Broback's Blog

Serious Economists universally agree that some goods are better allocated via markets and others are better managed by state distribution. The distinction generally has to do with the nature of the good being considered. These attributes include things like excludability and rivalry. Public goods are generally regarded as items where state allocation is best suited.

Folk Economists also make a distinction between markets vs the state — and which goods are best for each, but the prejudices of the man-in-the-street typically lean toward a more emotional choice based on how “important” a good is. As the Economist said, “The traditional argument has been that health care is too important to leave to the market.”

For the economically uninformed, the fairness of an allocation based on something other than price, (apparently even if it reduces amount supplied) can have strong moral appeal. And in those cases where scarcity is recognized, distribution guided by benevolent experts can be extremely appealing.

The dedicated levelers can be frustrated by people who argue that they don’t like the idea that the same entity that runs the DMV, the post office, and healthcare.gov will be deciding what medical procedures are best for them.

State enthusiasts can employ a variety of clever techniques to make the case that government allocations rule. One approach is to assert that since you personally really like the reports Medicare offers, that Medicare is superior at reporting (Mind Projection Fallacy.) That could be taken a step further by claiming that since the reports are better, this one minor aspect is an indication that Medicare at-large is better at allocating services (Hasty Generalization Fallacy.) Toss in the Straw Man Fallacy for good measure and say your opponents claim that you “can’t trust government to do anything right” and those with market-leanings can generally be put at bay.

At least until they look at the data and focus on the outcomes of the essential Medicare deliverable — care.

Check out this new report just published in healthaffairs.org. In The Quality Of Care Delivered To Patients Within The Same Hospital Varies By Insurance Type, authors Spencer et al., find that “Medicare patients appeared particularly vulnerable to receiving inferior care.” and “We found that privately insured patients had lower risk-adjusted mortality rates than did Medicare enrollees for twelve out of fifteen quality measures examined.”

Your risk of death may go up, but hey, at least your survivors will find the reporting “clear, well-laid out, and fully informative.”

The RAND Health Insurance Experiment is referenced in the academic literature as a “gold standard” study, and the main conclusion it reached aligned perfectly with what Econ 101 teaches us — when people have to pay for stuff, they buy (significantly) less of it. It also confirmed that “outcomes” were not worse for those poor devils that are forced to participate fully in a market system (meaning having to pay for things.)

This conclusion was reached again when the results of a two-year Oregon Health Study were announced. Free health care did not result in clear improvements in physical health for the participants.

Another Econ 101 principle shown to be highly applicable in other markets is that when things are free, demand increases. And when demand increases, prices tend to go up. The paradox is that while places like France and the U.K. are regarded as highly socialized in the delivery of health care, their costs are well controlled compared to the “free market” of the U.S.

The question is, how do you define a market as “free” vs socialized? Many would say that you’d be hard pressed to come up with a better metric than the percentage of health costs paid directly to health care providers out of patient’s own pockets.

Luckily The World Bank has calculated that for us. I found the numbers surprising — that is until I realized they aligned perfectly with what Econ 101 tells us.

We all know that many in the U.K. bypass the NHS (with good reason) to go private with their care. I just did not realize the size of those numbers.

According to World Bank, over 50 percent of costs are paid out of pocket in the U.K. France? 32 percent. Canada? 49 percent. The free market “wild west” that is the U.S.A.? A measly 21 percent. That’s right. Thanks to the collectivization we call insurance, the vast majority of services are delivered to people who don’t care about the bill.

OK, so I’ve tossed out a few examples here, but what does the data tell us? Let’s compare the two data sets linked above. Prices vs. out of pocket. Here is the pattern:

That’s a correlation coefficient of .51. Compare to the correlation of I.Q. to income, which is estimated to be .40 to .50.

I’d be interested to see other data sets that have been correlated with health care costs. I think one would be hard pressed to find a relevant set with a higher alignment.

