal:

Think of it this way: there was a time when you could say that the right had a model of how the economy worked. A silly model, yes, since it depended on implausibly large effects of marginal tax rates on incentives. Still, supply-side economics had a point of sorts.

But can you discern any model in what Malpass wrote, or for that matter in almost anything on the WSJ editorial page? I can’t. All I see is a bunch of prejudices, strung together with some vaguely economistic-sounding phrases, something like someone talking gibberish that sort of sounds like Swedish. In the world according to the WSJ, low taxes are good (unless the people involved are low income lucky duckies), regulation bad, low inflation good, low interest rates bad, strong dollar good — and don’t ask why.

I can't believe a Nobel Prize-winning economist would get this wrong. It's not gibberish; it's double-talk, and this is how it's done:



Co-posted at Mippyville TV.

See update here.

"No linear relationship" does not mean "no relationship"

There's a dangerous type of argument that I've noticed recently: pundits will argue that a certain relationship is non-linear and use this to justify any claim they want to make about that relationship.

The example of the hour is the Laffer curve. The basic concept is so simple we expect every high school algebra student to grasp it: you have a function with a global maxima somewhere between zero and one; if you're to the left of that maxima you want to move to the right; if you're to the right you want to the left. Let me draw a picture I could explain it to reasonably attentive elementary schoolers. (Dynamic laffer effects are a different story that I'll leave to Noah Smith.)

We can argue where the peak is (or where it was in 1960 or 1980), but once you've accepted the basic concept, you have to accept the move-toward-the-peak implication. Despite this, you will routinely see supposedly knowledgeable people on television, in print and online using the Laffer Curve to justify the blanket statement that cutting taxes raises revenue.

We see something analogous with health and fitness journalism. The relationship between calories and weight loss is not linear. Neither is the relationship between aerobic exercise and weight loss. In both cases, it's a strong relationship and you generally won't get in trouble assuming that it's strictly monotonic (within reasonable ranges, of course).

Unless you're an athlete in training or a model getting ready for a swimsuit shoot, you can probably assume that eating less and exercising more will cause you to lose weight, but we still get endless experts citing phenomena like metabolism responding to diet and then concluding that there's no point in going to the gym and passing up that pound o' fries.

p.s. Joseph has a great example of how calorie consumption tends to dominate factors like diet make-up. If he'll answer his damned phone I'll see if we can get a post out of him.

US Credit Rating

From Talking Points Memo:

From the S&P release ...

Compared with previous projections, our revised base case scenario now assumes that the 2001 and 2003 tax cuts, due to expire by the end of 2012, remain in place. We have changed our assumption on this because the majority of Republicans in Congress continue to resist any measure that would raise revenues, a position we believe Congress reinforced by passing the act.

I am skeptical, as I said to Mark, that this measure will influence other countries all that much. Japan switched to AA+ and that did not hurt the US, rather it helped. What it really does it mean about 55% of the AAA sovereign debt in the world just vanished. The UK, Canada, Sweden . . . all of these countries are about to pay a lot less for their debt. That actually makes them more creditworthy and not less so so.

By the way, what do all of these countries have in common? They are willing to raise taxes to pay for debt. I remember when Canada began paying down its debt via a national sales tax. Unpopular as the move was, it moved the country firmly into surplus and prevented a ratings cut.

It is quite possible for a country to pay down their debt via internal revenue generation. The survivors on the AAA list are the countries that have been willing to make hard decisions to raise revenue rather than appeal for help.

Question for economic modelers

Has anyone out there run a simulation of what the economy would look like today if two of the big three auto makers had gone under in 2009?

If America's not AAA, is anybody?

I don't mean that in a jingoistic way; I'm simply wondering where the safe harbors are in the aftermath of a US default. The people at Marketplace (which has been doing some great work lately) have been thinking along the same lines:

Heidi Moore: They downgraded the U.S. credit rating. It's like cutting our credit score. We went from a AAA to a AA+ -- which is more than people expected; people thought we'd just be a AA. The importance of this is largely psychological -- we've always been a AAA country. But now that we are a AA+, that's what everyone else will be too. I think everyone else will follow us.

