Thursday, July 30, 2009

Positional Externalities strike again

They happen in education, they happen in luxury consumption, they happen in military readiness and technology, and now... they happen in little league!

Positional externalities is the "keeping up with the Joneses" effect. Everyone needs to build a bigger and bigger house (or nuclear arsenal) if their neighbors are doing it, though making your house/arsenal bigger doesn't improve your status in the neighborhood/world because everyone else is doing it.

Similarly, in education, if lots of people get HS diplomas, you need a bachelor's degree to stand out. If everyone then goes and gets a bachelor's, you need a master's to stand out. Education's great and all, but there's a massive opportunity cost in time and money when you start talking post-grad degrees, and when everyone spends lots of money and time and at a certain point, we have too many master's degrees relative to our need for people with them.

Becker on Healthcare

US survival rates from major diseases are much higher than in other countries and detection is better. The value of this is equal to full percentage points of GDP (he estimates 4%, using back of the envelope numbers, but the exact number isn't important, it's the order of magnitude).

This also neglects the notion that having a non-socialized health system means that drugs get developed. If we socialize, it's gonna be a LOT worse for everyone because we will have created a monopsony that disincentivizes medical R+D. The improvement of the US in prostate survival from 7% worse to 20% better (for a swing of 27%) would be even more if the US didn't export its medical technology. In a sense, Europe and Japan "free-ride" on our medical system, and thus this 27% is an underestimate.


Problems with cap-and-trade

Still not sure how to think about this issue. On the one hand, a cap on developing emissions is a lot easier to monitor than taxation of developing country emissions. On the other hand, if India and China won't accept caps, how are caps possible to implement anyway?

Feldstein on Healthcare

Excellent article outlining why "Obamacare" is not the answer.

Wednesday, July 29, 2009

supply and demand...

women are evolving to become more beautiful.

Men are staying the same.

urban planning questions, or bill oreilly on life expectancy

Bill O'Reilly claims that Canada's Life Expectancy is higher than ours because we have 10 times as many people, so we have 10 times as many deaths.

so... bill o reilly is an idiot, I'm not defending what he said, it was truly stupid
(the write in question from Peter Gillies was more subtly stupid, due to things like confounding variables - we DO have many more accidents and alcohol/drug overdoses and heart attacks and all sorts of things that are behavior related, not healthcare related - our cure rate for just about any given disease is significantly better than the rest of the world)

However, as a question that I find interesting, for the urban planners out there...

wouldn't something like crime or accidents happen exponentially with population density? Obviously straight up population won't do it (hence O'Reilly's dumb), but wouldn't you expect more crime or accidents per capita in the Northeast than in the Midwest, for example, because there are more cars around to crash into, or more potential victims of crime? Or is this offset by the fact that having few people around lulls you to sleep (in terms of accident avoidance or crime protections), or more traffic slows you down and more people makes more witnesses? or more/fewer opportunities for people to own cars/work when lots of people are agglomerated in one place?

I'm not asking for hypotheses... does anyone actually know the answer?

this isn't meant as a defense of O'Reilly, just for my curiosity.

Monday, July 27, 2009

Abstinence Only

The Onion mocks abstinence-only education

There can be little doubt that abstinence-only education is socially irresponsible. The moral component is slightly more interesting, and the incentive component is also interesting because of what it reveals about assumptions.

Briefly, abstinence-only education is socially irresponsible because it doesn't work. Children in schools employing abstinence-only education have the same amount of sex, get pregnant more often and use protection much less often. Given that teens having sex is generally considered a bad thing (teen pregnancy is much more likely to be bad for the child and the mother, and STDs spread through promiscuity - and teens aren't known for the ability to maintain healthy, monogamous relationships), that means abstinence-only is irresponsible.

The moral component is slightly more interesting. The morality and logic of the right are reasonably clear here: children having sex is immoral and teaching them how to do it safely encourages them to do it, so the most moral thing to do is to teach them to not have sex.

