Roads and Free markets

A really interesting post by Timothy B Lee:

Assembling the land needed for a long-distance road is prohibitively expensive without government assistance. Unsurprisingly, private roads almost never come into existence without extensive government assistance. And that means that the profitability of a "private" road depends crucially on how many competing roads the government allows to exist. 

It's unsurprising, then, that real-world privatization schemes are often explicitly protectionist. A 2004 GAO survey found that four of the five privately-funded toll road projects started or completed in the preceding 15 years included non-compete clauses that restricted the creation of competing freeways nearby. It's much easier to turn a profit when would-be competitors are barred from entering the market.  

Supporters of free-market roads point to the experience of the United States and Great Britain in the 18th and 19th centuries as the golden age of private roads, but those roads were only private in a limited sense. This history is detailed in Street Smart, an edited collection published by the libertarian Independent Institute. Daniel Klein and John Majewski write that in the United States, "turnpikes were encouraged by government, sometimes by granting of exisitng trails or public roadbeds to turnpikes, sometimes guarantees against new parallel routes, and typically the granting of eminent domain powers." They write that they "cannot say" whether these privileges were important to the success of these turnpikes.  

The basic pattern seems to have been the same for British toll roads. Most toll roads replaced previously-existing public roads; the book doesn't say if the new roads were built with eminent domain or other government privileges. Indeed, after thumbing through the entire 500-page book, I didn't find a single example of a country, now or in the past, where most roads were built using ordinary market transactions. The vast majority of "private" roads, around the world and throughout history, came into existence thanks to direct government assistance.

I think that is is important to recognize that some areas of human activity are inevitably going to have at least some degree of government involvement.  Roads are a classic public good -- without them we would be far less mobile and trade would be much more difficult.  But a single actor can block the development of roads, absent a government intervention. 

But the part that is the most interesting is how a public good can be turned into a vehicle for rent-seeking.  As soon as there is a hint of a "non-compete" or "guarenteed revenue" clause in a privatization, you can be absolutely sure that there is not a functioning free market present.  We do not grant non-compete clauses to restaurants or clothing stores.  The ability of these business to fail is part of the entire point of the private sector (creative destruction). 

Free markets in everything is now (and always will be) a myth, just like public markets in everything ended up as a terrible system.   Why are we so resistent as a society to the incredible success of mixed markets? 

Seventeen thousand and change

My first job after getting my master's in statistics in the Nineties was as a lecturer at large state university. It was a full time, 9-month position and I stayed there for four years. During all that time I never broke eighteen thousand dollars a year.

I really didn't mind the low salary. The work was enjoyable and I've always been good at living within my means. Besides, there were adjuncts who had it worse than me. Still, seventeen thousand and change is a good number to keep in mind when you read something like this (by David Levy via Krugman):

With the 1970s advent of collective bargaining in higher education, this began to change. The result has been more equitable circumstances for college faculty, who deserve salaries comparable to those of other educated professionals. Happily, senior faculty at most state universities and colleges now earn $80,000 to $150,000, roughly in line with the average incomes of others with advanced degrees.

Not changed, however, are the accommodations designed to compensate for low pay in earlier times. Though faculty salaries now mirror those of most upper-middle-class Americans working 40 hours for 50 weeks, they continue to pay for teaching time of nine to 15 hours per week for 30 weeks, making possible a month-long winter break, a week off in the spring and a summer vacation from mid-May until September.

Seventeen thousand and change.

It is a deeply dishonest piece filled with statistical sleight-of-hand and numbers that don't add up. Robert Farley does a good (though hardly exhaustive) job of laying out the fallacies. I'm not sure I have much to add to it other than to recommend that as you're reading Levy's piece you stop from time to time and repeat to yourself,

"Seventeen thousand and change."

Weekend gaming -- mutant sprouts

A while back I posted a recommendation for a popular pencil-and-paper game:

On the subject of topology, my game of choice is Sprouts, invented by mathematicians John Horton Conway and Michael S. Paterson at Cambridge University in 1967 (as a general rule, you can't go wrong with a game if Conway had anything to do with it).

The rules are simple:

1. Start with some dots on the paper. The more dots you have the longer the game takes so you will probably just want to start with two or three.

2. Players take turns either connecting two of the dots with lines or drawing a line that loops back and connects a dot with itself.

3. The lines can be straight or curved but they can’t cross themselves or any other lines.

4. Each dot can have at most three lines connecting it

5. When you draw a line put a new dot in the middle.

6. The first player who can’t draw a line loses.

I was thinking about sprouts the other day and a few variations occurred to me. I don't know if they're particularly playable or if they add any interesting aspects to the game, but if you can't put a half-baked idea in a blog, what's a blog for?

Variant 1 -- Free sprouts

Played as above but with the following addition: for the first k moves of a game with n dots, the player, after drawing a line, adds a new dot.

Topologically the result is a game with n+2k dots (keep k small) but with the complication that lines are being drawn without knowing exactly how those lines partition the surface. This is still a game of perfect information but the variation should make it more difficult to think a few moves ahead.

Variant 2 and 3 -- Scored sprouts

Each player starts with a separate sheet of paper and proceeds to connect the dot according to the standard rules. After no more lines are possible, the players score their graphs based on the number of dots.

Score = 6


Score = 7

In variant 1 the player with the highest score wins. In variant 2, the win goes to the lowest.

Also posted at Education and Statistics.