Carney agreed that other countries would be downgraded as well:

John Carney: Remember, we're the country that supports people when they get in trouble. If our credit rating is lower, so is everybody else's.

Grade Inflation

An early stage professor posted this view on grade inflation:

I have to agree with the article that students do tend to expect A's. But mainly because they work hard, and the expectation is that if you work hard and learn the material, you should get an A. I don't really see this grade inflation as a problem. To me, an A grade means you learned the material and showed proficiency in it, not that you performed better than XX% of your classmates. Grades are not a ranking tool, but an indication of proficiency. I think that having a clear expectation of what you need to do to get an A makes it more likely that students will work harder to meet these requirements and learn the material better.

I think that this really is where the grade inflation is coming from. When I was a wee one, back in my home country, the decoding scheme for grades was:

A: Exceptional Work above and beyond expectations
B: Clear Mastery of material and met all expectations
C: Deficiency in one or more aspects of the course
D: Don't take any more courses in this area
F: Fail (with attendant consequences)

I think that the shift to A's being regarded as showing proficiency has been part of the general creep in academic culture. After all, an A average is starting to look like a requirement for entry to graduate school. I remember when a straight B average was solid evidence that a student was ready for graduate level work.

On the other hand, viewed in this light there isn't any real inflation. We have just changed the definitions of performance and introduced right truncation to make it impossible to pick out the really exceptional students by transcripts alone. I, of course, hate this approach but I can see why it might be popular if the focus is "did they get it or not" and reducing the arms race to demonstrate exceptional performance.

Question for Jonathan Chait

From today's post trying to rebut a movie star's comments (not Chait's proudest moment):

The old liberal slogan always demanded that we "treat teachers like professionals." That entails some measure of accountability -- we can debate the metrics -- which allows both that very bad teachers be fired and that very good ones can obtain greater pay and recognition. That's the definition of a professional career track, and the current absence of it is what drives most of the best college graduates into other professions.

Putting aside the compensation question for the moment, Chait is listing being easy to fire as part of the definition of being a professional. Does anyone else find that a bit odd?

Krugman backslides

Just when it looked like the worst of the punning was over, we get this (which is worth reading, despite the title).

(Still better than "Screw your core-age to the sticking place.")

Excuses, excuses, excuses

Just moved so I'm still threading my way around a maze of boxes and I'm getting my wi-fi from the Starbucks around the corner (which wouldn't be so bad if I didn't hate their coffee), so this won't be much of a post but the Matt Yglesias argument Joseph alludes to just doesn't hold up.

There is plenty of support for merit pay among center and right segments, people who are taking Yglesias's exact position here, so his statement is wrong when applied to the general population. Of course, Yglesias is taking about fighting among progressives so the anti-tax line makes even less sense.

Put bluntly (because my laptop's almost out of power), Yglesias is trying to explain why so many progressives are offended by his movement reformer stand without admitting that he might be the one contradicting progressive principles.

A return to education as a topic

This is an interesting perspective from Matt Yglesias about the tensions in the education reform movement:

The ambiguous policy upshot of this is precisely what makes intra-progressive fights over education policy so fraught. The exact same evidence which suggests that we should offer higher salaries to teachers also suggests that many of our current teachers are sub-par. It’s easy to assemble a “let’s spend less money on teachers” coalition, which is just conventional anti-tax politics. And it’s easy to assemble a “let’s give more money to the teachers we have” coalition, which is conventional service provider politics. What’s tricky is a “let’s spend more money precisely in order to get different people in this field” coalition.

I think that there is another angle to all of this discussion that is often forgotten. Current teachers include people who sacrificed earning potential for long-term job security (and did so in an environment where this was a part of their explicit employment contracts). The modern vogue for reneging on promises that are not inconvenient is not helpful to the debate. There may be cases where this is necessary, but it should be a painful last resort and not a routine talking point (see state pensions and the rhetoric about them).

EDIT: Also worth reading is Dana Goldstein's column

Are we entering the Post-coalition age of American politics?

Probably not, but...

