Tyler Cowen's Blog, page 284

Does Texas portend the future of the United States?

I am pleased to have the cover story of this week’s Time magazine, please note that full story is gated.  Nonetheless here is one excerpt:

Jed Kolko, chief economist for San Francisco–based real estate website Trulia, says that from 2005 to 2011, 183 Californians moved to Texas for every 100 Texans who moved to California. “Home prices, more than any other factor, cause people to leave,” Kolko says.

… the federal government calculated the Texas poverty rate as 18.4% for 2010 and that of California as about 16%. That may sound bad for Texas, but once adjustments are made for the different costs of living across the two states, as the federal government does in its Supplemental Poverty Measure, Texas’ poverty rate drops to 16.5% and California’s spikes to a dismal 22.4%. Not surprisingly, it is the lower-income residents who are most likely to leave California.

On the flip side, Texas has a higher per capita income than California, adjusted for cost of living, and nearly catches up with New York by the same measure. Once you factor in state and local taxes, Texas pulls ahead of New York—by a wide margin. The website MoneyRates ranks states on the basis of average income, adjusting for tax rates and cost of living; once those factors are accounted for, Texas has the third highest average income (after Virginia and Washington State), while New York ranks 36th.

Here is a summary of some parts of the article, with numerous quotations from the piece.

Here is a good Timothy Noah piece on migration and real estate prices.  Here is another relevant piece.  Here is a good (AEA-gated) Ed Glaeser review of Enrico Moretti.

European energy fact of the day

…utilities have suffered vast losses in asset valuation. Their market capitalisation has fallen over €500 billion in five years. That is more than European bank shares lost in the same period.

The full article from The Economist is here, interesting throughout.  The article starts with this paradox:

On June 16th something very peculiar happened in Germany’s electricity market. The wholesale price of electricity fell to minus €100 per megawatt hour (MWh). That is, generating companies were having to pay the managers of the grid to take their electricity. It was a bright, breezy Sunday. Demand was low. Between 2pm and 3pm, solar and wind generators produced 28.9 gigawatts (GW) of power, more than half the total. The grid at that time could not cope with more than 45GW without becoming unstable. At the peak, total generation was over 51GW; so prices went negative to encourage cutbacks and protect the grid from overloading.

The trouble is that power plants using nuclear fuel or brown coal are designed to run full blast and cannot easily reduce production, whereas the extra energy from solar and wind power is free. So the burden of adjustment fell on gas-fired and hard-coal power plants, whose output plummeted to only about 10% of capacity.

One implication is that solar and wind receive implicit subsidies from coal and gas plants, through the medium of a backstopped power supply, and those subsidies will be harder to maintain as solar and wind become more important and the installed base of non-renewables weakens.

From this week’s Economist there is also a good piece on problems with water supply in northern China.

Renovations

Commenting may be off for a few hours later today as we do some renovations to improve performance.

Thanks.

The Management

The Richmond Times-Dispatch on *Average is Over*

Here is one excerpt:

“If you’re not a good [chess] player,” Cowen writes, “the fact that you studied with a top teacher doesn’t mean a thing. … There is nothing [in chess] comparable to the glow resulting from a Harvard degree: Announcing ‘I studied with Rybka’ [a powerful chess engine] would bring gales of laughter, since anyone can do that. … The company selling Rybka tries to make its product replicable and universal, whereas Harvard tries to make its product as exclusive as possible. Now, which model do you think will spread and gain influence in the long run?”

Before you answer that, consider this: A year of tuition, room and board at Harvard will set you back more than $50,000. You can get a copy of Rybka for about $50.

The full piece is here.

New Zealand vending machine markets in everything

Via Eric Crampton:

Oxford farmers Geoff and Sandra Rountree will start selling the controversial beverage through a refrigerated vending machine at their farm gate this week. The Rountrees are franchisees of raw milk company Village Milk, which has developed a network of six vending machines around New Zealand in just over a year. Managing director Richard Houston said his franchisees were the only certified raw milk suppliers in the country.

Assorted links

1. Is Marxism making an intellectual comeback?

2. Four-minute Robert Shiller video, interesting in both mood and content.

3. Robot petting zoo.

4. Interview with Ted and Dana Gioia.

5. Brookings review of Average is Over…”Not Afraid of Tyler Cowen? You will be…”  And here is Dorset Naga.  And Andrew Lewis reviews the book.  He understands the book quite well.

