Europe is doomed

How do I know?  The USD/AUD exchange rate has the USD back on top.  I still habitually check that exchange rate, and every time the AUD loses some of its heights, it turns out something bad is happening in Europe.  I don't know enough about the currency markets to know much of anything about why this is. I can speculate that the dynamic is: AUD is fun and awesome as long as China doesn't crash, and if the EU goes offline, China will probably crash, and then the US is our only hope. 

Anyway, the long steady drive to where the AUD now buys slightly less than 1USD seems to me to be a pretty disturbing predictor of where things are headed in Greece. 

May the currency gods be wrong!

Microeconomics in action

I will at least be visiting my own blog more regularly to access the RHS links to NYT blogs in a hope to keep my consumption of the Times below its subscription threshold. Another part of me thinks committing to some sunk costs might make my consumption of relevant news rise significantly.

Decisions.

Linguistics

In the new year, furloughs and pay freezes in governments should be relabeled "public service taxes." Government spending should be called "investments" and be evaluated on their return. The connection between increasing ones taxes to lower the rest of one's expenditures needs to be made over and over and over again, particularly with regard to health care.

Just saying.

Yikes

I hadn't realized it has really been over a year since my last posting. I am going to be experimenting with bringing this blog back to life in 2011.

I knew it!

This just in from the Sydney Morning Herald:

SYDNEY commuters are paying the second-highest public transport fares in the world.

It is nice to have a gut instinct confirmed without having to do any of the research myself. The comparisons appear to be made on a metric that Sydney transport actually does reasonably well at too: the cost of one 10K ride.

There are two really big problems that I see with Sydney pricing schedules that this doesn't capture: (1) there are no free transfers and the system is on a hub-and-spoke, for the most part, so unless you want to go to the CBD (which is a pretty boring place!) you get to pay the full fare all over again, as well as spending lots of time to-ing and fro-ing and waiting for your second or third ride; (2) fees rise quickly as you go further. Sydney is a sprawling city. I live in one of the closest residential 'hoods to downtown, and yet, that is 3 bus zones away from where I can catch a bus/ferry to other parts of the city. Now, I cheat (too much of the system is on-your-honor!) and use a 2 zone pass most of the time. I plan on using my thickest Southern drawl if I ever get caught. But to purchase a ticket that will legally allow me travel that third zone (an extra couple of stops!) is almost twice the cost.

Furthermore, in general, the system isn't particularly well integrated. While it is possible to buy an unlimited card that can be used on all modes of public transport, there are no other cross-transport options. Unlimited is great if you are a heavy user, but since I walk almost everywhere I go, I would do better buying multiple ride tickets -- which I do for the bus and the ferry (separately). But I can't buy a multiple ride train ticket, and I can't buy a multiple ride ticket that doesn't care about the mode. So I have to carry lots of paper tickets (easy to lose in a large purse!) and I have to spend a lot on the expensive single ride tickets to take the train anywhere.

Now that is all complaining about me, but it does mean that Sydney makes it harder for two important classes of people to use public transport: those who would use it regularly but not as intensively as a daily commuter and poor people who live far away from the center. So the pricing is regressive, when it should be progressive, and it makes the trade-off between using a car versus public transport less obviously in favor of public transport.

I expect that this is one of those situations where if the city were smart about pricing, mostly lowering the marginal costs, and maybe adding some non-spoke routes, usage would increase dramatically, and congestion on the roads would ease some. All good reason to stop spending government money on roads and spending it on transport instead! (Of course, Sydney is currently doing the opposite--when will people learn that increasing road capacity almost never reduces congestion???)

Fun with death statistics

Two somewhat related points about thinking about death rates. One fun, one slightly more serious.

1. I was in the chiropractor's waiting room today, reading some health magazine. They had an article about various habits that are potentially lethal: smoking, drinking, obesity, driving, sex, etc. I'm sorry I forget which blurb had this little gem, but they were talking about some risk group (obese people? heavy drinkers? But definitely not an age group) : "Group X is 44% more likely to die by any cause than Group Y." So watch out fat/drinking/whatever people: you have a 144% chance of dying some day!!!!

2. Did a silly and wandered over to Megan McArdle's page and read her most recent piece on healthcare. I've been following her writings via John Halbo's rebuttals at Crooked Timber and guess I thought I might see what comes from the horse's mouth. As far as I can figure, her argument is that national healthcare will kill all medical innovation, so by covering the uninsured today, we are killing untold millions into the future by preventing the discovery of whatever medicine or technique would have saved their lives had we only seen the light and not reformed the US healthcare system. Her evidence was that:

If the innovation spurred by the private sector could save 1% of the people who currently die each year, the number of people we'd be killing along with the private sector would necessarily be hugely larger than the number of people we'd save by implementing such insurance, since the most grotesquely exaggerated estimates released by interest groups pin the latter figure at around 0.8% of deaths in America (a much smaller number than the number who are estimated to be killed by access to the system--nosocomial infections and treatment side effects). That's even before you consider the people in other countries who would be saved by these advances.

