Megan McArdle

Extreme Health Care

Thu,09 Jul 2009 19:55:54 GMT

Kevin Drum is skeptical that America does more in extremis than other healthcare programs:

Boy, I'd sure like to see some backup for that. If by "extraordinary" Megan means the most extreme 0.001% of procedures, then maybe she's right. Maybe. But nothing I've read about Western European healthcare systems makes me believe that there's any substantial difference between the way they treat severe illnesses and the way we do it. And no systematic difference in success rates for such treatment either. Nor should this come as a surprise, since most extreme medicine is practiced on older patients, who are covered by a public plan both here and in Europe.

If only Kevin had a subscription to The Atlantic--very reasonably priced at 19.95 a year--he would have found a hint in Virginia Postrel's article about Herceptin and early stage breast cancer, which we ran in March. That article is about New Zealand, but the controversy over Herceptin was not limited to the Southern Hemisphere; Britain had a famous case involving the expensive cancer drug, in which a woman successfully used a combination of legal and media pressure to force the NIH to provide her with the drug for her early-stage breast cancer (she has since died). Early stage HER2 positive breast cancer is hardly a 0.001% event--25% of breast cancers have the HER2 trait, and those tend to be the more aggressive kinds of cancer. The drug had already been offered for early stage cancers in the US for years, even though no one had definitive proof that it worked.

This may be why--contrary to what Mr. Drum has apparently read--cancer survival rates in Europe lag those in the US. (Although this is complicated: we catch cancer earlier, because we're screening-test-mad, and some cancers just hang out for decades without killing you). At the highest macro level, life expectancy, Europe generally outperforms us. But it's not clear how much of that is health care, and how much things like our murder rate, and our famously sedentary lifestyles. When you drill down into many diseases, we outperform them. And many argue that we outperform them on hard-to-measure "lifestyle" issues: how fast your torn ACL gets repaired, how quickly (or whether) you get a hip replacement, etc. Such quality of life issues are nearly impossible to measure, though this hasn't stopped many people from trying. But I don't really trust the figures they generate.

Europe gets a great deal out of all of this. We figure out what works, then they adopt it. But we get a great deal too--we get earlier access to controversial treatments, and our future generations get all the treatments we've discovered so far..

So What About That Surtax?

Thu,09 Jul 2009 15:07:33 GMT

A Democrat of my acquaintance, who makes something, but not a huge something, over $200,000 a year while living in Manhattan, was recently grousing to me about the surtax. "My taxes on a marginal dollar are going to go up almost 1000 basis points!" said he.

This is true, I agreed. And just what, I wondered, had he thought was going to happen if he elected Obama? Not clear. Our subject had listened to Obama talk about taxing people who made more than $250,000, which seemed entirely reasonable; he hadn't realized that being single, his tax hikes would start much lower than that--that he, too, was "the rich". Mentally speaking, the rich don't live in eight hundred moderately roach-infested square feet in an unfashionable neighborhood of New York.

A few readers emailed to ask me about the proposed 4% income tax surcharge on incomes over $250,000, and what I think is that this experience will eventually be renacted down the income chain. What's really astonishing is how little money the thing is expected to raise: less than $100 billion a year over the next ten years. That's not even enough to cover the current static estimates of the health care plans on the table.

Needless to say, I don't think the plan will cost as little as it is projected to, since virtually no US government health care plan in history ever has. Meanwhile, the gaping maw of Medicare opens ever-wider. Obama is going to have to push much farther down the income ladder to pay for it all, taking money out of the pockets of ordinary folks--people who thought that by electing a Democrat, they were going to get relief, not more bills. He may end up far enough down the income ladder to scoop money out of the pockets of the jounralists and wonks who have been enthusiastically pushing his plans. Old people are expensive, and they don't have much income.

This hardly dooms his electoral chances--my acquaintance remains a die-hard Democrat. But it sure won't be popular.

Reports of the Death of Obamanomics are Greatly Exaggerated

Thu,09 Jul 2009 14:30:50 GMT

I just can't get excited by conservatives who are listening hard for the distant sounds of herds of voters preparing to destroy Obama and his agenda. Yes, his approval ratings are falling, but his approval ratings were never going to remain at their inauguration highs; once you start making actual policy, rather than pretty promises, you invariably start pissing some people off. Yes, it turns out that FDR was more of a fluke than a model, and crises may not be such a good time for passing massive new agendas after all. Yes, the green shoots seem to have shrivelled.

But honestly, I feel like the punditariat needs to check its meds; the bipolar swings are starting to induce whiplash. The second derivative of unemployment perks up, and the economy is back on track, the stimulus is working, and we're all going to go to heaven when we die (and have excellent universal health care right up to that point). Retail figures fall, and Obama's presidency is over, climate change is going to kill us all if the recession doesn't get us first, and 95% of the Washington Post's columnists start bulk-pricing canned goods and ammunition.

