From Pro-Choice to Pro-Life

The following is a powerful video:

An Unfortunate Culture of Entitlement

...as explained by the London Times here.

The Wisdom of Teddy Roosevelt

"I really do not know which quality is most productive of evil to mankind in the long run, hardness of heart or softness of head." He stated that the Bible tells each of us "to stretch out his hand to a brother who stumbles. But while every man needs at times to be lifted up when he stumbles, no man can afford to let himself be carried, and it is worth no man's while to try thus to carry someone else."

Governmental aid to those in need, TR emphasized, should be limited and "extended very cautiously, and so far as possible only where it will not crush out healthy individual initiative." He saw entrepreneurship as the most effective means of dealing with problems and argued that "socialists and others really do not correct the evils at all, or else only do so at the expense of producing others in aggravated form."

Roosevelt saw governmental redistribution of wealth as a surrender to covetousness. He argued that anyone elected on such a platform "is not, and never can be, aught but an enemy of the very people he professes to befriend. . . . To break the Tenth Commandment is no more moral now than it has been for the past thirty centuries."

In short, TR opposed both private and governmental corruption. He straightforwardly noted that "the Eighth Commandment reads: 'Thou shalt not steal.' It does not read: 'Thou shalt not steal from the rich man.' It does not read: 'Thou shalt not steal from the poor man.' It reads simply and plainly: 'Thou shalt not steal.'"

A Bizarre Argument

In this article, the author makes the bizarre argument that even though the USPS is generally inferior to UPS or Fedex, and even though Amtrak is a travesty of a rail company, they would make good models for federally provided health care. The argument essentially boils down to this: the USPS may not be all that good, but no other private company does what it does, so the USPS is better than nothing. What's the problem with this argument? Private companies are forbidden by law from competing with the post office when it comes to basic mail delivery.

If anything, this article makes a great case for why the government should not be directly involved in the actual provision of health care. Nobody doubts that people would rather have basic health care than none at all. A sensible person might conclude from these ideas then that the government should provide financial support to people to ensure that they have basic health care, rather than provide the care itself.

One other note: health insurance is far different from the actual provision of health care. Health insurance can only be cheap if the actual health care is cheap. The only way government insurance can be cheap is if it drastically underpays doctors and hospitals (which would lead to many shortages and other problems), or if the government directly runs the hospitals. Anyone excited about heading to the public hospital?

The Insurance Industry

I am all for reforming the health care system, but using the insurance industry as villains is simple-minded and not particularly convincing. Sure enough, every day there are stories about an insurance company rescinding its contract with a patient after they discover that there was an unannounced (and possibly previously unknown) pre-existing condition. We hear about denials of treatment, and worse. Undoubtedly, one of the goals of any health care reform effort should be to get rid of some of these practices.

Nevertheless, the story that the big hungry profit-seeking insurance companies are to blame for rising premiums and mass deaths and bankruptcies is false. For one, the average profit-margin in the insurance industry is... 3.9%. Read here for more. That is far less than the profit margin in most US industries. Also, don't forget that Blue Cross and Kaiser are two large, nonprofit insurance companies.

The fact of the matter is that health insurance costs in the US are high and rising quickly because health care costs are high and rising quickly, not because insurance is in and of itself so expensive.

Get Out Your Nietzschean Hammer

...and pummel your emotional commitments to your ideology. The following article talks about how we tend to work backward from a firm conclusion to come up with a supporting argument. (You're supposed to do it the other way around.)

Read here.

Of Shouts and Lies

Read this for a good take on all the distortions and bad tactics (from both sides) in the healthcare reform debate.

What's at Stake: Your Freedom

In this article, Mark Steyn discusses why the healthcare debate, and the prospect of reform, is about much more than just "controlling costs" or "expanding coverage." It is about the fundamental right of people to have personal control over their medical expenditures, or in other words, the fundamental right to have personal control over the care of your body.

Three Good Healthcare Articles

"Why We Must Ration Health Care" -- no, I am most definitely not suggesting that we should let the government take over health care and tell us what treatments we can receive. However, this article does make a good point-- there must be some limitation to what the public purse is going to spend on health care. A line has to be drawn somewhere.

"Budget Analyst Assails Cost of Congress' Health-Care Proposals" -- This should come as no surprise. The House bill does little more than increase the federal government's responsibility to provide health insurance to everybody, at the sole expense of higher income people. Aside from the repugnant redistributionism of the bill, it in no way changes the incentives of healthcare consumers or providers.