Mark and I both remarked on this post

Noah Smith: 

A homeless girl turns out to be a science genius. I see stuff like this all the time. My brother-in-law grew up in a trailer with a teenage single mom, and he's now completing his PhD. My friend grew up poor in rural Northern California with a drug-abusing single mom, and now she's a neurosurgeon. There is so much human capital hidden in the poverty-stricken backwaters of America, it's absurd. And yet I still read pronouncement after smug pronouncement from guys like Bryan Caplan, declaring that success is all about I.Q., and that it's no use trying to increase economic opportunity because everyone is already just where their I.Q. dictates they should be. What a load of poppcock, rubbish, stuff & nonsense.

 The idea that social position is already perfectly distributed based on merit is reassuring for those in high socio-economic positions but seems dangerous.  At some point I will give my Ayn Rand critique again (the places where Ms. Rand's philosophy is unable to cope with actual people).

But the world is filled with people who have been successful despite being poor or disadvantaged.  That should be celebrated and not suppressed.

Consequences

Matthew Yglesias has a really good point on economic policy:

But of course "the policy of economic austerity" is not a living breathing human being with feelings and interests and values. And the specific human beings who pushed austerity policies on Europe—central bank chief Jean-Claude Trichet and his successor, their colleagues on the ECB board, Angela Merkel and her coalition partners, etc.—have not been dealt personal blows here either. They're all fine. The blow has been dealt to unemployed Irish people who are hoping to get jobs soon. The blow has been dealt to Irish small business operators who have a decent underlying product and were hoping to expand production when customers would have a bit more cash in their pockets. The blow is dealt to Irish kids who are going to school with parental joblessness and economic distress hanging over their heads.

I have been seeing the same line of thinking from Karl Smith over at Modeled Behavior and I think it is overdue in the public discourse.  Policies often hurt individual people, and not usually those who are making these decisions.  I actually don't see this as a failure of government so much as social cohesion and the idea that we all benefit from a strong and well functioning economy.

Policy is interesting in the abstract, but it is worth remembering that bad policy has consequences for specific people in the real world.

More on the growth fetish -- Facebook vs. Groupon

There is a worthwhile exchange going on between Felix Salmon and Pascal-Emmanuel Gobry. I've already quoted Salmon, but Gobry makes some good points as well. Still, the part I found the most interesting is the part I think he got wrong.

Breakthrough technology startups are different from other kinds of businesses in that they either create a new market or violently disrupt an existing one. This means that they almost invariably require to spend lots of capital in order to stake out a defensible market position against their numerous competitors. In particular, many technology markets have winner-take-most or winner-take-all dynamics, either because of network effects or economies of scale…

Felix writes that Groupon had a profitable Q1 2010 and “it’s easy to see how it could have grown steadily from that point onward.” Except that given the characteristics of the daily deal business, particularly the need for scale, what would have happened if Groupon had tried to “grow steadily” and profitably, is that the company wouldn’t be around anymore.

It’s LivingSocial that would have raised over a billion dollars and be worth $10 billion today, Groupon would have been sold for scrap like BuyWithMe and plenty of other daily deals also-rans, and Andrew Mason would be back to doing yoga on YouTube. Groupon would be a footnote.

This illustrates (at least for me), a common error among growth fetishists -- overgeneralizing valid arguments for growth-at-all-costs. The first paragraph above is absolutely on target. There are situations where establishing dominance and critical mass as quickly as possible is incredibly valuable. Cases like Facebook. To make a bad pop culture reference, when it comes to mainstream social networking sites, there can be only one. Once Facebook was in place, all that was left was niches.

Put another way, it would cost more to unseat Facebook than it did to build it. Under those circumstances, Zuckerberg's bury-the-problem-in-money approach to running a business made sense (even if it was aesthetically lacking).

The first mover advantages for Groupon are far less obvious. There's no reason why we couldn't have two online gift card businesses. Consumers would get a wider selection and the merchants would almost certainly see lower fees (there's no way Groupon could charge those rates in a competitive market). Nor are the economies of scale that significant, at least not for the part of the business based on arranging deals with local merchants.

A potential competitor would have to spend a lot of money building a mailing list but probably not that much more than Groupon spent on its list. In short, if a potential competitor were to spend as much money as Groupon has, it might just catch up (particularly given the fact that Groupon is not a very well run company).

In terms of lifetime value, I suspect that the money Groupon spent on explosive growth was badly invested. However, in terms of buzz and stock price, it may have been money well spent as far as the backers were concerned.

Venture capital and the growth fetish

Felix Salmon has another smart post on venture capital and the way he feels it distorts American business:

Another way to look at this question is to compare US fight-to-be-number-one capitalism with the kind of capitalism practiced in undeniably successful countries like Germany, Korea, Brazil, and Japan. Those countries don’t have nearly as many world-beating behemoths as the US does, but overall their economies and current accounts are doing very well on a bedrock of medium-sized firms and family-owned corporations.

So in a way, Gobry is making my point for me. The IPO market and the VCs who feed off it are playing a game which might make a small number of people extremely rich, and which will create a very small number of hugely successful world-beating companies. They’re not playing a game which is good for founders; they’re not playing a game which is good for healthy, long-lived companies; and they’re not playing a game which is good for the economy as a whole. That’s kind of the point I’m making in the piece when I say that “Silicon Valley is full of venture capitalists who have become dynastically wealthy off the backs of companies that no longer exist”.

