Tyler Cowen's Blog, page 297

Some perspective on malfunctioning ACA exchanges

It is fairly pathetic that they may not be up and running in proper form by October 1, but it is not the main issue either.  Dan Diamond has some good remarks, here are two excerpts:

Overwhelmingly, the Americans who will be shopping through the exchanges this fall are the ones who have pined for this moment for months, if not years: The chronically ill who wanted coverage but couldn’t get it, or the low-income Americans who couldn’t afford it. They likely won’t be deterred by a few software glitches.

That is a very good point, though I wonder if it will contribute to insurance company enthusiasm in the early stages of actual implementation.  Dan also notes:

There already were a mix of offline ways to purchase coverage through the exchanges, whether through call centers or in person; the AP notes that 30% of applicants were expected to use paper.

But software delays may spur additional solutions, too. Oregon, for example, will rely on insurance brokers to help state residents obtain coverage until the state’s exchange website is ready to go.

And an enormous number of stakeholders want the exchanges to be successful, from insurers that are hoping to see new business to hospitals that want to lower their uncompensated care costs. Basically, CMS can raise a virtual volunteer army if necessary.

Meanwhile, the enrollment period runs through March 31. There’s no “early bird special” as Dave Morgan, a California employee benefits adviser, pointed out on Twitter; premium prices for 2014 will be the same whether you’re purchasing coverage on Oct. 1 or Dec. 15.

Dan adds, however:

All bets are off if the software problem isn’t fixed in a few days or weeks. The exchanges were touted with the promise that they’d be like Orbitz or Amazon, just for buying health coverage.

So I still say all bets are off.

Coming from other directions, Timothy Taylor offers some useful perspectives on ACA, which now it seems will cover only about 40% of the previously uninsured.

Assorted links

1. Why are so few people breaking 115 years of age?

2. Insight into the bankless, and Jon Hilsenrath on Yellen’s management style.  People, I say it’s time to think twice on this one.  It’s showing multiple classic signs of “employee who should not be promoted.”

3. Was Bach a reformed teenage thug?

4. Diane Coyle reviews Joe Studwell’s How Asia Works.

5. Steve Teles on kludgeocracy in America.

6. Stanley Fischer opposes forward guidance from the Fed.  Let’s face it: right now we are living under pure monetary discretion.  From the article: “You can’t expect the Fed to spell out what it’s going to do,” Mr. Fischer said. “Why? Because it doesn’t know.”

Do Awards Reduce Productivity?

George J. Borjas and Kirk B. Doran find that the productivity of mathematicians who win the Fields Medal, the mathematics “Nobel” awarded to mathematicians under the age of 40, declines after they win. Borjas and Doran look at productivity on a number of margins including papers, citations, and graduate students mentored. At right is a graph of average number of papers compared to a contender group. Productivity falls by a statistically significant ~1 paper per year (in the regression that I think the strongest, in a few variants the decline is a bit more.)

Not all of the decline is due to resting on laurels. Borjas and Doran also find that mathematicians who win the Fields tend to branch out into other areas and this branching out requires them to learn new material which takes time. Steve Smale did work in economics and biology, for example, Rene Thom developed catastrophe theory and David Mumford works in vision and pattern theory. Exploring new topics can also lead to breakthroughs so branching out is not necessarily a negative effect. Borjas and Doran estimate that about half of the productivity effect is resting on laurels and half greater exploration.

(FYI, Borjas and Doran speak of prizes but I prefer to call them awards because awards such as the Fields or Clark Medal are quite different from prizes for purpose, such as the XPrizes, the H Prize or the historically important Orteig Prize, that I discuss in Launching as alternatives to patents.)

Winning the Fields is presumably good for the winner but even taking into account the enhanced incentive to explore it’s not obviously good for mathematics. The explicit purpose of the Fields was to increase not decrease achievement. What can be done?

The Fields Medal may be too important for its own good. In economics the closest thing to the Fields is the John Bates Clark award, given to that American economist under the age of 40 judged to have made the most significant contributions. Chan et al. (2013) find that recipients of the Clark award increase their productivity after winning. But the Clark award is widely seen as a future portent of the Nobel, thus it may have a more stimulative effect as the winner realizes that the next big award is within reach (see the final sentence). In a tournament, it’s important to tier the awards for multiple levels of ability.

