Model assumptions

Felix Salmon and Matt Yglesias:

The entire debate in congress over taxes is that President Obama wants to restore the top marginal rate to the level that Dimon thinks it already is. Meanwhile, Dimon doesn’t even know what tax rate he pays.

I think that this quote is really, really important. Classical economic models presume that individuals act to maximize their utility. But real people often have limitations, including lack of perfect information about what costs really are. I would be surprised if Mark did not have follow-up thoughts.

But the key point is that if these assumptions about informed persons can't hold for the CEO of JP Morgan Chase (whom you would assume is numerate) then how likely is that these models are going to be good at prediction? After all, we presume Jamie Dimon is maximizing his utility for a 39.6% marginal tax rate; so a change in taxes to what he currently thinks that they already are would alter his incentives how?

Quote of the day

However, one view of pure research is that it is research that has not yet found application; pure research is a long-term investment just as applied research is a short-term investment.

M.F. Goodchild
"Geographical Information Science"

Defined Contribution Health Insurance

Via Austin Frakt, there is an interesting piece on defined contribution health insurance. It is an interesting idea and likely not a bad policy direction. I know I would contribute more to my health saving account if the balance could roll over. But, as things are currently set up, it is impossible to plan against a major medical event.

I think that it might be useful to consider this model with some tweaks. Essential to making it work is to include catastrophic event coverage (major medical insurance). Patients will not go out of their way to have heart attacks, stroke, and major cancers just to take advantage of their health care insurance. These events are what really create the "risk" (and thus insurance) part of health care.

Otherwise, it is actually plausible for people to budget for health care expenses and tax sheltered accounts might be a great transition move.

Eating Eric Roberts

I've spent half my life in small town and rural America, so I have a pretty good feel for just how big a role the postal service plays in many people's lives. And it's not just in the country. There are millions of others who depend on the mail, housebound seniors, the unbanked, people left behind by the internet age. (To say nothing of the businesses that rely on the service and the benefit we all get as a society from being able to get documents and packages to anyone in this country.)

I don't see a lot of concern about these people, not from the pundits and certainly not from Patrick Donahoe, the U.S. Postmaster General, who seems to view himself as a consultant brought in to smoothly dismantle the institution rather than a leader appointed to represent its interests.

And (because my mind works in strange ways) that got me thinking about the South Park episode where members of the town are trapped by a storm and decide to eat visiting celebrity Eric Roberts. What makes the bit so inspired is how quickly and casually the townspeople descend to the last resort, arguing that they could be there for hours and that some of them had skipped breakfast.

I see similar reasoning in this debate. We have jumped to the extreme measures (having mass layoffs, slowing down first class mail, closing small town post offices) when there are simpler, far less painful steps that can usually be achieved just by loosening some of the highly restrictive rules that hobble the USPS:

Allow pricing a little closer to what the market would bear. Even after a twenty percent jump, postal rates would still be a good deal;

(From Andrew Gelman) Round prices up to the nearest round number (would anyone really mind paying forty-five or even fifty cents instead of the current forty-four?);

(From Felix Salmon) Allow the post office to offer a wider range of products and services;

End Saturday delivery (not my favorite, but less drastic than much of what's been suggested);

And finally, remind congress that since they passed all these rules effectively preventing the service from turning a profit and storing money away in good times they should take responsibility when times turn bad.

I realize that at some point drastic steps may be necessary, but I don't see why they always have to be our default option.

Your tuition dollars at work

Remember, when we underwrite student loans for private schools, we subsidize this:

SIEGEL: So, who would be the highest paying university president who remained in place?

STRIPLING: That would be Nicholas Zeppos, who's the president of Vanderbilt University. He collected just under $1.9 million for the 2009 calendar year.

SIEGEL: And there's another measure used, you say, which is this year you also compared university presidents' pay to the pay of professors on their campuses. What did you find?

STRIPLING: Well, we found that, by and large, most presidents make about three and a half times that of full professors on their campus. At the same time, we found six institutions where presidents made more than 10 times that of professors on their campus. The biggest disparity was at Stevenson University in Maryland, where Kevin Manning made 16 times that of professors on this campus.