I think this fits nicely with one of our ongoing themes here at OE, the growth fetish:

Think of it this way, if we ignore all those questions about stakeholders and the larger impact of a company, you can boil the value of a business down to a single scalar: just take the profits over the lifetime of a company and apply an appropriate discount function (not trivial but certainly doable). The goal of a company's management is to maximize this number and the goal of the market is to assign a price to the company that accurately reflects that number.

The first part of the hypothesis is that there are different possible growth curves associated with a business and, ignoring the unlikely possibility of a tie, there is a particular curve that optimizes profits for a particular business. In other words, some companies are better off growing rapidly; some are better off with slow or deferred growth; some are better off simply staying at the same level; and some are better off being allowed to slowly contract.

It's not difficult to come up with examples of ill-conceived expansions. Growth almost always entails numerous risks for an established company. Costs increase and generally debt does as well. Scalability is usually a concern. And perhaps most importantly, growth usually entails moving into an area where you probably don't know what the hell you're doing. I recall Peter Lynch (certainly a fan of growth stocks) warning investors to put off buying into chains until the businesses had demonstrated the ability to set up successful operations in other cities.

But the idea of getting in on a fast-growing company is still tremendously attractive, appealing enough to unduly influence people's judgement (and no, I don't see any reason to mangle a sentence just to keep an infinitive in one piece). For reasons that merit a post of their own (GE will be mentioned), that natural bias toward growth companies has metastasised into a pervasive fetish.

This bias does more than inflate the prices of certain stocks; it pressures people running companies to make all sorts of bad decisions from moving into markets where you don't belong (Borders) to pumping up market share with unprofitable customers (Groupon) to overpaying for acquisitions (too many examples to mention).

I didn't consider the role of venture capital at the time. Perhaps I missed the biggest factor.

Misleading chart of the day

First, consider this chart (as reproduced by Matthew Yglesias):

Now examine Aaron Carroll's great rebuttal!

In general, I think Yglesias is correct that it is difficult to have any real reliability for 75 year cost projections (I wonder what the confidence limits are?).  So much is likely to change over this period of time and the prioirites of the nation may be so different that it is completely unclear how helpful such an exercise will be.  Not only do we have issues with technological and political change, but it would be odd if no future government altered policy priorities or if we could accurately guess economic growth over such a period. 

Freakonomics

Andrew Gelman's blog has a nice discussion of Freakonomics that is very topical given the discussion of Mike Daisy.  I think that he was a pretty balanced response to Stephen Dubner,who seemed to be rather distressed by the Andrew Gelman and Kaiser Fung response. Instead, I think that pointing out issues in a provocative and thought-provoking blog is essential. I admit that I often get very frustrated with the constant criticism of peer review. But it is essential to have errors pointed out and I have not seen a better way to have that happen then to have the mistakes repeatedly pointed out -- it sure makes me more careful as an epidemiologist.

One piece that I do think is worth reflecting on is this one:

Their first example of a “mistake” concerns a May, 2005, Slate column we wrote about the economist Emily Oster’s research on the “missing women” phenomenon in Asia. Her paper, “Hepatitis B and the Case of the Missing Women,” was about to be published in the Aug. 2005 issue of the Journal of Political Economy. At the time, Levitt was the editor of JPE, and Oster’s paper had been favorably peer-reviewed.  

Oster argued that women with Hepatitis B tend to give birth to many more boys than girls; therefore, a significant number of the approximately 100 million missing females might have been lost due to this virus rather than the previously argued explanations that included female infanticide and sex-selective mistreatment.  

Other scholars, however, countered that Oster’s conclusion was faulty. Indeed, it turned out they were right, and she was wrong. Oster did what an academic (or anyone) should do when presented with a possible error: she investigated, considered the new evidence, and corrected her earlier argument. Her follow-up paper was called “Hepatitis B Does Not Explain Male-Biased Sex Ratios in China.”

 I think that this missed the point of what was causing concern with this article.  An economist wanders into public health and overturns the conventional wisdom completely by considering a possible predictor but not really understanding why epidemiologists had not considered a disease-based explanation before.  It should not be considered a small point that the article showed up in an economics journal and not in a journal where it would be reviewed by experts in the clinical area. 

Is this necessary wrong to have reported potentially exciting new results?  No.  It is also true that people did put the effort into reporting when the understanding changed.  But this was in a well developed area of public health with very high policy stakes and people willing to put in a lot of effort to understand if there could be an alternate explanation.  So it induces some skepticism about "counter-intuitive" claims in areas where there are not the resources to scrutinize these claims deeply. 

Now it is natural that research has an error rate.  I wish it did not (especially not my research).  But it does point out the hazards of popularizing prelimary results.  I think I am especially sensitive to this issue as no field is more guilty of alarming and counter-intuitive findings than pharmacoepidemiology.  So I look for clues that make me cautious about publicizing preliminary results before they are really ready for prime time. 

The Mike Daisey incident illustrates the best in modern journalism

You might think that after some recent posts, I'd be reluctant to jump in with a counterintuitive headline like this and I'll admit I did hesitate a bit but I think the central point here is getting obscured and it's an incredibly important one.

We have always had and will always have people like Mike Daisey, serial fabulists with a gift for self-promotion. We will also always have journalistic sluggards who don't bother to check their facts and derivative hacks who pass on the conventional wisdom without scrutiny or independent thought.

The question is what do we do about these people, and the answer recently has generally been little or nothing. By comparison, the response to the Daisey incident was strong and apt and it gives us a simple template that, if followed, could go a long way toward fixing American journalism.

This is the rule: when you screw up, you take responsibility, try to set the story straight and (here is the essential part) you make your retraction at least as long and at least as prominent as the story you're apologising for.