In thinking about whether awards increase or decrease productivity on net. the precise counter-factual is important. Let us accept as Truth that winners of the Fields Medal decrease in productivity, even so that doesn’t mean that eliminating the Fields Medal would increase productivity let alone that eliminating all awards would increase productivity (remember, the productivity of the contenders may be more important than the productivity of the winners). Perhaps the most justifiable policy recommendation is that one shouldn’t give awards to young people, a Fields Medal for lifetime achievement, much as the economics Nobel is given, might encourage more achievement.

Paul Samuelson wrote of Chasing the Bitch Goddess of Success:

Scientists are as avaricious and competitive as Smithian businessmen. The coin they seek is not apples, nuts, and yachts; nor is it the coin itself, or power as that term is ordinarily used. Scholars seek fame.

But, paraphrasing Tyler, what price early fame?

The meaning of Merkel’s victory

It is not possible to rerun the election under different economic policies, but still it seems pretty clear.  German voters very much like low inflation and no Eurobonds, or in other words I call this the primacy of public choice and political economy over macroeconomics.  The set of Eurozone options “on the table” was never that large to begin with, Merkel is not “history’s greatest monster,” and it is surprising that Eurozone (and German) policy has come as far as it has.  The next time you are tempted to write “Government should,” or “Germany should,” try instead subbing in “short-term economic nationalists should” and see what the new sentence looks like.

Another way to put this is that short-term policy is long-term policy, relative to constraints.  Nations and perceived national interests really do matter, and once we take that into account, it is scary to realize how much harder it would be to do better.  Merkel understand this, many of her critics do not.

Model this taper and show your work, if only verbally

Shortly following the announcement of a delayed taper:

The rupee rallied 2.8 percent to 63.4950 per dollar, according to prices from local banks compiled by Bloomberg. Thailand’s baht rose 1.2 percent to 31.850, the Philippine peso gained 1.4 percent to 43.87 and Malaysia’s ringgit appreciated 1.2 percent to 3.29. Global funds pumped $5.7 billion into the stock markets of India, Indonesia, the Philippines, South Korea, Taiwan and Thailand this week, according to exchange data.

Pay special heed to quantitative magnitudes.  For how long are we delaying the taper?  One or two months?  How much is the taper anyway, relative to the stock of relevant financial assets?  Taking $10 to $15 billion off of $85 billion a month in purchases, when the asset stocks are in the trillions?  Woo hoo.

Here are some interesting comments from Stephen Jen.

I’ll say it again: none of you understand what is going on here, and neither do I.  I am not seeing enough admission of this basic fact.

Assorted links

1. Will Baude on the role of lawyers in *Average is Over*.

2. Our new service sector jobs (homeless iPhone fight edition, hat tip Alex).

3. Ashok Rao’s perfect policy platform.

4. Kathryn Davis remains one of our most creative writers.

5. 1981 debate: David Friedman vs. George Smith.  And equine cloning services.  But will this cloning episode work?

6. When Venezuela finds nationalization to be necessary.

Markets in everything

University of Toronto students desperate for scarce seats in fully booked classrooms are offering cash to classmates willing to give up a spot, turning registration into a bidding war.

“$100 to whomever drops (History of Modern Espionage),” posted Christopher Grossi on Facebook Tuesday. “I really need this course.”

The third-year history student said the 180-person course filled up before his designated registration time. After talking to the professor without success, he said offering money was his last chance to coax someone to trade with him.

Here is more information, and supposedly, after some point in the process, a near-simultaneous drop and add will in fact allow the trade to take place.

For the pointer I thank Larry Deck.