But there are all sorts of logical mistakes contained in this argument. Starting with that 0.8% figure: according to National Coalition on Health Care (yes, one of those interest groups), in 22,000 "excess deaths" can be attributable to lack of insurance in the 25-64 age group. If one takes the CDC's estimates of total deaths in the US and do the math, you do indeed come up with 0.8% (or a bit more, but I may be comparing the wrong years). But is this the right statistic? Some portion of those deaths are those who, like my dearly departed grandfather, lived to 100+ and died well and happy. A big part of the moral offense of the uninsured is that these are young people dying unnecessarily. Less than 25% of the deaths in the US in 2006 were in the age group 25-64. None of this is to say that deaths after 64 don't matter, but I think it is important to keep the scale consistent. These 22,000 deaths are 3.7% of their age group's mortality. So even if you were to be very pessimistic about the number's accuracy, and were to cut it in half, you still have 1.5% of this younger age group dying prematurely due to lack of insurance. And this is just the uninsured, not the underinsured who die unnecessarily sometimes as well.

The comparison statistic of 1% of lives saved (deaths postponed) is, as far as I can tell, delivered directly from McArdle's butt. (pe-ew!) So there is no way on thinking properly about the best statistic to use: number of life-years saved versus life-years lost. You'd have to kill a lot of 99 year olds with lost innovation to make preventing the deaths of this group amoral from a utilitarian perspective.

Then, of course, is the notion that all innovation would come to a screeching halt. I find it bizarre to think that we are that inept at problem solving, and further that the current R&D system is so fabulous. Money drives lots of choice for erectile dysfunction and cholesterol drugs, not so much rapid rates of brand new life savers. I expect that the bulk of medical research that is really adding significant life-years to the US is done in the research labs of universities and the NIH. Megan sneers, but I sneer back.

And then, finally, she commits the sin of partial equilibrium analysis. Yes, research on pharmaceuticals in the US might just decline some. And yes, currently the rest of the world free-rides on our research, funded by our paying far more for our drugs than anyone else (though, as an expat, I should say YOU are paying more for your drugs--mine are quite cheap, thank you!) But, if the US money train stops, do you think Australia and France will just say "darn it! I guess we'll never see another medical advance again!"? Really? Maybe something good, like getting the rest of the world to chip in some, would come of our finally refusing to put up with it all.

To do

I really must write that paper on reputation-reliant oligopolies.... Went to a lovely seminar today on banks that reminded me all over again about how relevant a paper this will be!

Data porn

"Data porn" is the presentation of meaningful data in a visually interesting and absorbing way. The New York Times has a great example. The only problem is that as far as I could figure there was no way to embed it directly here.

Laughing at Laffer

This is making the rounds of the intertubes today, but I cannot resist piling on, if only to help illustrate the knee-jerkiness of resistance to all things government by econo-ideologues:

If you like the Post Office and the Department of Motor Vehicles and you think they’re run well, just wait till you see Medicare, Medicaid and health care done by the government.

This said by Art Laffer of the Laffer curve, the knee-jerk bit of econ theory used by said knee-jerkers to taxes...

I really wish there were an intellectually honest opponent. It would be so much more interesting.

UPDATE: Just in case it isn't obvious to all already, Medicare and Medicaid are already "done" by the government. And the Post Office is a weird hybrid government sponsored corporation, so not entirely government. And the DMV is a state responsibility, so it isn't entirely obvious that state government and federal government should be lumped together. Just sayin'.

The public servant tax

What is in a name?

I was listening to NPR this morning and again hearing about some state or other that is trying to furlough its workers because the legislature refuses to raise taxes on anyone, because as anyone with half an econ brain knows that taxes hurt the economy ... right? But of course, a furlough is really just a surtax on public servants. Sorry for the lack of precision, but I think the story I was half-listening to was talking about 12 days of furlough, presumably spread over the year. That is equivalent to approximately a 5% tax on pay.

And while some particulary uncompassionate out there may take satisfaction in the idea of their DMV workers paying for needed revenue, we are also taxing "good guys" like teachers and firefighters. All of whom can little afford a tax hike of 5%. You may not like the DMV worker, but he or she buys stuff with her pay check, and one way or the other his or her purchasing habits stimulates whatever private sector job the anti-tax folks work at.

This kind of tax is both unfair and a bad idea for the economy.

Why I'm not a Libertarian

I feel like I have been reading and hearing a lot from Libertarians recently. I guess they proxy for the intellectually (more) honest opposition in the health care debate, and I suppose there are a few friends I love dearly who are of the persuasion, so I get exposed to the arguments more than I would otherwise.

