Tyler Cowen's Blog, page 349

Wages in the UK

Total pay in some parts of the UK has shrunk by more than 10% since the start of the downturn in 2007, analysis by a union organisation suggests.  The TUC said north-west and south-west England had seen the sharpest cuts – 10.6% and 10.1% respectively.  It blamed wages not keeping pace with inflation and changes in employment, such as more part-time working.

The story is here.  The pointer is from John van Reenan, who writes further on the topic here (pdf).

Robert Fogel has passed away

He was a Nobel Laureate and one of the greatest of economic historians.  His Wikipedia page is here.  He is here on scholar.google.com.  Previous MR mentions and discussions are here.  Here is one appreciation of Fogel.  Here is a good NYT obituary.

From the comments

Rahul writes:

Just for the heck of it, I tried an alternative list:

1. Ramp up drastically the training output of new doctors and nurses: More med schools, larger intakes per school, elimination of 4 years of pre-med university etc. More med school student scholarships and subsidies?

2.Massively expand other lower tiers of the medical system: Physicians assistants, Nurse Practitioners etc.

3. Liberalize drug imports both commercial and personal. Allow direct import of any FDA-licensed drug sold in equivalent nations (western EU / Canada etc.). Mostly ignore Big Pharma’s opinions in this context.

4. Fully recognize all medical degrees from similarly developed nations (e.g. Canada / UK / Japan / Australia etc.) to the point that doctors from these nations can register and practice almost instantly in the US. Provide an almost limitless immigration quota for doctors from western nations. Even better, aggressively recruit doctors from abroad. Mostly ignore APA’s opinions in this context.

5. Allow and encourage Medicare / Insurance procedures to be carried out abroad where cheaper locales (Mexico? Canada? Argentina? ) exist. Incentivize recipients using these options. Premium rebates? Encourage private insurers to offer plans that economize on major procedures by treating abroad.

*How Asia Works*

The author is Joe Studwell and the subtitle is Success and Failure in the World’s Most Dynamic Region.  That’s an excessively bland title and subtitle, but so far this is perhaps my favorite economics book of the year.  Quite simply, it is the best single treatment on what in Asian industrial policy worked or did not work, full of both analysis and specific detail, and covering southeast Asia in addition to the Asian tiger “winners.”

Studwell explains that South Korean policy was based in a notion of “export discipline” and that policymakers were quite ready to see leading chaebol go bankrupt, which indeed they did often.  Everything was directed toward export capacity and they didn’t worry about what rate of price inflation, often in double digits, the cheap credit policies might create.  It was a gamble on a world-historical scale, noting that South Korea engaged in much more borrowing than did the other Asian tigers.  His p.111 account of how Park and his cronies started arresting most of the nation’s leading businessmen, to teach them a lesson and to skew corruption in nation-building directions, is sobering and thought-provoking reading.

Here is one instructive bit of many:

Thailand holds the record for the most consistent import substitution industrialisation (ISI) policy in south-east Asia, running from the early 1950s into the 1980s.  Industrial policy also was led by probably the most competent, professional bureaucracy in the region.  But, as the Japanese scholar of development Suchiro Akira observed, there was almost no pressure for favoured manufacturers to export…Unlike in northeast Asian states, the Thai bureaucracy never  brought export discipline to bear because the Thai generals and politicians who ran the country did not prioritise it.

In other words, industrial policy has to work with the market and rely on market discipline, not try to circumvent such constraints.  That is hard to pull off, although clearly it happened in South Korea.

It is also an excellent book on the agrarian pre-histories of East Asian industrialization and why South Korea, Japan, and Taiwan pulled off successful land reforms and Indonesia and the Philippines did not.

I would wish for more coverage of education and labor markets, and the final section on China still awaits me.  Think of it as a kind of “tweener” book: too specific and analytic to be truly popular, too broad, historical, and anecdotal to count as formal economic research.  That is not a complaint.

