Bloomberg: Some Health Care For All, but Not Too Much

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This article originally appeared in Bloomberg

Tyler Cowen caught a lot of flak recently for saying something that is clearly correct. A lot of the flak has come from people who have misunderstood the implications of what he wrote.

Here’s the relevant passage:

Trying to equalize health care consumption hurts the poor, since most feasible policies to do this take away cash from the poor, either directly or through the operation of tax incidence.  We need to accept the principle that sometimes poor people will die just because they are poor.…  We shouldn’t screw up our health care institutions by being determined to fight inegalitarian principles for one very select set of factors which determine health care outcomes.

Cowen is right. As both inequality and health-care costs rise, it becomes more difficult to equalize health-care consumption through transfer payments. The size of the transfers eventually becomes untenable. They also become wasteful: You end up providing hugely expensive health-care transfers to people with low incomes who would be better off with cash, housing or something else. Even if it meant they wouldn’t live as long, at least the quality of their lives would be higher.

I think a lot of liberals have taken umbrage because they read Cowen as implying that government programs designed to get health care to poor people aren’t worth the cost. But that does not follow. Cowen is simply saying that we should apply the cost-benefit analysis more rigorously, and that our guarantees of health care are not unconditional.

For example, let’s imagine that there are two diseases, Ailment A and Ailment B, both of which are equally common and both of which shorten life spans. There is a treatment available for each, each of which extends life by an average of one year. But the treatment for Ailment A costs $1,000, and the treatment for Ailment B costs $100,000.

Providing treatment for Ailment A to those who cannot afford it should be a clear public-policy priority. Treating Ailment B is a much less compelling government purpose, and we might leave people to finance such treatment on their own. Thus poor people who lack privately purchased insurance and get Ailment B would die sooner simply because they are poor.

Maybe that sounds cruel to you. Maybe you think Ailment B should be covered at taxpayer expense. So let’s imagine that treating Ailment B costs $1 million, or $10 million, or that the treatment only extends life by only a month, or a week. There has to come a point where treatment is so cost-ineffective that financing it is a bad use of taxpayer dollars — even though those with the means to get treatment might choose to buy it. The question for policy makers is this: Where should that line be drawn?

In deciding, it’s important to remember why we have transfer payments in the first place. There is declining marginal utility of money: A person who makes $10,000 gets more value out of an extra dollar than a person who makes $100,000 does. So, transferring wealth from rich people to poor people makes the public better off in the aggregate.

But high tax rates and generous benefit programs both discourage people from working and producing. Public policy needs to strike a balance between transferring wealth and encouraging the creation of wealth — and therefore leaves some people much wealthier than others.

So, the transfer budget has to be limited, and policymakers have to decide how to allocate it. It’s not obvious that “fully equalized health care access” should be anywhere near the top of the priority list.

That calculus is already implicit in any government health-care program. No program simply cuts a check for anything a patient or physician wants. But politicians don’t like to talk about that, because Americans react badly to the idea that health benefits should be subject to cost-benefit analysis. In recent years, they have been egged on by Republican politicians who insist that attempts to increase cost control in Medicare amount to “death panels.”

In practice, the political barriers to getting government-funded health programs to deny treatments are much higher than they should be, which is a big reason the U.S. spends so much money on health care. This wasn’t a reason to leave tens of millions of Americans without insurance. Still, expanded coverage will make the lack of cost control even more fiscally pressing than it had been.

Unfortunately, the cost of health-care entitlements will swallow the federal budget if we don’t get more comfortable with the idea of cost-benefit analysis. In time, we will need to set stricter limits on what sort of treatments taxpayers are expected to finance. In other words, we’re going to have to get more specific on when exactly we will let people die simply because they are poor.

Of course, this is not consistent with the idea that there is a “right to health care.” A right to what health care? Well, “basic” health care, is usually the reply. Or, if you prefer, “sufficient.” So what does “basic” or “sufficient” mean? That this is a question subject to political debate and cost-benefit analysis is your clue that we’re dealing not with a right but with a strategic question of how to best improve public welfare, in which health care is only one of many goods available.