There is absolutely no daylight between me and Libertarians on social issues (legalize drugs--though I might regulate more than the most ardent Lib; government absolutely stays out of the bedroom and the body; individuals decide for themselves what constitutes a family, etc.). I also really believe in many of the economic insights generated by neoclassical economics. So why is it that the GMU crowd drives me so utterly crazy?

Somewhere along the way, and I blame the Reagan era for a lot of this, a myth developed that government was by definition incompetent and free enterprise is by definition infallable. There is no empirical evidence for either claim and plenty of counter-examples. Most importantly, private enterprise is often utterly incompentent, mendacious, and willing to trample liberties far more quickly than any government bureaucrat. And occasionally, when those government bureaucrats are given respect, resources and a functional institutional structure, they can do fabulous and great things. Health care is a great example of this, but by far not the only one.

As a result, I believe that when the assumptions of the fundamental theorems of economics are met: well-defined and -defended property rights, symmetric information, and large numbers of parties on both sides of the potential transactions, there is no good reason for government interferrence. On the other hand, those assumptions are almost never met, and when they are not, there is potential for constructive collective intervention--i.e. the government could play a useful role.

The Libertarian ideology cuts off the search for constructive answers to difficult problems by excluding out of hand a host of possible solutions, and all too often the argument devolves into denegrating government workers and ignoring evidence that doesn't fit. I'd really rather have the conversation focus on where collective action is necessary and appropriate and how best to structure the government's involvement in facilitating such action so that it protects our liberty and social welfare to the extent achievable by mere humans.

I'd also like to be able to talk about the very real problems in dysfunctional competitive environments without having to wade through silly ideological objections to the existence of the problems.

The utter insanity of US health care

I saw this quote from David Cutler's paper on insurance premiums via Matthew Yglesias:

This analysis shows that without health reform, average family premiums will grow to more than $22,000 by 2019, up from $13,100 today.

In contrast, here in Australia I have to purchase health insurance privately, since I do not qualify for their national health care plan, Medicare, nor does work offer it (health insurance isn't tied to employment here). I have the cadillac plan, chock full of bells and whistles--it pays for 100% of my acupuncture up to a very generous limit, for example--designed for people on my type of work visa. For the privilege, I pay a whopping AU$2500 a YEAR. Granted the comparison is not perfect, since this is an individual cover, not a family one (the family costs $5000). But I am quite confident that the coverage is also far better and more reliable than the average US plan that currently costs $13,100.

I think if people in the US realized the magnitude of the excess expense they are paying today, not even the flood of insurance and PhRMA money could stop reform.

Housekeeping

I know that the very worst way to encourage people to become regular readers of a new blog is to not post for a coon's age. To help make up for the long silence, I have added an RSS option over on the right, so that for those of you who use RSS feeds, you don't have to check in here directly.

I don't actually use RSS, so I have no clue how it works.

Also

I've started to ruminate on whistle-blowers. I think it would be interesting to study them, though I am not sure how. What is it about a very small segment of the population that causes them to speak up when it is so obviously against their interests in every dimension?

I'm curious in part because one reason I don't work in industry is because I am afraid I would be one, and yet I still don't understand the impulse. (I suppose I am a whistle-blower of sorts already: every semester here I catch a few cheaters/plagarists AND report them, paperwork and angry emails and unsupportive admin be damned.)

Plus ca change...

You could be talking about the auditors circa 2002....

Visit msnbc.com for Breaking News, World News, and News about the Economy

I started a new paper today on the effect of oligopoly market structure on reputation-based industries. In other words, the auditors and the credit raters. I'm not looking forward to doing the analysis (I had sort of hoped to move away from doing straight-up micro theory, since I'm just not trained well enough to do it efficiently) and had fantasized about finding a co-author to do all the work, but this morning on my walk to work I decided it might not be all that hard, and it is a paper that just needs to be written. Tonight's Rachel Maddow is, I guess, a sign from the powers that be that I should follow through.

Enough already with greed!

A short rant.

I think the adjective, greedy, and its related noun, greed, should forthwith be banned from all discussions of the economic and financial crisis.

It is a pejorative term for a universal force (people trying to do as well as they can for themselves), sort of like calling gravity a depressant. Okay, that is a bad metaphor, but I can't think of a better one.

I'm not ranting because I feel sorry for bankers who keep getting called names (I'm not, and I think that their toys should be taken away), but because talking about greed inevitably derails constructive conversation. Its like calling nations an axis of evil: once you have labeled someone as evil, you can no longer have a constructive conversation with them. It is appropriate in some contexts (i.e. serial killers are evil) but that means that you have only two options remaining: life in prison or execution. It is silly to do that with an entire country, and it is similarly silly to blame someone's greed for any problems. What do I mean by that? Maybe a better example is to say that if your answer to social problems is abstinence-only sex ed, you are building a policy edifice on a foundation that denies basic humanity. If your policy is directed at humans, it is bound to fail.

