Salmon follows up on Groupon

Essential reading if you've been following the story.

Assumptions

I was reading this post by the usually amazing Jodi Beggs about contraceptive coverage in health care.  I was especially struck by the underlying assumptions in this point: 

Since it's mainly a subjective matter, I'm in no position to evaluate moral right-versus-wrong here. I am in a position, however, to point out a critical flaw in the argument. In order for the pro-mandate argument to hold, it must be the case that women are not in a position to choose their employers, their schools or whatever other institutions may be providing them with health insurance. As a woman, I find this assumption to be absurd and more than a little insulting. Since women are free to choose the employers and schools that are best for them, those women who prioritize free access to birth control can seek out institutions that offer that benefit.

If women behaved in this way, employers and schools would have an incentive to offer contraceptive coverage to their female employees. These incentives would come not only from the fact that birth control is likely cheaper than the corresponding amount of prenatal care and maternity leave, but also from the fact that the institutions offering coverage would have a wider pool of applicants to choose from. Of course, some institutions might refuse coverage on ethical grounds, but they would either have to offer higher compensation to make up for it or accept the fact that its female applicant pool is going to be limited to those women who either don't care about birth control or can't get another job or school acceptance letter. (Economists call these outcomes "compensating differentials" and "efficient sorting," respectively. I call it "voting with one's feet.")

I think that there are two assumptions that are made implicitly with these types of arguments that don't necessary hold.  The first, and most critical one, is that labor markets are reasonably tight and that it is easy to change jobs.  Back in the late 1990's that seemed like a realistic assumption.  Today, with unemployment hovering around 10%, that seems far less likely. 

The second assumption is that health care is a free market, which is definitely is not.  Have you ever tried to acquire an antibiotic without a prescription?  Or had to pay the (much higher) uninsured rates for medical visits and procedures? 

If employment is fluid then voting with one's feet might be a realistic option.  If health care was a free market then one could simply rebalance one's expenditures.  But when a market is not ideal, the second best outcome can actually be far from the theoretical ideal.  In this case, the regulation of benefits is trying to deal with two problems that we have: a hyper-regulated health care market and a high unemployment rate.  Now there may be good reasons for these problems (the alternatives could well be worse). 

But the idea of free labor market mobility is not the experience of the median worker right now (in the sense that changing jobs may well be a non-trivial issue). 

Sharks in a kiddie pool

This story from PRI's the World connects nicely with some posts I'm trying to get around to about the appropriate scale for different research projects. Some are well suited to small, entrepreneurial approaches (like this). Others demand major commitments from governments or large corporations (or both). If we want to encourage technological development, that's an important distinction when we get down to individual cases. For example, the prize model makes more sense when dealing with the first than when dealing with the second. (and yes, I am thinking of this.)

Now back to the sharks:

Stroud, 38, used to work fulltime as a chemist in the pharmaceutical industry. Then, in the summer of 2001, he and his wife went on a cruise to Bermuda.

“We hit bad weather, and we were trapped in a cabin, and on the news was shark bite after shark bite,” he says. “It seemed like everyone that stepped in the ocean in Florida was getting attacked by a shark that summer.”

That’s when his wife suggested he turn his talents to developing shark repellents. When they got home, he set up several kiddie pools in his basement, and he filled them with small sharks.


Field assistant T. J. Ostendorf holds a lemon shark in a seaside pen at Bimini Biological Field Station. The shark is turned upside down to induce a sleep-like state called tonic immobility. A repellent is considered effective if it can rouse a shark from this state. (Photo: Ghinwa Fakhri Choueiter)
He watched how the sharks fed, swam, and behaved. Then, one day, he accidentally dropped a large magnet from his workbench. He noticed some small nurse sharks dart away.
“That night, we put magnets into the tank and couldn’t believe [that] the nurse sharks were just extremely distressed and stayed away from them,” he says.

Stroud had discovered that magnets repel sharks.

A thought about Libertarianism

I was reading a series called Monster Hunter International.  One of the interesting themes in the book is that a private corporation (the Monster Hunters) are doing a better job than the government at dealing with the creatures of the night.  The books are extremely well written escapism and I definitely enjoy reading them.

But I noticed one interesting element.  Despite the dislike of the government by the monster hunters, the business plan requires the government to offer extremely large bounties (often in the hundreds of thousands of dollars) to hunters who kill a monster.

So this hyper-libertarian scheme only works when the government is willing to infuse it with cash.  I notice that the same thing was true of the Old West -- another libertarian example.  Here the government offered resources through mechanisms like the homestead act.

