It's ALIVE

Now...expect to hear powerful voices go on and on about dangerous inflation (which isn't going to happen people).

Mainstream Economists Deserve Their Fall From Grace

Couldn't agree more. Hat-tip to Mike Moffatt

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.