Of the many bizarre turns of the past few weeks, the one that really shocked me was the Republicans agreeing to a deal that will very probably end up gutting the Pentagon's budget. Over less that a year, the GOP has alienated seniors by threatening Medicare, scared the hell out of the financial sector with a threatened shut down, and pissed off the military and related industries by disproportionately targeting defense for deficit reduction.

Perhaps this simply fear of Tea Party retaliation or perhaps the party's stated concern for the deficit was more sincere than most of us realized, but either way this pushes the current political situation even further out of the range of data.

Check out Jonathan Chait's sharp summary here.

Is health care choice important?

Aaron Carroll has a nice overview of the situation in Florida where people who campaigned on health care choice seem to be removing for state employees. He quotes this news story:

Florida is changing part of its state-employee health insurance program to offer only one HMO in each county. The state Department of Management Services, which oversees employee insurance, said changes in the program would save an estimated $400 million over two years. The changes also would require thousands of state employees to switch to different HMOs, a process that would begin in late September.

I wonder if these positions are more harmonious than they appear on first glance. If the goal is to make government service less appealing, reducing health care choice (and thus competition) makes these positions less desirable.

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.

Different visions of Health Care

One question that has been pretty persistently part of US public health efforts has been a fundamental disagreement about the role of government in health care. This shows up in all sorts of interesting places but has new entered the debt ceiling negotiations. From Paul Krugman:

It turns out that in the final stages of the debt negotiations, Republicans suddenly added a new demand — a trigger that would end up eliminating the individual mandate in health care reform.

This is telling, in a couple of ways.

First, the health care mandate has nothing to do with debt and deficits. So this is naked blackmail: the GOP is trying to use the threat of financial catastrophe to impose its policy vision, even in areas that have nothing to do with the issue at hand, a vision that it lacks the votes to enact through normal legislation.

Second, this is a demand Obama can’t accept, unless he plans on changing his party registration. Health reform doesn’t work without a mandate (remember the primary? Maybe better not to). And if health reform is undermined, Obama will have achieved nothing. So by adding this demand, Republicans were in effect saying no deal . . .

The alternative interpretation is that there is a large segment of the US population that would rather freedom to choose health care than efficient health care. The focus on individual decisions over public well being has implications on a whole host of medical decisions affecting issues like: disease management, fraudulent medications, antibiotic resistance and so forth.

It is hard to see a clear road forward when there is a legitimate difference in such basic questions of health care organization.

Implications of not raising the debt ceiling

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

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

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

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

The irrationality of engineers

Andrew Gelman has a new post pointing out a contradiction that keeps popping up in the pop econ world. You should read the whole piece (as well as Joseph's take on it) but this part in particular caught my eye:

The key, I believe, is that "rationality" is a good thing. We all like to associate with good things, right? Argument 1 has a populist feel (people are rational!) and argument 2 has an elitist feel (economists are special!). But both are ways of associating oneself with rationality. It's almost like the important thing is to be in the same room with rationality; it hardly matters whether you yourself are the exemplar of rationality, or whether you're celebrating the rationality of others.

This is an excellent point but I'd go further. The economist's 'rationality' is, as mentioned before, analogous to the statistician's 'significance.' Both are highly specific terms that are just close enough to their general usage to get people into trouble.

I previously gave some silly examples of 'irrational' decision making, here's a more practical one: you're an engineer designing a missile. You're concerned with accuracy, range, speed, payload and cost. The 'rational' approach would go something like this -- for each attribute, come up with a function that assigns its level a dollar value, then pick design x where a(x) + r(x) +s(x) + p(x) - cost(x) is optimized. I suspect that most engineers would find this 'rational' approach highly irrational and would usually choose, instead, to hold three or four of these attributes to an acceptable threshold and optimize the remaining one or two. (check out the cheap beer post for more on thresholds and irrationality.)

There's nothing wrong with having a specialized, field specific definition for rationality; there is something wrong with using confusion over different meanings of the term to make yourself look good.

Popular Micro-economics

Andrew Gelman writes:

Pop economists (or, at least, pop micro-economists) are often making one of two arguments:

1. People are rational and respond to incentives. Behavior that looks irrational is actually completely rational once you think like an economist.