"Massachusetts Takes Big Step Away from Fee for Service" -- An excerpt: "A commission recommended this afternoon that the state turn away from the traditional "fee for service" model of paying for health care -- piecemeal payments for each procedure delivered. Instead, the commission said, the state should shift toward a system under which health-care providers would receive a sum to care for a given person or family, thereby providing an incentive to deliver care in a cost-effective way."

Sound anything like my "health membership" idea that I mentioned in a previous post?

Shared Sacrifice for Reform

Today's Los Angeles Times has a piece here describing their take on the healthcare reform efforts going on in DC right now. Focusing on the financing of any reform, I completely agree with the Times that it should be funded by some sort of broad-based tax rather than a narrow tax aimed directly and solely at "the rich."

A healthy democracy is one in which everybody contributes to financing the expenditures of the government, rather than one in which certain subsets of people can vote for themselves more and more generous benefits at the expense of others. Beyond that, I won't even get into all the negative economic impacts of increasing the top marginal rates for people beyond 50%.

Fannie-Mae Healthcare?

This article examines the logic behind instituting a public plan, and some of the drawbacks to doing so.

Even Obama Agrees

WASHINGTON (CNN) – President Barack Obama said Tuesday that there is a "legitimate concern" about the ability of private insurers to compete with a public plan "if the public plan is simply eating (from) the taxpayer trough."

If that's the case, it'd be tough for private insurers to compete, Obama said. If, on the other hand, the "public plan must collect premiums and provide (good) services" like private insurers, then private insurers should have no problem competing with a public option.

Obama said he was hopeful that an efficiently-run public plan could help push private insurers to make similar cost-cutting moves.

The president made his remarks during a news conference at the White House.

Health Care Reform

I know it has been a while since I posted something here, but I wanted to give my take on the current health care reform as well as to link to a couple of good articles.

First, I thought this article and this article are very informative and contain some good points about health care reform and the public option in particular.

Here is my take: there must be some way that health care services are rationed. We live in a world of finite resources, so not everybody can get every treatment that they want or even need. In most markets, rationing takes place through pricing. If you cannot afford a particular good or service, you will not receive it. In the public school system, rationing takes place through local Board of Education decisions that dictate school budgets. There are pros and cons to both ways. The pricing mechanism is generally a very efficient rationing system, but it can be inequitable to the extent that somebody with very limited resources will have very limited access to these goods. The public committee rationing method can in principle be more equitable (though this is no guarantee), but tends to be inefficient, and leaves individuals powerless to alter their circumstances so as to obtain more of the particular good or service in question.

Personally, I believe that is very important that medical decisions be left in the hands of doctors and patients. Liberals will argue that such a worry is a red herring, and that their plans will not change this. Yet, as advocates of a single-payer system (including certain Democrats in Congress who secretly hope the "public plan" will turn into this) will readily admit, under a single-payer system some government body would be responsible for determining "global budgets" for hospitals, as well as what types of equipment they can purchase.

Translation: a government body would determine the total budget for a hospital, even if the hospital could effectively be using more resources, or if the hospital believed-- in disagreement with the authorities-- that a particular capital equipment purchase was justified. This is a very important feature of the health care system: the ability to dissent. Dissent is what gives rise to innovation, and enforced conformity squelches that. Therefore, while it may be true that the government might not (at least initially) tell doctors exactly what procedures they can do, it will determine the total budget that doctors have to work with, as well as the equipment available to them. That seems mighty limiting to me.

In addition, any public plan that relies on taxpayer dollars is thoroughly anticompetitive. For starters, even though Democrats like to portray such a public plan as an "option," it is hardly an option if your tax dollars are being spent on the plan regardless of whether or not you sign up. Secondly, if the public plan is the only plan that has access to taxpayer dollars, then it is competing on a very unfair playing field, which would likely lead to private insurers being pushed out of the market. Note that this would NOT occur because the public plan was so superior that everybody would flock to it. This would occur because EVERYBODY would have to pay the taxes to sustain the public plan, but those who chose not to join would also be paying the full premiums for their private health insurance? Who would like to do both? Nobody.

The question that arises, then, is what sort of system would I like?

