What happens if you have a mortgage?

Jon Chait talks about a new idea from Tea Party Nation:

Tea Party Nation Judson Phillips thinks the franchise should be taken away from renters

Of course, the complexities in trying to operationalize such a plan are, shall we say, staggering.

Higher education and resource allocation

It is a powerful argument to reduce the concerns of your opposition by reframing their views into something that seems absurd.

Dean Dad writes:

Administrators may be the bearers of bad news, and sometimes the people who have to choose among terrible options. But to assume that we’re sitting on piles of money, cackling with glee while exploiting adjuncts and pocketing the savings for ourselves, is just otherworldly. It assumes a context completely out of keeping with anything I can recognize as reality. It’s so far afield that the only truly fitting rebuttal is a sigh.

I think that the issue is not that anybody is sitting on piles of cash. I think that there are two legitimate concerns. One, is the redistribution of resources (which is always going to be a feature of any organization that is not experiencing enough growth for all parties to "win" simultaneously). Two, is the concern about the growth of adminsitrative costs. Some of this growth is beyond the control of the administration (unfunded federal reporting mandates come to mind). But I think that it is a fair position to want to open a dialogue on this issue.

To dismiss these concerns out of hand doesn't seem to be the best way to encourage an open dialogue.

All costs are linked

From Austin Frakt:

It’s convenient to think about health care costs and expenditure organized in two sectors, public and private. But one deceives oneself in thinking they’re independent. A principle problem with control of public health care spending is that public prices can’t deviate too far from private ones. If they do, Medicare beneficiaries will experience access problems, as Medicaid beneficiaries already do.

I think that this is entirely correct. Presuming that the same procedure is being done, it is reasonable to expect that people would prefer to be paid more. When the cost differential is low then it isn't worth putting a lot of effort into trying to attract the higher yield business. But as soon as prices deviate enough, you would expect doctors to compete on non-financial grounds. Speed of access comes immediately to mind.

I still find it odd that the United States socializes the medical care that is the most expensive (end of life care) and not that of inexpensive groups (like 20-something adults). Perhaps that is simply needed due to issues of poverty and ill health in old age. But these sorts of tensions cannot be good.

Tyler Cowen appears to agree:

The differential payment rates across Medicare, Medicaid, and private insurance are becoming unsustainable more quickly than I had anticipated; see for instance the link in #4. Further reforms will be required more quickly than had been anticipated, but it's not obvious how such reforms should proceed. It's hard to either upgrade the Medicaid (and Medicare) rates or to downgrade the private insurance rates. Monitor this one closely, because it is likely to prove the breaking point of our health care status quo, with or without the Obama plan. (This is our version of the ticking time bomb within the eurozone, namely that natural rates of growth split apart a distortion, increasingly, over time.)

I think that these arguments mean that private health care costs will move back into the debate sooner rather than later. Add in the fast growth of health insurance costs and you can immediately see that pressure is going to come from many directions.

Of course, the idea of the Bowles-Simpson Deficit Plan to tax health insurance plans would actually accelerate the tensions here by making private plans even less affordable (which could have a huge impact on the lower middle class).

It's a complicated system with a lot of moving parts. But I think economists are right to worry about these costs diverging as much as they currently are.

A point to ponder

From Worthwhile Canadian Initiative:

Indeed, this is the fatal attraction of socio-biology - it's too easy to come up with untestable explanations for just about anything.

I think that this quote is exactly right. A lot of really interesting stories can be told that are not empirically testable. This approach can lend a veneer of respectability and scientific rigor to what is merely a form of "educated guessing".

Comments on Grants

Professor in Training mentions here recent experience of good comments and yet bring triaged by a granting agency. I think that this type of triaged is at least partially a consequence of the modern funding environment. A lot of people work very hard to submit good ideas and well written grants. As paylines shrink (and the endowments of a lot of foundations shrink due to market turmoil), I suspect that many fundementally sound research proposals will suffer this fate. It no longer needs to be great, it needs to be actively exciting.

Or maybe the real comments are coded. But I think the former suggestion of limited funding has a lot of explanatory power.

"The Instability of Moderation"

Some essential Krugman today. You may not agree that we've entered the Dark Age of macroeconomics but Krugman makes a good case for how and why things got so bad:

The brand of economics I use in my daily work – the brand that I still consider by far the most reasonable approach out there – was largely established by Paul Samuelson back in 1948, when he published the first edition of his classic textbook. It’s an approach that combines the grand tradition of microeconomics, with its emphasis on how the invisible hand leads to generally desirable outcomes, with Keynesian macroeconomics, which emphasizes the way the economy can develop magneto trouble, requiring policy intervention. In the Samuelsonian synthesis, one must count on the government to ensure more or less full employment; only once that can be taken as given do the usual virtues of free markets come to the fore.

It’s a deeply reasonable approach – but it’s also intellectually unstable. For it requires some strategic inconsistency in how you think about the economy. When you’re doing micro, you assume rational individuals and rapidly clearing markets; when you’re doing macro, frictions and ad hoc behavioral assumptions are essential.

So what? Inconsistency in the pursuit of useful guidance is no vice. The map is not the territory, and it’s OK to use different kinds of maps depending on what you’re trying to accomplish: if you’re driving, a road map suffices, if you’re going hiking, you really need a topo.

But economists were bound to push at the dividing line between micro and macro – which in practice has meant trying to make macro more like micro, basing more and more of it on optimization and market-clearing. And if the attempts to provide “microfoundations” fell short? Well, given human propensities, plus the law of diminishing disciples, it was probably inevitable that a substantial part of the economics profession would simply assume away the realities of the business cycle, because they didn’t fit the models.

The result was what I’ve called the Dark Age of macroeconomics, in which large numbers of economists literally knew nothing of the hard-won insights of the 30s and 40s – and, of course, went into spasms of rage when their ignorance was pointed out.

Political instability

It’s possible to be both a conservative and a Keynesian; after all, Keynes himself described his work as “moderately conservative in its implications.” But in practice, conservatives have always tended to view the assertion that government has any useful role in the economy as the thin edge of a socialist wedge. When William Buckley wrote God and Man at Yale, one of his key complaints was that the Yale faculty taught – horrors! – Keynesian economics.