These days, journalistic malpractice (when not ignored altogether) is generally punished by inclusion in a box that almost no one ever reads on the second page of a newspaper (and even that mild of a penalty is enough to generate whining and self-pity from journalists like David Carr*).

Just imagine what things would be like if errors in front page stories were always followed by front page corrections.






* From Fresh Air

"After I started [at the Times], I quickly ended up on page two ... the Corrections. They're not buried to us; that is a hall of shame ... it's a page you want to totally stay off of ... It doesn't matter where the error occurs — it always follows you around.

"Part of the deal of working at The New York Times is that your readers, a portion of whom are church ladies and copy ninnies and fact freaks, they wait like crows on a wire for you to make the slightest error and then descend, caw, caw, caw-ing, every time you screw up. It still is something that wakes me up at night."

21st century Journalism

I am not the biggest fan of Apple, but I have to admit that the Mike Daisy incident was dreadfully unfair to them.  Outsourcing to Adam Ozimek:

This is not consistent with anyone being able to walk up to Foxconn and within two hours be talking to underage workers. The story Daisey tells is one where Apple is negligent to an obvious and easily solved problem, whereas the facts TAL reports are of a company trying to stop underage workers and failing on relatively rare occasions. This kind of lie is not telling the story of the truth through a fictional narrative, but creating a fictional narrative that contradicts the bigger truth.

Felix Salmon also has some tough commentary on this issue. The key point here seems to be that it makes a great deal of difference what the facts are.  Outright falsehoods are an issue and it is terrifying that such obvious lies passed the fact checkers or that people feel like a defense can be mounted for this behavior as being in "in the greater good" (that the fictional narrative might be exposing hidden truths that are hard to show facts on). 

We should do better.   

Census documenting Great Depression to be released

This looks interesting:

NEW YORK (AP) — It was a decade when tens of millions of people in the U.S. experienced mass unemployment and social upheaval as the nation clawed its way out of the Great Depression and rumblings of global war were heard from abroad.

Now, intimate details of 132 million people who lived through the 1930s will be disclosed as the U.S. government releases the 1940 census on April 2 to the public for the first time after 72 years of privacy protection lapses.

You might think a personal finance story with the title “Boost your odds of winning the lottery”. couldn't be as bad as it sounds.

You'd be wrong.

How our inability to distinguish between independence and contrarianism encourages Steve Landsburg to be, let's just say, a less effective pundit

[I decided that the tone was getting a bit sharp in this debate so I'm dialing things down a bit. This entailed some very slight rewriting but none of these changes the substance of the post]

Before getting to the main thesis, let's confirm just how bad this incident was. A radio personality with millions of listeners grossly misrepresented the comments of a private citizen speaking out on an issue then used those distortions to make offensive and badly-reasoned attacks on the the woman. The situation at that point was bad enough but we don't really achieve horrible until Landsburg jumped in. Not only did Landsburg throw his reputation behind Limbaugh's illogical and factually challenged comments, he actually added additional [poor] arguments to the abuse this woman has had to put up with.

Noah Smith, Scott Lemieux, my co-blogger and others have done an excellent job addressing the lies and idiocy of this affair (check out how this blogger dismembers the I'm-mocking-the-postion-not-the-person defense) . The question for now is how this happened. How did a mid-level economist manage to reach such national prominence by writing a series painfully sophomoric books and articles?

Part of the answer, I'd argue, lies in the way journalists and editors now treat the counterintuitive. Publications like Slate give us a steady diet of pieces that take some claim that seems obviously true and argue the opposite. These publications would have us believe that this practice is a sign of intellectual independence and healthy diversity of opinion. It's not.

Contrarianism is closer to the opposite of independence, a point that's easiest to explain if we think in the idealized terms of a simplified fitness landscape. and draw an analogy between the defensibility of an argument associated with a certain position and the fitness of a phenotype associated with a certain genotype. (more on landscapes here)

Of course, it would take a lot of variables to realistically describe this landscape but the basic concepts still hold even if we simplify it to a bare-bones x, y and v(x,y). For every position (x,y) you can take, there's a resulting viability (v). Some positions are easy to defend (v is high). Some are difficult (v is low). Pundits and news analysts who try to find the best positions to argue are therefore performing an optimization algorithm (though most probably never thought about it in those terms).

For the most part, we can place this commentary and analyses in three general categories:

Neighborhood

Independent/semi-independent

Contrarian

The neighbor searcher tries to find the most defensible position within the neighborhood of a starting point. The best example I can think of here is the work David Frum specialized in until fairly recently. Frum was not being independent with his pieces in the Wall Street Journal or public radio (the terminal point of his searches was almost always within the neighborhood of the established conservative consensus) but he was arguably doing something as or more important, thoroughly exploring the landscape of the region and encouraging evolutionary shifts to sounder, more defensible positions.

The independent searcher, by contrast, goes where the search leads regardless of the starting position. The semi-independent searcher adds the condition that the terminal point has to be original (in other words, you can't end up on a point that someone else has already argued). Technically, originality and independence are in opposition here but in practice, they tend to complement each other.

And the two categories tend to complement each other as well. To grossly oversimplify, one group searches x+1 to x-1 and y+1 to y-1; the other group searches everywhere else. Given the fact the consensuses originally form around what seem at the time to be good ideas, it makes sense to explore their neighborhoods (if it helps, you could think of this in terms of Bayesian priors), but it also makes sense to keep exploring new territory. David Brooks and Frank Rich refine and improve their relative corners of the political landscape while writers like Jonathan Chait or William Safire range further and are more likely to reach unexpected conclusions.