2. People are irrational and they need economists, with their open minds, to show them how to be rational and efficient.

Argument 1 is associated with "why do they do that?" sorts of puzzles. Why do they charge so much for candy at the movie theater, why are airline ticket prices such a mess, why are people drug addicts, etc. The usual answer is that there's some rational reason for what seems like silly or self-destructive behavior.

Argument 2 is associated with "we can do better" claims such as why we should fire 80% of public-schools teachers or Moneyball-style stories about how some clever entrepreneur has made a zillion dollars by exploiting some inefficiency in the market.

[sorry for the general link, there seemed to be technical issue linking to the specific article]

I think that this insight is quite compelling and exposes a real issue with popular micro-economics. After all, these two positions mostly contradict each other!

I see this contraction arising for different reasons than Andrew does. I think that economists are often forced to make strong assumptions in order to deal with the sorts of complex problems that they look at. So they presume rationality on the part of all actors when trying to explain problems (i.e., descprive work). But when they want to improve matters they shift and reject this assumption (as it would suggest everything is already optimized). So they make different (strong and unverifiable) assumptions depending on whether they are trying to explain behavior or give guidence to improve outcomes.

What seems to be more alarming to me that is that this pool of economists often don't "sanity check" the effect size of their analysis. Perhaps it is my background in epidemiology, but if I see a hazard ratio of 5 then I am immediately suspicious that it is too good to be true. However, Ray Fisman can see an analysis that suggests firing 80% of teachers and not necessarily wonder if perhaps there is an overly strong assumption in his analysis (like the pool of new potential teachers not having finite limits or in the real sensitivity of the evaluation process).

Anybody's culpa?

In what might be considered a commissioned blog post, Jonathan Robinson manages to dig up some comments that Steven Levitt would probably like to rebury.



It is, of course, possible to make too much of a bad call or even a bad argument. If the penalty for being wrong is too high it inhibits the conversation, but there does have to be some kind of accountability. When you're this far off on something this big, you really ought to do something: modify your reasoning, concede that your assumptions may need some work, maybe even just acknowledge the error but dismiss it as an anomaly.

Instead, we have a debate where, as Paul Krugman has repeatedly pointed out, no one ever has to admit he or she is wrong. You will occasionally see someone step up, but it's strictly done on a volunteer basis.

Maybe we need to go beyond the honor system on this one.

Subtle satire or ugly glimpse into the mind of the NYT -- you be the judge

Intentional or not, Christoph Niemann has perfectly captured New York journalists strange belief that the rest of the country is fascinated by the minutia of NYC (the relative size of Park Slope and Africa is particularly telling). As at least one commenter noted, this would seem to be a remake of the classic Saul Steinberg cartoon without the self-awareness.

California Education

Janet D. Stemwedel quotes Jerry Brown

I have reviewed the Mercer compensation study and have reflected on its market premises, which provide the justification for your proposed salary boost of more than $100,000. The assumption is that you cannot find a qualified man or woman to lead the university unless paid twice that of the Chief Justice of the United States. I reject this notion.

This is a very odd American idea: that without a huge salary, no competent person can ever be found. I am not sure that this idea passes the "laugh test" as seen by Governor Brown's comments. It also has some very pernicious effects on things like income inequality and the perception of fairness (this has not been the best time for California universities from a fiscal point of view).

I am happy to discuss these matters from first principles but the idea that qualified people cannot be found for less than absurd amounts of money is just berserk.

Grade Inflation

From the New York Times:

Another must-hear from This American Life

Another really outstanding piece of journalism from TAL, this time focusing on the extraction of natural gas from Pennsylvania's Marcellus shale. You can download it for free today and tomorrow but I'd encourage you to donate a few bucks if you can. They do good work.

Felix Salmon addresses something that's been bothering me for a long time

You should read the whole thing, but this passage in particular caught my eye:

The deeper thing going on here is what might charitably be called a momentum trade, or what might less charitably be called a sell-low strategy. First you pick your sector, then you pick funds in that sector. If the funds do well, that’s great; if they do badly, then you sell those funds and instead you buy funds which did do well over the time period in question. Then, next year, presumably, you rinse and repeat.

