Discussing the money pledged at the Copenhagen climate change summit last month, Gates wrote,
“I am concerned that some of this money will come from reducing other categories of foreign aid, especially health…If just 1 percent of the $100 billion goal came from vaccine funding, then 700,000 more children could die from preventable diseases.”
Also,
Taking the focus away from health aid could be bad for the environment in the long run, said Gates, “because improvements in health, including voluntary family planning, lead people to have smaller families, which in turn reduces the strain on the environment.”
We were talking with the salesman (from whom we have bought every cellphone we’ve ever owned) about the pricing of Blackberrys and he pointed out that Jody’s Storm was half the price of my Tour, even though the Storm is the fancier model with a touch screen and the whole iPhone feel to it. He said “it might seem strange that the newer, fancier phone is cheaper” but before he could say anything, I quickly said “well I’m sure the Tour is in demand from business users who don’t want to learn the touch screen and want the latest of the more ‘traditional’ BB, while the Storm is for people like Jody who might get an iPhone or Droid instead.” He said “yup.”
I quickly replied: “it’s just like staying over a Saturday night for plane tickets – segmenting your market by price elasticity.” He gave me that sad, shake of the head that economists often get from people when we go geek.
Sounds like a great deal then? Not so fast, says leading macroeconomist Greg Mankiw. Mankiw and Jim Capretta note that the Baucus plan structures subsidies to purchase insurance in such a way as to impose an effective tax on middle-income families. Under the Baucus plan, all individuals without health insurance would be required to purchase health insurance or pay a fine. The subsidies are designed to alleviate the financial strain of this requirement on the poor, but the subsidies phase out as family income increases. This creates a marginal tax on income, which Capretta calculates could reach 30% for families with incomes equal to twice the poverty line. Add that to existing income taxes, and the result is a strong disincentive towards higher income-earning for middle-class workers.
Do the benefits of covering millions of uninsured Americans at a reasonable price outweigh the costs of imposing a large tax burden on middle-income families? Decide for yourself, but let’s hope that the members of the Senate are being so measured in their deliberations.
1. Greg Mankiw points to a CBO report regarding the impact on the deficit of the healthcare reform bill currently working its way through the House of Representatives.
Scott Adams, cartoonist and humorist best known as the creator of Dilbert, commissioned a survey of economists’ attitudes on current US political issues. The results came in just before the election (also see this CNN piece about the survey and Tyler Cowen’s quick summary and comment), and they don’t surprise me, but I am more interested in Adams’ continued small revelations about what he really believes (as opposed to irony or devil’s advocacy, tools he uses frequently). Here’s his personal view, also written shortly before the election:
I should pause here and confess my personal biases, since the messenger is part of the story. On social issues, I lean Libertarian, minus the crazy stuff.
Moneywise, I can’t support a candidate who promises to tax the bejeezus out of my bracket, give the windfall to a bunch of clowns with a 14 percent approval rating (Congress), and hope they spend it wisely.
Unfortunately, the alternative to the guy who promises to pillage my wallet is a lukewarm cadaver. I’m in trouble either way.
I wonder if Adams is pleased with the outcome of the election…
Cowen’s comment illustrates why, although I am somewhat skeptical of many claims associated with anthropogenic climate change and very skeptical of the specific predictions of most climate modelers, I favor moderate but immediate action to reduce carbon emissions and to prepare fail-safe measures for climate-related natural disasters. Provided, of course, that we can listen to economists as well as climate scientists and design policies with cost-benefit analysis in mind. On this subject, see William Nordhaus’ excellent book A Question of Balance: Weighing the Options on Global Warmingand Freeman Dyson’s comments in his essay/review of that book.
Happy Labor Day to all my readers, and on this US holiday the thoughts and prayers of myself and my relatives go out to the residents of the Gulf Coast who have been separated from their homes, friends, and families by the hurricane-related evacuation.
Obama is an historic opportunity for the Dems of FDR proportions, a chance to remake the political landscape for a generation or more. And people like Krugman and his proxy Hillary, who want only political war, narrow short term score settling, are the alternative. If the Dems don’t nominate Obama, and go for Hillary…they will have shown themselves to be as corrupt, opportunistic, hypocritical, and small minded as the Republicans.
I say this as a life long Democrat who in 40 years of voting has only voted once for a Republican (who was running against Phil Gramm for congress)… [emphasis added]
[In contrast to Krugman, Gintis] is however, an insightful and fair-minded thinker who has repeatedly demonstrated that he doesn’t care about developing good rhetorical points for political debates, but rather about studying social problems such as poverty and poor schooling so that these problems can actually be ameliorated.
“And when rational individuals face a miserable set of choices…they cannot do better than pick the best of a bad lot. We will not solve social problems if we pretend that they are caused only–or mostly–by the mad, the stupid, and the morally degenerate. But nor should we shrug our shoulders and declare that all is for the best in the best of all possible worlds. I hope that this book will show that although people tend to make smart choices, it is possible to offer them better ones.”