The contrarian approach is to start with a position (x.y) that seems obviously true (often because it is true) then jump to either (-x,y) or (x,-y) and argue from there. It can, at first glance, look like the result of an independent search,but it is actually far more constrained than the neighborhood searches of Frum and Rich. Both of those writers would shift positions based on their reasoning and would insist on finding a defensible point before sitting down to the keyboard.

The typical contrarian piece hews so closely to its initial (-x,y) that there's no indication of a search at all. By all appearances, the writer simply jumps to the contrarian position and starts typing.

Contrarian writing crowds out good journalism and pumps misinformation and faulty arguments into the discourse. This would be bad at any time, but in the current state of journalism, it's disastrous. Here's a list of dangerous trends in journalism from an earlier post (with a link added from a different paragraph):

1. Reliable information sources like the CBO are undermined;

2. An increasing amount of our information comes from unreliable subsidized sources like Heritage;

3. Journalists suffer no penalty for publishing inaccurate information;

4. Journalists also fashion for themselves an incredibly self-serving ethical rule that lets them, in the name of balance, avoid the consequences that would have to be faced if they honestly assigned responsibility for screw-ups;

5. A growing tendency to converge on a narrative makes the media easier to manipulate.

All of these factors make it more difficult for our society to deal with bad data and contrarians are a rich source of some of the worst.

In a healthy journalistic system, counter-intuitive claims would be held to a higher standard (at least if we think like Bayesians) and if a logically or factually flawed argument made it through, both the authors and the editors would feel pressure to see that it didn't happen again.

In our current system, counter-intuitive claims are held to a lower standard (because they generate traffic) and serial offenders can actually build careers by badly arguing points that probably aren't true. Editors have lost all interest in fact-checking and outside efforts at debunking are usually treated as he said/she said.

It's easy to object to the positions Landsburg takes, but perhaps the truly offensive aspect here is the way Landsburg and the other contrarians reach those positions.

Andrew Gelman weighs in

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

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

So go, read, and enjoy the comments! 

Futurism

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

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

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

Presented without comment

From Paul Krugman:

From KCRW:

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

Addendum

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

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

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

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

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

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

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

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

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

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

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

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


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

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

How sure are you that your models are correct?

Karl Smith makes a really good point:

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

What did you get in return for their suffering? 

Absolutely nothing. Nothing. Nothing. 

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

How sure are you that you are right? 

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

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

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

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

And things get worse . . .

Avik Roy part 2:

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

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

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

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

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

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

Megan McArdle is on hiatus

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

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

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

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

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

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

A randomized test of welfare

In the Economist, no less. Consider:

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

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

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

Airports in the sky

2012 Skyscraper Design Competition



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

Remarkable and terribly depressing.

Back on the higher ed beat

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

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

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

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

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

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

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

From the Academic rankings of world universities:

1. Harvard University (private)

2. Stanford University (private)

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

4. University of California, Berkeley (public)

5. University of Cambridge (British)

6. California Institute of Technology (private)

7. Princeton University (private)

8. Columbia University (private)

9. University of Chicago (private)

10. University of Oxford (British)

11. Yale University (private)

12. University of California, Los Angeles (public)

13. Cornell University (private)

14. University of Pennsylvania (private)

15. University of California, San Diego (public)

16. University of Washington (public)

17. University of California, San Francisco (public)

18. The Johns Hopkins University (private)

19. University of Wisconsin - Madison (public)

20. University College London (British)

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

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

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

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

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

A perspective on Ayn Rand

This is worth reading.

The carried interest exemption

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

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

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

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

Food Stamps

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

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

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

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

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

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

Landsberg's latest

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

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

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

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

 Noah Smith comments that:

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

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

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

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

STEM jobs

Derek Lowe:

But there's an even bigger problem with pushing STEM education: the jobs, in many cases, are not there. Now, this is a point of great argument, because the jobs may well be there in some fields. But not over the whole area. A lot of people with physics and chemistry degrees are having trouble finding work, and in my own degree field (synthetic organic chemistry), it's been a real feat not having your job evaporate out from under you. In many cases, these jobs are going off to lower-labor-cost areas like China or India, but some of them are just disappearing outright. In either case, cranking up the number of eager graduates will not help the situation.

I would go further and ask who benefits from a surplus of science PhDs?  After all, getting a PhD is a long investment in time (10-12 years after high school) and money (good luck doing it without $50K in student debts plus many years of living on $10-20K as an income).  But with schools increaisng raising tuition, all of the risk is borne by the student.

Potential employers, on the other hand, can drop wages arbitrarily low if there is a serious surplus of qualified people relative to positions.  After all, switching fields after spending a decade getting a PhD in physics is a huge loss of investment.  So long as there is some chance of this investment paying off, won't most people keep trying? 

So the issue I have is why is pushing STEM a priority?  If there is a richly rewarded set of jobh opportunities out there then market forces will fix this problem.  But if there are a shortage of positions then why would we encourage people to be trained just to reduce employer expenses? 

A brief diversion into Media

The problem with Fox News:

But, there’s a bigger problem, and it goes to the real reason that Republicans who actually care about the future of their party should be concerned. In many ways, the GOP’s incestuous relationship with the “shock political talk” media machine makes it incredibly difficult for it to do what political parties have done in the United States from the beginning, adapt its message for changing times and changing circumstances. By reinforcing the base’s insistence on ideological purity, the Limbaugh’s of the world push the GOP further to the right in a nation that is, at it’s core, a centrist one. That is not in the long term interests of the party, and one would think Republicans would recognize that.

