Economics and the mid-life crisis have much in common: Both dwell on foregone opportunities

C'est la vie; c'est la guerre; c'est la pomme de terre . . . . . . . . . . . . . email: jpalmer at uwo dot ca

. . . . . . . . . . .Richard Posner should be awarded the next Nobel Prize in Economics . . . . . . . . . . . .

Saturday, March 05, 2005

What Do These Countries Have in Common? (almost)

The United States,
Saudi Arabia,
the Democratic Republic of Congo, and

... only seven countries other than the United States have executed juvenile offenders since 1990: Iran, Pakistan, Saudi Arabia, Yemen, Nigeria, the Democratic Republic of Congo, and China. Since then each of these countries has either abolished capital punishment for juveniles or made public disavowal of the practice.
see this link.

I don't know......
if you're willing to use capital punishment, it seems to me there are some pretty evil teenagers who are at least as deserving as some adults.

Is This a Rehash of the Old Marginalist Controversy?

Martin Kihn has recently written that nobody in business uses game theory [h/t to Truck and Barter].

[W]e assembled a panel of 30 respected game theorists around the world, and we sent them a survey asking, "Can you think of any examples of real, live companies that have consciously applied game-theoretical concepts to a real business problem?"
The response was . . . a deafening chorus of head scratching.
[W]e scoured the literature. We selected a relevant portfolio of 40 publications and submitted our queries. We tried again. And again. And we found . . . nothing . There were plenty of mentions of government spectrum auctions, and A Beautiful Mind came up hundreds of times. Not quite what we had in mind.
This silliness reminds me of the old Marginalist Controversy of the 40s and 50s, when bizskools all said that economics wasn't very useful because businesses just don't think in terms of marginal revenue and marginal costs when making their decisions.

Some economists responded, as indeed Ian does in an update to his Truck and Barter posting, that businesses behave as if they make these marginal calculations all the time. But big-time business decision-makers remained unconvinced.

As Mike Scherer once pointed out, though, a simple set of questionnaire results lent considerable strength to the standard economic models:

1. Do you use marginal revenue and marginal cost considerations to decide how much to produce and what price to set?

The answer was a resounding "No!"

2. Could you increase your profits by producing a bit more or a bit less?

Again the answer was "NO".

That is fairly strong confirmation that businesses act as if they use marginalism in their decision-making.

I would venture the same is true for game theory.

Friday, March 04, 2005

The Long-run Supply Curve for Higher Education

In one of his many random thoughts, Tom Sowell wonders [h/t to Hispanic Pundit],

If the government gave a $5,000 subsidy to anyone who buys an automobile, do you doubt that the price of automobiles would go up -- perhaps by $5,000? Why then does no one see any connection between government subsidies to college students and rising tuition?

This is a good question for introductory economics students.

Cross your fingers and hope they don't give Sowell's "perhaps" answer, which implies vertical long-run supply curves for both automobiles and higher education. There's no perhaps about it; the price would not rise by $5000 in the long run because additional resources would flow from other activities into producing automobiles or higher education.

At the same time, if we believe in scarcity, we know the prices would rise by some amount. Contrary to our textbook assumptions of "constant cost industries", long-run supply curves are upward sloping; and so if demand increases, the equilbrium price must rise, even in the long-run. But surely not by $5000.

Blogging about Wal-Mart

One of my (many) favourite blogs is Always Low Prices, [ALP] the title of which is taken from Wal-Mart's well-known slogan. Kevin Brancato, one of the primary ALP bloggers, and I have exchanged messages and links about economic policies applied and mis-applied in various situations involving Wal-Mart. Here, with his permission, is one of his latest messages, in which we were discussing Robert Reich's NYTimes editorial.

All I can say is, "Yay to wage and benefit controls! We need to slow change and keep Chinese peasants on the farms a little longer!"

For every 100 antagonistic visitors [to the "Always Low Prices" blog] --happy-hyper-union folk, anti-outsourcing bigots, environmentalists, suburban-sprawl haters, and anti-capitalists, there is one woman who just wants to know where she can find Enchantment perfume at a good price. Sometimes you really do need comic relief in a serious play. And yesterday I was told I committed a logical fallacy, but the interrogator refused to explain what actually was wrong with my post. I find being a truth-seeker in a society of biased partisans to be a source of endless pain and amusement.