I’ve always considered monetarism to be, in effect, an attempt to assuage conservative political prejudices without denying macroeconomic realities. What Friedman was saying was, in effect, yes, we need policy to stabilize the economy – but we can make that policy technical and largely mechanical, we can cordon it off from everything else. Just tell the central bank to stabilize M2, and aside from that, let freedom ring!

When monetarism failed – fighting words, but you know, it really did — it was replaced by the cult of the independent central bank. Put a bunch of bankerly men in charge of the monetary base, insulate them from political pressure, and let them deal with the business cycle; meanwhile, everything else can be conducted on free-market principles.

And this worked for a while – roughly speaking from 1985 to 2007, the era of the Great Moderation. It worked in part because the political insulation of central banks also gave them more than a bit of intellectual insulation, too. If we’re living in a Dark Age of macroeconomics, central banks have been its monasteries, hoarding and studying the ancient texts lost to the rest of the world. Even as the real business cycle people took over the professional journals, to the point where it became very hard to publish models in which monetary policy, let alone fiscal policy, matters, the research departments of the Fed system continued to study counter-cyclical policy in a relatively realistic way.

But this, too, was unstable. For one thing, there was bound to be a shock, sooner or later, too big for the central bankers to handle without help from broader fiscal policy. Also, sooner or later the barbarians were going to go after the monasteries too; and as the current furor over quantitative easing shows, the invading hordes have arrived.

Orlando Airport

It has been a surprisingly pleasant experience, so far. The TSA screening was fast and polite (and the screener making announcements made public service messages witty). One can only hope Canadian customs is as pleasant.

But this has been a good start, at least.

Happy Thanksgiving

It has been a good year for OE (the default abbreviation of the blog title). We started in March 2009 as an experiment. The addition of Mark to the blog list has been a big improvement in the quantity and quality of posts. In 2010 we have months with more blog posts than the 2009 total.

So I hope that you all have a safe and Happy Thanksgiving!

Dental Care

So it looks like I am getting my second root canal next week due to a filling that went too deep. It is, sadly, one of my front top teeth (which makes the "just pull it" option unappealing).

There has been a lot of talk of health care, per se, at sites like the Incidental Economist and Marginal Revolution. But I am finding dental care to be shockingly expensive even with good dental insurance and a reasonable salary. Having experienced severe tooth pain (repeatedly), I wonder what happens to people who cannot afford care.

I will also say that free market options are limited when you are in blinding pain with a tooth abscess. One is willing to pay almost anything to make the pain stop and worry about things like rent later. Certainly it is a poor time for comparison shopping. Nor does the fact that many patients pay for most of their care seem to do anything to control prices.

These episodes have made me increasingly tough on my dental hygiene (flossing, brushing, ultrasonic toothbrush, prescription tooth paste). But I fear that some aspect of my diet or lifestyle still seems to be out of whack because dental decay appears to be accelerating at an alarming pace.

But it does make me wonder why dental care is treated differently than, for example, back pain.

Industrial Policy

I am a huge believer in mixed economies. But it is hard to prove that they are the best option for exactly the reasons that Ms. McArdle is skeptical about industrial planning in China:

It's not that I didn't understand that the government did this; it's that I didn't understand how pervasive it would be, or how popular this would be, at least with the folks we interview. Everyone--including most of the economists and NGOs--seems to think this is swell. No fiddling around with archaic, unplanned systems; just figure out what the country needs and do it!


Perhaps it is just my ideological blindness that makes me believe that this cannot, in the long run, turn out well. But there's a plausible story that the early boom was mostly a matter of removing distortions (and taking advantage of capital, human and otherwise, accumulated in Hong Kong and China). Now the government is much more directly picking winners and losers. They're not trying to manage growth; they're trying to cause it in places where it shows little sign of happening organically.


It's not that I think that no form of industrial policy can ever have good effect. Can government build infrastructure to good effect? Yes, certainly. Can they manage growth? Can it occasionally pick industrial winners? They have in the past--though on average, I'd say it's abundantly clear that governments have more often picked, and sustained, losers. And the more comprehensive the industrial policy, the worse the economic losses have generally been.

The issue here is that successes can be explained by a lot of different factors (as can failures). And it is pretty clear that people have strong "priors" (in the Bayesian sense) for the approach that they favor. This makes it hard to use the (limited in scope) data to decide between approaches. Add in confounding factors and it gets harder. Add in changes in technology and you guarantee issues.

Just consider, for example, stock market returns. What is the relevant period of interest? Some people claim you can consider returns on stock from 1800 to today based on what records are available. But clearly the information available to stock analysts is different today than in 1960. Now consider that you want to look at long term returns (i.e. saving for retirement) and suddenly the noise threatens to overwhelm the data -- as you really have only a very few (tightly correlated) time trends.

How much worse is that for looking at economic growth?

No wonder these arguments are difficult to make . . .

Another argument for parenting as an addiction

And unlike the one demolished here, the sitcom version actually makes some sense in terms of reinforcement schedules.



Of course, this story refers to actions parents take in pursuit of specific rewards, not to the decision to become parents.

Impact Factors

Frances Woolley makes a great point in Impact Factors and how they vary by field and by sub-field. This issue comes up in medical research all of the time. If I try and be really methodological, a statistics or epidemiology journal has a much smaller imapct factor than a medical journal. On the other hand, if I focus on the drugs and go to a pharmacy journal then impact factors are even lower.

So it is a constant dilemma about how to focus one's research. I would like to think that tenure and promotion committees are sophisticated about such issues but one does worry . . .

I suspect that the same issues are replicated with grant funding.

Airline Security

This is a nice point from Megan McArdle on the current value of airline security procedures:

Somehow, this seems like a questionable reaction to two attacks that failed. Especially since they failed for the same reason that any similar attack is likely to fail: the amount of explosives you can smuggle in your underwear or shoes is necessarily small, meaning that you need to be in the cabin to detonate them if you want to be sure that you'll bring the plane down. And it's really hard to set your underwear, or your shoes, on fire without your fellow passengers noticing. In Asia, I've never been required to have my shoes scanned--not even to get on a US bound flight. And yet, we have not been confronted with a rash of exploding planes out of Taipei or Saigon.