Instead of “Health Care for All,” maybe the slogan should be “Some Health Care for All, but not Too Much.” It’s not sexy, but unlike the policy status quo or the health-policy agendas of both parties, it’s something we can afford for decades to come.

the Atlantic: Innovation, It’s the Best of Times and the Worst of Times

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This article originally appeared in the Atlantic

Two radically different ways to view the state of innovation in America.The fabulous rise of wireless communication allows us to video chat across continents for free. Then again, we still don’t have flying cars.If you want to have a polarizing conversation about the state of American innovation, you can do no better than sitting down George Mason University professor Tyler Cowen, who thinks the last 40 years of innovation have been “meh,” and MIT’s Andrew McAfee, who’s adamant that technologically innovation is accelerating at a pace most people aren’t even comprehending. That’s what happened today at the Aspen Ideas Festival in Colorado.

In Cowen’s opening remarks, he compared the technological changes in the second half of the 20th century to those of the first half. “In 1900, most American lived in farms,” he said. “By 1950, we had a fundamentally different world.” If he were to introduce his grandmother to a modern American kitchen, it wouldn’t be all that earth-shattering for her, he insisted. “My grandmother, who was born in 1905, spoke often about the immense changes in electricity, automobiles and household appliances,” he said. “We have simply not had that many life-altering innovations since 1973.”
On the flip side, McAfee insisted that Cowen’s grandmother would practically lose her mind if shown a modern day smartphone. That’s a “tough lady to impress,” he said, if she’s not bowled over by the ability to video chat “with someone across the world for free” or look up an answer to almost any question in the universe. The awesome march of technological innovation, in McAfee’s view, is best crystalized in his new book, Rage Against the Machine, which was reviewed in the Financial Times here:
Computers now exhibit human-like capabilities not just in games such as chess, but also in complex communication such as linguistic translation and speech. These new abilities stem from “pattern recognition” technologies – the same techniques that underpin, for example, the Siri voice recognition tool in Apple’s iPhone 4S.
Pattern recognition … will quickly allow machines to branch out further. Computers will soon drive more safely than humans, a fact Google has demonstrated by allowing one to take out a Toyota Prius for a 1,000-mile spin. Truck and taxi drivers should be worried – but then so should medical professionals, lawyers and accountants; all of their jobs are at risk too.
Meanwhile, Cowen’s views on innovation can best be summarized in his book, The Great Stagnation: 
Although America produces plenty of innovations, most are not geared toward significantly raising the average standard of living. It seems that we are coming up with ideas that benefit relatively small numbers of people, compared with the broad-based advances of earlier decades, when the modern world was put into place. If pre-1973 growth rates had continued, for example, median family income in the United States would now be more than $90,000, as opposed to its current range of around $50,000.
Will the Internet usher in a new economic growth explosion? Quite possibly, but it hasn’t delivered very good macroeconomic performance over the last decade. Many of the Internet’s gains are fun — games, chat rooms, Twitter streams — rather than vast sources of revenue, and when there have been measurable monetary gains, they often have been concentrated among a small number of company founders, as with, say, Facebook. As for users, the Internet has benefited the well-educated and the curious to a disproportionate degree, but apparently not enough to bolster median income.
So which do you think it is?

the Atlantic: Tyler Cowen,”Everywhere Will Be Like the Music Industry”

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This article originally appeared in the Atlantic

The music industry, as we all know, has been turned upside down by the new behaviors enabled by the Internet. If you look at recorded music sales alone, the industry has nosedived since the late 90s. But if you take a broader view, we see that people continue to listen to tons of music, go to concerts, and that all kinds of startups are desperately trying to become the new model for the industry.

If George Mason economist and Marginal Revolution blogger Tyler Cowen is right, higher education is about to go the way of the record company. Speaking at the Aspen Ideas Festival, he offered up college as the next in a long line of industries that Internet-enabled innovation is going to scramble.

 

Look at the music industry. It’s been completely overturned by the Internet. My vision of the world is that everywhere will be like the music industry, but we’ve only seen it in a few places so far. Journalism is in the midst of the battle. And higher education is probably next.

