economics

The US economy has no hope.

From Robin Hanson:

A randomized insurance experiment found that on average people who thought they had a higher health risk bought more insurance. But they didn’t actually have higher risk:

[In] a large-scale randomized field experiment in Mexico … [in ’04 on] a voluntary health insurance option [=SP] … ‘high risk’ agents are, ceteris paribus, more likely to opt into SP—although the insured are not more ‘risky’ on average. That is, despite the absence of a positive raw correlation between agents’ insurance status and proxies of risk, this paper presents evidence of the systematic selection predicted by theory. In particular, individuals who rated their health as “bad or very bad” before SP became available are 6.9 percentage points more likely to sign up for SP than those in “good or very good” health (compared to an overall treatment effect of 29 percentage points).

Curiously, however, agents in the experiment sort only on pre-period medical expenditures and subjective well-being. There appears to be no selection on objective measures of health—possibly because individuals are less aware of the latter. … [Regarding] preventive care decline with insurance coverage, the effect of SP on the utilization of these services is negative and non-trivial in size. Given the positive price effect, such a decline is likely due to ex ante moral hazard. (more)

This supports the idea that medicine is less about health than health-related feelings. If medicine were more about the reassurance that comes from being taken care of medically (because medicine is a standard way for others to show that they care about us), it makes sense that we want more insurance when we feel more vulnerable to illness, but that sense of vulnerability would have a lot more to do with the social assurances we desire than our state of health.

Since moving to the US from Canada, I can definitely tell you that there is an order of magnitude more supply of health care here. Wouldn’t surprise me if that explains all of the cost differential (as % of GDP).

No silver-tongued politician is going to talk voters into less health care. This is a wiring problem in the human mind.

I’d invest in health care and health care-related industries*. However, we’ll have to watch out for attempts at regulating costs, which means providers will be more concerned with lobbying and rent-seeking than building profitable businesses. An unpleasant investment environment, but perhaps not an unprofitable one.

Every other polity in the world will probably find this human wiring problem too powerful to control. Two-tier for all! International expansion of health care companies from the US is going to be a gold mine.

*Insurance is a funny case here because its costs are driven by liability claims related to medical care. Its performance will probably be like heavy consumers of resources during a price spike.

from Krugman:

I realized that I also wanted to say something in response to the concern trolling, the “if you were more moderate you’d have more influence” stuff. Again, this amounts to wishing that we lived in a different world. First, there is no such thing in modern America as a pundit respected by both sides. Second, there are people writing about economic issues who are a lot less confrontational than I am; how often do you hear about them? This is not a game, and it is also not a dinner party; you have to be clear and forceful to get heard at all.

If I were Tyler Cowen (to whom Krugman is sorta responding), I’d ask: ok, but at what margin does confrontation detract from your message? Surely there is a limit.

Krugman is very confrontational. Pundits, as they are normally called, are supposed to be confrontational because that is what moves newspapers and attracts eyeballs. That is NOT necessarily what moves policy, though they are no doubt related.

Krugman has been listening to the whispers of his NYT editors (who would much rather Krugman attract eyeballs than policy clout).

Krugman LOVES invoking the 50s:

First, instead of a hypothetical example, let’s talk about a real case: US debt after World War II. The government emerged from the war with debt exceeding 100 percent of GDP; because there was almost no international capital movement at the time, essentially all that debt was owned by domestic residents, with a sizable fraction consisting of savings bonds bought by individuals.

Now, here’s the question: did that debt directly make America poorer? More specifically, did it force America as a whole to spend less than it would have if the debt hadn’t existed?

The answer, clearly, is no.

But have a read of MR’s link to this paper:

The statistical trend for growth in total economy LP ranged from 2.75 percent in early 1962 down to 1.25 percent in late 1979 and recovered to 2.45 percent in 2002. Our results on productivity trends identify a problem in the interpretation of the 2008-09 recession and conclude that at present statistical trends cannot be extended past 2007. For the longer stretch of history back to 1891, the paper provides numerous corrections to the growth of labor quality and to capital quantity and quality, leading to significant rearrangements of the growth pattern of MFP, generally lowering the unadjusted MFP growth rates during 1928-50 and raising them after 1950. Nevertheless, by far the most rapid MFP growth in U. S. history occurred in 1928-50, a phenomenon that I have previously dubbed the “one big wave.”