Let's hope he continues to blog after leaving GMU.

The Canadian Way: Tax Everyone
And Subsidize Special Interests

Whenever Canadians decide through the political process that something must be done, all too often the decision is to tax everyone and subsidize some favoured activity. If it works at all, this modus operandi tends to be extremely inefficient.

Example #1: When the federal gubmnt decided to try to meet its obligations under the Kyoto agreement, rather than tax the use of carbon-based fuels, it offered subsidies to people who use less or who develop carbon-free or carbon-reduced alternatives. Of course this solution is inefficient because it relies on politicians and bureaucrats to decide what should be subsidized, and it doesn't impose costs directly on those who might be raising social costs by using a lot of carbon-based fuels (keeping in mind that the science and economics of global warming are wide open for debate).

Example #2 [thanks to BrianF]: Congestion in major urban areas is a problem, as is the pollution resulting from commuters. The Ontario provincial gubmnt's response was not like that of London, England, where a major congestion fee is charged for every vehicle that travels in the urban core. Instead, in the provincial Liberals have proposed a subsidy to those who ride public transportation. I'm curious about how the gubmnt will decide to distribute these subsidies. My guess is that current users of public transportation will see the subsidies as pure gifts, and that the substitution effects will be small (and greatly impeded by the transaction costs of collecting the subsidy).

Gubmnts find it easier to grant subsidies to one set of special interest groups than to harm some different special interest groups by taxing them. The result is that general tax levels must be used for the subsidies, and all of us end up paying.

Thursday, March 03, 2005

Math Hazing

When I first came to teach at The University of Western Ontario about 54 years ago, I was one of the young turks; I also used quite a bit of math in my work. As time went on, I became increasingly skeptical about all the gratuitous use of math in graduate economics training. I am delighted to see I am not the only one. From Arnold Kling (you have to love his term, "math bigots"):
Today, the "theory sequence" at most top-tier graduate schools in economics is controlled by math bigots. As a result, it is impossible to survive as an economics graduate student with a math background that is less than that of an undergraduate math major. In fact, I have heard that at this year's American Economic Association meetings, at a seminar on graduate education one professor quite proudly said that he ignored prospective students' grades in economics courses, because their math proficiency was the key predictor of their ability to pass the coursework required to obtain an advanced degree.

And Micha Ghertner of Catallarchy adds:
Perhaps the continued use of complex mathematics and econometrics even in the face of mediocre results is the method by which economists make it more difficult for the marginal student to enter the field, thereby protecting themselves from further competition. Further, this protects economists from competition with other social scientists, like sociologists, psychologists, political scientists, and philosophers, who do not need and do not have the mathematical background necessary to decipher and challenge the work done by economists.
Links courtesy of Katie at A Constrained Vision here and here.

and remember the math guy on the hiring committee who said, "He's so smart even I can't follow his math." Some of my friends and I thought it was something like Freudian compensation, maybe "math envy".

Are Tim Horton's Paper Coffee Cups Wasteful?

Some Canadian environment groups are upset that Tim Horton's chain of donut shops is once again holding its "Roll Up the Rim to Win" contest.

During the contest, customers who buy any hot drink get a chance to win prizes including SUVs, plasma TVs or free coffee or doughnuts if they roll up the lip of their disposable paper cups and find a winning

People buy more coffee during the contest and often carelessly toss out the non-winning cups, said Don Dick, Alberta director of Pitch In Canada, a national non-profit organization concerned about the proliferation of packaging and its effects on the landscape.

Lisa, at London Fog, challenges such views. Here's an excerpt:

If this piece weren't for real, it would be hilarious satire.
Unfortunately, these people take themselves seriously. ...
Adding sarcastically,

Just ban fast food and coffee and be done with it.
In addition to the economic interventionism that bothers me about the article, what also concerns me about campaigns urging Tim Horton's to end their paper-cup-lottery is that doing so would put the end to such classic art as this.