A big part of that was a deferred compensation payout that he received in 2009. But, at the same time, even if you looked at him in the year prior, he still made seven times that of professors on his campus, which was considerably greater than the median.

Agendas

I think that this is correct:

Less honest single-payer advocates ignore the issue entirely. More honest and thoughtful single-payer advocates sometimes address it by talking about central planning, global budgets, and transition away from any fee-for-service care. They also talk about moving to an all-non-profit-facility delivery system. And if you think single-payer is unpopular now, wait until people start hearing about those things.

I get why many on the right are uncomfortable with this. There are days I am, too. But I’ll concede one point: if Medicare is so awesome for people age 65 and up, why is it socialism for someone who’s 64?

I, of course, like the plan of going for central planning, global budgets with competitions between treatments based on QALY's, reducing or eliminating fee for service, and see all non-profits in medicine as a great idea. It would do wonders for efficiency and make medical care widely available. It would also do very bad things to people currently invested in health care.

Trying to find a way to compromise on this front is a hard issue. Unlike Dr. Carroll, I think a discussion of end state is important even if it is not a politically feasible option (as it is good to have the end state out and in the public debate). We could lose the debate, but better to lose a debate (this is a democracy and not all policy ideas are going to be implemented) than to try (or appear to try) to sneak an long term agenda in under the radar.

That way there can be an evidence based debate on the issues. So I think that this is a good focus point for those of us thinking single payer -- we need to really lay our cards on the table and explain the totality of why we think that it would be an objective improvement. That way we present a hypothesis against which evidence can be applied and political will gauged.

Cascading failure

"A cascading failure is a failure in a system of interconnected parts in which the failure of a part can trigger the failure of successive parts."

Wikipedia

Here's Paul Krugman again railing against the cult of balance:

All indications are, however, that Campaign 2012 will make Campaign 2000 look like a model of truthfulness. And all indications are that the press won’t know what to do — or, worse, that they will know what to do, which is act as stenographers and refuse to tell readers and listeners when candidates lie. Because to do otherwise when the parties aren’t equally at fault — and they won’t be — would be “biased”.

This will be true even of those news organizations specifically charged with fact-checking. Yes, they’ll call out some lies — but they’ll also claim that some perfectly reasonable statements are lies, in order to keep their precious balance. This is already happening: as Igor Volsky points out, one of the finalists for Politifact’s Lie of the Year is a Democratic claim — that Republicans want to abolish Medicare — that happens to be entirely true.

While Bruce Bartlett discusses how reliable sources of information have been dismantled because they've been politically inconvenient:

In addition to decimating committee budgets, he also abolished two really useful Congressional agencies, the Office of Technology Assessment and the Advisory Commission on Intergovernmental Relations. The former brought high-level scientific expertise to bear on legislative issues and the latter gave state and local governments an important voice in Congressional deliberations.

The amount of money involved was trivial even in terms of Congress’s budget. Mr. Gingrich’s real purpose was to centralize power in the speaker’s office, which was staffed with young right-wing zealots who followed his orders without question. Lacking the staff resources to challenge Mr. Gingrich, the committees could offer no resistance and his agenda was simply rubber-stamped.

Unfortunately, Gingrichism lives on. Republican Congressional leaders continually criticize every Congressional agency that stands in their way. In addition to the C.B.O., one often hears attacks on the Congressional Research Service, the Joint Committee on Taxation and the Government Accountability Office.

Lately, the G.A.O. has been the prime target. Appropriators are cutting its budget by $42 million, forcing furloughs and cutbacks in investigations that identify billions of dollars in savings yearly. So misguided is this effort that Senator Tom Coburn, Republican of Oklahoma and one of the most conservative members of Congress, came to the agency’s defense.

And Andrew Gelman (and countless others) have pointed out numerous cases that suggest there is no real consequence when a journalist doesn't bother to get even the most basic and easily-checked facts right.

