Pointless Public Option

"We need this option because the insurance companies have failed to meet their obligation" to the public"

...Bologna.

The main reason our system has failed to meet obligations is because our system has failed to provide competition in the market - our system fosters oligopoly formation in the health insurance industry. So of course insurance companies will try to extract super-rents from consumers. But, so long as reform promotes increased competition amongst private insurers both within States and between States, that in and of itself will bring enough competition. We won't need a government run health program to add one more competitor to the mix then.

Obama gets this point. He sees competition as the important issue, not the public option. He understands that we don't necessarily need a public option to get to competition. So, either the left wing doesn't believe reform can increase competition, or they do believe it they just have another agenda....

A Curious Post by Delong

Delong posts a Bush-era finding on the benefits of cap and trade. Part of it compares cap and trade to 'emissions fees' (tax) - and finds, for some of the same reasons I've mentioned on this blog, that a tax has certain downsides compared to cap and trade.

See this (bold is something I've discussed before):
"As mentioned previously, one problem with emission fees is that it is difficult to know beforehand at what level to set the fee to achieve the desired pollution reduction. This might require periodic adjustments of the fee level, and such adjustments would introduce uncertainty that could interfere with firms' planning decisions. The emissions fee does, however, allow the government to set with certainty the marginal cost of emissions reduction. For each emission fee there is a corresponding allocation of permits that would achieve the same results; however, it is difficult to know beforehand what the market price for permits will be once trading actually takes place."

The reason the post is curious is that it was released by Bush economists lead by Greg Mankiw, who everyone knows know has the complete opposite position (favors taxes over cap and trade).

Posner and Keynes, sitting in a tree...

I never thought I'd see that day, that Chicago-school idolater Richard Posner became a Keynesian (not to be confused with NEW Keynesian - which isn't real Keynesianism anyway). The day has come.

One of the most poignant quotes from his "New Republic" article:

"Baffled by the profession's disarray, I decided I had better read The General Theory. Having done so, I have concluded that, despite its antiquity, it is the best guide we have to the crisis. And I am not alone in this judgment."

A couple things strike me: (1) I was saddened (though not altogether shocked) that someone so intellectual had never even bothered to read Keynes' opus before. (2), happiness that someone who I have, in the past, deemed intellectually brainwashed could muster enough fortitude to break through the mainstream economic morass.

Another glimmering quote:

"Keynes wanted to be realistic about decision-making rather than explore how far an economist could get by assuming that people really do base decisions on some approximation to cost-benefit analysis."

So true Professor, so true.

If this is a foreshadowing of how economics, and mainstream economics, might go, I only wish I was born today, so that I could grow up in an academic economics environment a little more accepting of real thought, and a little less accepting of trying to make everything fit a 'rational' mathematical model.

As if there's any wonder why banks are failing....

Here's one reason: they provide multi-million dollar loans with no proof of collateral other than someone's signature.

Health Care - It's Not Free (Duh), But It Can Be Provided Equally

Mankiw writes in the New York times that health care is not free - that is the main point of his article. He points out that, "At some point, someone in the system has to say there are some things we will not pay for." Great. That may or may not be true, but that has no bearing on whether such restrictions can be applied equally.

First, as long as we are willing to transfer resources from outside the health care industry to inside it, and/or we are willing to make the health care industry actually work (increase competition etc), there becomes an increasing possibility that we can pay for quality healthcare - for everyone.

Second, I have doubts that the mainstream econ talking point about health care technology as the real base reason for the skyrocketing costs. The reason is that the price trajectory should eventually FALL because of this invention, not rise. Like every other industry, when new technologies are introduced prices are usually quite steep, but then they almost always dramatically fall as costs of using recently 'released' technology falls. So why don't they in the health care industry?

1. The patent system creates monopoly power and encourages companies to focus on the 'next big technology' as opposed to focusing on improving on existing products. So, it's not the technology that is a base cause, it is the patent system. This is the 'dark' irony of the our patent system: it is supposed to encourage invention, but the very act of encouraging invention by creating monopoly power actually makes the market unsustainable.

2. Unlike every other developed country on Earth, the US allows direct commercial marketing and advertising for the newest technology/drugs which, when combined with the fact that consumers have no incentive to think about cost (since it's going to be passed on in many cases to insurance companies as Mankiw points out), consumers demand the next best thing - no matter the cost.

So maybe it's not the technology by itself that is the issue. Maybe it's the infrastructure that we've created that is the problem.

Notre Dame Gets Screwy

This is indeed strange timing for Notre Dame to be dissolving its Heterodox department (and extremely unfortunate). Hat tip to Brad DeLong for the link.