I don't favor a complete laissez-faire pricing rationing system. Everybody should have access to at least basic medical care, independent of financial means. However, above and beyond this, individuals should be able to choose more expensive doctors or treatments if they can muster up the financial means to do so. We are far from having a competitive medical marketplace-- with third-party payers, asymmetric information, and a mind-boggling array of subsidies and mandates-- and I believe that moving more in that direction would significantly improve our medical system.

What might a competitive marketplace for health care look like? For starters, medical histories should be a private matter, and should not need to be disclosed in order for somebody to obtain insurance. Secondly, insurance companies should not be able to turn down any applicants for any insurance plans they offer. Thirdly, doctors and hospitals should have complete autonomy regarding what procedures they administer and how much they charge. Like it or not, medical care is an industry, and hospitals are a form of business. Just because an enterprise operates with money does not make it some lowly money-grubbing entity. Services are rendered, and mutually beneficial transactions take place. Just as every other business decides the prices of its services, so should medical institutions. Of course, just because they can do that does not mean they will get customers.

But wait. This is where a common criticism comes up: when somebody is sick (or especially if they are experiencing a medical emergency) they are not going to go shopping around for the hospital with the best price-quality combination. Similarly, when a doctor recommends a treatment, the patient cannot reasonably expect to do some sort of internal cost-benefit analysis to determine if the procedure is more cost-effective than other treatments. I AGREE.

Of course, the same could be said for people seeking out financial analysts or any other expert who knows more than they do. There is nothing inherent about price competition that says that patients would have to seek price information on every single procedure. I have an alternative. Let patients join (or become "members" of) a health network (namely, a doctor, connected to a hospital, and possibly other out-patient providers) to whom they would pay monthly premiums (or "membership fees"). The health network would then be responsible for providing medical services to you, with you making minimal additional payments. This way the true experts are in charge of what procedures to give you, and they compete in order to attract your membership. As with insurance companies, they would not be able to turn people away because of checkered medical histories.

Of course, there would be many details to work out. The role of insurance companies would be changed (and probably reduced) in such a system, probably relegated primarily to being a financial backstop in case you develop cancer or some other incredibly expensive-to-treat condition. Regulations would probably have to be put in place to ensure that the health networks would not unethically hoard your money (though competitive pressures would likely alleviate almost all of this). Etc.

As Competitive as a Rigged Game

If a public plan becomes part of any new health care bill, do not be deceived by those who call it a source of "competition" for private plans. It would be about as much competition as an athlete faces when his opponent is secretly doping up behind closed doors. To read more, go here.

Our Civic Duty

No, it is not patriotic to pay higher taxes, but it is even less patriotic to force a small minority of people to pay for all the goodies that you vote for. In short, everyone should pay taxes. Ari Fleischer makes the case here.

Well, At Least Coach K is Keeping Busy

Obama's Anti-Republican Defense Plan

In case you haven't heard, the White House will now have its own "kitchen garden." The catch? There will also be a beehive. What better way to scare off Republicans from going to the White House than to put guard bees there. I'm not sure if it would work, but it just might if I were an elected official...

Stem-Cell Reversal

President Obama has now reversed Bush's restriction on federal funding for stem cell research that would result in the destruction of embryos. Obama is entitled to do that. However, he went a step further by claiming that this was a sign that his Administration would not "politicize science." Translation: if you believe that there are moral boundaries for scientific inquiry, then you are basing your decisions on ideology instead of science. Interestingly enough, everybody, including President Obama, believes in moral boundaries for research. Somehow I doubt that Obama is in favor of certain forms of animal testing, for instance. Here is an excerpt from a piece from the Wall Street Journal today:

"The claim about taking politics out of science is in the deepest sense antidemocratic. The question of whether to destroy human embryos for research purposes is not fundamentally a scientific question; it is a moral and civic question about the proper uses, ambitions and limits of science. It is a question about how we will treat members of the human family at the very dawn of life; about our willingness to seek alternative paths to medical progress that respect human dignity."

Obama's New Deficit Claims

President Obama now claims that he wants to cut the deficit in half by 2013. By his calculations, since Bush handed him a $1.3 trillion deficit, Obama's goal is to bring that down to $533 billion. ...oh yeah, except there is one problem: The 2008 deficit was $1.3 trillion only because of the one-time $700 billion TARP bill. Without that, the deficits under Bush never even approached $1.3 trillion, and in fact, never even hit $533 billion. It is a good bit of political maneuvering if Obama can pull off this bait and switch.