I don't want to push this analogy too far -- there are some important dissimilarities -- but all sorts of failures have grown more common in what you might call our feedback system, the channels we use to get the information we, as a democracy, need to make informed collective decisions. Worse yet, these failures have the potential to trigger and intensify each other, leading to catastrophic results.

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 these things are serious. All are getting worse. And if we don't do something about them, I think we're all pretty much screwed.

p.s. I added a link to number 4

What fictional character has been worst served by his or her movie adaptation?

Here's my nominee.

Student Loans: a continuing series

This is a really depressing story about how devastating referrals are in modern student loans:

Notice anything?

Original balance: $37,099.00

Current balance: $35, 908. 41

I’ve been in repayment since 2006. I had to do one deferral – as to not default. I signed up for a program to minimize my payments that, I was told, was beneficial to someone who is going through financial difficulties – yet I regularly made payments over the minimum payment.

Because Sallie Mae helpfully provides a payment history, I was able to whip out a calculator and count up the exact amount I have paid over these last few years.

That amount is $23, 449.65

The penalties are pretty spectacular for needing to defer the loans. After 5 years of repayment, Ms. Antonova paid 50% of the starting balance of the loans. Presuming that she is being honest, the effective interest rate on this loan beats that of unsecured debt. Is this really a sustainable pattern? Do the "no bankruptcy provisions" not reduce the risk of the debt and suggest more moderate effective interest rates.

If we consider this in light of the "risk-free" borrowing rate (TIPS are now 0.2%) then an inflation adjusted loan at such rates should be 50% gone already. Why are rates not reflecting the new reality of how hard it is to be forgiven your student loans?

Also germane to Mark's recent post, there is an ant/grasshopper dichotomy here as well:

We have a myth of the “deserving poor” in our culture – it’s similar to the myth of the “good rape victim.” But like most people living real lives, I have my financial ups and downs. I’ve all sorts of things these last few years: walking people’s dogs for grocery money, sitting in a cafe in Chelsea, drinking a glass of moderately priced champagne and asking the readers of this blog for Paypal donations.

As a writer and journalist, I supplement my income with freelance writing gigs, much like my director husband supplements his with acting gigs. All of that together makes up our family budget. When the gigs dry up, so does the money going towards my loans. We’ve been chasing more work, but as the economy continues to suffer, and the cost of living goes up while jobs evaporate, people like us end up competing for jobs that barely exist.

Now it is true that some people manage to graduate with degrees and without debts. In many cases, they have families who made huge sacrifices in order to make this happen -- they feel like they avoided a debt trap through virtue. But the plain truth is that a lot of young Americans can pick between college (and bankruptcy proof, high interest debt) or questions about "why didn't you go to college"?

If we walked back and asked if education is a public good, that would be a good step. I don't want to spur a false dichotomy, but we have the highest rate of incarceration in the world in the United States. That isn't free, either. Are we sure that we have our priorities correct?

h/t: Erik Loomis

I happen to like handles on my coffee cups

Other than that, though, I pretty much agreed with everything Thomas Hayden had to say in this interview about 'crap technology,' devices with "no cachet but all the functionality you'll need."

And yes, I listened to the interview on a Coby media player. It's more than a year old, cost me twenty-four bucks and I also watch videos on it when I'm at the gym.

More "moral" economics via Chait

While we're on the subject...

One of the really insidious things about the ant-and-the-grasshopper view of the European crisis is the way that the conflicting facts have been revised and the revisions have gone directly into the conventional wisdom. Jonathan Chait has a recent example:

David Brooks today devotes his column on Europe to the familiar conservative morality tale, in which the European countries in trouble are paying the price for their slothful, profligate ways:

Over the past few decades, several European nations, like Germany and the Netherlands, have played by the rules and practiced good governance. They have lived within their means, undertaken painful reforms, enhanced their competitiveness and reinforced good values. Now they are being brutally browbeaten for not wanting to bail out nations like Greece, Italy and Spain, which did not do these things, which instead borrowed huge amounts of money that they are choosing not to repay.