There’s been a lot of negativity of late surrounding the Foreign Account Tax Compliance Act. The core issue according to The Hill is:

“Now, the U.S. Treasury expects banks in every country worldwide to report funds held by “U.S. persons” (not all are U.S. citizens) beginning in 2015. If they do not, foreign financial institutions (FFIs) face huge financial penalties and sanctions.”

As Bastiat might have forecast, It’s been reported that some institutions overseas are refusing to accept U.S. clients and that has inspired a record number of Americans to renounce their citizenship.

With this in mind, I steered my browser over to Topsy.com to see what the tweets reflected. My main interest was Topsy’s sentiment metric. Comparing the term “colonoscopy” (42% negativity) to “FATCA” (53% negativity) indicates that FATCA is 26% less liked. Sadly, “Obamacare” comes in dead last with a negativity score of 78%.

More information available at wikipedia. The legislative history is shown below.

Almost as if it was choreographed, it was only minutes after reading the passage below from the Economist that I discovered that the respected blog The Oil Drum was to be no more.

“Scratch the surface of the planet and the chances that hydrocarbons will spew forth appear to grow by the day.”

This reality decimates even the now highly diluted position now taken by ardent peak oilers. After digging through the entrails of The Oil Drum, we can see what began as a call to prepare/avoid the painful hardships we will experience from “a global collapse in production.” Has evolved into a concern regarding high prices (from new demand,) fear of climate change, and that Iraq “perceives that too much oil in the market may well be destabilizing.”

A Question of Timing:

While no rational person would claim the supply of fossil fuels is infinite, it’s equally silly to deny that it’s only a matter of time before life on earth is decimated by an asteroid strike or the collapse of the sun. All of the above are certain dire outcomes, yet none merit daily posts by a cadre of PhDs. The reason? Mitigation is unlikely/impossible and none of us or anyone we or our children will ever know will be affected.

Why Did they Quit Now?

The answer can be found in any Econ 101 textbook. The fruits of market innovation in response to high prices are being realized, and supplies are surging. The benefits of horizontal drilling and fracking were first seen in the natural gas market:

Now that the technology is rapidly expanding into the arena of oil production, it’s clear that the chart below from the Economist reflects only the beginning of what will be a long-term and significant deviation from the predictions of the “peak oilers.”

Conclusion:

To use a couple of pop-culture metaphors, The Oil Drum served it’s position well as the Lisa Simpson of blogs, but ultimately became a blog about nothing.

The recent collapse of the carbon trading market in the E.U. has prompted me to put in writing something I’ve been convinced of for some time — that skeptics of man-made catastrophic global warming should just keep quiet. My opinion is that they need to spend less time talking about the economics of carbon taxes and more time studying game theory.

Here’s what I’d tell a vocal denier:

• You’re not going to convince anyone.
• Live in a highly urbanized area? You’ll lose half of your friends.
• Are your friends mostly under 50? (they didn’t live through the strikingly similar — and thoroughly discredited — “limits to growth” movement of the 70’s) You’ll lose half of those too.
• This issue likely won’t be resolved in your lifetime, so you can’t gloat if you turn out to be right.
• Even if you are vindicated in life, it will be like the sages of the cold war — no one will care, and those who were dead wrong will just move the goalposts and claim victory.
• If you’re wrong, you stand the chance of going down in history as the devil.
• Expensive carbon taxes will never happen. Religious Gaia types will be the first to defect when it hits their pocketbooks.
• Expensive carbon taxes will never happen. Anyone who has seriously studied cartels and economic coalition knows aligned carbon-limiting agreements and enforcement among scores of countries is impossible. It just takes one country to cheat or refuse to stifle their economies by participating and it all collapses.

On that last point, Bryan Walsh of Time said it best: “if carbon trading can’t make it in Europe, it can’t make it anywhere.” He’s right. It can’t make it anywhere.