Journalism, of course, has also been turned upside down by the access to information the Internet enables. Newspaper revenue models collapsed in the face of Craigslist and lower online advertising rates. Newspaper editorial models collapsed under pressure from blogs, social media power, and the revenue problems. Magazines have survived, but usually in attenuated form. Television news no longer commands the nation’s attention the way it once did. The picture, while exciting for a young digital journalist like myself, is not pretty overall.

As for higher education, David Karpf made a great counterpoint on the Huffington Post about why higher education will not be like music. Unlike the music business, colleges’ revenue streams are safe.

 

Higher education in America faces its share of problems, to be sure. Tuition soars and students are racking up mountains of debt. But the underlying revenue model faces no direct threat. A modern-day Good Will Hunting might gain his education through MIT’s online lectures rather than a Boston public library card, but the great mass of privileged 18-year-olds will keep heading off to college. Neither the University of Phoenix nor MIT’s online courses offer a replacement for the college experience that students are currently paying for. And competition does not equal disruption.

Of course, the situation Karpf describes will only obtain unless or until a massive cultural change undermines the value of a degree. That seems unlikely now, but one has to wonder about 10 years down the line. Put it this way: if I gave you $100,000 and four years to turn an 18-year-old into a better 22-year-old citizen, scholar, person, and worker, would our current college system be what you’d do with the time and money?

 

The American Interest: Google Taking the Lead on “Reshoring” Movement?

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This article originally appeared in The American Interest

One of Google’s newest products—the Nexus Q—has an interesting new feature. In addition to the futuristic design, the product has one, more unique, characteristic: It was manufactured in America.

As the New York Times reports, Google is beginning to experiment with shifting some of its manufacturing to the US. Bucking the trend in Silicon Valley, where nearly all manufacturing of small electronics has long since shifted to China, Google’s products have been manufactured entirely in a California factory, and nearly all of the components are American as well—which is also a rarity. Although this is only a test run, and will only be implemented on one of Google’s many products, a successful result could inspire Google—and others in Silicon Valley—to implement a similar process on more of its products. We have discussed the nascent phenomenon known as “reshoring” before on Via Meadia; Google’s decision shows that major companies, and in this case one of the most forward-thinking companies in the world, are engaged with the idea.

Nor is this purely a patriotic gesture on the part of Google—as theTimes notes, there are good economic reasons for the move:

Rising labor and energy costs have made manufacturing in China significantly more expensive; transportation costs have risen; companies have become increasingly aware of the risks of the theft of intellectual property when products are made in China; and in a business where time-to-market is a competitive advantage, it is easier for engineers to drive 10 minutes on the freeway to the factory than to fly for 16 hours.

Although the piece is highly anecdotal, the findings track very closely with what we have seen before in other industries that have shifted manufacturing back to America. Tyler Cowen puts it best in an excellent recent piece here at The American Interest:

The more the world relies on smart machines, the more domestic wage rates become irrelevant for export prowess. That will help the wealthier countries, most of all America. This logic works on both sides. America is using less labor in manufacturing, but China is too, even as its manufacturing output is rising. The fact that Chinese manufacturing employment is falling along with ours means that both our higher wages and their lower wages are becoming less relevant for the location of manufacturing decisions. The less manufacturing has to do with labor costs and relative wage levels, the greater the comparative advantage of the United States.

It’s still too early to say how widespread this trend will become, and there will still be ample opportunities for political incompetence, economic malaise or excessive regulation to mess things up.

And we need to remember that no matter how successful this trend turns out to be, manufacturing is not going to provide the kind of employment that it did in the past. Productivity has increased so much that it just doesn’t take as many workers to make widgets and gizmos as it once did.

But in an era of scarce jobs, the Google story serves as a helpful reminder that America’s future remains significantly brighter than many think.


Freakonomics: Foodie Economist Tyler Cowen Answers Your Questions

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This article originally appeared in Freakonomics

We recently solicited your food questions for economist Tyler Cowen, whose latest book is An Economist Gets Lunch: New Rules for Everyday Foodies. (He also blogs at Marginal Revolution and at Tyler Cowen’s Ethnic Dining Guide.) That book was the jumping-off point for our recent podcasts “You Eat What You Are” Parts 1 and 2.