I realize this is not my field and there are a lot of subtle questions here about random walks and efficiency, but a great deal of the financial advice I hear reminds me of an ad from the late Nineties. In it a man is listening to the radio and hears about a stock that has just doubled in price. He rushes to his computer to buy some of this newly expensive stock only to discover that his cut-rate internet provider is down. He howls in anguish. (even at the time I remember thinking "so this is what a bubble looks like.")

I understand that there's more to investing than buy low/sell high, but many investment strategies seem to strive for the opposite. Wouldn't there have to be an unreasonably big momentum factor for this to make sense?

Wise Bloodsport

OE readers have the coolest noms de plume.

Modeling assumptions

From Matt Yglesias:

I’ll note, however, that you might be a freshwater economist if you think it makes sense to reassure us that a deflationary spiral is impossible because your model says so even though deflationary spirals do, in fact, occur in human history. To me, a model that denies the possibility of something happening that does, in fact, happen indicates that you’re working with a flawed model.

I can't comment on whether or not this is a fair assessment of the work in question. But it is always a good idea to "reality check" model outputs and ensure that the distribution of events generated by the model looks something like real data. If important events occur in real data that your model dismisses as impossible than model misspecification or missing confounding variables should be immediately suspected.


EDIT: Noah Smith also comments and it is well worth the read. He traces these conclusions to some rather strong assumptions . . .

Challenges of causal inference in complex systems

From Felix Salmon:

“Spend less money, create more jobs” is the kind of world one normally finds only in Woody Allen movies, and it’s a profoundly unserious stance for any politician to take. Spending cuts, whether they’re implemented by the public sector or the private sector, are never going to create jobs. And there’s simply no magical ju-jitsu whereby government spending cuts get reversed and amplified, becoming larger private-sector spending increases.

I think that one of the difficulties in macroeconomics is that you have complex systems that are not subject to experimentation. So you are forced to try and use observational studies and analogies with microeconomics to try and determine the causal effects of policies. Even instruments are questionable as they also rely on unverifiable, strong assumptions.

The inability to have a consensus on the counter-factual is pernicious and causes no end of trouble. Consider the tax increases passed at the beginning of the Clinton administration. Are they responsible for the late-1990's boom, unrelated to it, or did they act to slow it down (making the current economy smaller than it could have been)? How would you know this?

Cross country comparisons are possible but you have both confounding factors and effect measure modification. Changing the tax rate in Sweden might have different consequences than in the United States due to both different cultures (confounding) and to differences in current tax rates (effect modification). So, by picking different analogies and different models for the observational data, we can end up with some really strange claims being made about how economies work.

It is not an area with easy solutions. But I think to agree with Felix that the model he is critiquing is making heroic assumptions about the influence of tax levels on economic growth.

Harnessing the power of tax evasion to address climate change

From the comment section for a recent post on the crisis in Greece:

sub-divided said...

The thing I know about Greek tax-evasion is that they know where you live when you hook into the electric grid. So a family I know, owning a small island, avoids paying any taxes by running everything on wind and solar power.

Case Crossover paper and time trends

There was a new paper e-published recently in Pharmacoepidmeiology and Drug safety that used the case-crossover study design:

"Purpose
Elevated levels of phosphorus (P) and calcium (Ca) have been shown in observational studies to be associated with an increased risk of adverse clinical outcomes including mortality. Vitamin D sterols have been shown to increase the risk of hypercalcemia and hyperphosphatemia in clinical trials. We sought to explore these risks in real-world clinical practice.
Methods
We employed a case–crossover design, which eliminates confounding by non-time-varying patient characteristics by comparing, within each patient, vitamin D doses before the event with those at an earlier period. Using this method, we estimated the risk of hypercalcemic (Ca ≥ 11 g/dL) and hyperphosphatemic (P ≥ 8 g/dL) events for patients at different dose quartiles of vitamin D relative to patients not on a vitamin D sterol.
Results
There was a dose-dependent association between vitamin D dose quartile and risk of hypercalcemia or hyperphosphatemia. In adjusted analyses, each increase in vitamin D quartile was associated with a multiple of hypercalcemia risk between 1.7 and 19 times compared with those not on vitamin D and a multiple of hyperphosphatemia risk between 1.8 and 4.
Conclusion
Use of vitamin D sterols is associated with an increased risk of hypercalcemic and hyperphosphatemic events in real-world clinical practice. Other potential predictors of these events, such as phosphate binder use and dialysate Ca levels, were not examined in this analysis."