6. “…the average US automobile contains $1.65 in change when it arrives at the shredder.”

Do parents seek to maximize the social value of their children?

Let’s say a genetic test indicated a 90% chance that a child-to-come would be troubled with obsessions and unhappy and unsuccessful, and a ten percent chance that the child would grow up to be one of America’s leading entrepreneurs.  Or more modestly, in the positive scenario the child would be comparable to a worker or a scientist who creates $5 million in social value a year.  I believe most parents would feel uneasy about this genetic lottery, even though its expected social value is unambiguously high.  Telling the parents that the expected value of the child for society would be high would not distract them very much from the costs of the risk.

As I see it, many upper middle class parents desire their child to be slightly more successful than they are, and in related but not identical fields and ways.  They certainly would be happy if their child turned out to be the next Bill Gates (and more secure in their retirement), but not that much happier from a parental point of view.  Parents qua parents can get only so happy, and if your kid turns out well by your standards you are already pretty close to that maximum.

Notice how children differ from money.  Big dollar prizes induce risk-taking, at least from some entrepreneurs who have a strong desire for more and more money.  But big “parental prizes,” such a siring a true genius, might not induce much risk-taking with the identities or natures of children.

This is one possible institutional failure if there were “market-based” eugenics, namely that parents would be too risk-averse a social point of view.  We would end up with too much sameness, both across children and across the generations, and not enough monomaniacal creators.

How Medicare influences private payment systems (model this)

There is a new paper by Jeffrey Clemens and Joshua D. Gottlieb on this topic, the abstract is here:

We analyze Medicare’s influence on private payments for physicians’ services. Using a large administrative change in payments for surgical procedures relative to other medical services, we find that private payments follow Medicare’s lead. On average, a $1 change in Medicare’s relative payments results in a $1.30 change in private payments. We find that Medicare similarly moves the level of private payments when it alters fees across the board. Medicare thus strongly influences both relative valuations and aggregate expenditures on physicians’ services. We show further that Medicare’s price transmission is strongest in markets with large numbers of physicians and low provider consolidation. Transaction and bargaining costs may lead the development of payment systems to suffer from a classic coordination problem. By extension, improvements in Medicare’s payment models may have the qualities of public goods.

This paper, which seems quite sound to me, has a few implications.

First, if you are unhappy with the American health care system, government is more at fault for the problems of the private sector than it may at first appear.  We have a much more governmental system than most of its critics care to admit and that goes even beyond government health care spending as a percentage of total health care spending.

Second, we could cut Medicare reimbursement rates, by limiting the doc fix, without old people all very rapidly going to the back of the health care queue.

Third, the authors find that the larger Medicare becomes, the stronger this “pass through” effect generally will be.  In other words, this result will be all the more true in our future.

Fourth, the cross-sectoral price transmission result implies that long-run supply elasticities in the sector are not large, which also does not bode well for the future of health care access in an aging society.

Overall this is a depressing paper, although it implies that successful Medicare cost control could have significant cross-sectoral benefits, beyond Medicare itself.

The Quality Of Care Delivered To Patients Within The Same Hospital Varies By Insurance Type

That is the new paper by Christine S. Spencer, Darrell J. Gaskin, and Eric T. Roberts.  Let me excerpt the three most important sentences from the abstract:

We found that privately insured patients had lower risk-adjusted mortality rates than did Medicare enrollees for twelve out of fifteen quality measures examined. To a lesser extent, privately insured patients also had lower risk-adjusted mortality rates than those in other payer groups. Medicare patients appeared particularly vulnerable to receiving inferior care.

I don’t have a great deal of confidence in our ability to estimate the size of that effect, but keep that difference in mind next time someone tells you that Medicare is so much more efficient than private health insurance in this country.

Assorted links

1. How to practice well.

2. How to spot good gelato from fifteen feet away.

3. Coorg dining and recipes.

4. Megan McArdle on the exchanges and how long they have to fix them.

5. A simple note on wealth taxes.

6. New post on GMM.  And John Cochrane on Hansen and GMM.