Security Glass

Here is one way to demonstrate the strength of your product. 3M markets a security glass; its ad agency puts stacks of twenty-dollar bills between sheets of the glass at a downtown bus stop in Vancouvre.
While there’s some speculation as to whether or not all of the bills encased in the ad are real, that hasn’t stopped several people from
attempting to break through the glass (with one sorry soul apparently busting some toes in the process).

Click here to see the full story plus a picture.

[thanks to BenS for the link]

Numb3rs and the Prime Rate of Interest

I like the idea that there is a television crime show in which the hero is a math jock who uses math to solve crimes. And while I was skeptical about the show after its premiere, I got so I liked it anyway.

The last episode I saw (I'm not sure if it was the last one to have been aired) involved a kidnapping combined with an attempt to hack into the computers of the Federal Reserve system to get advance notice about the upcoming Prime Rate of interest.

Actually, the prime rate is somewhat removed from direct Fed control; the prime rate is the rate charged by commercial banks to their most credit-worthy customers.

If someone had advance information about the Fed's intentions regarding the Federal Funds Rate, that might be pretty valuable information which could have formed the basis for that episode; but for all the care taken to put together a decent show, you would think they might have checked with an economist.

What Was in the Job Description?

Koko, the female sign-language communicating gorilla, has a breast fetish that has led to some labour strife within the Gorilla Foundation, which is charged with her care.

Two fired caretakers for Koko, the world-famous sign-language-speaking gorilla, have sued their former bosses, claiming they were pressured to expose their breasts as a way of bonding with the 300-pound simian. ...

They were threatened that if they "did not indulge Koko's nipple fetish, their employment with the Gorilla Foundation would suffer," the lawsuit alleged.

The lawsuit claims that on one occasion [Francine "Penny" Patterson, the longtime trainer of the well-known gorilla], said, "'Koko, you see my nipples all the time. You are probably bored with my nipples. You need to see new nipples.'"
Other working condition complaints are also listed by the plaintiffs.

This case sounds like a classic contract situation: to what did the parties agree? what is implied in the contract? and do the terms of the contract violate any laws?

If Patterson really did say that, she sounds a little wacko to me, "wacko" being a well-defined economics term for someone who has a utility function with arguments and weights quite different from mine.
[thanks to the many readers who have sent this to me, including JC and BF]

Wednesday, March 02, 2005

Iowa State. Harvard of the Midwest

Back when I was in graduate school at Iowa State University in Ames, Iowa, there was an entire faculty of home economics. Andy Borowitz suggests in this humour piece, that Larry Summers is planning one at Harvard (thanks to Jack for the pointer).
“Starting in the fall, Harvard will offer home economics for women who find economics too tricky,” said Mr. Summers, who called the move “long overdue.”

Mr. Summers said that the new courses would help women at Harvard improve their grade point averages, adding, “When it comes to getting busy in the kitchen, women are second to none.”
The home ec major, which will consist of courses in cooking, sewing and what Summers called “the allied domestic arts and sciences,” is considered a major departure for the curriculum of the storied academic institution.

The programme at Iowa State is now called the "College of Family and Consumer Sciences". Here is the blurb about it from its web page:
One of the most remarkable strengths of the College of Family and Consumer Sciences is its diversity of thought, disciplines, people, roles and resources. Yet, contained within that diversity are programs and people dedicated to sustaining and improving the most basic aspects of life – food, shelter, clothing, safety, health, relationship – as well as optimizing the quality of that life.

It is the common denominator of these diversified efforts – the fact that all of the things we do transform lives – that defines our dynamic new theme of "Transforming lives". It is a concept that, while intellectual, emotional and qualitative, accurately articulates the impact the College has on students, faculty, staff and families and consumers all over the world.

Be careful, Andy (and Larry); Iowa State is gonna sue you for having stolen their programme.

U.S. Judge Grants Temporary Injunction Barring Canadian Beef from the U.S.

No one should be surprised that it happened, given the strong vested interests among U.S. beef producers. They have launched a suit against the USDA decision to reopen the border, and now they have won a temporary injunction banning the shipment of beef from Canada to the U.S. while awaiting the trial of their case.
The group argued that the government department's proposal ran contrary to the USDA's responsibility to “protect the U.S. food supply and the U.S. cattle industry from the BSE risk presented by Canada.”