The morality of the left is much more nuanced. Much of it involves empowerment; children should be equipped with the information to make good decisions. But for this argument to be true requires the circumstance of a child having sex to be a morally neutral event. One (somewhat absurd) way to show this is through the following: We don't teach children how to commit murders without hurting innocent bystanders. Murder, like sex, is something that isn't easy to prevent through legislation, because it is inherently taboo to begin with, so legislation is redundant. Hurting innocent bystanders, like STDs or teen pregnancy, is a side effect of a legislatively-unstoppable pattern of behavior. However, we don't teach children how to fire a gun without hurting someone behind the victim. We functionally practice "abstinence-only" murder education.

Nobody objects to this, because to teach "safe" murder is to institutionally condone murder - even if teaching high school students not to murder probably isn't going to do much, because propensity to murder (I assume) is tied to a value system imparted by parents and environment at an age much younger than middle or high school. This is conjecture, but I'd imagine that a major reason the left's arguments against abstinence-only education have failed to convince the right is that they hold pregnancy and STDs to be bad, but don't acknowledge the morally questionable nature of teenage sex itself. Teaching safer sex thus becomes a much harder option for people in an abstinence-only town, because even if they KNOW safer sex education reduces pregnancies and STDs among teens, it represents an institutional endorsement.

Look here. The site (not the only site of its kind that I've seen, but an excellent example) emphasizes a number of very true statistics, and to someone who doesn't see sex as an inherently bad thing, it's perfectly logical. But there are undertones of ridicule - "purity-pushers" are considered to be idiots, instead of people with a different value system. I'd argue that anybody fighting abstinence-only needs to engage in a way that's more respectful of the moral views of the abstinence-only crowd.

I oppose abstinence-only not because I believe students have the right to information, but because I weigh the morality of allowing an irresponsible kid to contract life-altering STDs and the morality of allowing an irresponsible and unready kid to bring new life into the world versus the morality of allowing a child to engage in an act for which he or she is fundamentally unprepared and can be unhealthy even outside of its most severe side effects (look at the psychological literature about people who start having sex early). To create a ridiculous mathematical equation,

Morality*Change in Frequency of STDs + Morality*Change in Frequency of Teen Pregnancy is greater than or less than Morality*Change in Frequency of Teen Sex.

I can't quantify any of them, but given the change-in-frequencies (reasonably well documented as big for STDs and Pregnancy and small in overall sex), I know instinctively which side of the equation I believe in - I personally hold that the STDs and Pregnancy side are bigger, and thus, abstinence-only education is irresponsible. However, to consider people who have a nonzero morality value on teen sex to be stupid is counterproductive, and fighting potentially morally rational abstinence-only supporters with statistics in a morality-neutral context can't work. The left must acknowledge the value system of the right to halt abstinence-only education.

Also interesting, I think, is what the debate can tell us about the importance of frameworks when studying incentives. Hypothetically, teaching children about safer sex is removing a pretty big uncertainty disincentive to having sex: children now know what will happen. Four (of many) potential effects of safer sex education:

Some risk-averse children who wouldn't have had sex because of the uncertainty may now have sex. Effect: sex rate up.

Some risk-loving children (risk-aversion isn't easy to assume in teens, some of whom frequently take astronomical risk for thrills) who would have had sex because it's uncertain and taboo and they've been told not to, now don't. Effect: sex rate down.

Some kids who would have had sex because they underestimated the potential risks now don't have sex, because they understand what's at stake.
Effect: sex rate down

Some kids who wouldn't have had sex because they overestimated the potential risks now have sex, because they understand what's at stake.
Effect: sex rate up

Under assumptions of widespread risk aversion (a standard assumption in many areas), safer sex education removes an uncertainty incentive and should result in more sex, holding all else constant. This isn't observed in literature, leaving the other options open.

This means that certain assumptions need to be questioned. Either the teenage population as a whole is not risk-averse, or they do not act rationally at the moment they decide to have sex, or they don't demonstrate normal discounting of future events and hyperbolically emphasize short-term fun over long-term utility. None of these are shocking assumptions about teenagers, but any argument about safer-sex education (or institutional endorsement of safer sex) incentivizing sex relies on these assumptions.