 Remarkably, it is a right wing web site that is writing this piece.  But the whole issue with needing to constantly push boundaries is that, sooner or later, you will start moving where most people don't want to go: see the recent issue with Rush Limbaugh.  I think that this leads to a media strategy that is a lot like naval cruiser construction.  It was always a benefit for your cruisers to be just a little bit tougher than everybody else's cruisers.  After all, if you get into a battle on the high seas, bigger guns and more armor are really helpful.

But cruisers need to be fast and agile.  The original purpose of these vessels was to catch enemy ships, scout the seas and do other activities that require a fast ship.  After a while of this arms race, a much smaller cruiser can evade the new, clunky heavy cruisers and perform the primary mission of the ship in a superior fashion.

So you will see a dramatic downsizing of the ships, followed by a slow creep upwards.  I wonder if Fox News will follow the same pattern in the near future?

Microfoundations

Via Paul Krugman:

A practical observation: the economists who get most bent out of shape at the notion that maybe we don’t always have to derive everything from optimizing individual agents also tend, with remarkable regularity, to be the economists who make simple, ludicrous conceptual errors when they discuss real-world macroeconomic issues. See many posts here and on Brad DeLong’s blog for examples. I don’t think this is an accident; it really helps your ability to think clearly to have those simplified, ad hoc models always in the back of your mind.

 One of the challenges of models is that they need to make predictions that are true.  If not, then they are (at best) descriptions of some previous time point.  But if we want to inform policy, then it is essential that models are a good description of reality.  So if the model makes a prediction that is obviously untrue then that should be a major red flag.

In my own view, the idea that people maximize "utility" as a decision making process is clearly wrong for any clear definition of utility (the idea that we maximize something that is an unobserved latent variable including social, financial, and cultural factors -- with arbitrary and time-varying weights -- is useful conceptually but unlikely to be a tractable variable for models).  So building models with this as a foundation may or may not improve predictive power.

On the other hand, Newton's laws of physics were successful long before quantum and statistical mechanics were developed.  So useful models may precede an understanding of the underlying microfoundations, at least in theory.

So, needless to say, I agree with Dr. Krugman.

Has anyone heard from Dr. Glaeser recently on this topic?

Here's Edward L. Glaeser back in June of 2009 discussing why the financial bailout was a better idea than the auto bailout:

Since the collapse of Lehman Brothers, the public sector has spent billions saving the banks. While these decisions are certainly debatable, they are understandable. The US financial industry misbehaved badly,... but it is still a sector with a future. ... After all, every other sector in the economy depends on banks for their financing.

But what about cars? ... Does anyone, other than GM's management, believe that this company can come back? The current treatment, cash infusion and a reduction in corporate liabilities, provides a solution for a company that is broke, not for one that is broken.

That passage originally caught my attention because of the rhetorical trick of shifting from an industry to a specific company. It came back to mind today when I saw the following graph in a post from Mike Konczal :

Added Sugars

From Aaron Carroll:

As we talk about how hard it is to combat obesity, it’s worth thinking about numbers like this once in a while. If we could get kids to give up half, not even all, of the added sugar in their diet, their overall calorie consumption would drop by 8%. They’d be dropping about 140-180 calories a day from their diet. And those calories are totally empty – they’re from added sugars they don’t need, and that won’t satiate them. When other research shows that reducing your caloric intake by 20 (yes, twenty) calories per day for three years could lead to an average weight loss of 2 pounds, making this small change could be a big deal.

Okay, there is a good point here and a really bad point here.  The good point is that added sugar seems to be a bad thing.  It promotes tooth decay (with 2 root canals, I can say that this is a big deal), it seems to be efficiently absorbed, it is associated with diabetes (a disease you really do not want), and it's nutrient value is null.

But the idea that a 20 calorie a day change will mechanically lead to a 2 pound weight loss in 3 years is kind of odd.  I mean it works, mathematically.  But it ignores all sorts of issues: like how does the body adapt to less intake, what foods are eaten (is it the same composition with portions shrunk by 1%?), and how this may alter activity levels.  The claim makes something that we know is hard sound very, very easy.

Programs like Weight Watchers seem to partially get good results by restriction, but they also seem to have incentives to change the composition of the diet.  Just look at how fruits and vegetables can be zero points in the current diet.

So, in an odd sort of way, the last point detracts from the main issue here: added sugars are bad and trying to expose your children to less of them is unlikely to be a bad thing.

Bleeding heart Randians

Once again, Joseph has left it to me to play bad cop on the McArdle beat.

As you can see from the previous post, Megan McArdle has a piece up at the Atlantic complaining about the lack of sympathy for the wealthy when they find themselves in financial trouble.

Likewise, when middle class people take out a mortgage that's perfectly affordable on the income they've been enjoying for years, and then lose the house because they suddenly saw that income cut in half, we don't feel a delicious sense of joy because they finally got what was coming to them.

I keep getting the feeling that McArdle's default approach to complexity is to look at one dimension at a time until she finds a view she likes.

In this case the complexity lies in the way we see financial hardship. We generally react to news of other people's money troubles with a combination of sympathy and disapproval (read Charles Murray for an example of the latter). The level of sympathy is largely determined by where the fall leaves the victim while the level of disapproval depends on how avoidable the crisis seems to be. Both these factors tend to make us react somewhat more harshly to financial problems of the well-to-do.