Below are the answers to some of your questions. Cowen talks about food subsidies, the Malthusian trap, “ethnic” food, the meal he’d like to share with Murray Rothbard and Ludwig von Mises. Thanks to all for participating.

Q.Any advice on choosing the best food when eating at a college cafeteria? - Philip Mulder

A. That is a good time to start your diet. Otherwise, look for items which can sit and stew for a long time.  Indian food works okay in such contexts, as do stews, as the name would suggest.  Stay away from anything requiring flash frying or immediate, short-term contact with heat.  The vegetables won’t be great, but often they are not great (in the U.S.) anyway, so now is the time to fill up on them!  The opportunity cost of eating the bad-tasting but nutritious food is especially low in these circumstances.

Q. I can’t imagine ordinary people who aren’t recent immigrants, or crunchy granola types, or hippies living in the middle of nowhere, living on beans and rice when there are fast food places all around us. Bacon cheeseburger and small fries off the value menu? Or a bowl of rice and beans at mom’s kitchen table? -anon

A.The rice and beans tastes much better, especially if you puree ancho chiles into the mix, or put a little bacon on top, or best yet both.  It is also cheaper than McDonald’s.  It is better for you.  More people should give it a try.

Q. I just read The American Way of Eating: Undercover at WalMart, Applebee’s, Farm Fields and the Dinner Table by Tracie McMillan, investigating how food gets handled and how it gets distributed. She worked with Mexicans in the fields picking tomatoes and peaches. She was paid about $20 a day. All that backbreaking labor in the hot fields, and you get about enough for you and a friend to get a tall-whatever and a cookie at Starbucks. -Lassie

A.And yet a lot of those Mexicans still are able to send remittances back home. We should marvel at their fortitude.  By no means are all of those individuals totally miserable and in fact back home it is common that they earn $1 or $2 a day and can never send their children to the doctor.  They consider it a privilege to have a chance to work in the United States at higher paying jobs.

Furthermore, I should add that $20 a day is quite a low estimate.  The going rate for illegal immigrants these days — depending on the region — is often $10 an hour or more.

Q.The book discusses how easy it was to incorporate vegetables into a meal after shopping at the Asian market. Further, in the podcast at EconTalk you discuss how much more enjoyable vegetables are when properly spiced (or served with spicy food). Assuming the two are related, what Asian spices is he using to make the vegetables something to look forward to? I’m really trying here, but when I’m eating a meal I still can’t bring myself to say that the best part is the bok choy, and not the steak. -Lindsay

A. The bok choy doesn’t have to be the best part of the meal and indeed it isn’t.  It only has to be good enough to eat!  If you try to eat dumplings, with soy sauce and chili oil, the meal tastes much better with some greens. I would say greens are virtually essential for such a meal and many Chinese would agree.  So the whole package here still ties together.  Not every part of a meal can be the best part.

Q.While you say on your food blog that “all food is ethnic food,” what is your stance on authenticity? Does it exist? Does it matter? What’s your take about David Thompson’s orAndy Ricker’s Thai food? Or what about Jose Andres opening restaurants of various types? Lastly, what’s your take on a Chinese restaurant where the vast majority of the clientele isn’t Chinese? (could substitute Chinese for any other traditionally considered ethnic cuisines like Thai/Mexican/Vietnamese/Indian/etc). -Danny

A. No cuisine is truly authentic.  Look at Italian food — tomatoes come from the New World and the chilies of the Asian cuisines also had to cross the ocean.

I just ate in David Thompson‘s London Thai place (Nahm) two weeks ago and I thought it was first-rate.  He does not have a Thai grandmother, so in some ways it is easier for him to pick and choose the best from many Thai traditions.  The ongoing evolution of a cuisine is in itself part of that cuisine’s authenticity.  Note, by the way, that most of the French food eaten in the United States is cooked by Mexicans and other Latinos, even if they are not the head chefs.

A Jose Andres restaurant is typically excellent at first, and then they evolve in varying ways, depending on who is in charge.  I loved his Mexican and Chinese place in Las Vegas, namely China Poblano.  I always like the conceptions behind his places, although over time the execution at some holds up better than at others.  In any case they are worth visiting at least once.