In fact, it's amazing how much policy relies on good logic based on bad assumptions. A shocking amount of international aid policy relies on the assumption of a lack of corruption, a frequent assumption in policy models. Models of savings and interest rates often assume linear discounting or a far-looking consumer, which often don't happen. Pricing theory often assumes that consumers look at quality independent of price, when consumers in reality often use price as an indicator of quality. Asset pricing often relies on an efficient market for the asset (often doesn't happen) or a clear picture of the distribution of outcomes (also rare, and the reason for the current financial crisis). One of the most damaging of these examples is tax policy, where politicians (on both sides, but especially on the left) often assume that taxable incomes don't change with changes in tax rates, leaving them with significant budget shortfalls when fully employed people well above the poverty line work less hours in response to higher taxes.

In the words of my brother, "making assumptions makes an ass out of you and umptions." These assumptions are easy to analyze when you're looking at just one theory, but when you channel someone else's theory as part of your argument, then it's quite easy to miss the assumptions. Abstinence-only education is a perfect example of a very logical belief based on an incorrect assumption about the behavior of teens. This is why I tend to think everyone needs a solid background in statistics and systemic thinking (second and third order effects). The lessons can be applied to foreign policy, drug policy, economic policy and many other roles of government.

Thursday, July 23, 2009

Heroes in America

A neighborhood gets together and rescues a family from a burning van.

Two off duty firefighters actually went into the van and rescued a 4 year old.

It makes me furious that the Gates controversy is dominating the media, while this gets a side note.


The Gates thing has now blown up

Meanwhile, read the police report.

Before the arrest, was there anything that could even remotely be construed as racist? No, although Gates started screaming it the moment he was asked for ID to prove he lived in the house (he refused to provide ID the first 3 times he was asked).

That arrest would have happened to anyone - you can't refuse to provide ID, make a huge scene insulting the cop and his mother, and expect not to get arrested.

The people calling this racism is absurd. At worst, it's an instance of a cop who was getting aggravated at a highly uncooperative suspect. A disturbing the peace citation was completely justified at that point, and a disorderly arrest wasn't ridiculous either - think of the drunk people you've seen arrested by the cops for making a scene and insulting the cops. It's a perfectly legitimate arrest. Was the arrest necessary? No, but it wasn't unjustifiable.

It's somewhat of a disgrace that Sharpton, Jackson, Obama, half of Harvard's black faculty and most of the country's media are trying to use this as the epitome of racism in America, because it seriously belittles the actual racism which happens. It's like OJ all over again. Has it been that long since a real racist incident they could latch on to?

Meanwhile, it's unbelievable that Gates was released with no court appearance - it's highly unusual. Everyone ELSE arrested for a disorderly, even when the charges get dropped, has to appear in court. Gates, however, because he has the ability to stir up such a media storm, was able to magically make it disappear. In other words, he is either using his race as a weapon to get out of the consequences of being a brat, or he actually believes this was racism, in which case it's absurd he's allowed to teach African American studies.

Sunday, July 19, 2009

Rowling's Speech

This is reasonably random for this particular blog, but I just wanted to post a link to one of the best speeches I've ever heard, JK Rowling's commencement speech to Harvard's Class of 2008.

Tuesday, July 14, 2009

Framing Capitalism

I just read "Confessions of an Economic Hitman" by John Perkins, and it got me thinking.

There is a huge culture on the left of assuming that capitalism mistreats poor countries and isn't appropriate for them. I actually had a good friend (an incredibly smart one) that the "same rules don't apply" in Latin America.

Certainly, this is true to an extent for systems that rely upon little corruption. However, this is not true for an entire economy.

To demonstrate this, let's walk through the process by which currency demand occurs.

Let's say that the government in Argentina is trying to import from the US government. This would work for governments, companies or individuals, on both sides, but making it governments keeps it simple.