The cattle group wanted the judge to keep the department from implementing its plan until a lawsuit over the matter is heard. Judge Cebull ordered lawyers for both sides to prepare for a trial in that case.
Cattle futures moved up slightly during the day, but for the most part the expectation of this injunction had already been capitalized into live cattle futures.

Health Care Price Elasticity of Demand Revisited

After my earlier posting, screaming that "Demand curves are not vertical," [which, by the way, is just another way of saying that people respond to incentives], Brian Ferguson sent me the following, citing Rand research indicating the price elasticity of demand for health care is far from zero:

[Brad DeLong is] obviously assuming that there's no substitution effect in the demand for health care - that the production function is Leontief in the health care direction and that any measured price elasticity of demand comes strictly from the income effect. There are obviously a number of estimates of the price elasticity of demand for care in the literature, but the most commonly quoted price elasticity is probably the one found by the RAND Health Insurance Experiment (HIE) in the 1970s; roughly -.20. I'm inclined to think that these days that would be an understimate, for various reasons, but that's the RAND HIE number.

What's interesting in regard to your post is the structure of the HIE. The RAND experimenters randomized a few thousand participants into a number of different health insurance plans - the difference between plans was primarily in terms of co-payments and deductable levels. The problem they faced was that a lot of the participants already had health insurance plans, and the randomization process might assign an individual to a plan which provided less generous coverage (higher co-payments, for example) than their existing plan. Individuals who found themselves in that situation were likely to refuse to participate.

To get around the problem, the RAND group calculated, for each individual in the experiment, the maximum excess amount they might have to pay as a result of being assigned to whichever plan they'd been randomized into.

They then made a side payment of this amount to anyone for whom it was positive. This meant that everybody was guaranteed that they would have enough income to buy the same bundle of goods as before, even if, as a result of being assigned to a less generous plan, they faced higher prices for health care than before. In other words, the HIE's calculated price elasticity of demand was a compensated elasticity.

It wasn't a perfect, intermediate micro textbook compensation mechanism, of course, because as far as I know they didn't tax people who were randomized into plans which were more generous than the ones they were already enrolled in, but it was probably as close to a Hicksian compensation mechanism as you're ever likely actually to observe.

So the most often quoted price elasticity of demand for health care is closer to being a Hicksian than a Marshallian elasticity, and, contrary to Brad DeLong's hypothesis, it's not zero. Brad DeLong might be a top flight macroeconomist, but he doesn't seem to know the health economics literature particularly well.

One of Brian's major areas of research is health economics. It is easy to see from the above why he and I hit it off so well when I visited The University of Guelph over two decades ago.

History, Technology, and Reminiscences

At my advanced years, I sometimes reflect on how much more capital we have at our disposal now than we did when I was a child, and on the tremendous technological changes and innovations we've enjoyed. Ben Muse has three posts in a row here, here, and here that help us realize that people felt the same way about changes in previous generations. In one of the pieces, Ben writes

I'm often startled to think how far technology has come in the lifetimes of people I've known. People felt the same way in the industrial revolution of the 19th Century.

Ben continues with intriguing quotes from An Empire of Wealth by John Steele Gordon.

According to John Steele Gordon, young George Templeton Strong
was impressed with technological change to 1839 :

"...the railroads simply thrilled the people of the day, who sensed immediately that they were in a new era, one beyond the comprehension of earlier times. "It's a great sight to see a large train get underway," nineteen-year-old George Templeton Strong wrote in his diary in 1839. "I know of nothing that would more strongly impress our
great-great grandfathers with an idea of their descendent's progress in
science...Just imagine such a concern rushing unexpectedly by a stranger to the invention on a dark night, whizzing and rattling and panting, with its fiery furnace gleaming in front, its chimney vomiting fiery smoke above, and its long train of cars rushing along behind like the body and tail of a gigantic dragon - or like the devil himself - and all darting forward at the rate of twenty miles an hour, Whew!"

Strong wants to show Ben Franklin a railroad train; I'd like to
have him with me as my plane descends into Seattle on a clear day.

He can have the window seat.

The postings are well worth reading.

