Tyler Cowen's Blog, page 278
October 30, 2013
Three provocative and interesting health care links
1. Josh Barro on health insurance as fiscal policy. The private market may be more statist than you think.
2. Arnold Kling on when the ACA exchanges will be working. Maybe never, or possibly very soon.
3. Chris Conover on how many people will have to change their health insurance plans? There is some exaggeration in the definitions there, but still the author makes some useful points.
Hi future
In the past three weeks, Georgia Tech received nearly twice as many applications for a new low-cost online master’s program as its comparable residential program receives in a year. The degree—which uses Massive Open Online Course technology—is the first of its kind, and its popularity suggests a growing demand for online learning.
There is more here, by Douglas Belkin at The Wall Street Journal.
Candidate selection in an “only Nixon can go to China” world
Do you know the saying “only Nixon can go to China”? Dan Sutter and I once wrote a paper about the phenomenon. The point is that politicians with a previous record of opposing a policy shift are often the only ones who can bring it about, because their policy support provides a credible signal of policy quality to the relevant interest groups who would otherwise oppose the policy. Another example would be Schroeder of Germany — from the left-leaning SPD — being the one to do real labor market reform.
Of course this effect does not always operate, for instance Chairman Mao was not the one to deregulate the Chinese economy. But Deng Xaoping was an old-time hardliner from way back when.
In any case, let’s say we have entered a new era of American political gridlock, in which usually nothing gets done. When might that gridlock be broken?
Well, gridlock could be broken — at least possibly — by a leading politician supporting a proposal against ideological type. What does this mean?
1. You might be very nervous if your party elects a President the next time around.
2. You might think twice before supporting ideologues within your party. They offer the greatest chance of “betrayal,” and if they “stay true” they can’t push through your agenda in any case.
3. You might prefer to support very weak candidates, who have no strong base of support in the ideological wing of their party. They will find it hardest to betray the ideologues.
4. There are “knowledge issues” and “stubborn self-interest” issues. At the time, it was possible to persuade many foreign policy hawks that an opening to China might better achieve their preferred ends, such as defeating communism. In contrast, I suspect no signal can persuade the elderly that “reallocating funds from Medicare to Head Start” can serve their interests, not even if Lawrence Welk swore as such on a stack of Bibles. If knowledge issues tend to get solved, over time politics may become more and more about stubborn self-interest issues, which diminishes the potential import of the “Nixon phenomenon.”
Whether we are at this final end stage yet is not clear to me, though I suspect not. I still see plenty of room for “great betrayals,” whether it is Obama on entitlements or the next Republican President on…just about anything.
October 29, 2013
Ross Douthat on the burden and incidence of ACA
As Angus has pointed out, Ross has been on a real roll lately, here is yet another good bit:
Now an effective levy of several thousand dollars on the small fraction of middle class Americans who buy on the individual market is not history’s great injustice. But neither does it seem like the soundest or most politically stable public policy arrangement. And to dig back into the position where I do strong disagree with Cohn’s perspective, what makes this setup potentially more perverse is that it raises rates most sharply on precisely those Americans who up until now were doing roughly what we should want more health insurance purchasers to do: Economizing, comparison shopping, avoiding paying for coverage they don’t need, and buying a level of insurance that covers them in the event of a true disaster while giving them a reason not to overspend on everyday health expenses.
If we want health inflation to stay low and health care costs to be less of an anchor on advancement, we should want more Americans making $50,000 or $60,000 or $70,000 to spend less upfront on health insurance, rather than using regulatory pressure to induce them to spend more. And seen in that light, the potential problem with Obamacare’s regulation-driven “rate shock” isn’t that it doesn’t let everyone keep their pre-existing plans. It’s that it cancels plans, and raises rates, for people who were doing their part to keep all of our costs low.
The full post is here.
Assorted links
1. Six signs you are reading good criticisms of economics.
2. John McDermott at the FT has a new blog.
3. More strange results from quantum mechanics.
4. I don’t usually enjoy political books, but Peter Baker’s Days of Fire, on the Bush-Cheney relationship, is excellent.
5. Further signs that Indian agricultural productivity is improving. This radically under-covered story is one of the most important of our time.
What is the most likely path forward for the ACA exchanges?
I had lunch yesterday with a friend and I was asked that question (and I asked it in turn). My answer, with some ex post editing, was this:
1. The chance of “no smooth resolution” for the health care exchanges crisis is now 60-40. Not long ago I thought it was 20-80.
2. The Obama administration is claiming the exchanges might be ready soon to stem Democratic defections and to keep the policy locked in, but in reality they now know there is no chance for timeliness (NB: this sentence is true with 60-40 probability, not unconditionally true).
3. More parts of the thing will be working by late November, but not enough for it to serve as a functioning enrollment system, much less encourage “the invincibles” to sign up. They will figure, correctly, they don’t have to bother with the whole thing until they hear from peers, and from the media, that the process is as smooth and as easy as Orbitz. (Oddly, Tea Party attempts to get young people to resist the mandate have the counterintuitive property of increasing awareness of the sign up requirement. Disengagement, not fiery opposition, is the real enemy of the law.)