Definitely recommended, you will learn lots from it, and it will upset people of virtually all ideologies.

Addendum: Here is a good FT review.

Assorted links

1. The world’s most expensive motor home (is it my imagination, or are links from The Daily Mirror getting better?).

2. Consumption smoothing, for sunlight.

3. The Senator Whitehouse table on austerity is nonsense.

4. Drone delivery of restaurant food (there is no great stagnation).

5. .

6. Is reading comprehension better or worse on a Kindle?

7. Arnold Kling on surveillance.

Options for health care coverage reform

This topic has been reconsidered much as of late, so I thought I would do a summary post on some of the possible options.  I suspect I have covered all or most of this ground in 2009 or so, but here goes:

1. Universal health insurance vouchers on exchanges, with means-tested subsidies and also a mandate.  The logic of this can work just fine, but it is quite expensive as it would exist in the United States and we end up spending too much on health care.   Over time it would be accompanied by say a five percent VAT.

2. Single payer systems.  I don’t want to repeat the usual debates, but perhaps we can agree single payer won’t come anytime soon in the United States.  I also think they work least well in the land of medical innovation, and best in small countries such as New Zealand, but that consideration doesn’t even rise to the fore here.

3. The Singapore system, involving single payer for catastrophic expenses and health savings accounts for smaller expenditures.  To varying degrees you can combine this with forced savings for the HSAs and price controls on service provision, both of which you will find in Singapore.  Where “catastrophic” starts can vary as well.  This is my first choice, although if you wish to dismiss it as “utopian” for the United States you have a point.  I’ll get back to that.

4. One particular path for how ACA could evolve into a (relatively inefficient) form of a Singapore system.  Imagine that the mandate becomes fairly narrow with time, while at the catastrophic end insurance companies evolve into (inefficient) public utilities.  Health savings accounts are reintroduced through new legislation, perhaps under a Republican administration, and can be supplemented with cash transfers when desired.  Here is one discussion of that path.

5. The mandate and subsidized exchanges under Obamacare prove unworkable and eventually they are abandoned either partially or in full, or in some states but not others.  Their place is taken by a Medicaid expansion.  Coverage is not universal, though it is higher than pre-ACA, and of course coverage under the status quo is not going to be universal either.

6. The status quo of Obamacare.

7. More managed care.  We should remove the legal restrictions and barriers which penalized managed care in the first place, as it is a feasible and desirable means of bending the health care cost curve.  You will note that this option is not a strictly rival alternative to 1-6, but rather can be combined with them in varying degrees.  Still, it seems appropriate to list it as an option.

Now, if I am allowed to be utopian, I favor #3 over the status quo.  If I am asked to be less utopian, I see #4, #5, and #7 as some of the better versions of what ACA could evolve into.  I would not predict that those options come to pass, nor would I say those options are better than the rather unrealistic version of ACA as envisioned by its proponents, but I think they follow from the dictates of reality as the better options on the table, #3 aside of course.  And I do not feel I am being utopian in holding them as alternatives to the status quo.  They are not so far away from the status quo in the policy space.

I don’t think ACA in its current form is stable.  Too many moving parts, too many margins of danger, too many jerry-rigged incentives, too many “it worked OK in Massachusetts so it has to work at the national level even if it doesn’t appear to be maximizing” requirements, and too little recognition that the whole system is poorly geared for a world of stagnant median wages and rising inequality.  The higher is inequality and the lower are lower-tier wages, the harder it is to guarantee near-equal consumption of health care through employment institutions.  The greatest single danger to ACA is eventual massive employer-shedding of health care obligations, penalties or no, which at best evolves us into #1, which I do not favor.  On top of that there is state shedding of Medicaid obligations, which again pushes us into #1.  Most generally, the national health care systems which work are much more consolidated in nature than is the U.S. status quo.