I am forced to fly a lot for work and I have the misfortune of living far away from family. Yet I would gladly never fly again if I could arrange it. It's really become a miserable process. At some point one really would like to avoid the whole mess.

History question of the day

This excellent column by Steven Pearlstein got me thinking, is hard-currency populism a new phenomena? I realize a lot separates Bryan and Palin/Beck/etc. but this would seem to be 180.

Maybe this is making outcomes worse?

From an interesting interview with a (formerly) obese cardiologist:

In 2003, Gary Foster, now director of the Center for Obesity Research and Education at Temple University, conducted a survey of primary-care doctors about obesity. More than half viewed obese patients as ugly and noncompliant. A third saw them as weak-willed and lazy.

and

He understands that doctors can be frustrated by their patients' failure to lose weight, but he sees it as no worse than many other difficult-to-treat diseases. "My fellow colleagues are understanding of cancer even when it recurs and recurs, and they'll say, 'Well, that's the disease,' " he said.

I think that this might have some serious ramifications for the treatment of obesity by the medical profession. Patients seem as noncompliant are less likely to receive treatment which can make the health risk associated with obesity more difficult to treat.

It's true that there is some factor that is driving the current obesity epidemic (and the even mroe cocnerning diabetes epidemic) that is, my definition, modifiable. But perhaps we should focus on what that factor is? After all, our grandparents were much less obese (on average) and that suggests that the focus shouldn't necessary be at the level of the patient but rather at how we have changed our culture.

Seniors in space

From 1996:

Now here are two seemingly unrelated facts.

Fact One: 30% of Medicare expenditures are incurred by people in the last years of their lives.

Fact Two: NASA spends billions per year on astronaut safety.

Maybe you see where I am going....

Why not shoot the elderly into space? Stay with me. Because I'm not just thinking about the budget here. I'm talking about science. Just think how many more manned space operations NASA could undertake if they didn't have to worry about getting the astronauts back.

Now, I'm not saying we don't try to get them back. We just don't make such a big deal about it. That way we don't have to use the shuttle every time, which is very expensive. Put an old Mercury capsule on top of a Saturn rocket, fire it up, and see what happens. And if the "Houston, we've got a problem" call comes, Mission Control can simply reply, "Best of luck. We're rooting for you."

-- Al Franken, in "Rush Limbaugh is a Big Fat Idiot"




From the AP:

Two scientists are suggesting that colonization of the red planet could happen faster and more economically if astronauts behaved like the first settlers to come to North America — not expecting to go home....

"You would send a little bit older folks, around 60 or something like that," Schulze-Makuch said, bringing to mind the aging heroes who saved the day in the movie "Space Cowboys."

You can read the actual proposal here but be warned, it does not improve under close scrutiny.

Things you can do if you're a charter school

Make demands of parents:

Parent involvement has been a surprisingly central feature of many of the proposals for new and restructured charter schools in California. State legislation mandates that parents be involved in the governance of charter schools, but broader kinds of parental involvement seem to be contemplated by those who are designing these new schools. In many of these schools, parent involvement is much more than simply a requirement to volunteer assistance or to help with their children's homework. Parents are seen as central adults in a more inclusive school community--participants who share time and expertise with the school's students as a whole. For example, a majority of the first chartered schools were planning to have parents and other community members as instructors in the school building, and several expected to sponsor training in tutoring methods and parenting techniques for use at home. In fact, a survey of thirty-four of the first forty-four schools chartered by the state found that in more than 50 percent parents are required to sign contracts and to participate in certain activities (Dianda & Corwin, 1994). One recently approved charter school, for example, intends to require parents "to volunteer a minimum of three hours per month at the school." Another stated in its charter: "Parents, by signing their child's registration form, commit themselves to at least 2 hours of school service per month.... Any student accepted on an above mentioned agreement will meet a prescribed written contract and will understand, if the contract is broken, said agreement will be revoked and the student will be disenrolled."

In many ways this is a good thing and I'm not saying that charter schools should stop, but it does provide another example of the near impossibility of making meaningful comparisons between schools that have the option of easily 'disenrolling' students and those that don't.

Is it too late tonight to write a post on the card game Eleusis?

Yes.

Something you have to post immediately if you see it at two a.m.

I'm generally not that impressed with this sort of thing but obviously I have to post this.

From Psychology Today:

There is thus no indication in any of the ethnographic evidence that any sustained nocturnal activities occur in traditional societies, other than occasional conversations and singing, in these tribes. It is therefore reasonable to infer that our ancestors must also have limited their daily activities to daylight, and sustained nocturnal activities are largely evolutionarily novel. The Hypothesis would therefore predict that more intelligent individuals are more likely to be nocturnal than less intelligent individuals.

Not much time for blogging...

... or even reading other people's blogs. I've been busy and based on the conversations I've had recently, Joseph is inundated.

Regular blogging will resume soon. Till then you can kill some time with the only popular board game I know of* that has imperfect information but no random elements.


* And no, I wouldn't call this a popular board game.

More wheelbarrows

I suggested in a previous post that the surreal images and anecdotes of hyper-inflation (particularly in early Twenties Germany) have a more powerful hold on the imagination than do the deceptively benign images of deflation.

Today I learned (via Media Matters by way of Krugman) that hyper-inflation warnings are showing up on Glenn Beck's show:

As I told you at the beginning I'm not an expert. I am not a guy to listen to for financial advice. I'm an American with an opinion. Period. I don't know that the Weimar republic isn't going to happen here. I don't know if it is going to happen here. But I will tell you this: Those same damn experts told me two years ago that the Fed wouldn't do what they did yesterday. those same damn experts told me four years ago the housing market was fine. When will these experts lose a little bit of credibility? When will we start listening to our own guts, and to common sense?

While on another Fox show the host is calling for a return to gold not only to back the dollar but as an alternative currency.

Observational Research

Andrew Gelman quotes a discussion the design of clinical trials by John Langford. It's based on work by Amy Harmon on people who fail to get the drug in the active arm of a randomized controlled trial.