4. Come January 1, hundreds of thousands of Americans will lose their individual coverage packages for not meeting ACA standards. Most of them won’t have ready replacements. This will be a big mainstream media story, not just a FoxNews story. There will be easily identifiable victims, expressing sorrow or rage or both in front of the camera. Left-wing bloggers will express outrage that Republicans express outrage over the existence of individuals with no insurance coverage. Republicans will express outrage that left-wing bloggers express outrage, etc.
5. Democrats will propose various ACA fixes, and Republicans will reject them, claiming that the law requires a more fundamental restructuring. That standoff will not be readily resolved and it will become the “new debt-ceiling crisis.” Democratic defections will be a problem for Obama.
6. The exchanges will be mostly working by March 2014, but by then the risk pool will be dysfunctional. In the meantime, real net prices will creep up, if only through implicit rationing and restrictions on provider networks. The Obama administration will attempt to address this problem — unsuccessfully — through additional regulation.
7. By October 2014, no one will think the exchanges are a satisfactory solution, except for 17 state exchanges which will be running reasonably well. Some of the state-level exchanges, by the way, will have more serious problems than is currently evident, mostly on the back end.
8. Chris Christie will campaign against ACA and beat Hillary Clinton in the general election. Upon assuming office he will place price controls on the insurance plans in the individual market, repeal much but not all of the federal financial support for the Medicaid expansion, and keep many other parts of ACA, while claiming to have repealed the whole thing. Enough Democrats will go along with this, as public opinion will have shifted toward the Republican side on this issue. The individual market still won’t be working very well. The exchanges will be working fine in the technical sense, but skittishness, political risk, and the adverse selection death spiral will have led the insurance companies to withhold high quality policies from that side of the market.
The Travel Arbitrage Challenge
Chris, a loyal reader (natch), poses the following challenge. He is planning to travel, perhaps to Venezuela, but other countries are open. He’d like to profit from an arbitrage opportunity which could be due to official and un-official exchange rates or it could be a goods-based arbitrage. At one point, for example, you could do quite well bringing condoms to Russia but no longer. Nothing illegal especially on the import side or nothing too illegal. I get the feeling he would go for bringing in Cuban cigars if that were his best bet.
Thus, MR readers, the challenge. What country and what arbitrage?
As for me, I always eat well and get a haircut when I’m in a poor country (thanks Bela Balassa) but that arbitrage won’t pay for the trip. Can you do better?
The new Israeli export: water technology
The Israeli water industry took over the convention center here this week to show the world its bacterial sewage scrubbers and computerized shower heads, its low-flow nipples to grow high-yield tomatoes, and its early-warning mathematical algorithms to detect dribbles, leaks and bursts.
It might not have been the sexiest business conference in a country that refers to itself as “start-up nation,” but there’s a lot of money in water.
Israel wants to be seen in the water world the same admiring way it is viewed in the realm of high-tech. The country’s exports of water products have tripled in the past five years and now total $2 billion, according to Israel’s economic ministry. Its biggest customer is the United States, but new markets are opening in countries with an emerging middle class, such as Mexico, Turkey, China and India.
Because of Israel’s history of scarcity, isolation and resourcefulness, it has the jump in water management and conservation.
Here is more, and it is time to have a good long read article on Israeli water policy and technology. Here are three bits:
Israel recycles more than 80 percent of its effluents, compared with about 1 percent in the United States, the governor said.
And:
Israel is a world leader in desalination of seawater. By next year, more than a third of Israel’s tap water will come from the Mediterranean Sea and a few briny wells. Israel’s total water consumption remains nearly at 1964 levels — even though its population has quadrupled to 8 million people, according to the economic ministry.
And:
There are 280 water technology companies in Israel.
Here is further background on Israeli water policy. One obvious element here, of course, is that water policy for Israel is a matter of national security.
October 28, 2013
The declining return to education spending in South Korea
This spending, however, no longer yields rich returns. Going to university racks up tuition fees and keeps young people out of the job market for four years. After graduation it takes an average of 11 months to find a first job. Once found, the jobs remain better paid and more secure than the positions available to high-school graduates, but the gap is narrowing. The McKinsey Global Institute reckons that the lifetime value of a college graduate’s improved earnings no longer justifies the expense required to obtain the degree. The typical Korean would be better off attending a public secondary school and diving straight into work.
If the private costs are no longer worthwhile, the social costs are even greater. Much of South Korea’s discretionary spending on private tuition is socially wasteful. The better marks it buys do not make the student more useful to the economy. If one student spends more to improve his ranking, he may land a better job, but only at the expense of someone else.
Even in terms of a signaling model, it seems this spending has gone too far. And indeed this is showing up in the numbers:
The proportion of high-school graduates going on to higher education rose from 40% in the early 1990s to almost 84% in 2008. But since then, remarkably, the rate has declined (see chart 2). South Korea’s national obsession with ever higher levels of education appears to have reached a ceiling.
The article, from The Economist, is interesting throughout.
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