Does anybody else on the Times op-ed page care to rebut this? Perhaps somebody who has glanced at the relevant data? Yes, you there, the bearded man with the Nobel Prize in economics:

How did things go so wrong? The answer you hear all the time is that the euro crisis was caused by fiscal irresponsibility. Turn on your TV and you’re very likely to find some pundit declaring that if America doesn’t slash spending we’ll end up like Greece. Greeeeeece!

But the truth is nearly the opposite. …

Only Greece ran large budget deficits during the good years; Spain actually had a surplus on the eve of the crisis.

On his blog, Krugman also has a chart showing that Italy and Spain both had shrinking debts as a percentage of GDP in the dozen years before the crisis.

Perhaps the most remarkable thing about this is the fact that Krugman and numerous other economists have been trying to correct these mistakes for a long time, often in prominent forums, and yet even normally reliable sources like Marketplace nonchalantly refer to the profligacy of Spain and Ireland alnog with that of Greece as established facts.

It's funny. In a debate that focuses so much on virtue and personal responsibility, so little attention is given to dishonest arguments and professional negligence.

Economics and Morality

I have noticed a rather poisonous idea that is starting to get noticed -- the link between moral virtue and economic success. Consider these two points below.

Matt Yglesias:

To be clear, I don't think we're looking at hypocrisy exactly. Instead it goes back to the preference for morality tales. Whoever is up at the moment must be up because of their greater moral virtues. I seem to have somehow missed the conservative articles lauding Germany and the Netherlands from back four or five years ago. Instead at the time I was reading lots of stories about the triumph of the Celtic Tiger, the genius of the flat tax in the Baltic states, articles praising Silvio Berlusconi and so forth. Certainly at no point during the Bush administration was there a lot of talk in the right-wing press about the evils of household debt, the overwhelming merits of current account surpluses, or any of the rest of it.

Andrew Gelman:\

Nothing here about “hardworking” or “virtuous.” In a meritocracy, you can be as hardworking as John Kruk or as virtuous as Kobe Bryant and you’ll still get ahead—if you have the talent and achievement. Throwing in “hardworking” and “virtuous” seems to me to an attempt (unconscious, I expect) to retroactively assign moral standing to the winners in an economic race.

The reason that I consider this to be a poisonous idea is that distracts us from the actual moral actions of the people involved. I'd consider the "all bosses are bad" to be an equally poisonous notion. Painting a social class with either virtue or vice is likely to distort thinking and policy in bad ways.

Economic success is good; we all like living in a world where utility is maximized. But I'd thought the linking of material success to moral virtue (consider the finale of the story of Job) had gone out of style. Instead we live in a world where people with significant moral failing (think Steve Jobs) can still contribute to economic success.

Linking these two concepts interferes with assisting the economic losers as it tends to attach the stigma of blame. This is not to say that hard work may not correlate with economic success but that it is important to remember that hard work does not necessarily lead to economic success.

Just ask a medieval serf!

"So crazy it just might work"

Another strong effort from This American Life with all the superlatives that normally apply, but this one is of special interest to the kind of people who would read a blog called Observational Epidemiology. It describes an unlikely collaboration between a cancer researcher and a layman who claimed to have more or less invented a cure for cancer in his garage. The story lays out in painful detail how differently a scientist and a non-scientist see problems, even when they seem to be in agreement.

You can listen for free but I'd strongly recommend sending them a few bucks in appreciation.

Act One, Mr. Holland's Opus. OK, true story. A guy goes to college on a music scholarship. And then afterwards, he ends up going into science. And he becomes a cancer researcher. His name is Jon Brody. And 19 years after graduating, Jon is invited back to his old college to give a talk about his work. And the speech he gives is mainly about how important it's been in his research to think outside the box, to use an overused phrase. To think outside the box, to be ready to turn away from what's familiar and try some new idea.

And then after his speech, Jon is approached by his old orchestra teacher, a guy named Anthony Holland. And Professor Holland, to Jon's great surprise, says, "Speaking of thinking outside the box, I've actually been working on an experiment for a few years that I'd like to show you. Come look at this video. I think you'll find it very interesting." So what could Jon do? He'd just actually given a whole talk about keeping an open mind.