This does two things.  One, the increase in resources makes hard work extremely rewarding.  Coal miners ended up in Unions despite huge amounts of hard work.  That is because a life-time of hard work results in few rewards ("another day older and deeper in debt").  In the homestead scenario, hard work leads to a land-based legacy for one's family.

Two, this makes it viable to simply move on.  If your neighbors are insufferable then you can just try your luck somewhere else.  Look at how frequently western figures like Wyatt Earp moved around the West.  If you can just set up stake somewhere else, leaving is easy.

So maybe this philosophy is better in good times?  I wonder if we'd worry about inequality, for example, if wages were rising for all social classes?

Will reading OE make you rich?

OK, I'll admit that a lot of people saw this coming.

"The nation's most densely populated urbanized area"

This report from the census department highlights as aspect of the urbanization debate that tends to be overlooked (or worse):

The Census Bureau identifies two types of urban areas: “urbanized areas” of 50,000 or more people and “urban clusters” of at least 2,500 and less than 50,000 people. There are 486 urbanized areas and 3,087 urban clusters nationwide.

The nation's most densely populated urbanized area is Los Angeles-Long Beach-Anaheim, Calif., with nearly 7,000 people per square mile. The San Francisco-Oakland, Calif., area is the second most densely populated at 6,266 people per square mile, followed by San Jose, Calif. (5,820 people per square mile) and Delano, Calif. (5,483 people per square mile). The New York-Newark, N.J., area is fifth, with an overall density of 5,319 people per square mile. (See sortable lists.)

Of the 10 most densely populated urbanized areas, nine are in the West, with seven of those in California. Urbanized areas in the U.S., taken together, had an overall population density of 2,534 people per square mile.

The New York-Newark area continues to be the nation's most populous urbanized area, with 18,351,295 residents. Los Angeles-Long Beach-Anaheim is the second most populous (12,150,996), followed by the Chicago area (8,608,208). These areas have been the three most populous since the 1950 Census, when urbanized areas were first defined; however, at that time, Chicago was the second largest. Los Angeles became the second most populous urbanized area in 1960, and the order of the top three has not changed since.

Take into consideration the fact that this is an earthquake prone region where much of the land consists of mountains and canyons that are poorly suited for construction and these numbers become even more remarkable.

California remains in rough shape

The source of this quote is a father of two and Iraq war vet who works for the Atlantic council:

In addition to the barbarism that is our penitentiary system eating away at the basic principles on which we founded our society, our obsession with locking away people for violating arbitrary rules is destroying our human capital. We’re literally choosing locking up drug offenders over investing in our children. That’s madness and it has to stop.

Of course, the author is talking about the state of California (which has been very explicit about making this decision).  At some point I think we need to get over our fetish for incarceration.  The same article points out that the 1980's had a quarter of the rate of incarceration that we do today (comparable to a high crime European country, like Poland).  It is hard to decide what is a reasonable target for absolute rates, but going back to the levels of the early 1980's (and the top levels in Europe today) seems like a reasonable goal.

How we get there is unclear, but it seems like a priority for those of use who argue about education reform.  After all, a huge drop in prison costs (in addition to reducing human suffering) would free up funds to rehabilitate the school system.  It is challenging to increase quality while reducing funding.  But increasing available resources can only help (either directly by changing allocations inside state budgets or indirectly by reducing tax rates).

The rise of DC

Aaron Renn:

So we have New York entrenched as America's first city, and Washington, DC increasingly its new "Second City." Los Angeles, which seems to have never quite recovered from the early 90s defense draw down, and Chicago with its 2000s malaise, seem to be the victims of DC's rise. Another loser is Boston, which has seen its status as a financial hub decline and whose Route 128 corridor of tech, having first lost out to Silicon Valley, now appears to be losing out to NYC.

The rise of Washington, DC as a major growth center is not ideal.  This suggests more reliance between the Federal Government and growth than I would like.  I am far from a libertarian, but if access to government decision-makers is this important (enabling DC to rise above Los Angeles, Boston, and Chicago) then we need to consider if that is a good thing.

A programming question relating to board games

Specifically hexagonal games. I'm trying to write out concise descriptions (almost pseudocode) of some games played on hexagonally tiled board. Something like this checkers variant:

If these were rectangular tiles, the coordinates would be obvious, but with hexagons, I'm not sure which way to go.

Any suggestions?

Exciting academic career opportunity

Remember that Washington Post op-ed about all those great community college jobs with excellent pay and almost no work? (Sure you do, I talked about it two posts down) Well, the school the writer used as his main example has an opening in statistics so I'm sure some of our readers would like to get a resume in.