I'm certainly not going to say that Obama is guaranteed re-election, or any part of his expansive agenda. But it's far, far too early to count him out.

The Politics of the Possible

Wed,08 Jul 2009 14:29:19 GMT

Paul Krugman asks why favoring a second stimulus, like opposing the Iraq War, has been written out of the public argument. Now, I seem to remember a very robust and lengthy public argument about the war, which couldn't have persisted without opponents. But leaving that aside, what about the stimulus?

Well, it is starting to get some traction. But it probably won't get much, and here's why: Democrats aren't interested. They aren't interested because they are already facing political pressure over the debt. Doing another stimulus will--or so they think--make it much harder for them to do health care and climate change. Their initial thesis that a big, bold spending program would "prime the pump" for more big, bold spending programs has fallen flat. The stimulus is working too slowly, probably because little money has yet been dispensed, which has made further spending programs less, not more, popular.

A question for Paul Krugman and other stimulus proponents: would you rather have a second stimulus, or health care? I know that in an ideal universe you wouldn't have to choose, but assume that the worrywarts are right, and you do. Which should Obama get done?

That's a genuine question, and one that I think congressional democrats and Democratic wonks should probably be more conflicted about than they apparently are. Not to concern troll, but it's a genuinely tricky, and interesting, political question. If you think a second stimulus will work, and is needed, then you're risking the 2010 midterms and the 2012 election if you don't do it. On the other hand, what's the point of electing Democrats if they can't get a single major program passed?

A Public Plan and the Law of Unintended Consequences

Wed,08 Jul 2009 13:37:44 GMT

Hilzoy is mad at conservatives talking about rationing in the public plan. She says that no one's really rationing care with a public plan; anyone can buy what they want. It's just that the public plan will ration for those in its care in order to make coverage affordable.

I feel a little odd putting the shoe on the other foot, here, since this argument is usually used by liberals arguing against libertarians, but surely the point of worry is that many millions of people will be forced into the public system, because its existence will encourage their employers to dump their health care plans. Since private systems have so far found it virtually impossible to deny many treatments for long, this will mean that millions of budget constrained people will find themselves with less available treatment than before.

(I say this assuming arguendo that we think a public plan can and will control costs by limiting treatment--a thesis of which I am actually pretty skeptical.)

This is not a crazy worry. What America is best at is delivering a lot of complicated care in extremis, and "quality of life" treatments. What European countries are best at is delivering a lot of ordinary care for the sorts of things that afflict people from 0-50, which is why most of the Europhile journalists writing about Europe genuinely have very good experiences to report. I'd rather be here to have a hip replacement, but I might rather be in the Netherlands to have a baby. Doing something moderately ordinary here is a hassle. Doing something extraordinary there is often not possible for the overwhelming majority of citizens, though that depends on what, and in what system.

Option value matters, particularly for the elderly, who tend to get short shrift because they have more, and more extreme, illnesses, and fewer life-years left over which to amortize the cost of their treatments.

That's not to say that there's nothing to gain from a public system: obviously, the peace of mind that comes from not worrying about losing your health care along with your job is also worth some incalculable amount. But the fear that many people will have to permanently trade the option to get access to our frenzied, experimental extreme care is not crazy.

Question Answered

Wed,08 Jul 2009 13:09:07 GMT

Matt Yglesias accuses me of premature hypocrisy hunting. Lucky for Cactus provides some very strange defense of this arcane Democratic art, which makes me merely prescient:

But there are others who believe that a (D) is short-hand for something else, namely that the politician generally hews a bit more closely to a particular set of policies that have worked a little better than the policies adhered to by people who have an (R) after their name. Its not a guarantee of performance.

I have noticed that many people who take the second approach have been criticizing Obama's approach even before he took office. I for one have posted (over and over and over) on the folly of bailing out the financial institutions that have caused this mess (since when is taking from the poor and middle class and sending to the fabulously wealthy compatible with the policies that generally define Democrats?), and I've had a few posts noting that Christina Romer was a very poor choice for CEA chair (Mankiw's endorsement alone should have been a tip-off even to someone who never read her "narrative economic history" paper).

Sure, exogenous factors do matter. Truman was a Democrat, but the economy was awful for the first few years of his administration; transitioning from WW2 to a peacetime economy ain't easy. And it sucked in 1933 too, which was FDR's first year. This despite the fact that annualized, real GDP per capita grew much faster under FDR than any other President over the time period for which the BEA computed GDP, even leaving out the War years. Which also indicates something else - the economy might still turn out alright despite the many Obama mis-steps. Time will tell.

But there are a few other things - for one, you don't have only one (R) or (D) administration to look at. You have probability and statistics. (And to forestall the point that inevitably gets brought up again and again and again and again, that's what degrees of freedom are for.)