*Vodka Politics*

The author is Mark Lawrence Schrad and the subtitle is Alcohol, Autocracy, and the Secret History of the Russian State.  This is a gripping and original book, even if it overstates its conclusions sometimes.  Here is one bit:

Shcherbakov — Stalin’s today drunkard — died from a heart attack two days after the Nazi surrender…at the ripe old age of 44.  While Stalin valorized him, Khrushchev and the rest of the circle “knew that he died from drinking too much in an effort to please Stalin and not because of any insatiable urge of his own.”  Likewise, Andrei Zhdanov — once thought of as Stalin’s heir apparent — died less than three years later at 52, to the end ignoring his doctors’ frequent warnings to stop drinking.  It was clear to all that this situation was disastrous both for their work and their physical health.  “People were literally becoming drunkards, and the more a person became a drunkard, the more pleasure Stalin got from it.”

…the use and abuse of alcohol is crucial to understanding the dynamics of autocratic rule in Russia.

What else do you learn from this book?  It seems that Raymond Llull, still an underrated figure, is the one who spread vodka-making techniques to much of Europe (he also discovered an early version of social choice theory in the 13th century, not to mention he advanced the theory of computation).

I liked this bit:

The financial needs of the early Russian state dictated pushing the more potent and more profitable distilled vodka over less lucrative beers and meads.  To maximize its revenue, the state not only benefited from its subjects’ alcoholism, but actively encouraged it.

As late as 1927, the state’s vodka monopoly accounted for ten percent of government revenue.

Gorbachev, by the way, was known as “Mineral Water Secretary,” because he did not drink like the others did.  Here is a joke from the book:

Q: What is Soviet business?

A: Soviet business is when you steal a wagonload of vodka, sell it, and spend the money on vodka.

From the Yeltsin years to the Putin years, the average Russian boy lost a measured eighteen percent of his muscle mass.

Recommended, and you can pre-order the book here.  Here is my earlier post, “The culture of guns, the culture of alcohol.”

The new service sector jobs

Motivation and inspiration will become more important jobs, and this time the story is from China:

Life coaching is big business the world over, perhaps nowhere more so than in the US. China is still a newcomer, with self-help books and motivational talks beginning to gain traction just 15 years ago. But as in so many other areas of the Chinese economy, the gap is closing quickly. The “success studies” industry, as it is known in China, is dominating bestseller lists, filling conference halls and generating phenomenal wealth for star speakers…

On this occasion, though, Chen [a major motivational coach] needs no extra help. The audience is raring to go. Bursting on to the stage, he asks: “Who wants to be number one?” All 1,500 hands fly up in the air. Then a dose of realism: “You’re dreaming. Only 3 per cent of you will succeed. And to get there, you need the right coach. You need to be in a circle of winners.” A slideshow follows, pictures of Chen posing next to or somehow squeezing himself into the frame with Barack Obama, Bill Clinton, Formula 1 driver Michael Schumacher, basketball star Michael Jordan and more. He replays a phone message from Huang Xiaoming, a Chinese actor, thanking Chen for his coaching.

The message – that Chen is a winner and that his tutelage is a prerequisite to success – proves startlingly effective. At the end of his speech, he gives the audience a two-minute countdown to sign up for a special deal to join his circle of winners: Rmb29,800 [TC: 6.12 Rm to one U.S. dollar] for a year’s access to his Shanghai club and more self-improvement courses. About 150 people seize the opportunity, dashing up to the front of the room. Chen’s assistants form a ring around them with handheld bank card swiping machines, ready to collect their money on the spot.

The fascinating FT article, by Simon Rabinovitch, is here, possibly gated.  Of course the greater is income inequality, the easier it will be to market such services, because the promised gain from leaping the divide will be that much greater.

The food stamps program

In an ideal policy world, would food stamps exist as a program separate from cash transfers?  Probably not.  But as it stands today, they are still one of the more efficient programs of the welfare state and the means-testing seems to work relatively well.  And giving people food stamps — since almost everyone buys food — is almost as flexible as giving them cash.  It doesn’t make sense to go after food stamps, and you can read the recent GOP push here as a sign of weakness, namely that they, beyond upholding the sequester, are unwilling to tackle the more important and more wasteful targets, including Medicare and also defense spending, not to mention farm subsidies.  Here are a few basic numbers on when food stamps have grown and what has driven that growth.  It has not become a “problem program” in the way that say disability has.