It is a Denkfehler when people write “you don’t have an alternative to ACA” or “the Republicans don’t have a health care plan,” and so on.  You can take such pronouncements as leading indicators that ACA is not going well.  #3 aside, you can take the relevant alternatives as a mix of #4, #5, and #7.  Those are not so much alternatives “given by the Republicans (or whoever else),” as much as they are given by reality.  I don’t see “ACA as envisioned by its propnents” as on the table either, so in this sense it is also the Democrats who don’t have an actual health care plan.

I view the real choice before us as #1 vs. some mix of #4, #5, and #7.  And in that setting I do not favor #1 and I still can dream of and advocate #3.

Addendum: Here is my earlier post on how to debate health care policy.  Let’s see how many of its strictures you all violate.

Betsey Stevenson is headed to the Council of Economic Advisers

A very good pick of course, and her partner Justin Wolfers will visit again at Brookings, or so I am told on Twitter.

Assorted links

1. “Fill the Void” is an excellent social science movie and an excellent movie flat out.

2. Markets in everything: what do you think an LBJ tweet goes for?

3. Is grandpa better off not living with the kids?

4. Update on the German constitutional court and OMT.

5. Cuban funds flopping study.

6. The Great Reset for Italian college students.

7. What are the interest rate risks in Japan?

Benjamin Britten at 100

I very much liked Neil Powell, Benjamin Britten: A Life for Music.  Also very good is Paul Kildea, Benjamin Britten: A Life in the Twentieth Century.  They are both also useful for understanding English intellectual life during the 20th century, most of all Auden but even Keynes and also the broader history of homosexuality in England.  Both are already out in the UK, where I picked them up earlier in the year, and both will make my best of the year list in late November.

Here is a good Anthony Tommasini survey of Britten at 100.  I will offer these bits

The Britten pieces you are most likely to enjoy: Serenade for Tenor, Horn, and Strings, that disc has Les Illuminations and Nocturne too and is the single best Britten disc to buy, and also A Ceremony of Carols.

The ones I think are best: Cello Symphony, Winter Words (song cycle), and perhaps Billy Budd.  War Requiem.  Nocturne is a powerful spare late work.  I like Curlew River for its connection to Balinese music, although I would not put it among his best compositions from a strictly musical point of view.

My most significant Britten heresy: I’ve never enjoyed listening to Peter Grimes and I find most of the experience oppressive.  More generally, for much of my life I never felt close to Britten’s music, as it made me crave Stravinsky and Mahler instead.  But I’ve listened to it quite a bit since January and have enjoyed it more than expected.

Two points: I think he understood the English language better than any other major composer, and how he sets and understands a text is without parallel, in English at least.  Furthermore as a conductor or pianist he is superb, try his Brandenburg Concerti or his piano on Schubert’s Winterreise, Peter Pears singing, among other works.  Those are two of my favorite recordings in all of classical music.

My model for how the Fed thinks about withdrawing QE

Bernanke believes QE works, but having been caught off-guard once before, in 2007-2008, he doesn’t fully trust his own judgment.  He fears some risk of bubbles, or excess private disintermediation, in either case resulting from low interest rates.  He lets Tarullo and Stein carry related messages to the markets to signal possible fears without having to endorse them.

Let’s say he assigns these risky scenarios a fairly small p = 0.05.  Still, another financial collapse would be a disaster, all the more for political economy reasons.  Bernanke has spent down his own political capital and these days Republicans are more likely to be obstructionists.  Fear of that disaster leads him to withdraw QE sooner than his “most likely to be true” opinion thinks prudent.  Economists respond by defending the “most likely to be true” opinion, and by arguing moralistically rather than probabilistically.  That doesn’t convince Bernanke, because said economists can only convince him that they are likely right, not that he should obliterate his p = 0.05 fear of being wrong.  The current policy course continues, early withdrawal from QE is contemplated, and economists complain all the more.  Outside observers find it hard to understand the disconnect.

Here are some related probabilistic considerations from Brad DeLong.