The case that she begins with:

But when Mr. Ryan, 22, was admitted to the trial in May, he was assigned by a computer lottery to what is known as the control arm. Instead of the pills, he was to get infusions of the chemotherapy drug that has been the notoriously ineffective recourse in treating melanoma for 30 years.

The question is:

With reasonable record keeping of existing outcomes for the standard treatments, there is no need to explicitly assign people to a control group with the standard treatment, as that approach is effectively explored with great certainty.

I see this as an argument for Observational (instead of experimental) research. The reason that experimental research is valuable is that you can rule out confounding and estimating quantities like the counter-factual outcomes is a lot easier (as counterfactuals have the nice properties of being missing completely at random).

If you only test the novel drug in the trial then you are assuming that there are not other changes (in population composition, in other forms of care) that do not explain some or all of the variability. You can use statistical adjustment to reduce differences but then things hinge on model specification and whether there are unmeasured differences.

I worry that we are some distance from trusting data where two analysts can get two different answers making different sets of assumptions (which years are the control years? who is included? which covariates are included?).

That being said, many key breakthroughs are entirely observational in nature and it would be good to see more use of this study design. But it is also clear that there are a lot of blind alleys that occur when non-randomized data is used (statins and cancer, anyone?).

[In a larger sense, I think that this is the danger of outside experts. Sometimes they point out that the Emperor has no clothes. However, they may not realize that is because it is currently bath-time . . . ]

The short, sad life of Toxie the toxic asset

Another exceptional example of financial journalism from This American Life/Planet Money. It's a remarkably entertaining hour but it still manages to be as or more informative as anything you're likely to read on the subject.

As always, the download is free but the show could really use the money if you care to donate a couple of bucks.

Bad polls, good polls, better polls

You might have expected Nate Silver to sleep through the rest of the week after the elections, but the Red Bull must flow freely at 538. Anyone who is serious about polls should read these two recent posts:

Rasmussen Polls Were Biased and Inaccurate; Quinnipiac, SurveyUSA Performed Strongly

and

When ‘House Effects’ Become ‘Bias’

Even more interesting is Mark Blumenthal's article on the remarkable accuracy of both camps internal polling in Nevada.

Not All Polls Were Wrong In Nevada

The Wheelbarrow Problem -- is the imagery of deflation influencing the debate?

Many economists (most notably Paul Krugman) have been arguing that deflation is a more immediate and far greater danger than inflation and recent data seems to back them up, but they don't seem to be getting much traction in the press. I wonder if part of this failure comes from the fact that the imagery of deflation seems so benign ("That'll be a nickel for the soda pop, sonny.") while the imagery of hyper-inflation is frightening and often surreal.

Here's how George Goodman put it in Paper Money:

In retrospect, you can trace the steps to hyperinflation, but some of the reasons remain cloudy. Germany abandoned the gold backing of its currency in 1914. The war was expected to be short, so it was financed by government borrowing, not by savings and taxation. In Germany prices doubled between 1914 and 1919.

After four disastrous years Germany had lost the war. Under the Treaty of Versailles it was forced to make a reparations payment in gold-backed Marks, and it was due to lose part of the production of the Ruhr and of the province of Upper Silesia. The Weimar Republic was politically fragile.

But the bourgeois habits were very strong. Ordinary citizens worked at their jobs, sent their children to school and worried about their grades, maneuvered for promotions and rejoiced when they got them, and generally expected things to get better. But the prices that had doubled from 1914 to 1919 doubled again during just five months in 1922. Milk went from 7 Marks per liter to 16; beer from 5.6 to 18. There were complaints about the high cost of living. Professors and civil servants complained of getting squeezed. Factory workers pressed for wage increases. An underground economy developed, aided by a desire to beat the tax collector.

On June 24, 1922, right-wing fanatics assassinated Walter Rathenau, the moderate, able foreign minister. Rathenau was a charismatic figure, and the idea that a popular, wealthy, and glamorous government minister could be shot in a law-abiding society shattered the faith of the Germans, who wanted to believe that things were going to be all right. Rathenau's state funeral was a national trauma. The nervous citizens of the Ruhr were already getting their money out of the currency and into real goods -- diamonds, works of art, safe real estate. Now ordinary Germans began to get out of Marks and into real goods.

Pianos, wrote the British historian Adam Fergusson, were bought even by unmusical families. Sellers held back because the Mark was worth less every day. As prices went up, the amounts of currency demanded were greater, and the German Central Bank responded to the demands. Yet the ruling authorities did not see anything wrong. A leading financial newspaper said that the amounts of money in circulation were not excessively high. Dr. Rudolf Havenstein, the president of the Reichsbank (equivalent to the Federal Reserve) told an economics professor that he needed a new suit but wasn't going to buy one until prices came down.

Why did the German government not act to halt the inflation? It was a shaky, fragile government, especially after the assassination. The vengeful French sent their army into the Ruhr to enforce their demands for reparations, and the Germans were powerless to resist. More than inflation, the Germans feared unemployment. In 1919 Communists had tried to take over, and severe unemployment might give the Communists another chance. The great German industrial combines -- Krupp, Thyssen, Farben, Stinnes -- condoned the inflation and survived it well. A cheaper Mark, they reasoned, would make German goods cheap and easy to export, and they needed the export earnings to buy raw materials abroad. Inflation kept everyone working.

So the printing presses ran, and once they began to run, they were hard to stop. The price increases began to be dizzying. Menus in cafes could not be revised quickly enough. A student at Freiburg University ordered a cup of coffee at a cafe. The price on the menu was 5,000 Marks. He had two cups. When the bill came, it was for 14,000 Marks. "If you want to save money," he was told, "and you want two cups of coffee, you should order them both at the same time."

The presses of the Reichsbank could not keep up though they ran through the night. Individual cities and states began to issue their own money. Dr. Havenstein, the president of the Reichsbank, did not get his new suit. A factory worker described payday, which was every day at 11:00 a.m.: "At 11:00 in the morning a siren sounded, and everybody gathered in the factory forecourt, where a five-ton lorry was drawn up loaded brimful with paper money. The chief cashier and his assistants climbed up on top. They read out names and just threw out bundles of notes. As soon as you had caught one you made a dash for the nearest shop and bought just anything that was going." Teachers, paid at 10:00 a.m., brought their money to the playground, where relatives took the bundles and hurried off with them. Banks closed at 11:00 a.m.; the harried clerks went on strike.

