Wednesday, April 29, 2009

Real economics of quality health care

Paul McBride, VP at Wellpoint (and my brother!), speaks here about health care at the Milken Instistute Global Conference (he's third from the left on the panel).  He says the core problem is that as a society we've been too concerned about the incentives of producers while we largely absolve consumers of their responsibility.  I couldn't agree more.  

I would also add that medicine is probably doomed to inefficiency in this country and around the world.  The main problem is that cost-benefit analysis has very real limits when applied to life and death issues.  What's the price of life?  This is a moral question more than an economic question.  Hence, we have the hippocratic oath, the inability to let go of granny, the need to show that we care and that our care does not depend on price, and a good deal of religious belief in the power of medicine.  Yes, we can make progress on certain margins, such as breaking up the AMA's monopoly of labor supply, but overall it's a tough row to hoe.  Good luck, brother.

Addendum: The LA Times wrote a piece about it, particularly discussing how health care tourism is going mainstream.  A bunch of commenters think this is somehow unjust.  These are my comments:

It's called competition. It highlights how non-competitive the medical industry in the US has become. Blame the AMA, and their government enablers, for limiting the supply of doctors. Blame the FDA for limiting the supply of drugs. Don't blame capitalism, or competition.

Wednesday, April 22, 2009

UK once again the poor man of Europe?

Britain's budget deficit will soar to a record 175 billion pounds as the economy shrinks at its fastest pace since World War Two this year, British finance minister Alistair Darling said on Wednesday.

To help bridge the yawning gap, Darling will slap a new 50 percent tax rate on the highest earners but the government will still have to issue a record 220 billion pounds of government bonds, way above even the highest forecasts.

Nowhere is this cycle more evident than in Spain. Last month, it became the first of the 16 nations that use the euro to record a negative inflation rate. The drop, though just 0.1 percent, had not happened since the government began tracking inflation in 1961, and Spanish officials have said prices could keep dropping through the summer.

Some of the decline came as volatile food prices sank; the cost of fish fell 6.2 percent, and sugar was down 5.7 percent. But even prices in normally stable sectors like drugs and medical treatments fell 0.7 percent in March, and there were slight declines in footwear, clothing and prices for household electronics.


While unemployment traditionally is higher in Spain than in much of Europe, the sharp increase has many here nervous. The jobless rate for those under 25 is at a Depression-like level of 31.8 percent, the highest among the 27 nations of the European Union.

I can remember someone telling me about 10 years ago that real estate would be cheap in Europe in 15 years (5 years from now).  I think he relied on demographics for that prediction.

Addendum: IMF predictions.

Saturday, April 18, 2009

Vernon Smith explains Austrian Business Cycle Theory, without using the word Austrian

Don't know how I missed his
article in the WSJ two weeks ago, but as always it's right on the money, so to speak:

Monetary policy, mortgage finance, relaxed lending standards, and tax-free capital gains provided astonishing economic stimulus: Mortgage loan originations increased an average of 56% per year for three years -- from $1.05 trillion in 2000 to $3.95 trillion in 2003!

By the time the Federal Reserve began to slowly raise the fed-funds rate in May 2004, the Case-Shiller 20-city composite index had increased 15.4% during the previous 12 months. Yet the housing portion of the CPI for those same 12 months rose only 2.4%.

How could this happen? In 1983, the Bureau of Labor Statistics began to use rental equivalence for homeowner-occupied units instead of direct home-ownership costs. Between 1983 and 1996, the price-to-rental ratio increased from 19.0 to 20.2, so the change had little effect on measured inflation: The CPI underestimated inflation by about 0.1 percentage point per year during this period. Between 1999 and 2006, the price-to-rent ratio shot up from 20.8 to 32.3.

The graphs comparing the last three real estate bubbles and the fed funds rate are compelling evidence that the Fed cannot escape blame.  

While I've always been a little skeptical of Austrian Business Cycle Theory, i.e. bubbles are created by the Fed's easy money policies, I've never been able to make much sense of the critiques.  TullockCowen, and Krugman start and end with, what to me are absurd, neo-classical rationalist assumptions, namely that a) investors but not consumers are effected by interest rates, b) these two types are easily distinguished and do not effect each other, and c) investors are but a small minority of the economy.  They believe too much in the models.  Here's Tullock:

The end result of all of this is that we would anticipate that in an Austrian-style depression, there would be a good deal of unemployment in the capital goods industries, but this is, after all, a small part of the total industrial picture. Of course, such industries would not be able to buy as much in the way of consumer goods as they would otherwise, and this would add to the fall in prices which would have to be absorbed by other industries. Indeed, it would increase the bankruptcy rate. Because of the size of the capital goods industries compared to the rest of the economy, however, the forcing down of prices in other industries made necessary by this unemployment would once again cause bankruptcies but not unemployment. 

You're telling me the capital goods industries do not to some significant degree include or effect home owners or stock owners, or that either group constitutes a minority in the US?

Here is additional support for the Austrians. 

Wednesday, April 15, 2009

FDIC or Louis Sullivan

This is the tradeoff, according to Scott Sumner:

Just imagine how fortunate the residents of Owatonna, Minnesota are, as they get to walk by this pre-FDIC bank building everyday (also see here.)  I’m not saying that modestly reducing the FDIC coverage will revive the architectural fashions of the early 1900s, but if it produces buildings even 1/10th as beautiful as Sullivan’s masterpiece, then it will have been worthwhile.

Why be modest?

Thursday, April 9, 2009

Obama takes on immigration

Opponents of legalization legislation were incredulous at the idea that Mr. Obama would take on immigration when economic pain for Americans is so widespread.

“It just doesn’t seem rational that any political leader would say, let’s give millions of foreign workers permanent access to U.S. jobs when we have millions of Americans looking for jobs,” said Roy Beck, executive director of NumbersUSA, a group that favors reduced immigration. Mr. Beck predicted that Mr. Obama would face “an explosion” if he proceeded this year.

“It’s going to be, ‘You’re letting them keep that job, when I could have that job,’ ” he said.

This is the problem with focusing on full employment exclusively.  We should also be focusing on how we are going to fill all those empty suburban houses.  And on whether or not you like tacos and cheap labor.

Read the rest here.

Move the voting age to 30?

Or maybe we just need to better teach better economics:

Adults under 30 are essentially evenly divided: 37% prefer capitalism, 33% socialism, and 30% are undecided. Thirty-somethings are a bit more supportive of the free-enterprise approach with 49% for capitalism and 26% for socialism. Adults over 40 strongly favor capitalism, and just 13% of those older Americans believe socialism is better.

Read  the rest here.