Centralized Health Care and Libraries

President Niyazov of Turkmenistan has truly centralized the hospital care and the libraries of his country. He closed all of them outside Ashgabat, the capital city.
"Why do we need such hospitals?" he said. "If people are ill, they can come to Ashgabat." ...

At the same time, the president has also ordered the closure of rural libraries, saying they are pointless because village Turkmens do not read.

Not surprisingly, no one in Turkmenistan has complained:
Criticism of the president is not allowed in Turkmenistan, but civil rights activists abroad say he has destroyed social services while spending millions of dollars of public money on grand projects, such as gold statues of the leader and a vast marble and gold mosque, one of the biggest in Asia. [Thanks to BrianF for the link]
This extreme example highlights a major problem when the budgets of bureaucrats are scrutinized but with little or no attention paid to the transportation costs borne by users of publicly provided facilities. In Ontario, we are facing closures of schools and hospitals in lower population areas, and few if any of the studies consider the increased transportation costs of the users.

Just How Stupid Is He?

A Vice-Principal at a private school in The United Arab Emirates is under investigation for having shown pornography to his students.
The Education Ministry recently dropped the move to promote Mohammed Mirza Ahmed Abdullah, the assistant principal of Al Dhahira School for Basic and Secondary Education, as principal, after he was caught red-handed, showing his students such films on his laptop computer.

One of many aspects of this situation that intrigues me is the question of how idiotic the person would have to be to have done this. What were his expected benefits? What were the expected costs, given the high probability of being caught?

Another case of natural selection, courtesy of JC.

Tuesday, March 01, 2005

Here we go again....
Saddam-Style Rope-a-Dope

Reuters is reporting that Iran has denied a U.N. request to inspect an additional site for nuclear weapons.
Iran rejected a request by U.N. nuclear inspectors to return to its Parchin military base, where Washington suspects Iran might have conducted tests linked to nuclear bomb-making, the U.N. atomic watchdog said Tuesday.
Inspections play a role in deterring the development of nuclear weapons in that they raise the costs of developing them. It would be folly to expect inspections to do much more.
[Thanks to Jack, who deserves the credit for, "Saddam-style rope-a-dope"]

Property Law: A Barrel of Laughs

If you are looking for some humourous reading, pick up a casebook on property law. The weird situtations that occur and then are litigated are enough to keep you laughing or chuckling for hours. And cases involving the intersection between property law and family law can be a real scream.

Consider the following case [thanks to Alex and his contacts]. A man and a woman have oral sex. The woman saves the sperm, unbeknownst to the man, and later impregnates herself with it. She sues him for paternity; he sues her for theft.

Phillips accuses Dr. Sharon Irons of a "calculated, profound personal betrayal" after their affair six years ago, saying she secretly kept semen after they had oral sex, then used it to get pregnant. He said he didn't find out about the child for nearly two years, when Irons filed a paternity lawsuit. DNA tests confirmed Phillips was the father, the court papers state.

Phillips was ordered to pay about $800 a month in child support, said Irons' attorney, Enrico Mirabelli.

That decision seems a little wonky*. The man had no reasonable expectation that he would be fathering a child with his action. Surely the woman is the least-cost bearer of this risk.

The upper courts agreed.

Phillips sued Irons, claiming he has had trouble sleeping and eating and has been haunted by "feelings of being trapped in a nightmare," court papers state.

Irons responded that her alleged actions weren't "truly extreme and outrageous" and that Phillips' pain wasn't bad enough to merit a lawsuit. The circuit court agreed and dismissed Phillips' lawsuit in 2003.

But the higher court ruled that, if Phillips' story is true, Irons "deceitfully engaged in sexual acts, which no reasonable person would expect could result in pregnancy, to use plaintiff's sperm in an unorthodox, unanticipated manner yielding extreme consequences."

The judges backed the lower court decision to dismiss the fraud and theft claims, agreeing with Irons that she didn't steal the sperm.

"She asserts that when plaintiff 'delivered' his sperm, it was a gift -- an absolute and irrevocable transfer of title to property from a donor to a donee," the decision said.

"There was no agreement that the original deposit would be returned upon request."