Tim Hartford, from his insightful and engaging new book The Logic of Life: The Rational Economics of an Irrational World. Hartford, a Financial Times columnist and editor and formerly an economist for the World Bank and Royal Dutch/Shell, draws on recent and important research from economics, psychology, sociology, and history to explain the social-scientific logic behind problems ranging from gambling and annoying coworkers to racism and political instability. As they say, read the whole thing.
At Marginal Revolution, Tyler Cowen is hosting an online book forum about The Logic of Life. Cowen gave the book as favorable review, as did Nobel Prize winners Gary Becker and Tom Schelling.
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Note: posting will continue to be light due to a combination of a heavy workload and some ill health the past two weeks that put me behind on said work (don’t worry, it’s not anywhere near as bad as the bizarre and debilitating intestinal infection I had a year ago). There may be a few more short or pre-written pieces like this, but mostly I’ll be busy. Have a nice week everyone!
Many people are holding out the hope that the government can somehow substitute for the pharmas, bolstered by the ludicrous claim that the government really discovers all the drugs. This is arrant nonsense; government-funded research discovers targets that might someday turn into drugs, if the Big Pharma chemists can: find a molecule synthesis can be economically mass produced; keep the molecule from killing rats, mice, dogs, or humans; get the molecule into a form that does not have to be directly injected into the bloodstream; tweak the molecule so that the liver doesn’t immediately chew it into pieces that no longer affect your target; and shepherd the entire thing through years of clinical trials. That’s just off the top of my head; research chemists will undoubtedly have more.
Weekly claims for unemployment benefits have fallen dramatically. Some analysts believe that this does not provide useful information, as the holiday season distorts the number of unemployment applicants. However, the jobless claim figures have historically tracked overall unemployment very well, despite the seasonal sampling problems. Developments in employment/unemployment numbers are being followed closely, as total US unemployment rose to the (historically low but recently high) rate of 5% after last month.
By the way, I think the answer to the title questions is “yes”. In my mind, there is a better than 50% chance that the United States will not experience a recession in 2008, and will at worst experience a mild recession some time over the next 3 years. I won’t go so far as to predict “no recession”, especially because I’m not sure how the economy will actually respond to the Fed’s new stimulus. (Recall that Tyler Cowen once wrote, “All propositions about real interest rates are wrong”.)
Let’s say that the government subsidized the price of bananas, you bought so many bananas, put them on your roof, and then the roof collapsed. Is that government failure or market failure?
John McCain confirmed today that he still holds the position that made many (including myself) pay close attention in the Republican Presidential Primary eight years ago: opposition to US federal farm subsidies.
During an interview on Fox News Sunday, Chris Wallace asked about McCain’s low poll numbers in Iowa. Senator McCain admitted difficulties in that state, explaining his poor appeal,
I don’t support ethanol subsidies. I don’t support farm subsidies; I think they should be phased out.”
It’s good to know that McCain hasn’t abandoned one of his signature issues despite its unpopularity. It’s even better that one of the major candidates (other than long-shot Ron Paul) accepts the basic economic fact that farm subsidies enrich agribusiness and other non-poor farmers, harm citizens through higher taxes and higher food prices, and cripple farmers in poor countries who would could earn a living by selling agricultural products for the US market if they could compete fairly.
Here is more from that same interview, mainly about McCain’s response to an attack mailing by Mitt Romney:
People strike back at what they perceive to be injustices. Having a lot of money is not an injustice. To repeat an idea from my review: people hated the Robber Barons because they were robbers and barons, not because they were rich. The labor movement was strong when it was perceived that firms were making superprofits that could be more equitably shared with the workers. Gender inequality and racial discrimination are opposed because they are unfair, not because they lead to an unequal division of wealth.
–Professor Emeritus of Economics at the University of Massachusetts Herbert Gintis, regarding his (negative) review of Paul Krugman’s The Conscience of a Liberal, and his view that American “liberals” are unproductively obsessed with the concept of economic inequality.
Unfamiliar observers should note that Gintis is about as far to the “left” politically as it is possible to be in the US without being a full-fledged Marxist (he would probably consider himself a Marxian-inspired heterodox economist). He is however, an insightful and fair-minded thinker who has repeatedly demonstrated that he doesn’t care about developing good rhetorical points for political debates, but rather about studying social problems such as poverty and poor schooling so that these problems can actually be ameliorated.
Here are some thoughts from The Economist’s Free Exchange Blog about strikes and negotiation.
While you’re waiting for your favorite TV shows or plays to resume (or if you’re stuck in traffic in Paris and have an iPhone or laptop), please enjoy this video of Billy Joel and his band performing the song “Allentown” in 1998 (before he started to lose his voice).