Q. Let’s say the ~$20B in U.S. subsidies for corn wheat, rice, soybeans, dairy, etc. are gradually dialed down to $0 in the next 10 years. What do you think the impact on food would be ? Would prices rise? Would flavor and health improve?

A. Eliminating agricultural subsidies would improve the federal budget and the long-term fiscal outlook.  There is no reason not to do it.

That said, sometimes foodies overemphasize how much those subsidies skew the world of food.  Many of the bad sides of our corporate food world would still remain, or be virtually as prominent, though only customers would have to pay for them. We will still have too much corn syrup in our diets, and too many fruits and vegetables without much real taste and too much processed food.

Some agricultural subsidies make food more expensive, such as when they are combined with price floors, other subsidies make it cheaper, or lead to a distribution of surplus abroad, keeping food off the home market but boosting the amount of aid.  The overall effects of agricultural subsidies on food prices are quite complex.

Q.I have spoken to several economists and biologists about the Malthusian trap. Economists don’t take Malthus seriously because of technological progress, and biologists (at least the ones I spoke to) think that economists are delusional about technological progress and that the Malthusian trap can come back and haunt us unpredictably, even though the past 100 odd years are evidence against it.

  1. What is your take on this?
  2. Why is it that economists and biologists aren’t converging on this topic? Why don’t biologists appreciate technological progress as much as economists do, and why don’t economists appreciate Malthus on this?

-jack sparrow

A.England and the Netherlands started living outside of the Malthusian trap since the early part of the 17th century.  That is more than one hundred years of evidence against Malthus.

Eventually the world will end, and somewhere along the line wages and living standards will be quite low.  But until that happens, Malthus isn’t a very useful guide to food and living standards.  As late as the 1970s, commentators thought Malthus would apply to the developing world and we would be faced with mass starvation of billions.  The Green Revolution came and that didn’t happen.  China and India reformed.  Most likely further improvements are on the way.  The real problem is bad institutions, such as are found in North Korea, so our worst enemy is ourselves, not some oppressive force of population multiplication.

Don’t assume that all biologists love Malthus.  In any case, Malthus comes closer to explaining the world of non-human animals than to explaining human animals.

Q.What restaurant or food type would Tyler Cowen, Murray Rothbard and Ludwig vonMises enjoy for lunch? Why? -Bill N.

A. Rothbard was quite a conservative eater, but he loved the Bavarian culture of the Baroque.  Mises grew up in the Austro-Hungarian Empire.  So I suggest that we would all sit down and have a Wiener Schnitzel together.


The New York Times: Losing Faith in American Institutions

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This article originally appeared in The New York Times

As Tyler Cowen (and then I) wrote about earlier this week, trust in government is declining.

The decline in American trust is not unique to government, though, and it’s also not terribly recent.

Gallup has just released its latest figures on Americans’ confidence in various institutions. The numbers are all pretty grim, with new lows recorded for Americans’ confidence levels in public schools, churches, banks and television news.

These latest record-lows were within the margin of sampling error for last year’s measurements, I should note, but the longer-term trend is still down, down, down.

Here’s an interactive chart I put together showing the share of Americans who have expressed “a great deal” or “quite a lot” of confidence in a selection of major institutions since 1973:

Click on almost any category charted in the graph above, and you’ll see that confidence has generally been falling. (Mousing over individual data points will show you the specific share of American adults expressing confidence in any given year, too.)

Institutions that have enjoyed a relatively steady increase in public confidence — like the military — are the exception.

It’s not clear why trust in so many major institutions is falling. Clearly the trend predates the financial crisis. Maybe more combative political rhetoric is to blame. Maybe it’s a more sensationalistic, 24-hour news media cycle. Maybe it’s the rising “myth of the meritocracy,” as Christopher Hayes argues in his new book.

Or maybe the relative transparency afforded by the Internet age has given Americans more evidence that the organizations they used to trust can make mistakes.

In any case, if these trends continue, they could further diminish the potency of various policy tools, as Mr. Cowen explained.

(Results for the latest Gallup poll are based on telephone interviews conducted June 7-10 with a random sample of 1,004 adults, 18 or older, living in the 50 states or the District of Columbia. The maximum margin of sampling error is plus or minus four percentage points.)