The 50s, when we last had a gigantic debt burden to work off, was right smack in the middle of the most extraordinary burst of productivity the world has ever seen. Life changed more slowly before and after. How can you derive policy recommendations for today from this datapoint? You can’t!

And here’s a graph from Krugman:

Now that’s something that I have NO intuition for. Borrowing from foreigners and buying their assets with the proceeds? WTF?

Schools in India are about to get an overhaul:

Nationally, a large majority of students still attend government schools, but the expansion of private institutions has created parallel educational systems — systems that are now colliding. Faced with sharp criticism of the woeful state of government schools, Indian policy makers have enacted a sweeping law intended to reverse their decline. But skeptics say the litany of new requirements could also wipe out many of the private schools now educating millions of students.

“It’s impossible to fulfill all these things,” said Mohammed Anwar, who runs a chain of private schools in Hyderabad and is trying to organize a nationwide lobbying campaign to alter the requirements. Referring to the law, he said, “If you follow the Right to Education, nobody can run a school.”

Ok, so private schools lose. These guys win (but they always do):

In Hyderabad, principals at several private schools said inspectors regularly threatened them with closings unless they paid bribes. Now, the principals say, the inspectors are wielding the threat of the Right to Education requirements and seeking even bigger bribes.

Who else wins? Who wants lots of regulations and requirements and BS for private schools? The article doesn’t touch on it, but whoever does is who is behind this bill.

And don’t say ‘students’ or ‘everyone’. Law-making isn’t about policy.

1. Lend yourself money.

2. Destroy 5-10% of it.

3. ???

4. Economic growth!

This caught my eye:

There are a lot of things I love about my Android phone–like the easy integration into the rest of my Google life. With the release of iCloud, that’s less of an advantage now than it used to be. Sure, some of the Android devices are beautiful, but if they become obsolete in a year from a software perspective in less than a year, this is going to be a serious problem.

There is a linked-to commentary of an original editorial, which is all a very interesting discussion.

The problem is a cultural one: Samsung considers its relationship with the consumer to be concluded the moment the sale is completed. Whereas Apple, Microsoft, and other software vendors have learned the value of supporting current users in the hope of enticing new ones, Samsung’s attitude remains deeply rooted in its history as a hardware manufacturer. It sees production and R&D costs in one column and it tries to balance them against sales revenue in the other, never raising its gaze to the long-term consideration of whether anyone would come back for a repeat purchase.

And from the commentary:

Samsung, as with HTC and — until a few months ago — Motorola, is a primarily a hardware company. They only make a buck when that device is purchased by a carrier or individual. Thereafter, every ounce of effort it puts into producing an update for devices already on the market eats into its profit on that sale.

Compare this to what Amazon chose to do when it forked Android for the Kindle Fire. Now, for all intents and purposes, it owns its own version of Android. It, unlike all of these companies making phone after phone using Google’s Android (plus a crappy skin), is in control of its platform and has incentive to improve and update it.

The problem isn’t Samsung, it’s systemic to Android as a whole. The makers of Android hardware see little benefit in updating even devices that are less than a year old. And, though I think it’s a punk move, I don’t blame them. There is little to no return to be had.

This is a classic tragedy of the commons. Google has this strange strategy of providing a lot of the public goods for the Internet and now maybe they’ll find that this is too big of a burden to bear?

Or maybe they go full government and raise taxes (license fees). No doubt they’re measuring the impact of mobile advertising on the bottom line. Maybe Google’s worst case scenario is Apple finding a way of sucking all that traffic into its ecosystem (a la AOL from the 90s). So keeping Android healthy and free keeps the Internet free and ad-driven.