Am I being too jaded about how pocketbooks override ideals? Consider 2009 — when the Republican deniers were held in check by congress and the president. No fewer than 5 (1, 2, 3, 4, 5) carbon tax bills were proposed by Democrats concerned about co2. Despite a fillibuster-proof majority, none made it to the floor.

Me, what do I expouse? I am adopting the line of the Economist. Despite the fact that “temperatures have not really risen over the past ten years.” (15 really…) We need to take “wise precautions.” I wholeheartedly advocate that our politicians spend as much time and effort as possible researching, discussing, and drafting bills that can help prevent catastrophe. They need to divert their attention away from meeting with lobbyists and instead study the climate.

The blogosphere has been roiling of late over a report titled What Does Bowdoin Teach? The 360-page document profiled in the WSJ makes the case that the Brunswick college has abandoned its historical “commitment to Western Civilization” and instead has focused on “reshaping America in the image of progressive politics.”

In my mind, a school that accepts only one in six applicants and charges 44 grand a year can’t be faulted for having a losing formula. If the right-wing embraces market acceptance as the ultimate test, there is no compelling reason for them to ask Bowdoin to revert to a different formula.

Regardless, high demand does not imply a wise investment.

I’ve been noodling around with the site College Risk Report — an online calculator designed to assist those evaluating the net long-term value of various colleges. Naturally, I could not resist seeing how Bowdoin stacks up. The results are not pretty. According to CRR, a liberal arts major would net a better return by standing pat with their high school diploma, and would net about 250K more by attending a local community college instead. See below.

Does political alignment appear to affect net return? What happens if we plug in a school that’s ranked number one for traditional conservative values? Using out of state tuition pricing, here is how Texas A&M stacks up:

And with that bargain in-state pricing:

While it’s probably tempting for some to view this as a win for the conservative mindset, note that Texas A&M dominates here largely due to the fact that its a less expensive school.

My pal Steve reminded me of his thought-provoking post he made a while back asking the question “Why Hasn’t Europe Caught Up?”

Gallup may have a partial answer in this report issued in 2007.

The results echo what the class concluded in an Economics course I took years ago. The overarching topic was an evaluation of the root cause(s) of America’s economic success. Natural resources featured prominently, as did solid infrastructure (transcontinental railroad, etc.) But those factors don’t explain very well why Europe lags today.

The conclusion we reached after 10 weeks (with the helpful hand of the professor) was that the key to our success was that as a nation of immigrants, our population had an unusually high proportion of risk-takers. The thinking was that those who would uproot from everything they knew and loved to forge out to new opportunities, were also more inclined to be entrepreneurial. This mindset endures apparently.

These from the Gallup report:

Been playing with oldtweets, which searches an archive of the first year of statuses posted on Twitter. Makes it easy to see who tweeted what first.

Was pleasantly surprised to see an old conference cohort of mine — Jeffrey Veen, was the first person to tweet the word “Seattle.” Not only that, that it mentions one of my editorial creations — the Web Design World conference.

Heading 2Seattle 4 Web Design World…

— Jeffrey Veen (@veen) July 9, 2006

Three charts.

A little validation for us Huskies from the folks at SmartMoney and their sources — The College Board; U.S. Department of Education and Payscale.com. It will be likely reassuring to UW students and parents who view college through an (arguably narrow) “vocational” lens.

While its intuitive that — holding all other variables as equal — graduates from more selective schools will earn higher salaries, it’s also clear that these schools cost a lot more. If you weigh those numbers against each other the way SmartMoney does, the Georgia Institute of Technology comes out on top in terms of ROI. The UW comes in 6th, Harvard ranks 24th and Yale is 33.

Before I get too smug here, it should be noted that PayScale did their own analysis in 2012, and depending on how you decide to sort their table, Georgia is still number one, and Harvard comes in 6th place. Then again it might be Harvey Mudd. In that latter scenario UW drops to 22 (Harvard is 21).

It should be recognized that the SmartMoney analysis assumes students are paying out of state tuition. Those paying local rates (about 40% the cost) benefit from a significantly higher return.