When Argentina wants to import goods from the US, they need to have a currency which the US will accept. Because the US's costs (salary, equipment, etc) are typically in dollars, Argentina needs to pay in dollars. Thus, it needs to have dollars.

There are a number of ways to get dollars, but they're functionally similar. Argentina can sell something else to the US and get dollars, or Argentina can trade Argentinian pesos for dollars with someone who wants to buy something from Argentina, or any number of other nuances... but the constant is that in order to obtain dollars to get something from the US, Argentina needs to have something that somebody else wants. If they don't, nobody will accept Argentinian pesos for dollars because Argentina would have nothing anybody wants.

The exchange rate of dollars for pesos is basically determined by how many dollars all the people trying to trade for dollars want, and how many pesos the people trying to trade for pesos want. In other words, it's supply and demand.

Now, Argentina does have lots of exports, but if you look at a country without many (say, Bolivia), if they want to afford to purchase the substantial variety of things the US creates (both "luxuries" like soft drinks and clothing to necessities such as medicine), they need to have something to sell.

A country like Bolivia, that isn't particularly industrialized, will thus have basically two options for sale: labor and raw materials.

There are a massive number of unemployed people out there, so cheap labor is common. Thus, in order to sell labor (basically, allow companies to set up factories and other things in your country and hire workers), you need to credibly demonstrate that the labor you provide will be stable. If supply chains will get cut off due to war, if government laws regarding labor change (hiring and layoffs, salaries), if government laws regarding corporations change (tax rates, factory seizures, etc), if anything is a threat to the continued operation of a factory, the corporations won't come. This isn't an endorsement of companies having poor labor practices (I think corporations have the responsibility to treat workers well) but merely a statement of fact: a company will not go to a country where it cannot be guaranteed a stable situation because there are plenty of other countries that do guarantee stability.

Labor has flocked to southeast Asia because situations there are reasonably stable. Governments there typically don't seize American assets, labor laws are not restrictive, etc. South America, however, has wrestled with communism for decades, and communist countries have a tendency to seize factories, ban the firing of workers, institute massively high tax rates, etc. Thus, most corporations avoid South America. It is for this reason that China has been developing so quickly while South America hasn't - China has allowed American corporations in, and has learned from American technical expertise. South America has made that much harder.

Raw materials are a much rarer resource than labor, so the risk of investing in South American countries is often worth it if you're purchasing raw materials. However, the exploitation of resource deposits, forests and farmland tends to have nasty environmental effects and tends to displace or hurt a lot of communities. Thus, you have a situation where the entirety of South America is being strip mined so that South America can afford developed country technology or goods.

Thus, in order to provide medicine to their people or purchase US engineering expertise, South American countries need to sell their precious resources. It's not US greed, it's not capitalism's failure, it's the operation of capitalism in a situation where one player has little to offer the other.

The more interesting question is how to escape this cycle.

Many south american countries have been leaning towards the "seize and nationalize" route. Bolivia and Venezuela have seized US and other countries' natural resource assets after the companies purchased them. There are a number of major problems with this approach. Firstly, governments tend to be very, very bad at running businesses efficiently. Venezuela has been hammered by this downturn harder than most because after expelling Chevron, its extraction costs for oil have climbed to the highest in the world and they can't compete in a period of low oil prices and low oil demand.

Secondly, it entrenches a country's reliance on a resource for survival. A century ago, whale oil was one of the most important commodities; now it's nonexistent. Commodities go in and out of style, so a reliance on commodity assets can quite easily doom you to perpetual nondevelopment.

This is worsened by the third circumstance - you reduce the credibility of your country. Every country that's ever developed did so because people and companies weren't afraid to develop technical expertise in a country. The US developed its own by virtue of its property laws and freedoms of choice, while China is developing by watching US technical processes and making them more efficient, but in all cases, there needs to be a culture of technological development. You can't develop non-resource exports if nobody trusts your country enough to build in it. You will thus always demand foreign higher-technology goods because you can't create it yourself, perpetuating the cycle.