Business Statistics - Part-time Faculty(

Job Number:

0021Q)

Description

Business Statistics - Part-time Faculty – Germantown Campus

The Montgomery College, Germantown Campus, is currently accepting applications for possible openings as apart-time faculty member teachingBusiness Statistics courses. We are seeking an enthusiastic and dedicated teacher who exhibits a high degree of professionalism, a strong commitment to our students, and demonstrates the ability to motivate and educate in an engaging manner.

Montgomery College accepts applications for Adjunct/Part-time Faculty on a continuous basis.

Applications may be reviewed periodically based on the student enrollment needs.

• The listing of a course in the schedule of classes as “TBA” does not constitute an assignment.
• The hiring decision for part-time faculty involves an academic judgment and shall be determined at Management’s sole discretion.
• During the academic year part-time faculty at Montgomery College may teach no more than 11.5 ESH (equivalent semester hour) per semester and no more than 23 ESH per academic year.
• During summer part-time faculty at Montgomery College may teach no more than 10 ESH (equivalent semester hour) for both sessions combined.
• Compensation for initial salary placement as a new part-time faculty member at Montgomery College is currently $870.83 per ESH (Equivalent Semester Hour)

Canada (finally) removes the penny from circulation

The CBC news story is here.
Why can't we do the same here in the United States?  Is there anybody left who sees a penny as a real unit of value and not a complication for transactions?

More on seventeen thousand -- bounding the problem

As I mentioned before, David Levy has come in for plenty of criticism over his recent Washington Post piece, but there's one more point I'd like to throw in. Here are the passages that caught my eye:

The cost for such sinecures is particularly galling when it is passed on to the rest of the middle class and to taxpayers in states that are struggling to support higher education. Since faculty salaries make up the largest single cost in virtually all college and university budgets (39 percent at Montgomery College), think what it would mean if the public got full value for these dollars.

...

If the higher education community were to adjust its schedules and semester structure so that teaching faculty clocked a 40-hour week (roughly 20 hours of class time and equal time spent on grading, preparation and related duties) for 11 months, the enhanced efficiency could be the equivalent of a dramatic budget increase. Many colleges would not need tuition raises or adjustments to public budget priorities in the near future. The vacancies created by attrition would be filled by the existing faculty’s expanded teaching loads — from 12 to 15 hours a week to 20, and from 30 weeks to 48; increasing teachers’ overall classroom impact by 113 percent to 167 percent.

(First a brief aside: in a service industry, I would normally expect that much, if not most, of operating costs would go to the salaries of the workers who provide that service. 39% is not outside of the reasonable range for this situation but it is low enough to make me wonder if cost cutters shouldn't be asking what happens to the 61% that doesn't go to teaching.)

Let's take a quick pass over these numbers and put some bounds around the possible values and see if they justify the impact Levy's changes would have on students (whose teachers would have less time for preparing lessons, grading, answering student emails, counselling, or going over material outside of class).

Please check my math on this but assuming that your 39% was made up entirely of full time faculty teaching twelve hours a semester and you could get 37% of that faculty to increase its workload by 167% and you could immediately get all of the rest of the faculty to quit, you'd reduce your budget by just under 25%.

We could debate whether reducing a school's expenses by a quarter would be worth the loss in quality, but it would be impossible to find a school that met those assumptions. Most of the schools we're talking about (apparently including Levy's example), have fifteen hour loads. This drops the reduction to just over 20%.

And almost all schools (including Montgomery) have part time faculty or graduate TAs. Without mass firings, doubling the workload of full-time faculty would mainly result in reducing work for low-paid part timers (At Montgomery, the starting rate is less than $900 per semester hour). Now we're looking at less than a 10% reduction in costs.

In other words, David Levy's proposal, which requires shabby treatment of employees and a sharp drop in educational quality, would only produce a five or ten percent drop in tuition.

This is not a serious proposal, it's just another example of someone trying to get some attention by taking a provocative position without doing the actual work needed to support it.

Free roads, health care and This American Life

Shortly after reading Joseph's post, I finally got around to this to this extraordinary examination of the small government movement from TAL. The whole thing is worth listening to but the third act struck me as particularly relevant:

Robert Smith -- It's no accident that Colorado Springs is the place where all this happened. Colorado Springs is not just conservative, it is famous for being conservative. It's the home of Focus on the Family, evangelical churches like the New Life Church, four military bases, Air Force Academy. It is in the most right-leaning congressional district in all of Colorado. Add to the mix outdoorsy types, mountain bikers, ex-hippies, and you get this kind of pioneer leave me alone vibe around here.