How does this case differ from one in which a woman tells a man she is on the pill when she isn't?

* "Wonky" is a well-accepted term in the economic analysis of law.

The Summers Flap Won't Go Away

Maybe it is just that so many bloggers (and other editorialists) are using the Summers flap as a launching pad to pontificate on other topics. Many people wrote things about the situation over a month ago. But more articles and editorials keep appearing.

Among the latest, Becker and Posner use the case to discuss university governance, an interesting example of the principal-agent problem if I ever saw one, since nobody can even agree on who are the principals and who are the agents at most universities. For more, see this and this by the Emirates Economist about the B&P postings. Especially amusing is his reference to one of the commenters:

There are 1437 words in this post about university governance. Not ONE of them is the word "student."
Of course, to be fair, it is about Harvard and Harvard has very little to do with its students.

Another recent piece, by Ben Shapiro [thanks to the other BenS for the link], uses the Summers flap to point out the hypocrisy of most of us in academia. We support academic freedom to say things we agree with, but we know there must be limitations of some sort.

So why the difference in treatment [of Larry Summers in comparison with Ward Churchill]? It would be difficult to claim that University of Colorado professors are more open-minded about academic freedom than are professors at Harvard University. No, this question comes down to politics, pure and simple. Ward Churchill said something professors believe should be said; even if they don’t agree with his statements, they feel that his radical, treasonous anti-Americanism belongs in the classroom. Larry Summers said something professors believe should not be given any forum; he challenged the prevailing P.C. notion that women and men are the same in all respects.

It would be nice if we could all keep meta-constraints in mind rather than addressing issues of academic freedom on a piece-meal basis -- a sure way to get bad policy about academic freedom.

Update: Sparky, at SCSU Scholars, makes this point very well here. And Stephen Karlson at Cold Shop Springs has an excellent piece on these issues here.

Factor Substitution: the Tiffin of Mumbai

Tiffins are lunch carriers. They pick up lunches from people's homes and deliver the lunches to the people at work. And they do so with great efficiency and accuracy.

Mumbai has an estimated 5,000 tiffin carriers - locally known as dabbawallahs- who deliver about 175,000 lunch boxes daily in a century-old tradition. ...

The dabbawallahs collect lunch boxes from the suburban homes of nearly 200,000 customers and deliver them at their offices and factories at lunchtime.

A unique tracking system ensures that all the lunch boxes reach their rightful owners in time, earning a rating of 99.99% for precision and accuracy from Forbes magazine.
BrianF, who sent this to me, suggests that with that degree of accuracy, the British Royal Mails could be in serious danger from their competition now that the UK postal service monopoly has been eliminated.

How much do you think the dabbawallahs earn?
The tiffin carriers typically earn anything between $80 and $95 a month.
This doesn't sound like much; but if it takes two hours each to pick up and deliver the lunches for twenty work days per month, that would amount to $2/hour. Not great in North America, but not bad, either, for Mumbai. And certainly low enough to explain why the occupation still exists (in lieu of the company cafeteria).

Insurance: How Big a Problem Is Adverse Selection?

There is a general presumption in the economics of risk and insurance that people who are especially high risk will be the ones who will benefit most from buying broad-category insurance, and the low-risk people will end up subsidizing them. This is the problem of "adverse selection." Wikipedia has an excellent presentation of the basics.

Tyler Cowen of The Marginal Revolution questions the premise underlying the concept of adverse selection.

Economists miss one of the biggest problems with insurance. We are blinkered by adverse selection models, which imply that the dangerous prospects most want to buy insurance. The opposite is more often true. If you are an irresponsible driver, you are likely to be irresponsible in other spheres as well and not buy auto insurance. On the whole many insurance markets show positive rather than adverse selection. In a development context, this means that the people who most need insurance will be the least likely to buy it.

I expect this criticism of adverse selection applies in many other areas as well; otherwise there would not be so many jurisdictions that require all drivers to carry liability insurance, and in general our in loco parentis policies [aka "the nanny economy"] can sometimes be justified if people who are irresponsible are so irresponsible as to not seek out information about the risks and expected costs of their actions.

It is difficult to propose efficient rules about negligence that have the desired incentive effects for these people.