And in the cases in question here, the avoidability level is up there. The Bloomberg story that McArdle was talking about concerned highly paid executives who are facing hardships because of smaller-than-expected bonuses. This is a very different situation than a drop in salary. Even for the very well paid a completely unexpected reduction in salary can cause problems. The possibility of a smaller bonus should always be expected.

These were financially literate professionals who failed to take into account the potential variability of their income stream and as a result made reckless decisions then failed to own up. This isn't to say that some of these families aren't facing painful disruptions. Of course we feel sympathy for them, particularly the children, but the adults in these situations got there because of bad decisions and now they have to take responsibility for their actions.

At least that's what McArdle used to believe.

Income stability

This post has been questioned.  But I think some of the mockery is unwarranted as there is a pretty real point buried in this post: namely that lack of financial stability is bad for everyone.  Consider:

Likewise, when middle class people take out a mortgage that's perfectly affordable on the income they've been enjoying for years, and then lose the house because they suddenly saw that income cut in half, we don't feel a delicious sense of joy because they finally got what was coming to them. We recognize that this it is really terrible to be forced out of a home where you've built loads of happy memories and dreams--and not incidentally, to possibly be forced to yank your kids out of the aforementioned schools.

These disasters can hit people at any point on the income spectrum.  A lot of landlord policies are designed to minimize tenant flexibility, and houses can be difficult to sell on short notice.  I applaud the idea of trying to live well below one's means (an option that should be more realistic for the well off) but the real issue is the disconnect between the time frame of obligations (tuition, housing, transportation) and that of income streams.

The long run impact of this lack of basic security isn't pleasant.  It's true that the well off should be able to plan better and be more careful about things.  But it would also be reasonable to be able to make medium term plans with some assurance that the carpet will not be yanked out from under you.

EDIT: Mark makes the excellent point that I am talking about salary and the original article was talking about executives who committed to fixed expenses that could only be met with a bonus.  Clearly, it is possible to fail to get a bonus at a bank and counting on it to cover basic expenses (as opposed to saving it and using it for one time costs like a car or house downpayment) is begging for disaster.

Jones sings Nilsson

It's easy to get distracted by the bad pop culture associations and forget that Davy Jones was a very talented man. (He'd earned a Tony nomination while still in his teens for playing the Artful Dodger in Oliver.)

As for the role he's best known for, some of his best moments came performing the songs of Lennon and McCartney's favorite songwriter, Harry Nilsson. The contrast between Jones' boyish innocence and Nilsson's dark and troubled lyrics gave the performances an extra resonance.

Pay particular attention to Cuddly Toy. If you listen to the lyrics you'll notice a certain creepiness. When you learn what inspired it, you'll realise you didn't know the half of it.





Also posted at MippyvilleTV

To understand the health care debate...

You have to understand the beliefs and assumptions held by various segments of the population. This is what one politically influential segment believes.

Via Brad DeLong:

Dutch Puzzled by Santorum's False Claim of Forced Euthanasia: The Dutch Embassy in Washington declined to comment on Wednesday on recent remarks by Rick Santorum, the Republican presidential candidate, in which he claimed, falsely, that forced euthanasia accounts for 5 percent of all deaths in the Netherlands. An embassy spokeswoman, Carla Bundy, explained that the Dutch government preferred not to intervene in an American political campaign. But Ms. Bundy did provide The Lede with documents and official statistics showing that there are no provisions of Dutch law that permit forced euthanasia. Voluntary euthanasia, which has been legal since 2002, accounted for about 2 percent of deaths in the Netherlands in 2010.

As Jonathan Turley, a legal blogger, explained on Monday, the Dutch law permitting euthanasia is unambiguous about the requirement that it be voluntary, and lawmakers mandated that each case be carefully reviewed by an expert panel…. As the Web site Buzzfeed reported, Mr. Santorum’s erroneous comments, made at a public forum hosted by the conservative leader James Dobson on Feb. 3, failed to attract much notice until they were fact-checked, and mocked, in the Dutch press last weekend…. [A] video showed Mr. Santorum claiming that elderly Dutch people wear a bracelet reading “Do not euthanize me.” Over audible gasps from the audience, he continued:

Because they have voluntary euthanasia in the Netherlands, but half the people who are euthanized every year — and it’s 10 percent of all deaths for the Netherlands — half of those people are euthanized involuntarily, at hospitals, because they are older and sick. And so elderly people in the Netherlands don’t go to the hospital, they go to another country, because they’re afraid because of budget purposes that they will not come out of that hospital if they go into it with sickness.

As Buzzfeed noted, Dutch journalists found it easy to refute Mr. Santorum’s statistics, and made fun of his “fact-free” claim that euthanasia was forced on anyone, but they had no idea where he got the idea that the nation’s elderly wear “Do not euthanize me” bracelets…. Mr. Santorum’s campaign did not respond to a request to explain who or what the candidate’s sources were.

I think we are a long way from this scenario

This seems a little extreme:

The government has men with guns and dungeons. The armed men will throw you in the dungeon unless you pay taxes. So if the government chooses to accept random pieces of paper as payment, the pieces of paper become valuable. The point of collecting taxes isn't that the government needs money (it can print money) it's that if the quantity of taxes is too low relative to the stock of money, then the money loses its value and the price level rises.