The citizens of Colorado Springs didn't just believe in limited government, they made it law. 20 years ago they passed the Taxpayer Bill of Rights. TABOR, everyone calls it. And TABOR-- you may have heard of this because other states have put it on the ballot. But it started right here in Colorado Springs. Under TABOR, if you want to raise or impose any tax at all, you have to get the voters to approve it first.

Jan Martin -- Our voters very rarely will support a tax increase.

Robert Smith -- This is Colorado Springs City Councilwoman Jan Martin, one of the people who deals with TABOR day in and day out. TABOR is like a set of handcuffs for city government. It limits how much you can grow your budget, makes it hard to shift money from one thing to another. The city survives mostly on sales tax, which is great when the town is filled with tourists, right? All those hikers and mountain bikers buying energy bars.

But when a recession comes along, living off sales tax is a disaster.

Jan Martin -- What we experienced when the downturn occurred is, immediately, people stopped buying, which meant our dollars dropped faster than most communities. And we crashed and burned almost simultaneously with the economic downturn.

Robert Smith -- In 2009, tens of millions of dollars the city was counting on didn't materialize. Jan believed TABOR only gave her one choice. She had to ask voters for the tax increase you heard about. And this wasn't easy for Jan. She's a Republican. She owns her own business. She has an MBA in finance. But she thought, I just need to be straight with voters about the situation we're in.

She said, look., the city needs to raise $28 million. That means the average homeowner would have to kick in about $200 a year.

Jan Martin -- To go before the voters in the middle of an economic downturn, I will admit, it was pretty gutsy. But I really felt as an elected official I owed it to the general public to give them an option before the cuts were made.

Robert Smith -- It wasn't even close. The voters in Colorado Springs said no way. Nearly 2/3 of them voted against the tax.

The town responded first by making most city services ala carte (you want streetlights on your block? Send the city a check) and then by extensive privatisation, with somewhat mixed results:

Robert Smith -- Roland was doing more work for less money. That's the dream of privatization, right? But the bigger picture here is more complicated. Remember, Roland isn't the only cost involved. The private landscaping firms add a healthy profit on the top, that's normal. And they had to purchase a lot of the things that the city already had, like equipment.

So did the city really save any money here by outsourcing, by privatizing Roland's job? We asked the city of Colorado Springs this question over and over again. And they hemmed and they delayed. They couldn't find a number. Then they said it's tough to calculate. In the end, all we could get from the city was this. Outsourcing Roland Hawkins and all those other workers might save money in the future.

Because medical costs will rise. Pension costs could also rise. Better to get Roland off the books now, privatize him now. But as for last summer, the first year of the parks experiment, the city couldn't say if they saved a dime.

Overall, the city's budget for parks is about $12 million now, a lot smaller than it was at its height. But that's mostly because the parks department is doing less. They've closed swimming pools and laid off community center employees. They're replacing fewer playgrounds and fences and bridges. And Roland, for his part? He's not going back to the parks this summer. He hurt his back.

What I learned, though, from talking to the people in Colorado Springs is that for a lot of them these calculations don't really matter. They don't care if privatizing actually saves the government money, so long as the government is doing less.

City councilwoman Jan Martin says she hears this all the time. That it's become a matter of faith in the city that private is better. And she tells us a story. In the dark days, after the tax measure was defeated, city council was having another meeting about slashing government.

Jan Martin -- And a gentleman came up to me and actually thanked me for the adopt a street light program. He had just written a check to the city for $300 to turn all the street lights back on in his neighborhood. And I did remind him that for $200 if he had supported the tax initiative, we could have had not only streetlights, but parks and firemen and swimming pools and community centers. That by combining our resources, we as a community can actually accomplish more than we as individuals.

Robert Smith -- And he said?

Jan Martin -- He said he would never support a tax increase.

Robert Smith -- So for him it wasn't the money. He was willing to pay more to turn on the street lights than to pay for all city services.

This points to a difficulty with this debate. The anti-tax, pro-privatisation movement revolves around language of government inefficiency and waste, terms that wouldn't be out of place at a meeting of financial analysts.

But a segment of the movement (and, I suspect a fairly large one) is represented by this man, someone who's aversion to taxes is so strong that he would rather pay half again as much and get far fewer services. This is not necessarily an irrational decision (he might have objected to people in other neighborhoods who paid less getting streetlights as well -- that's not a position I would take but it's a perfectly defensible one), but it's not a financial decision and discussing it in terms of waste and inefficiency won't accomplish much.

This would be a good time to bring Jonathan Chait's seminal essay exploring small government and privatisation as ends to themselves into the discussion, or it would be a good time if it were an earlier one.

I'm going to bed. Discuss it among yourselves.

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."