Political junkies may remember Mankiw as the economic adviser to President George W. Bush who made some politically incorrect (but economically justified) statements about outsourcing. Economics and public policy junkies may remember him for his contributions to modern growth theory and his cameos in the recent popular-scientific-history book Knowledge and the Wealth of Nations.A year-old ranking calculated that “Mankiw, Romer, & Weil” (as the paper linked above is known) is the 65th most-cited peer-reviewed article in contemporary economics.
Now if only I could figure out why he agreed to be an economics adviser to Mitt Romney…
On the somewhat ominous date of the 5th of November, George W. Bush will award the Medal of Freedom to Becker, retired Republican Congressional leader Henry Hyde, Cuban dissident Oscar Elias Biscet, Human Genome Project director Francis Collins, C-SPAN founder Brian Lamb, President of Liberia Ellen Johnson Sirleaf, civil rights leader Benjamin Hooks, and To Kill a Mockingbird author Harper Lee.
Becker is one of the most-cited living economists, and he teaches the (in)famous University of Chicago graduate Price Theory class, (which he took over upon the retirement of his Ph.D. adviser and colleague Milton Friedman). Over his prolific career, Becker was responsible (virtually singlehandedly) for creating four new subfields of his discipline: the economics of discrimination, the economics of human capital, the economics of marriage and families, and the economics of crime. It is often said that more dissertation topics have been inspired by Becker’s footnotes than from the main text of any other economist, barring the founders such as Marshall, Keynes, and Samuelson.
Becker currently teaches graduate economics courses at the University of Chicago, while working part-time as a Senior Fellow for the Hoover Institution at Stanford. He also writes weekly point-counterpoint essays with law professor and US 7th Circuit Appellate Judge Richard Posner, posted on the Becker-Posner Blog.
UPDATE: Here is Becker receiving the medal from President Bush (photo by Eric Draper from www.whitehouse.gov)
Myerson is the Glen A. Lloyd Distinguished Service Professor and Director of Graduate Studies at the University of Chicago Department of Economics. He is one of the most cited theoretical microeconomists of his generation, and it is impossible to research the subfields of game theory, auction theory, social choice, or mechanism design without tripping over what seems like scores of important articles and results written by Myerson.
The University of Chicago community is very happy for Professor Myerson, and will probably hold a celebration honoring him in the near future. Myerson becomes the sixth and youngest (at 56 years old) Economics Nobel winner on the faculty of the University of Chicago, joining James Heckman, Robert Lucas, Robert Fogel, Gary Becker, and Ronald Coase.
Professor Levitt’s analysis seems to suggest that there are non-trivial and possibly large “reputation” costs for a company changing the pricing, features, or extras on an existing product line. Obviously if the company fails to account for the sales effect of a reputation change, an apparently profit-maximizing pricing or production decision might not be optimal. I think the biggest difficulty would be finding a reasonable way to measure the reputation effects on sales (and disentangle them from other changes in demand and quantity demanded). Some field studies of how firms actually make these estimates might be useful as a starting point. I don’t think that the theoretical problems with this type of pricing behavior are quite as intractable as Levitt implies, although the empirical work might prove tricky. My overconfidence suggest that I should probably stop blogging and get to work…
In this excellent post, Arnold Kling links to David Leonhardt’s New York Times column about preventative medicine and healthcare cost savings. Leonhardt quotes MIT healthcare economist Jonathan Gruber, who questions whether preventative care can create net savings in healthcare expenditures (as Hilary Clinton has implied). Kling also discusses what Michael Cannon calls “Kling’s Iron Trilemma” of health care spending. Kling explains,
We want:
–what I call insulation, where consumers enjoy the peace of mind of having their medical services paid for by a third party;
–unrestricted access, where consumers and doctors can choose medical procedures without bureaucratic interference or government budget limits;
–less stress over rising health care costs.
The trilemma is that we can have at most two out of three. Much of the “reality-based community” (an Orwellian label if there ever was one) denies that the trilemma exists. Gruber does not deny its existence, but he prefers restricting access to reducing insulation. I prefer the latter.
For reference, Kling received his Ph.D. in Economics from MIT and serves as an adjunct professor at George Mason University. He writes the blog EconLog (jointly with Bryan Caplan), and his most recent book, Crisis of Abundance, is about US healthcare reform.
The so-called “$100 PC”, designed for citizens of developing nations, has been the object of a several-year product design struggle by technology firms and economic development specialists. The One Laptop Per Child campaign, which aims to accomplish this goal using a cheap, 2 Watt AMD subnotebook, now has some competiton. Lenovo announced today that they will sell a new PC aimed at rural Chinese customers, for as low as $199. Dell had earlier announced a low-cost PC for around $223.
(This post will hopefully be the first in a continuing series about the arrival of technology in the developing world, particularly in clever or unique ways. “Lasers in the Jungle” is a line from Paul Simon’s song “The Boy in the Bubble” on the album Graceland–the 1986 Grammy Album of the Year. The song juxtaposes the the arrival of Western technologies with the banality of daily life in an unnamed, poverty-stricken African dictatorship.)