Monday, February 28, 2005

Has John Kerry been reincarnated in Canada?

[Thanks to Jack for sending this to me]

The Public Interest in Wal-Mart

Robert Reich has an editorial in this morning's NYTimes (reg. req'd) that appears to begin as a defense of Wal-Mart.

[I]sn't Wal-Mart really being punished for our sins? After all, it's not as if Wal-Mart's founder, Sam Walton, and his successors created the world's largest retailer by putting a gun to our heads and forcing us to shop there.

Unfortunately he concludes by implying the standard interventionist arguments about health care: since workers will become dependent on taxpayer-provided health care if they don't receive health-care plans from their employers, we must require employers to provide health-care plans.

The only way for the workers or citizens in us to trump the consumers in us is through laws and regulations that make our purchases a social choice as well as a personal one. A requirement that companies with more than 50 employees offer their workers affordable health insurance, for example, might increase slightly the price of their goods and services. My inner consumer won't like that very much, but the worker in me thinks it a fair price to pay.

How do our purchases from Wal-Mart become choices that necessarily lead to gubmnt intervention? Why is there some need to "trump the consumers in us ... through laws and regulations...?"

How many employees under Reich's proposal already have a health-care plan through a working spouse? Would he allow them to opt out in exchange for a higher wage? If so, would he allow others to opt out in exchange for a higher wage? If not, why not? And if so, what's the point? His plan would become nothing more than a forced wage increase with an opt-out health care plan included.

Update: For a detailed critique of Reich's position, see Kevin's posting at Always Low Prices.

Vouchers, Schools, and Competition

Peter Mork at Economics With a Face has this point to make about the opposition to voucher plans for schooling:

It has just never made sense how much opposition there is to letting parents choose a school for their child, especially when the families these programs are meant to benefit are the poorest in our society who are forced to attend some of the worst schools.

But I know what the real issue is about: teachers' unions and money. If parents were free to send their kids to the school of their choice, many parents might choose private schools where the teachers were not unionized. This could represent a huge loss to both the coffers and political clout of the unions. That's also why the unions spent around $80 million to defeat the proposition at the same time they complained schools were underfunded.

During the campaign, a teacher I knew gave me the packet her union had sent her on how to debate against Prop. 38. It included a variety of pamphlets and flyers explaining what was wrong with the proposition. It also included a small card you could keep in your wallet or purse with 10 rules to follow when debating the issue.

First on the list was: "#1. Never defend the current system."

If that's not a telling statement I don't know what is.

The major opposition I have heard to vouchers takes the form of "but what about quality control?" As Peter says in his piece, it would be nice if the same scrutiny were applied to public schools.

Fortunately, in Canada parents and students do have some slight choice, and the choice provides some slight competitive pressure on the schools to improve the quality of the education they provide.

The Confidence Intervals of Justice

The typical standard of proof with which most of us are familiar in a criminal case is "beyond a reasonable doubt." I have always presumed that this means an attempt to make the probability of convicting an innocent person (Type I errors) small, while accepting that a much higher probability that guilty people will go free (a Type II error).

In Russian criminal cases, the standard of proof is much lower; Type II errors (freeing guilty defendants) are frowned upon (registration required).
"Judges think of themselves as soldiers in the front line fighting crime," said Sergei Tsirkun, who was a prosecutor in Moscow for 10 years and in that time never lost a case. "A judge is not going to pass an acquittal unless he is absolutely, 100 percent confident that someone is innocent. If he has the slightest suspicion that someone might be guilty, he will find them guilty even if he has to ignore problems with the evidence."

In fact, judges who appear to be too lenient are removed from office.
In Russia, the conviction rate in criminal cases heard by judges is around 99 percent, according to the administrative arm of the country's Supreme Court. The rate has persisted since the early 1950s, the last years of the Soviet dictator Joseph Stalin, when the work of judges and prosecutors was automatically reviewed if a defendant was acquitted.

The situation appears to be changing, but slowly and painfully.

Isn't This the Guy Who Declared Osama Dead?

Mark Steyn has this assessment of George Bush's recent trip to Europe (thanks to Jack):

[A]t the end what's changed?

Will the United States sign on to Kyoto?