NATIONAL REVIEW ONLINE: Pessoa and Van Reenen on Decoupling

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This article originally appeared in National Review Online

Tyler Cowen points us to a fascinating new paper by João Paulo Pessoa and John Van Reenen, both of the Centre for Economic Performance at LSE, on decoupling in the US and the UK. First, the authors differentiate between “net decoupling”

the difference in growth of GDP per hour deflated by the GDP deflator and average compensation deflated by the same index 

and “gross decoupling”

the difference in growth of GDP per hour deflated by the GDP deflator and median wages deflated by a measure of consumer price inflation (CPI).

It turns out that while there has been very little net decoupling, there has been considerable gross decoupling, particularly in the US:

This difference between gross and net decoupling can be accounted for essentially by three factors (i) wage inequality (which means the average wage is growing faster than the median wage), (ii) the wedge between compensation (which includes employer‐provided benefits like pensions and health insurance) and wages which do not and (iii) differences in the GDP deflator and the consumer price deflator (i.e. producer wages and consumption wages). These three factors explain basically ALL of the gross decoupling leaving only a small amount of “net decoupling”. The first two factors are important in both countries, whereas the difference in price deflators is only important in the US.

It is fairly well established that (i) is a significant phenomenon and that (ii) plays a role for middle-income and high-income workers, and it is interesting to see the role of (iii) and how it varies across countries. 

FREAKONOMICS: Tyler Cowen on Wal-Mart and World Hunger

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This article originally appeared in Freakonomics

Arabic Knowledge@Wharton interviews Tyler Cowen about food and economics.  Here’s a particularly interesting bit about why Wal-Mart’s presence in places like Africa might actually make it easier for the poor people to buy food there:

Cowen: If you look at wheat and rice, there have been price spikes over the last five years and they’ve made food a lot harder for poor people to afford. The so-called “Green Revolution” has somewhat slowed down. This is an unreported story. Crop yields are stagnant. It isn’t a problem we can solve overnight but it’s really one of the biggest problems in the world. It hardly gets any publicity. But for poor people in India, the Middle East and parts of Africa, it really matters.

Some of the problems are we don’t have enough trade. It could be either legal barriers or just costly to transport or trade things. If there could be a shortage of rice in one place, it actually not that easy to ship a lot of rice in there because of bad roads and so on.

Arabic Knowledge@Wharton: So if countries worked on improving the transportation infrastructure, that would lower food prices in some parts of the world?

Cowen: Exactly, that would do a lot to feed people. Again, it sounds much more mundane but it’s more important than what people in the food world usually talk about.

Arabic Knowledge@Wharton: So when companies like Wal-Mart bring their logistics ability to Africa, it actually could be a good thing for the poor people of Africa?

Cowen: It’s exactly what we need more of. Yes.


Business Insider: Tom Keene: Keep An Eye On The Twitter Vigilantes

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This article originally appeared in Business Insider

Business Insider caught up with Bloomberg’s Tom Keene yesterday at Bloomberg’s Summer Picnic at Randall’s Island. (Bloomberg really knows how to party)

Sporting seersucker and a summer beverage, Keene reflected on the euro crisis and the lightning-fast, pithy analysis offered by the twitter vigilantes: the bloggers, the reporters, and the academics who tweet out the first reaction to news seconds after major news breaks.

Keene recently blogged about Twitter’s response to last weekend’s Spanish bank bailout announcement.

“It was stunning, just stunning Saturday, to watch digital media in full force,” he wrote. “The Internet-first crew pummeled Main Stream Media with immediate paragraphs of perspective, then delivered substantial and smart articles as MSM issued tentative first reporting.”

Keene praised some of the most popular Twitter account: Bloomberg’s Linda Yueh (@LindaYueh), ZeroHedge (@zerohedge), Professor Tyler Cowen (@TylerCowen). FT’s Peter Spiegel (@SpiegelPeter), and of course Business Insider’s Joe Weisenthal (@TheStalwart).

As the results of the Greek elections roll out, keep an eye on Twitter to offer the first response once again.

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