But, at it's heart it points out something that is often forgotten about government.  We have lived under a benign and strong government for so long that we (as a culture) seem to have forgotten that somebody is likely to have people with guns.  When the people with guns are members of a republic with an obligation to protect the citizenry, things are rather good.  But if you make the government "small enough to be drowned in the bathtub", there will still be people with guns but they might have a different view of what constitutes a code of conduct.

This is not to say government cannot be improved (in a thousand ways), but it is worth keeping in mind that there are no scenarios where the "people with guns" issue goes away completely (even if we got rid of all guns, feel free to substitute "people with clubs").

Travel Update

I am about to do another multi-city work trip. So blogging might be extremely light for the next week or so from my end, at least. Apologies for the light posting this month . . .

MedicAid

MedicAid is extremely cost-effective (at least by the standards of US medicine) and protects some of the most vulnerable citizens of the republic. Aaron Caroll goes into just how difficult it would be to make further cuts in MedicAid. But I wonder if the real direction of the debate shouldn't be about expanding coverage for more citizens. After all, the low rate of reimbursements mean that getting treatment under the program will be difficult. This means that people will seek better forms of coverage if they have any options at all. Would it really be terrible to have a public/private hybrid system? Needless to say, I find the idea of MedicAid cuts to be pushing the discussion in the wrong direction.

Odd Criterion

Via Diane Ravitch:

But one sentence in the agreement shows what matters most: “Teachers rated ineffective on student performance based on objective assessments must be rated ineffective overall.” What this means is that a teacher who does not raise test scores will be found ineffective overall, no matter how well he or she does with the remaining sixty percent. In other words, the 40 percent allocated to student performance actually counts for 100 percent. Two years of ineffective ratings and the teacher is fired.

So why not be transparent and make the student performance count for 100%? Unless the goal is to allow teachers who are effective at improving standardized test scores be removed for other reasons. I love the idea of trying to ensure that education is of high quality. But high stakes evaluations of complex behavior based on a simple metric seems . . . unwise. I am sure Mark will have a lot more to say about this newest entry in the Education Reform debate.

Laffer Curves

Matt Yglesias:

This is a reminder that while the "Laffer Curve" does not characterize taxation in the United States as a whole, it probably does apply to cigarette taxes in the highest tax jurisdictions. The combination of success in pushing people to quit smoking and success in pushing smokers to come up with ways to avoid paying the taxes has pushed revenues below what could be gained. In public health terms, that's all fine, but for a while higher cigarette taxes were a rare form of politically palatable revenue-raiser and that's increasingly difficult to make work.

I think that this is a point that does not get enough attention.  Just because we are on the high tax side of the Laffer curve does not mean that we are not at a socially desirable point.  There is a tendency to demonize tax rates beyond the inflection point on the Laffer curve, but it is quite possible that these tax rates could have socially desirable consequences that make the lower revenue worthwhile.  And these benefits may not be symmetric: lowering cigarette taxes in New York could be made revenue neutral in a way that increases the total amount of smoking. 

Now I have tended to be laissez-faire in terms of people's right to smoke (odd for a public health person).  But I am not at all opposed to making the habit expensive, to make the deicison to stop or start be nudged towards a lower volume of smoking equilibrium.

So I think this suggests that we should think carefully about a particular piece of policy rather than simply disqualify it due to simple tests (like the Laffer curve).  In particular, this sort of reasoning might very well make sense applied to things like the gas tax.  Believing in people's right to use an SUV does not mean we shouldn't discourage the behavior, where possible. 

Unemployment is simply a bad thing

Matt Yglesias nails it:

In the wake of the Great Recession, I think we need another change in regime. We can't continue with an approach that always delivers on price stability but frequent leads to prolonged spells of mass unemployment. But I think to push for that regime change credibly, people need to acknowledge what went wrong in the past and need to explain why it won't happen again. I would say, for example, that one of the great virtues of the more globalized economy of 2012 rather than 1972 is that the freer flow of goods across borders makes inflation much less likely.

There is an old saying that the "heroes of the last war are the villains of the next one". The reason is that wars happen infrequently, are heavily analyzed, and everyone had figured out how to overcome the winning tactics of the previous war (well, at least insofar as the next war involves any sort of parity). There is also a real tendency to overcompensate for the failures of the last approach and, in the process, create an extreme in the other direction. This is especially true if the last approach ended in a crisis.

The current view of fiscal policy is that price stability is really important. As a consequence, people are willing to tolerate a lot of unemployment to ensure it. In some countries that might be okay, but the United States of America runs on the idea that safety nets are disincentives to work. The consequence of a weak safety net is that prolonged periods of high unemployment create an amazing amount of misery. It is past time that we acknowledge this and seek a new approach before a crisis brings another swing that is too extreme.

So much to rant about, so little time

From Marketplace:

The FCC's answer is to clear more space in the wireless spectrum, and sell it to the highest bidder. Open frequencies are in high demand, even as channels set aside for the nation's TV broadcasters go unused. Christian Sandvig is a media professor at the University of Illinois at Urbana-Champaign. He says most of us have cable.

Christian Sandvig: By some estimates, you might say about 9 percent of the population of the United States is watching television over the air, and dropping. On the other hand, the population of people who want to use cell phones, especially smartphones, to do things like browse the Web, keeps increasing.

So Congress has decided to auction off slivers of the spectrum, hoping to raise around $22 billion. TV stations will be given a small share of the proceeds, if they agree to give up the channels they were authorized to use for free.

Sandvig: Here -- if you just get off this spectrum, we'll give you some money.

You could call it making money out of thin air.

As longtime readers have probably already guessed, I'm going to have more to say about this.