Well-Being Vs. Happiness

One thing that does strike me as interesting from the AEA survey, which Robert Whaples (author) also finds interesting in his concluding remarks:

"However, “happiness” does not seem to mean the same thing as “well
being”—and the vast majority of economists (88 percent) are optimistic that
continued economic growth in economies like the U.S. does yield ever greater
levels of well being."

Indeed, when asked if "Economic growth in developed countries like the U.S. leads to greater levels of happiness", nearly 20% thought not. However, when asked if "Economic growth in developed countries like the U.S. leads to greater levels of well-being", only 3% thought not.

This actually makes sense to me. Many people conflate the two terms: happiness and well-being. But while they might be similar if not identical concepts, they are different things from a measurement perspective. And because economists are so data-driven (likely too much so), most probably look at data that suggests happiness isn't really affected by income over time and go with that. The problem is, that is likely a problem with measuring happiness, not a real effect.

Well-being can be measured by things like health, levels of education, life-expectancy and can be compared across nations and across time. Happiness, while presumable directly linked with well-being, is a purely subject measure from a group of people at a given point in time.

So consider my doppleganger that existed in 1920. He wasn't expected to live as long as me today, he didn't have the same availability of quality education, technology, health services. By all measures, his level of well-being was lower. But the problem is, he only lives once and only in one timeframe. The only way he can self-reportedly measure his own happiness is against those of his contemporaries. So, let's say he rates himself a 4 out of 5.

Now consider me, today. Thanks to economic growth, my well-being has increased (I have better technologies, I can expect to live longer, etc). But I have the same problem as my doppleganger because I too cannot compare myself across time. I certainly cannot judge my happiness level today on how happy or unhappy my doppleganger had it 80 years ago - I have no idea what his happiness was like back then. I can only judge how happy I am, as my doppleganger did, by comparing my present condition across my present contemporaries and across my real history (how happy I was yesterday). I too rate myself a 4.

So, my well-being has increased, but my happiness hasn't - or rather, it probably HAS... I just have no way of measuring that when I do a survey.

It is for this reason that studies that try to measure self-reported happiness, in my opinion, do so in vain. To the degree that measures of happiness does change over time, I suspect it really reflects large societal cultural changes - changes in race or sex relations, changes in social norms etc....

Most mainstream economists believe X, therefore, so should you?

Mankiw points out that roughly 4/5 of mainstream economists believe tariffs and like policies generally should be eliminated. He always makes a point to flaunt these statistics as if to say, "because most people believe this, so should you." But it's exactly this indoctrination by economists that I think is not only harmful for the profession in that is promotes group-think (or no-think), but it harms our whole society by painting things in black and white, as opposed to the more realistic shades of gray.

New Fuel Efficiency Standards Outlined

Obama outlines new standards

UPDATE: Prof Mankiw - hypocritical?

Mankiw is ok with 'invading' the market and charging higher taxes on gasoline, but when it comes to tires that could be deadly to American consumers and when it comes to placating a 10% growth-rate country that has little to no regulation of safety in its supply chains... all of a sudden he dashes to the typical pro-market line of 'free trade'. Gas taxes sap the income of Americans and make it hard in these severe economic times given the necessity of gasoline consumption of thousands of Americans. Temporary Tarrifs sap the income of 10%-growth China and add to American coffers - until Chinese behavior changes when the tariff can be lifted. Does Mankiw not believe there is a negative externality to Chinese tires sold in the US? Perhaps the cost is negligible, but perhaps not. But perhaps the signal to China is priceless....

http://gregmankiw.blogspot.com/2009/09/victory-for-protectionists.html

In Support of Chinese Tires Tariff

Ordinarily I would not be in favor of the significant tariffs recently supported by President Obama against the import of Chinese tires. Indeed, the argument that this 'saves American jobs'is for the most part, hogwash. It helps the American tire mfg. industry for sure but as anyone that's taken an intro macro course knows, the affects on the aggregate economy is just shifting resources from one group to another (in presumably inefficient fashion).

However, there is a legitimate argument, given the well known fact that Chinese imported tires are UNSAFE. Google chinese tires and you will find a plethora of links about recalls of Chinese tires by various States and by their own government. There is a reason their tires are so cheap, and the reason (which is the same reason why many of their products are so cheap) is because the Chinese cut safety corners in order to beat the market.

So, this tariff in this case in reality is simply a Pigou tax on a negative externality: the higher probability of lack of safety being passed on to consumers. The Chinese are not internalizing this cost, and consumers often are unaware the tires are safe at the time of purchase. So, I applaud the Obama administration for sending a signal to the Chinese, and for course-correcting a likely market failure.

I await Prof. Greg Mankiw's approval as well, since he's in bed with Pigou taxation.