And while no theory is perfect, the better ones require fewer exceptions. If Obama starts acting like a Democrat and the economy still sucks by the end of his term, that means Democrats have to explain away Obama and Truman. Republicans still have to explain why Republicans generally do so much worse when it comes to real GDP per capita growth rates. The BEA has only been calculating real GDP per capita since 1929, and yet the best performing Republican, Reagan, is beat out by four Democrats, and all but one of the entire bottom half of the sample is taken up by Republicans. Tip to Megan McArdle: nobody can tell you for sure who's going to win next year's World Cup in South Africa, but betting on Grenada to pull it off is a bad idea.

And then there's the question that McArdle herself keeps bringing up - the mechanism. The mechanism doesn't apply if you don't have the right inputs. As I noted above, Obama has not yet behaved like a Democrat; his policies on the bail-out have been essentially the same as those of his predecessor who most certainly was no Democrat.

So in the end, here's what I say to Megan McArdle: ask your question again when Obama starts doing things a Democrat would do. Pushing through the "public option" on a healthcare would be a start.

So Obama doesn't count because he's not really a Democrat. But Bill Clinton was. But Richard Nixon--the chap who implemented price controls and massively expanded Social Security and Medicare--was definitely a Republican. Jimmy Carter, who deregulated like mad: definitely a Democrat.

What are these policies that neatly define Democrats to exclude only the ones who happen to have crappy growth? On what metric does Barack Obama register as farther to the right than Bill Clinton? Because from what I remember of the 1990s, I spent most of the decade listening to my genuinely left-wing friends weep that he'd betrayed them. Remember Edelman's resigning in protest of welfare reform?

I submit that there is no intellectually credible way that you can throw Obama out of the sample because he didn't include a public option in the health care plan--something that's actually driven by Congress, anyway--while keeping Clinton, his welfare-reformin' ways, and his lovely, lovely late 1990s growth rate. On actual domestic policy, Bill Clinton was well to the right of Richard Nixon. You could argue that he was more socially liberal, but then Jack Kennedy was less socially progressive than Richard Nixon--time is a more important variable than party identification. And at any rate, I'm aware of no work indicating that abortion policy is an important factor in economic growth.

Now, of course, it may be that the economy starts growing like gangbusters in the next year. In which case I expect that Cactus and his merry band of madmen will continue with their arguments. But if, as most people expect, growth continues to stall for the next few years, it seems I can look forward to more explanations of why Democrats--and only Democrats--can be thrown out of the sample if they have low growth and betray The Faith; and why the economic results of Democratic presidential administrations--and only Democratic presidential administrations--are sensitive to exogenous starting conditions.

Information Wants to Be Free

Wed,08 Jul 2009 12:01:41 GMT

I'm not going to comment much on my employer's salons except to say that I've been to them, and there's no scandal there. At the paid ones, where the journalists talk, the journalists dictate what we say, and the sponsors are told they have no control. At the unpaid salons, it's--well, it's an off the record briefing, of the sort that every other journalist is well familiar with. Either way, I've never said or done anything that I wouldn't say at a regular interview, and neither have the other journalists.

But this Jack Shafer article is just silly. Off the record conversations allow journalists to get much deeper understanding of what's going on. That's why journalists talking to their friends about their jobs at companies of interest to the journalist talk off the record. I'm sure that Jack Shafer has done this, or else he doesn't have any friends in the media.

Now, there are journalists that get carried away with the excitement of an off-the-record conversation. Subjects can lie just as easily off the record as on it. But it's absurd to say that the only worthwhile conversations between journalists and the powerful are on the record. Off the record conversations allow politicians to say things that they cannot say publicly because the Fed Chairman or the Secretary of State or the Schools Chancellor cannot be seen to say certain things as they are trying to affect outcomes--they are, as the economists like to say, endogenous to the system. Restricting their ability to explain things off the record would restrict the supply of information available, not expand it.

Sigh

Tue,07 Jul 2009 20:21:12 GMT

Ezra complains that I called him a communist, or ignored the TOTALLY AWESOME EXAMPLES OF NATIONAL HEALTH CARE in order to compare it to the Soviet Union, which we all agree sucks.

Uh, no.

I said that these arguments about administrative costs and rationalizing production and eliminating wasteful competition turn out not to be nearly as good arguments as they initially sound. Maybe there are other good arguments about national health care. But this particular set of belief systems was well developed about other nationalized markets by the vast tradition of socialist literature, with which today's young progressives are shockingly unfamiliar.

Because so many young leftists do not seem to know their own history, they are doomed to repeat it. Literally. They make arguments that were common in socialist circles a century and a half ago--for the popular version, try Edward Bellamy's Looking Backward.

Those arguments utterly failed to rescue other nationalized markets.