The flight from currency that had begun with the buying of diamonds, gold, country houses, and antiques now extended to minor and almost useless items -- bric-a-brac, soap, hairpins. The law-abiding country crumbled into petty thievery. Copper pipes and brass armatures weren't safe. Gasoline was siphoned from cars. People bought things they didn't need and used them to barter -- a pair of shoes for a shirt, some crockery for coffee. Berlin had a "witches' Sabbath" atmosphere. Prostitutes of both sexes roamed the streets. Cocaine was the fashionable drug. In the cabarets the newly rich and their foreign friends could dance and spend money. Other reports noted that not all the young people had a bad time. Their parents had taught them to work and save, and that was clearly wrong, so they could spend money, enjoy themselves, and flout the old.

The publisher Leopold Ullstein wrote: "People just didn't understand what was happening. All the economic theory they had been taught didn't provide for the phenomenon. There was a feeling of utter dependence on anonymous powers -- almost as a primitive people believed in magic -- that somebody must be in the know, and that this small group of 'somebodies' must be a conspiracy."

When the 1,000-billion Mark note came out, few bothered to collect the change when they spent it. By November 1923, with one dollar equal to one trillion Marks, the breakdown was complete. The currency had lost meaning.

What happened immediately afterward is as fascinating as the Great Inflation itself. The tornado of the Mark inflation was succeeded by the "miracle of the Rentenmark." A new president took over the Reichsbank, Horace Greeley Hjalmar Schacht, who came by his first two names because of his father's admiration for an editor of the New York Tribune. The Rentenmark was not Schacht's idea, but he executed it, and as the Reichsbank president, he got the credit for it. For decades afterward he was able to maintain a reputation for financial wizardry. He became the architect of the financial prosperity brought by the Nazi party.

Obviously, though the currency was worthless, Germany was still a rich country -- with mines, farms, factories, forests. The backing for the Rentenmark was mortgages on the land and bonds on the factories, but that backing was a fiction; the factories and land couldn't be turned into cash or used abroad. Nine zeros were struck from the currency; that is, one Rentenmark was equal to one billion old Marks. The Germans wanted desperately to believe in the Rentenmark, and so they did. "I remember," said one Frau Barten of East Prussia, "the feeling of having just one Rentenmark to spend. I bought a small tin bread bin. Just to buy something that had a price tag for one Mark was so exciting."

All money is a matter of belief. Credit derives from Latin, credere, "to believe." Belief was there, the factories functioned, the farmers delivered their produce. The Central Bank kept the belief alive when it would not let even the government borrow further.

But although the country functioned again, the savings were never restored, nor were the values of hard work and decency that had accompanied the savings. There was a different temper in the country, a temper that Hitler would later exploit with diabolical talent. Thomas Mann wrote: "The market woman who without batting an eyelash demanded 100 million for an egg lost the capacity for surprise. And nothing that has happened since has been insane or cruel enough to surprise her."

update: restored the missing words in the title.

Not quite grasping the placebo concept

Marcus A. Winters writing in the Manhattan Institute's City Journal says:

The charters’ random-selection policy has allowed Hoxby’s team to evaluate them with a randomized field trial (RFT), the kind of experiment often described by social scientists as the “gold standard” in research design. RFTs resemble the clinical trials performed by pharmaceutical companies, which test a new drug by assembling a pool of subjects, randomly assigning subjects to receive either the drug or a placebo, and then comparing the subjects’ condition. Similarly, Hoxby took a pool of subjects (students applying to New York City charter schools); took advantage of the random nature of the lotteries, which assigned the subjects either to charters or to traditional public schools; and then compared their academic achievement. Because access to a charter school is the only meaningful difference between the two groups—both applied to charter schools, after all—comparing the groups’ later achievement really will tell us what effect charters have on student performance.

I've seen researchers and commentators ignore potential issues with open-label studies (see here and here for background), but Mr. Winters is the first not only to mention placebos but to compare them explicitly to public schools. At the risk of beating a man while he's down, the use of placebos is based on the assumption that knowing that you are being treated can and often does produce a "meaningful difference between the two groups."

Caroline Hoxby never mentioned placebos in this paper and I'm certain she would never suggest that being randomly assigned a public school is equivalent to receiving a placebo in a double blind test.

Unfortunately Dr. Hoxby is not the one writing the articles.

Not sure about this one...

John Judis is not someone you want to pick a fight with on the demographics of politics but I'm not sure he's made his case here (emphasis added):

The other telltale sign of Obama’s failure was the youth vote. Democratic victories in 2006 and 2008 very much depended upon increased support from and turnout among young voters. In 2008, Obama’s organization specifically targeted these voters. In this election, voters 18 to 29 again favored Democrats by a whopping 56 to 40 percent in House races. But they constituted only 11 percent of the electorate this year compared to 18 percent in 2008 House races and 12.5 percent in 2006. Obama and his political aides recognized that this was a problem, and in the last weeks of the election, tried to rouse these voters (hence all those campus rallies and the “Daily Show” appearance). But it was too late.

The natural comparison here seems to be with 2006 and the drop doesn't seem that big, particularly given anti-war issue (something that, even without the draft, would tend to skew by age) four years ago.

Any thoughts?

More on Health Care Efficiency

An update here on medical insurance with an inventory problem.

Depending on the condition being discussed, this can be a pretty serious matter and remedies are unclear. At the very least we are seeing the following as the solution:

1) Make a visit to an MD to get a prescription (cost of MD)

2) Visit a pharmacy and argue about insurance coverage (cost of administration)

3) Take much of a day off work (this is a cost to the employer via sick days or employee via needing to work longer hours to make up for this)

If these issues are frequent then the inventory control system is imposing a lot of costs on the system. Now, if this was a store (say Amazon) then it would be fighting to remedy these issues before it went bankrupt. But the lack of customer mobility is another area where Health Care is an unusual market.

"How much [math, literature, history, politics and music] do we really need?"