It seems to be an interesting paper but I have one concern. If you look at the discussion section of the paper, the authors note that:

In our sensitivity analysis, we used 1-month periods to assess vitamin D exposure. In this analysis, estimates of the association between vitamin D dose and risk of events were smaller than those in the primary analysis, particularly for hypercalcemia. One possible explanation for this finding is that the average 2-month exposure measure is a superior indicator, compared with the 1-month assessment, of both the dose and duration of vitamin D exposure. As well, it could be that some dose changes in the month prior to the event had already occurred in response to increasing Ca levels and that, for this reason, the dose 2 months prior to the event is a more accurate reflection of the dose that gave rise to the hypercalcemic or hyperphosphatemic event.

Another explanation that I did not see addressed is the possibility that there is a time trend occuring. If the frequency of vitamin D administration (or the dose) increased with time then you would expect to see smaller estimates in the sensitivity analysis as well. But it would be an artefact of changing exposure over time.

That being said, it was a real pleasure to read a well justified use of the case-crossover design in a medication paper. Hopefully this is a sign that there will be more use of with-in person study designs in the future in epidemiology. The ability to handle time invariant confounders is a serious advantage of this approach.

Transformations

Frances Woolley has a post on the use of the inverse hyperbolic sine transformation for handling wealth as a variable (skewed and with lots of zeros).

The post is worth reading and the comments are really interesting. In particular, Chris Auld makes a very good case for simplicity and interpretability as a desirable property of statistical models in several of the comments.

There is also a thought provoking discussion of how to parameterize wealth that involves the sort of deep thinking about variables that we should do more of in epidemiology. In particular, in what sense is it reasonable to consider a person (especially in a country like Canada with strong entitlement programs) to truly have zero wealth.

Definitely worth the read.

The Chameleon XLE

James Surowiecki has posted a thoughtful piece on Greece's culture of tax evasion, but it was this fairly trivial though amusing detail that caught my eye.

Even while dealing with protests and open riots, the new Greek government is trying to change things. It is rationalizing its tax-collection system. It has simplified taxes and done away with some of the loopholes. And it has stepped up its enforcement efforts in ways large and small—tax officials have, for instance, been sending helicopters over affluent neighborhoods looking for swimming pools, as evidence of underreported wealth. These efforts have made some difference: the self-employed seem to be reporting more of their income, and the evaders have had to step up their game. (There’s now a burgeoning market in camouflage swimming-pool covers.)

Perhaps there's a marketing opportunity here...


Chamelion XLE - Watch more Funny Videos

Simulation and foolish cost-cutting

Wired's Jonah Lehrer has a good post on the use of simulators to train pilots.

According to a recent report in The Wall Street Journal, United/Continental Airlines wants to use less realistic (and less expensive) simulators for many of their pilot training tasks. Instead of simulating the motion and vibrations of the plane, these static training devices are fixed to the ground:

The disagreement within United Continental revolves around using fixed-base simulators—which don’t mimic the movements of planes in flight—rather than full-motion devices to conduct certain types of mandatory, recurrent pilot training.

A decade ago, Continental received Federal Aviation Administration regulatory approval to use such devices, costing roughly one-third less than full-motion simulators, during the last phase of periodic proficiency checks for pilots flying its Boeing Co. 777 fleet. Continental was moving to expand the practice to its Boeing 737 pilots before last year’s merger agreement with United shifted the combined airlines’ focus to integrating all FAA paperwork.

Continental believes its novel approach is superior to traditional practice by stressing human factors and cockpit interaction and thereby enhancing safety. But the position, according to some safety experts, appears to run counter to at least some of the latest guidance coming from parts of the FAA and international standard-setting groups such as the International Civil Aviation Organization, an arm of the United Nations.