Thus, the notion that capitalism is "inappropriate" for third world countries misses the point. Third world countries are subject to capitalism whether they like it or not. Any solution that rejects it requires a level of government efficacy in teaching, building, managing and developing that no country has ever been able to do effectively. The USSR couldn't manage it, China is being forced to become more and more capitalist in their corporate laws (though not in their national planning), and it's a safe bet that the highly, highly corrupt Latin American and African governments are gonna have trouble with it, too.

EDIT: By the way, I mentioned that the US developed by researching its own technology... that's true since 1940. In the 1800s, the US developed by watching Britain and providing secure, cheap labor to Britain. From 1900 to 1940, the US was primarily a resource and commodity economy. It shifted to higher value-added production after World War 2. This seems to be the path China is on (given that much of what they produce - consumer goods, electronics, etc - so efficiently is, theoretically, a "commodity" in that many different groups can build it and they often don't own the rights themselves).

Thursday, July 9, 2009

organ donation

From Natalia:
"My question is about organ donation. The way it currently stands, a person needs to actively select to be marked as an organ donor when they register. Also, there is a pretty big shortage of organs in the meantime. Certain other countries have made it mandatory to choose a preference: either you are explicitly marked as an organ donor or you are explicitly marked as not an organ donor. This kind of mandated choice has its positive aspects in that Sweden, Brazil have both seen a big increase in people willing to be organ donors. Then, there is the possibility of “presumed consent” (unless family objects) which Finland, Greece, Italy, Norway and Belgium use…Belgium passed a version of presumed consent in 1986 and has effectively done away with an organ-transplant waiting list because only 2% of the population opts out. My question for you is: do you think either of these methods would be a good way of addressing this issue in the US? If so, at the federal or state level? If not, why not?"

The one big issue I see with organ donation programs is the potential for people who do not believe in organ donation because of their religion to accidentally donate organs. This is offset, of course, by the crushing waiting list for organs in this country.

Presumed consent will almost certainly include people who do not want to be included. Inevitably, rushed DMV clerks will not explain the organ donation procedures properly, or will forget, and people for whom it is important to opt out will not do so. If the goal is to maximize organ donations without infringing upon individuals' rights not to donate organs, a presumed consent system is probably not good, for the same reason that the current system of presumed nonconsent is bad - presuming ANYTHING means that a group of people will not indicate their preference even when they have one.

However, a mandatory selection process seems to make a lot of sense to me. Lots of people don't check the box because the default is to not check the box, or because they don't want to read the instructions for an optional checkbox. Forcing someone to select either way could substantially improve organ donation rates. It's not a surprise that it's worked in Sweden and Brazil, and I don't see a reason it wouldn't work here also.

Tuesday, July 7, 2009

Reducing Healthcare Costs, redux

I've mentioned before that I think one primary way to reduce healthcare costs is to allow nurses to do more. There are a number of basic procedures which don't require full doctors.

I read "Complications" by Atul Gawande last week, and it sparked another idea. Dr. Gawande mentions specialization and repetition as major factors in producing good outcomes. In particular, he mentions hernia surgery. The average hernia surgery takes 90 minutes and has a complication and reoccurrence rate of 5%. Very few places deviate significantly from this number, except for one strong outlier.

There's a hospital outside Toronto that does exclusively hernia surgery. Every doctor in the clinic does hernias, all day and every day. As a result, because of the constant practice, hernia surgeries take 30 minutes and has a complication/reoccurrence rate of 1-2%. These surgeons never even underwent full medical training - they just learned enough to deal with hernias and complications accompanying hernia surgery.

Similarly, if some percentage of our nurses and doctors focused solely on particular common issues (gallstones, bypass, etc) and worked exclusively on that, they'd require less training (and consequently less pay) and procedures would be faster and more effective. The remaining doctors can still undergo the same extensive training and deal with a greater variety of rarer things. In other words, we could a) specialize our nurses more and b) create an intermediate between doctors and nurses that can do medicine like a doctor in particular instances, but not all instances.

This could be a powerful driver to reduce healthcare costs.