Krugman's True Expertise

Paul Krugman, up until about a decade ago, was a brilliant international trade economist. His work deserves the awards that it has garnered, though arguably his Nobel Prize should have been a joint prize between him and any of a group of about four other prominent economists. However, Paul Krugman is not and never has been an expert in macroeconomics, despite his constant ranting on the subject-- but don't take it from me, I'm just a graduate student. Take it from Robert Barro:

In an interview with Robert Barro...

Do you read Paul Krugman's blog?

Just when he writes nasty individual comments that people forward.

Oh, well he wrote a series of posts saying he thought the World War II spending evidence was not good, for a variety of reasons, but I guess...

He said elsewhere that it was good and that it was what got us out of the depression. He just says whatever is convenient for his political argument. He doesn't behave like an economist. And the guy has never done any work in Keynesian macroeconomics, which I actually did. He has never even done any work on that. His work is in trade stuff. He did excellent work, but it has nothing to do with what he's writing about.

Bailout Re-Do

From the AP: "Treasury Secretary Timothy Geithner met with the administration's top officials and advisers in recent days, trying to finish a plan to overhaul the $700 billion bailout program that is already half gone. Geithner previously said the administration is weighing the possibility of using a government-run "bad bank" to buy up toxic assets that are weighing on the books of financial institutions, but some officials now say that option is gone because of potential costs."

Wasn't this supposed be the original design of TARP? I originally supported the bailout precisely because I thought the government was going to conduct a reverse auction to buy bad debt from the banks. For reasons unknown to me, Hank Paulsen decided that that was not feasible. Geithner appears to have come to the same conclusion, although he only has $350 billion to work with, rather than the full $700 billion. I can only wonder what decision he would have made if he were in charge of the bailout from the beginning...

Equilibrium Macroeconomics and its Skeptics

Recently several economists-- few of whom seem to actually publish technical papers in reputable journals anymore-- led by Paul Krugman have seen fit to attack those who use equilibrium models to study macroeconomics. The thinking seems to go like this: "Equilibrium macroeconomics came mostly out of the University of Chicago and the University of Minnesota, both of which, and the University of Chicago in particular, were bastions of free market economic thought. Since those who oppose the bailout bill on free market grounds are 'clearly' idiots, and since several economists at Chicago in particular oppose the bailout, it must be that equilibrium macroeconomics is a failed endeavor."

Unfortunately, if Krugman had bothered to ever learn modern macroeconomics rather than spending time writing partisan op-eds, he might have learned how broad equilibrium macroeconomics really is. The first question is this: what exactly is equilibrium macroeconomics?

To answer that, I will first start by saying what it is not. Equilibrium macroeconomics is not free market economics, it does not automatically assume that markets are complete and that information is complete and symmetric, and it does not always conclude that market outcomes are Pareto optimal (basically, efficient) and that government intervention is always ill-advised. Twenty-five years ago there was indeed a correlation between belief in the free market and adherence to equilibrium macroeconomic methods, but as the methods have been more adopted, the specific assumptions used in any given model have become much more varied.

Equilibrium macroeconomics essentially rests on two pillars:

1) Agents-- firms, consumers, workers, etc.-- optimize their behavior (basically, they make decisions that they think will bring about whatever outcome they prefer most) given their knowledge of the actions taken by others and their information about the economic environment in general.

2) Aggregate variables-- interest rates, wages, the unemployment rate, etc.-- are the result of the decisions of the agents in the economy, disciplined by some notion of an equilibrium. Often times, the equilibrium condition is market-clearing. In some instances, the equilibrium condition is Nash equilibrium.

Modern macroeconomics has many fathers, perhaps most notably Robert Lucas, Tom Sargent, and Ed Prescott. The first seminal equilibrium macroeconomic model to study the business cycle was the Real Business Cycle model by Kydland and Prescott from the 1980's. That model DID assume that financial markets and information were complete. By implication, this means that people can perfectly insure themselves against economic risk and that the economy is Pareto efficient (ie there is no way the government can make everybody better off). Clearly, at least the result about perfect risk insurance is far from true.