Will the United States join the International Criminal Court?


Will the United States agree to accept whatever deal the Anglo-Franco-German negotiators cook up with Iran?


Even more remarkably, aside from sticking to his guns in the wider world, the president also found time to cast his eye upon Europe's internal affairs. As he told his audience in Brussels, in the first speech of his tour, ''We must reject anti-Semitism in all forms and we must condemn violence such as that seen in the Netherlands.''

Not much for appeasement, is he?

U.S. Needs Canada's Approval to Shoot Down Incoming Missiles?

That's what Canada's Prime Minister has recently decided (reg. req'd.) in an attempt to assuage the Canadian Nationalists. His pronouncement led to this sarcastic quip by Stockwell Day, opposition foreign affairs critic:

Stockwell Day, the Conservative Party's foreign affairs critic, laughed off Martin's demand that Washington would have to alert Ottawa before taking out an incoming missile.

"These missiles are coming in at 4 kilometers ( 2.5 miles) a second, and if the president calls the 1-800 line and gets: `Press 1 if you want English, press 2 if you want French, press 0 if nobody's there ...' I mean, it's crazy."

How silly is silly? Oh well. Appearances are important.
Thanks to JC for the pointer.

Sunday, February 27, 2005

Playing Poker with Dick Cheney

This transcript was first posted back in June, 2004, but was recently awarded a prize [note: you'll have to scroll down a ways before you get to the transcript; thanks to Tom Luongo for the pointer]. Tom calls it a new form of Liars' Poker. Here is a brief excerpt from it:

Transcript of The Editors' regular Saturday-night poker game with Dick Cheney, 6/19/04. Start tape at 12:32 AM.

The Editors: We'll take three cards.
Dick Cheney: Give me one.
Sounds of cards being placed down, dealt, retrieved, and rearranged in hand. Non-commital noises, puffing of cigars.
TE: Fifty bucks.
DC: I'm in. Show 'em.
TE: Two pair, sevens and fives.
DC: Not good enough.
TE: What do you have?
DC: Better than that, that's for sure. Pay up.
TE: Can you show us your cards?
DC: Sure. One of them's a six.
TE: You need to show all your cards. That's the way the game is played.
Colin Powell: Ladies and gentlemen. We have accumulated overwhelming evidence that Mr. Cheney's poker hand is far, far better than two pair.

But read the whole thing. It is really good.

Do These Blogging Numbers Make Sense?

I have studiously tried to avoid navel-gazing blogging about blogging. I don't think this qualifies, but it is close.

Extrapolating some work I did last year, only about 20,000 blogs (a mere 0.4% of all active blogs) have a sizeable audience (more than 10 regular visitors and more than 150 hits per average day)...

"More than 10 regular visitors" and "more than 150 hits per average day" are very different criteria. I think this blog has averaged well over 10 regular visitors per day, almost from the beginning; but it was only for a few days recently that there were more than 150 visitors per day.

The article continues,

...if blog readership continues to soar (doubling every 18 months) and newspaper readership continues to stagnate, in three years the average B-list blogger will be getting significantly more reader attention than the average unsyndicated US newspaper article or column, and the average A-list blogger will be getting almost as much reader attention as the average US daily paper.

Thanks to Newmark's Door for the pointer

Subsitution and Subsidized Health Care

Question: What is the price elasticity of demand for health care?

Answer: It is greater than zero. Demand curves are not vertical.

Repeat that. Demand curves are not vertical.

The result is that charging a zero price for health care will increase the quantity of health care demanded, and charging a price that covers its costs will reduce the quantity demanded. Consequently, this (quoted with approval by Brad DeLong) is just plain wrong:
The way things are going, in the future people are going to be choosing to spend X percent of their income on health care. X will get larger and larger over time, by choice. So let's say X is 40 percent. From one standpoint, it really doesn't make a difference whether you pay 40 percent of your income for private health care, or 40 percent of your income in taxes that then go to government-administered health care.

It makes a huge difference whether individuals face the prices for health care.

Thanks for the pointer to Alex Tabarrok at Marginal Revolution, who points out another major omission in that quote: taxes also have a distorting, dead-weight loss effect.

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