Last night I posted a long excerpt from G. V. Ramanathan's op-ed in the Washington Post. Though he made some valid points, I couldn't fully endorse the essay because of paragraphs like this:

Unlike literature, history, politics and music, math has little relevance to everyday life. That courses such as "Quantitative Reasoning" improve critical thinking is an unsubstantiated myth. All the mathematics one needs in real life can be learned in early years without much fuss. Most adults have no contact with math at work, nor do they curl up with an algebra book for relaxation.

There are two ways of looking at this, but whichever you pick, this analogy doesn't hold up.

First, we can view that what we learn as transferable. This view is consistent with my experience. I went from a BFA in creative writing to a master's in statistics and found that reading and writing about Shakespeare, Twain and Faulkner was good preparation for classes like experimental design and non-parametric methods. I have also found the reverse true: training as a statistician makes you a better critic.**

If problem solving, pattern recognition, logical thinking and other related skills can be transferred to a non-mathematical context then we can make an excellent for teaching more math (though probably not for the way we've been teaching it). If these skills aren't transferable, we can still make a case for math based on statistics and on spreadsheets (everyone has to deal with statistics as a citizen and consumer and every business I've seen could use at least one person who was good on Excel). We can no longer, however, make any kind of case for literature, history or music.

Let's start with literature. It is true that many people read books for enjoyment, but how much effect do literature classes have on what books people read after graduation? The adult recreational reading experience is largely independent of anything learned in school past eighth grade (working under the assumption that a proficient eighth grade reader should be able to handle most of the books people read for pleasure).

We keep teaching literature through high school and include it in the general ed requirements for college because we believe that what students learn in those classes is, to some degree, transferable. If you honestly believe that reading Macbeth does nothing but make you better at reading Elizabethan dialogue, there is no way to justify the waste of class time covering it.

The situation for history is even worse. You can at least make a reading-and-writing case for literature; barring the writing of erudite-sounding op-eds and blog posts, when's the last time you actually needed a historical fact? A few do occasionally come in handy for understanding current events, but the overwhelming majority have no conceivable value unless we assume that students are capable of transferring what they've learned about the long dead to questions regarding the living.

The case for music and art are strictly based on enrichment.

As for politics, I can't rebut this because I'm not sure what he's talking about. Other than a year of junior high civics, we don't really teach politics. We teach courses that are relevant to politics like history, economics and statistics, but the first one requires the students to generalize what they've learned and the last two require lots of you know what.

Professor Ramanathan makes some great points about the marketing of mathematics (read the whole thing) and I'm glad to see national attention brought to the question of what we should be teaching, but it's a complex and subtle question and the professor's Gordian approach isn't going to cut it.



* Along these lines, I did a couple of posts on economics and popular literature here and here and and a post on economics and film criticism here.

Ask your doctor if Sucrosa might be right for you

Unfortunately, this is just the sort of thing that won't be covered under Obamacare, so make sure to stock up.

FDA Approves Sale Of Prescription Placebo

September 17, 2003 | ISSUE 39•36

WASHINGTON, DC—After more than four decades of testing in tandem with other drugs, placebo gained approval for prescription use from the Food and Drug Administration Monday.

"For years, scientists have been aware of the effectiveness of placebo in treating a surprisingly wide range of conditions," said Dr. Jonathan Bergen of the FDA's Center for Drug Evaluation and Research. "It was time to provide doctors with this often highly effective option."

In its most common form, placebo is a white, crystalline substance of a sandy consistency, obtained from the evaporated juice of the Saccharum officinarum plant. The FDA has approved placebo in doses ranging from 1 to 40,000 milligrams.

...

Pain-sufferers like Margerite Kohler, who participated in a Sucrosa study in March, welcomed the FDA's approval.

"For years, I battled with strange headaches that surfaced during times of stress," Kohler said. "Doctors repeatedly turned me away empty-handed, or suggested that I try an over-the-counter pain reliever—as if that would be strong enough. Finally, I heard about Sucrosa. They said, 'This will work,' and it worked. The headaches are gone."

Researchers diagnosed Kohler with Random Occasional Nonspecific Pain and Discomfort Disorder (RONPDD), a minor but surprisingly pervasive medical condition that strikes otherwise healthy adults.

RONPDD is only one of many disorders for which placebo has proven effective, Bergen said.
...

"All placebos are not the same," Eli Lilly spokesman Giles French said. "Pacifex is the only placebo that's green and shaped like a triangle. Pacifex: A doctor gave it to you."

Despite such ringing endorsements, some members of the medical community have spoken out against placebo's approval, saying that the drug's wide range of side effects is a cause for concern.

"Yes, placebo has benefits, but studies link it to a hundred different side effects, from lower-back pain to erectile dysfunction to nausea," drug researcher Patrick Wheeler said. "Placebo wreaked havoc all over the body, with no rhyme or reason. Basically, whichever side effects were included on the questionnaire, we found in research subjects."

Added Wheeler: "We must not introduce placebo to the public until we pinpoint exactly how and why it works. The drug never should have advanced beyond the stage of animal testing, which, for some reason, was totally ineffective in determining its effectiveness."

In spite of the confusing data, drug makers say placebo is safe.

"The only side effect consistent in all test subjects was a negligible one—an almost imperceptible elevation in blood-glucose levels," French said. "It's unfair to the American people to withhold a drug so many of them desperately think they need."

Health Care

We haven't talked as much about Health Care lately, because I have been slammed by my first year of teaching. But I did want to highlight this post by Aaron Carroll:

You ready for this? They didn’t ship the medication. Why? It’s on back-order.

So explain this to me, awesome insurance system. You will only allow me to get my medication from one pharmacy, which is not local, and which you own and run. And you won’t send the medication early, which would provide a safe buffer. And then you run out of the medication. And then you don’t tell me until the day I run out. And then you don’t really tell me, you leave me a cryptic message on my voice mail that I would usually not be able to get until I arrive home and you are closed.

Will you allow me to go to another pharmacy? Sure. But you won’t cover it. Will you have the medication soon? Yeah, you hope to have it tomorrow.

I don’t believe you.

Do you have any concern – whatsoever – that I am without my medication for a period of time? That it’s entirely your fault?