However, it is NOT those particular assumptions of the model-- or the two controversial (or maybe just dead wrong) implications-- that have made the model an enduring baseline macroeconomic model. It is instead the fact that their model was the first to incorporate (1) and (2) to study the causes of business cycles, and that their model explained a sizable proportion of economic fluctuations. Since then, even if Krugman has not noticed, equilibrium macroeconomic has progressed far beyond that model. Here are some examples:

In the 1990's Rao Aiyagari developed a foundational incomplete markets equilibrium macroeconomic model where people face idiosyncratic risk. The result? People cannot insure themselves completely and the economy is not Pareto efficient. Same methodology (ie using (1) and (2)), different specific assumptions, different outcome.

Since then, Per Krusell and Anthony Smith have extended the model by adding aggregate risk. In addition, whereas Aiyagari assumed that financial markets were exogenously incomplete, there has been substantial work in the dynamic contracting literature within macroeconomics that gives rise to endogenously incomplete markets. What are some of the assumptions of these models? Private (incomplete) information and imperfect enforcement.

The equilibrium macroeconomic literature has been extended in many other ways as well. Several macroeconomists have done and continue to do work in developing better heterogeneous agent, incomplete markets models to explain the evolving wealth distribution and the extent to which people can and cannot insure themselves against risk. In addition, there is substantial work being done on incorporating search frictions-- namely, the fact that workers, firms, investors, etc. must actively search for economic opportunities, rather than automatically encountering them-- into equilibrium models. Christoper Pissarides and Dale Mortensen, among others, have developed a benchmark equilibrium model that generates unemployment dynamics far more realistic (and interesting) than the standard classical, full-employment models.

I could go on...

My main point is that equilibrium macroeconomics has become more or less the norm in the field these days, and I cannot think of any successful job market candidates in macroeconomics that work outside the equilibrium framework, broadly defined. The benefit to this framework is not the specific assumptions that individual economists put into their preferred models, but rather:

1) Equilibrium macroeconomic models do not divorce aggregate behavior from the individual actions which must necessarily generate it.

2) They are internally consistent and enforce discipline on the part of the economic modeler.

On the Anniversary of Roe vs. Wade

Supporters of Roe vs. Wade claim that abortion is purely a private medical decision. Tell that to the child whose life you are about to end-- whose story you are about to cut short. People with stories such as this:

Is Increased Inequality Bad?

...not unless you and your spouse are only high school graduates, argue Jonathan Heathcoate, Kjetil Storesletten, and Giovanni Violante in this working paper.

An Experiment

I haven't decided which look to go with yet...

An Interesting Health Care Reform Idea

Clive Crook explains an interesting idea about how to reform the health care system here. Essentially, it would entail providing every citizen with a health care voucher to purchase private insurance (which would have benefits at least at the level that those in Congress receive), and private insurers in turn would be forbidden from rejecting people. This would get rid of the inefficiencies and inequities of the employer-based system, would increase meaningful competition in the insurance marketplace (competition based on providing good results, not based on screening out sicker patients), and would lead to more accountability. In the article, he suggests financing this by a 10% value-added tax. I won't comment on this extensively right now, but I will say that overall there are a lot of positive ingredients in this plan.

The Obama Stimulus Plan

President-elect Obama, his economic advisors, and many pundits across the country have been proclaiming the need for a large increase in government spending to get us out of the recession. They claim, to my knowledge without any rigorous argument or model to support their claims, that an increase in government spending would generate upwards of 4 million jobs, and that it would be more effective than tax cuts.

The main argument goes along the lines of this: "People are wary of increasing their consumption, so giving them more money will only result in them paying down debt or increasing saving, thereby providing not increasing economic activity." This argument has many holes. First of all, they claim that the increased spending will work by creating jobs, increasing incomes, and hence causing people to spend more. Why would people spend more if the money came from government spending versus from a tax cut? Furthermore, they ignore the fact that any increased government spending must come from increased borrowing, thereby draining money available for private investment.

I cannot say for sure what the effect of all this will be, especially since the details of the plan have nto been released. I can say, though, that in this recent working paper by Professor Harald Uhlig and Andrew Mountford that they find that deficit-financed tax cuts are more effective as economic stimulus than deficit-financed increases in government spending. Here is the link to the paper.

A Better Stimulus Idea

I have been quite busy, with all the traveling for the holidays and also with writing a paper, hence the long time since my last post. In light of that, I read a good article in the Wall Street Journal today by Berkeley economist Hal Varian. He talks about the importance of boosting private investment to get ourselves out of the economic downturn. Why so few people are talking about this is beyond me.

Link here.

A Better Stimulus Idea

I have been quite busy