Let's think instead about institutions that are good at harnessing "greed" to productive ends, and robust against its excesses. Let's acknowledge the humanity of everyone involved (not just the executives but the watchdogs too) and try to the best of our ability to give them an environment where their own desires can be met by meeting society's desires.

Wonderful news

This is wonderful news:

In the first sign that the Rees Government is looking for immediate solutions to inner Sydney's congestion crisis, the Transport Minister, David Campbell, today will take a proposal to extend the light rail line to a key cabinet committee.

The low-cost proposal would extend the line from Lilyfield through Leichhardt, Haberfield and Summer Hill to Dulwich Hill railway station.

It would link the light rail to the inner-west and Bankstown lines, could be running within a year and cost less than $70 million.

They go on to say that the link to Summer Hill could be finished within months, also that the light rail will be integrated with the rest of the bus/train system (to the extent that there is integration of anything). Particularly if that means fee integration--I keep forgetting how much the light rail costs for a single ride, but it is in the neighborhood of $5--buses and trains, while expensive, cost much less.

And the loveliest thing of all is that a yoga school that I love is in Summer Hill. I can't figure a way to go there regularly now, since the transportation options are pretty crappy (late evening long waits for a bus on a particularly uninviting stretch of Paramatta Road), but if the light rail went where I can't easily walk but would like to go.... the possibilities are revolutionary.

Yay to the consumer utility increasing nature of public transportation. Now on to getting better pedestrian policies in place (a post for another day)!

More Warren-related video

Really this blog isn't all about Elizabeth Warren, I promise. And I'm actually posting this not because of Warren but because I got a better sense of Timothy Geithner from this hearing than I have before. Perhaps that is because I mostly only encounter people talking about Geithner after small sound bites rather than actually seeing the man speak for himself for extended periods. There are some dodges and some sound bites, but overall I got a sense that Geithner really believes that Treasury is doing what it can. I don't think he is very happy with the choice set, and his beliefs may be wrong, but I have a clearer sense that he is acting in good faith and with honesty than I had before. Maybe this is the equivalent of Bush "looking him in the eyes" but there ya have it. At least I am not the leader of the free world.

The full interview

with Warren is finally posted. Listen to it. I love Elizabeth, much less impressed by Adam. He doesn't listen, he doesn't get it.

Recognizing wrongs the right way

I have been intending to post about last Friday's Planet Money podcast since it was released, but I am now glad I waited.

In a nutshell, PM's Adam Davidson interviewed Elizabeth Warren (my favorite person, as you should know by now) last week for, according to Adam, an hour and a half. On the podcast, however, he posted only a very heavily edit clip of a couple of minutes of the exchange where he and Warren were arguing over how she was using her role in the TARP oversight panel. He interspersed the clips (which were either of him or the two talking over each other) with commentary about how weird and uncomfortable it was to get into a fight with Elizabeth Warren. Okay. Weird that you are sharing.

Then he made matters much, much worse by explaining afterward that what he is really unhappy about is not Elizabeth Warren and how she is using her role (he says she is too political or too focused on her own long standing concerns about the middle class) but that she was appointed to the committee at all. Instead, he wants some serious people, economists (Warren is a lawyer), men (he didn't bring up gender explicitly, but it was lurking through out) to be coming up with apolitical, uncontroversial and serious solutions. Jaw on floor.

I was not the only person horrified by this podcast, and it turns out to be the most heavily commented podcast on the blog, and none of the comments I have read (and last I checked in and read what was there it was around the 150 mark) were taking Adam's side. The consensus sins were:

1. His complaints are silly
2. His evidence that Warren is out of line is that no one serious he has talked with thinks that the middle class is very important
3. Where is the rest of the 90 minutes?
4. We didn't get to hear the part of the interview that made him upset, only his upset reaction
5. There were weird gender implications

To Planet Money's great credit, however, today's podcast starts out by an extensive acknowledgment that they had done a bad job. They were not defensive, admitted mistake, acknowledged that the commenters had been, to an extraordinary degree, civil and thoughtful (in marked contrast to the original podcast). They recorded a short comment from one of the commenters, a female pastor, with her take on why the podcast was so bad. She raised the gender point in particular, and made the very good point that Adam had been incredibly deferential to Tim Geithner in an earlier interview despite ample opportunities to get upset for far more justified reasons. Adam in response simply said that he saw in retrospect her point and that while the difference was unintentional it was still his bad.

My one remaining beef is that there is still no news as to when the full interview will be aired.

But most importantly of all, it seems like in the last 8+ years, we as a society have forgotten how to admit fault. Kudos to Planet Money for offering such a gracious example, and let's hear it for them not having any more cause in the future.