I’m a model patient. I pay all my bills. I go to the doctor. I get the labs done. I refill the meds on time with a weeks’ advance. I follow the rules. And you screw me.

Are we really sure that the health care system in the United States meets the requirements for market efficiency*? Really?


* And, if you have not read the classic post by Mark Thoma then now is as good a time as any. Well worth the ten minutes to breeze through it and it is a very good way of evaluating whether a particular market is likely to be efficient.

More thoughts on Charter Schools

Mark quotes Diane Ravitch about the new film Waiting for Superman.

I think that these paragraphs really deserve some more discussion:

Geoffrey Canada is justly celebrated for the creation of the Harlem Children’s Zone, which not only runs two charter schools but surrounds children and their families with a broad array of social and medical services. Canada has a board of wealthy philanthropists and a very successful fund-raising apparatus. With assets of more than $200 million, his organization has no shortage of funds. Canada himself is currently paid $400,000 annually. For Guggenheim to praise Canada while also claiming that public schools don’t need any more money is bizarre. Canada’s charter schools get better results than nearby public schools serving impoverished students. If all inner-city schools had the same resources as his, they might get the same good results.

But contrary to the myth that Guggenheim propounds about “amazing results,” even Geoffrey Canada’s schools have many students who are not proficient. On the 2010 state tests, 60 percent of the fourth-grade students in one of his charter schools were not proficient in reading, nor were 50 percent in the other. It should be noted—and Guggenheim didn’t note it—that Canada kicked out his entire first class of middle school students when they didn’t get good enough test scores to satisfy his board of trustees

I note that the Harlem's Children's Zone seems to get only positive press in the blogosphere. Yet two facts here really seem to stand out. One, making the compensation structure that of a corporation is going to mean that we get advertising and not honest accounting of performance. A very high salary ($400,000 per year) and a corporation that lives or dies on profit does not incent actors to give a balanced view of the shortcomings of the corporation.

The second, and more damning, issue is that kicking out an entire class of students when their tests scores are low is guaranteed to ensure that Charter schools look better -- after all, the weak students have been ruthlessly removed. Anybody can look competent under this system.

This cuts to the heart of my discomfort with the charter school system. One of the most important issues facing American education is the drop-out of vulnerable students. Charter schools that are willing to remove poorly preforming students for reasons of "optics" cannot, in aggregate, improve this situation.

[Mark has already extensively documented other concerns with interpreting charter school performance]

Nervous Nate -- why timidity at FiveThirtyEight is a sign of professionalism

I've been working on an article on educational statistics. One of the major themes is the way statisticians should handle research when they don't have much faith in the results. This is not quite the same as the way Bayesians assign weights to beliefs but it's not all that different. Us poor, simple frequentist-folk approach the problem in an informal way and try to present our results with sufficient caveats that the listeners will understand that we may have a small p-value but that doesn't mean we'd bet the farm.

As I was working on that part of the article, I was struck by how Nate Silver was doing exactly what I was describing, pointing out the factors that could throw his forecasts off, reminding people that in this election, more than most, anything could happen.

That's one of the reason's Silver is the gold standard* in the field.





* Sorry, I just couldn't help myself.

An excellent Maxine Udall post

Really good stuff (via guess who):

In 1940, Howard Florey and Ernst Chain, at Oxford University, produced enough stable chemical from a mold, penicillium, to test on mice infected with streptococcus. Of eight infected, 4 were treated and recovered rapidly. "Eureka!," you say. "The rest is history, yes?"

Well, no. Not quite.

Florey and a colleague packed up their penicillin and their results and took them to major pharmaceutical companies in the UK, the US, and Canada. None wanted to invest the capital in scaling it for production, mainly because there were signs that bacteria were becoming resistant to the sulfa drugs they were already manufacturing. Even if penicillin were effective for a while, it would eventually become ineffective and demand would dwindle. Where's the profit in that, they rightly asked?

So how did we the people get penicillin (and the many subsequent antibiotics that repeatedly haul us back from the brink of death, bronchitis, and septicemia)? The US government stepped in. The US military pushed a bit on this. After all, who better to sense on the eve of war the potential gains from a new antibiotic? Roughly half of all deaths in at least one previous war had been from infection.

It was a group of government scientists at the US Department of Agriculture who scaled production and increased the drug's efficacy four-fold. And in record time. Imagine. Guvmint scientists produced something quickly, efficiently, and made it (and us) better.

I know what you're thinking. You're thinking that surely now, after the US government and the US taxpayers had volunteered the start up costs, the drugs manufacturers must have agreed to produce it, yes? By the time it had been scaled, it was more apparent than ever that the US might be drawn into a major world war. The military wanted it. Surely an appeal to patriotic duty would move them?

No. I'm afraid not. Not until George Merck, CEO of Merck & Company, agreed to do it and persuaded the heads of several other manufacturers to join him. "Medicine is for people, not for profits," George said.

"How much math do we really need?"

I disagree with a fair chunk of this, but it's worth reading:

Twenty-seven years have passed since the publication of the report "A Nation at Risk," which warned of dire consequences if we did not reform our educational system. This report, not unlike the Sputnik scare of the 1950s, offered tremendous opportunities to universities and colleges to create and sell mathematics education programs.

Unfortunately, the marketing of math has become similar to the marketing of creams to whiten teeth, gels to grow hair and regimens to build a beautiful body.

There are three steps to this kind of aggressive marketing. The first is to convince people that white teeth, a full head of hair and a sculpted physique are essential to a good life. The second is to embarrass those who do not possess them. The third is to make people think that, since a good life is their right, they must buy these products.

So it is with math education. A lot of effort and money has been spent to make mathematics seem essential to everybody's daily life. There are even calculus textbooks showing how to calculate -- I am not making this up and in fact I taught from such a book -- the rate at which the fluid level in a martini glass will go down, assuming, of course, that one sips differentiably. Elementary math books have to be stuffed with such contrived applications; otherwise they won't be published.

You can see attempts at embarrassing the public in popular books written by mathematicians bemoaning the innumeracy of common folk and how it is supposed to be costing billions; books about how mathematicians have a more clever way of reading the newspaper than the masses; and studies purportedly showing how much dumber our kids are than those in Europe and Asia.