What resulted from this was the kind of scientific collaboration that almost never, ever happens-- a serious cancer researcher teaming up with an amateur to try to make a breakthrough. Gabriel Rhodes is a documentary filmmaker. And he's been following the story from the beginning, back when Jon watched that video.

Intellectual Property

Apple appears to be suing as part of its business plan:

Apple makes great products, but you wouldn’t know it from the way it’s attacking Samsung. Rather than let the marketplace decide whose products are better, Apple wants the courts to decide. Specifically, Apple is slugging it out with Samsung in a minimum of 19 lawsuits in 12 courts in nine countries on four continents.

Let that sink in for a minute. Apple is trying to use intellectual property law as a bludgeon around the world to protect its sales.

I think that we need to think carefully about what these laws exist to do and to promote. Apple is a profitable and successful company even with competitors. It might well be less profitable and successful if competitors could not enter into it's space. Imagine if the basic functionality of the telephone (talking remotely to people) was under patent. What would be the incentive for innovation?

Intellectual property is a very slippery idea; the gap between compensating for innovation and creating rent-seeking behavior seems razor thin.

Emotionally an eight-year old

An enormously revealing (bordering on the delusional) response from Washington Post reporter Paul Kane. The questioner said that there was " no factual basis" for a claim that Kane and his colleagues made. This charge was part of a larger widely-circulated accusation that Kane and co. have repeatedly distorted their coverage to maintain a comfortable narrative and avoid the blowback that inevitably follows when you hold powerful people responsible for their actions.

Kane is familiar with these accusations (he's the one who brings up the subject) and it's clearly a sore point, because when he hears the question he angrily... Well, I'm not sure what the hell he does but he certainly does it angrily.

Q. (IM)MORAL EQUIVALENCE

Paul, I'm guessing you won't be sympathetic to the following point, but I'll put it out there anyway. Most reporting on the supercommittee--like most reporting on the deficit--reflects an acceptance of a basic fallacy. Whenever there is an impasse, there seems to be a desire to blame both sides equally, on the theory that if only Democrats would concede more, Republicans would reciprocate (all evidence to the contrary notwithstanding). Yes, Democrats have drawn lines in the sand, but as Greg Sargent and other commentators have documented, when you compare the specifics, there is no factual basis for blaming both parties equally. So my question is, why does the Post's coverage do so anyway, either explicitly or implicitly?
– November 21, 2011 11:48 AM

A. PAUL KANE:

Yeah, you're right. I think this point is just absurd and ridiculous. This is a big thing among folks calling it "moral equivalence" (Fallows, Ornstein) and others calling it the "cult of balance" (Krugman).

It's just stupid. If you want someone to tell you that Republicans stink, read opinion pages. Read blogs. Also, the underlying sentiment on the left is that this is the real reason why things went wrong in 2010: That the mainstream media is to blame. Sorry, I think that's the sorta head-in-sand outlook that leads to longer term problems for a movement.

Greg is a fine writer. He's an opinion writer, in the opinion section of the web site. I encourage you to keep reading him. And I encourage you to keep reading the news coverage, which should always strive to present both sides of the story. If you really don't want to hear anything about the other side of the story, I really do encourage you to stop reading the news section.

You'll notice he never says "I never implied that both sides were equally to blame." or "Both sides are equally to blame." Instead he calls the complaints 'stupid' and says that if people don't like his rules they can just go home.

Kane's stunted emotional development might be amusing if not for the bigger story. I'll try to come back later and flesh the following out but here is the need-to-get-to-bed version.

Our ability to have a productive public discourse has been eaten away by this and other problems including:

a decline in standards of accuracy;

undermining of authoritative sources like the CBO;

subsidized debate by partisan foundations;

an increased use of press releases as news and a tendency of journalists to simply print what they're told;

coziness with subjects;

more and more groupthink.

As someone who likes the idea of a democracy, these things scare the hell out of me.