“We should be aiming for the greatest possible realism to teach crews how to use both mental skills and motor skills to most effectively deal with emergencies,” according to Mark Rosenker, a former member of the U.S. National Transportation Safety Board. The NTSB continues to champion full-motion simulators for recurrent training. Except for cost considerations, Mr. Rosenker said, “why would anyone opt for anything less?”

I can only hope United/Continental has some solid research to support this proposed change, because it strikes me as a bad idea. For starters, there’s no reason to mess with success, even if it saves a few dollars. And modern pilot training is an astonishing success story. Let’s begin with the dismal history: Despite a long list of aviation reforms, from mandatory pilot layovers to increased classroom training, the percentage of crashes due to pilot error refused to budge from 1940 to 1990, holding steady at around 65 percent. It didn’t matter what type of plane was being flown, or where the plane was going. The brute fact remained: Most aviation deaths were due to bad decisions in the cockpit.

According to the latest statistics, however, mistakes by the flight crew are responsible for less than 30 percent of all plane accidents, with a 71 percent reduction in the number of accidents caused by “poor decision-making.” The end result is that flying has become safer than ever. According to the National Transportation Safety Board, flying on a commercial plane has a fatality rate of 0.04 per 100 million passenger miles, making it, by far, the least dangerous form of travel. (Driving, by contrast, has a fatality rate of 0.86.)

What caused the dramatic reduction in pilot error? One widely cited factor is the introduction of highly realistic flight simulators, starting in the mid 1980’s. (The first simulators were put into place during WWII, as the Air Force didn’t have enough real planes to train thousands of new pilots.) For the first time, pilots could practice making decisions in extremely stressful conditions. They could refine their reactions to a sudden downdraft in a thunderstorm, or practice landing with only one engine. They could learn what it’s like to fly without wing flaps, or land on a tarmac glazed with ice. And they could do all this without leaving the ground.

The benefit of a flight simulator is that it allows pilots to internalize their new knowledge. Instead of memorizing lessons on the blackboard, they were forced to exercise emotional regulation, learning how to stay calm and think clearly when bad stuff happens. (I’ve been in these realistic flight simulators and let me assure you – they can be terrifying. After I crashed my jetliner, I left the simulator drenched in sweat, all jangly with adrenaline.) The essential point here is that pilots were the first profession to realize that many of our most important decisions were inherently emotional and instinctive, which is why it was necessary to practice them in an emotional state. If we want those hours of practice to transfer to the real world – and isn’t that the point of practice? – then we have to simulate not just the exterior conditions of the cockpit but the internal mental state of the pilot as well. For far too long, we’ve assumed that expertise is about learning lots of facts, which is why we settled for the “chalk and talk” teaching method. But it’s not. True expertise occurs when we no longer need to reference facts, because we already know what to do.

Needless to say, the potential of simulators goes far beyond pilot training. In recent years, the medical profession has discovered the virtues of virtual reality. Recent studies have found big benefits when medical students use simulators to practice colonoscopies, laparoscopic surgery and even the varied techniques of general surgery. What’s not surprising is that this simulated training was even more effective when it was physically realistic, providing surgeons with “haptic feedback.”

The moral is that we need to make our simulators more realistic, not less. Pilots have pioneered a key concept in professional training. It would be a shame if airlines began to backtrack to save money.

What's notable here is that the cost of the technology behind these simulators has dropped over the past twenty-plus years and will almost certainly drop further over the next twenty, while the potential costs of this change remain high (imagine the legal and reputational consequences when one of these pilots is involved in a crash, even if the official cause is not pilot error).

Unless there's more to this story, shifting to less realistic simulators would seem to be a classic case of cost-cutting that defies cost-analysis. This kind of thing is not hard to find in both the private and public sector. It can usually be attributed to a lack of alignment (the people devising and championing these proposals get their bonuses and promotions almost immediately. By the time true costs become apparent, attrition and short institutional memories will rule out any significant repercussions.*) and to an understandable but dangerous tendency to believe in easy answers.

*Thank God the financial sector is immune to this sort of thing.