As for the third, even people who used to proudly proclaim their mathematical innocence do not wish to abridge the rights of their children to a good life. They now participate in family math and send the kids to math camps, convinced that the path to good citizenship is through math.

We need to ask two questions. First, how effective are these educational creams and gels? With generous government grants over the past 25 years, countless courses and conferences have been invented and books written on how to teach teachers to teach. But where is the evidence that these efforts have helped students? A 2008 review by the Education Department found that the nation is at "greater risk now" than it was in 1983, and the National Assessment of Educational Progress math scores for 17-year-olds have remained stagnant since the 1980s.

The second question is more fundamental: How much math do you really need in everyday life? Ask yourself that -- and also the next 10 people you meet, say, your plumber, your lawyer, your grocer, your mechanic, your physician or even a math teacher.

Unlike literature, history, politics and music, math has little relevance to everyday life. That courses such as "Quantitative Reasoning" improve critical thinking is an unsubstantiated myth. All the mathematics one needs in real life can be learned in early years without much fuss. Most adults have no contact with math at work, nor do they curl up with an algebra book for relaxation.

Diane Ravitch vs. "Superman"

There are few places where the divide in the educational debate between popular perception reality is as depressing as the reaction to Waiting for Superman. Here Diane Ravitch (whose resume includes the first Bush administration and the Hoover Institute) lists some of the distortions, omissions and factual errors.

More on this later.

"The Freakonomics Fallacy"

From an excellent post by Barbara Kiviat (pay close attention to the last sentence):

There’s been some interesting discussion in response to my earlier post about why we expect too much from economists, although a lot of the comments miss my larger point. What I was trying to say is that economics might not entirely be up to the task of explaining what we generally consider to be economic phenomena because we are overconfident about what the discipline has the ability to account for. You might call this the Freakonomics Fallacy. Whatever it is in the world we are trying to explain—crime, climate change, test scores—economics has the answer.

If this isn’t in fact true, then why would we think it? Again, to underscore a part of my earlier argument that I probably didn’t make forcefully enough: we think economics has all the answers because economics has become our major mode of understanding the social world around us. Charities are social businesses. Policy makers are cost-benefit analyzers. Education is a market.

This has not always been the case. In earlier eras, we were often more likely to understand human behavior and social dynamics through other prisms, such as political science, sociology, psychology, anthropology or biology. Indeed, for better or for worse, many of these fields took a turn being the dominant social science. I’m not saying that one frame gives a more accurate or useful picture of the world than another. Just that each leads to a different way of understanding why things happen the way they do because each comes with its own set of assumptions and simplifications.

You can see my thoughts on the subject here.

Children and Placebos

From:

Greater Response to Placebo in Children Than in Adults: A Systematic Review and Meta-Analysis in Drug-Resistant Partial Epilepsy

(published in PLoS Medicine)

The researchers searched the literature for reports of RCTs on the effects of antiepileptic drugs in the add-on treatment of drug-resistant partial epilepsy in children and in adults—that is, trials that compared the effects of giving an additional antiepileptic drug with those of giving a placebo by asking what fraction of patients given each treatment had a 50% reduction in seizure frequency during the treatment period compared to a baseline period (the “50% responder rate”). This “systematic review” yielded 32 RCTs, including five pediatric RCTs. The researchers then compared the treatment effect (the ratio of the 50% responder rate in the treatment arm to the placebo arm) in the two age groups using a statistical approach called “meta-analysis” to pool the results of these studies. The treatment effect, they report, was significantly lower in children than in adults. Further analysis indicated that this difference was because more children than adults responded to the placebo. Nearly 1 in 5 children had a 50% reduction in seizure rate when given a placebo compared to only 1 in 10 adults. About a third of both children and adults had a 50% reduction in seizure rate when given antiepileptic drugs.

...

These findings, although limited by the small number of pediatric trials done so far, suggest that children with drug-resistant partial epilepsy respond more strongly in RCTs to placebo than adults. Although additional studies need to be done to find an explanation for this observation and to discover whether anything similar occurs in other conditions, this difference between children and adults should be taken into account in the design of future pediatric trials on the effects of antiepileptic drugs, and possibly drugs for other conditions. Specifically, to reduce the risk of false-negative results, this finding suggests that it might be necessary to increase the size of future pediatric trials to ensure that the trials have enough power to discover effects of the drugs tested, if they exist.

Of course, with open-label experiments, this should lead to false positives.

And a final word on the subject from America's most successful philosophy major

But I quit that! I've quit ALL drugs. Well... let me say one thing: I twisted my ankle this morning, and I was in quite a bit of pain... so I went to the doctor, and I asked him to give me some pain pills. And he didn't want to do it, but I talked him into it. So he gave me some pills -- and I shouldn't have done this, but I took some about an hour before the show tonight, and right now... I am high... as a KITE! I mean, it is unbelievable! And I would NEVER say this to you people, but, in this case: if you EVER get a chance, to take these drugs... DO IT! They're called... [ he glances from side-to-side cautiously ] Placebos! I mean, I'm thinking that right now I have NO idea where I am at all! It is WILD! [in a hushed voice] PLUH-SEE-BO!

Steve Martin on SNL

Placebos

This is relevant to Mark's posts on how comparisons between students who win and lose charter school lotteries are similar to open label drug trials. Andrew Gelman quotes Kaiser Fung stating that (in drug trials) the standard comparison is:

Effect on treatment group = Effect of the drug + effect of belief in being treated
Effect on placebo group = Effect of belief in being treated

I think that the mathematical formulation of Mark's concern about using charter school lotteries as follows:

Effect in charter school group = Effect of the charter school intervention + effect of belief in being treated + baseline

Effect on students in standard schools = baseline - (any discouragement effect from losing the lottery)

So if the effect in the charter school students is greater than that in students who lose the lottery and are placed in standard schools, that skill doesn't separate the two sources of variation (placebo versus innate effect of the intervention).

The real test would be to introduce some sort of placebo intervention (a charter school that used standard educational approaches??). But that is not an easy thing to accomplish, for obvious reasons. I suspect that this is why psychologists end up having to use deception as part of their studies, despite the ethical quagmires this produces.

UPDATE: missing link fixed