On the other hand, as Ezra points out, people in Germany and France are not dying in the streets. So centralization does work better on health care than it does in steel.

But I'd argue that the difference is that Germany and France, unlike the Soviet Union, have companies which produce in American markets to provide them products.

One key thing to remember is that there's a big difference between a situation where the government is a sizeable buyer/producer, and one where the government is essentially the only buyer/producer. In the latter case, the market still works, even if the government presence distorts it--prices are set by supply and demand, research is done, and so forth. Indeed, it is not well appreciated on the left how dependent Medicare is on private insurers to tell them what the competitive price is for the treatments and products it pays for--if the private sector went away, Medicare would have to develop some sort of pricing system, and so would all the health care systems abroad. Once the government becomes the dominant player, however, everything changes.

Look at defense spending. Are F-22 raptors worth $138 million? It's a pretty meaningless question. Congress is willing to pay $138 million. But this bears only the haziest relationship to what the Americans who pay the bill want, or are willing to pay, for such a plane. And the procurement system pays at least as much attention to what congressional district things are built in as what makes the most effective military. That's why virtually everyone thinks defense procurement is an overpriced disaster, which gets innovation only at drastic cost. Unfortunately, there's no other way to go about it.

Right now, the US has a market--no matter how screwed up--for medical goods. It is not a good market. But no one in the market, except Medicare, has enough pricing power to totally undermine the market mechanism, so it grinds out an equilibrium that bears some resemblance to consumer demand. In turn, Europe can buy those market-produced products. But if you kill the last market, everything suddenly looks very different. What's the right price for innovation? What should we research? Those questions stop being decided on the basis of the number of consumers served, and start being decided on the basis of who has the best lobby.

There's one more difference, which is that health care is not transportable. When British coal was overpriced and delivered erratically, this was obvious, because other countries had a steady supply of the commodity at a lower price. Healthcare is hard to measure and impossible to transship, and almost no one consumes health care internationally (though I'll note that as the internet has facilitated comparisons, Europeans have become disenchanted with their rationing boards).

A lot of blogs recently have been talking up this quote from Jon Cohn:

Last year, I had the opportunity to spend time researching two of these countries: France and the Netherlands. Neither country gets the attention that Canada and England do. That might be because English isn't their language. Or it might be because they don't fit the negative stereotypes of life in countries where government is more directly involved in medical care.
Over the course of a month, I spoke to just about everybody I could find who might know something about these healthcare systems: Elected officials, industry leaders, scholars - plus, of course, doctors and patients. And sure enough, I heard some complaints. Dutch doctors, for example, thought they had too much paperwork. French public health experts thought patients with chronic disease weren't getting the kind of sustained, coordinated medical care that they needed.
But in the course of a few dozen lengthy interviews, not once did I encounter an interview subject who wanted to trade places with an American.

But as anyone who has lived in Europe can attest, the beliefs about what happens in America are ludicrous. And I'm not talking about "the man on the street"; I'm talking about journalists, politicians, doctors. It's not uncommon for Americans getting treatment in Europe to be asked "You'd never be able to afford this in America, right?" by their doctors and nurses, when "this" is stitches or antibiotics. I'd be terrified of switching places with an American too, if American health care were actually one eighth as bad as most Europeans seem to believe. Yet despite that, as far as I know the net migration is actually the other way.

But the main point is not that one system is better than the other. The main point is that these are very bad arguments which have been trying, and failing, to save nationalization for well over a hundred years. If indeed Europe's systems are superior, it is not because they have managed to eliminate wasteful competition and centrally rationalize decision making. It is in spite of those things.

Medicare's Mythical Administrative Cost Savings

Tue,07 Jul 2009 17:00:24 GMT

The title of this post is going to make some of my readers very angry. Medicare has lots of administrative cost savings, they will say. This may be so. But I mean mythical in another sense: there's ultimately no way to prove or disprove these amazing savings. The problem is indeterminate.

Jon Cohn, who I respect greatly, spends a lot of time on the money and time that insurance companies put into denying claims. This is undoubtedly true. But I have two caveats. First, some of that effort is a good thing: without it, there would be fraud. No, not the automatic denials so many insurers are fond of, and I'm not defending. But Medicare should probably spend a lot more effort rooting out excessive billing. And I don't know what percentage of claims denial consists of refusing to line the pockets of doctors and labs.

But the more important point is that I doubt this is the majority of their administrative costs, or even the difference between their administrative costs and Medicare's. I'm not trying to justify the bullshit automatic claims denial, but that's not actually a very costly process: a hospital submits a bill, they deny it, you yell at them. Nor is refusing to cover people with pre-existing conditions, or any of the other multifarious complaints of single-payer advocates.

Rather, private insurers have costs that Medicare doesn't have within the agency. Private insurers bill. Medicare does too, but the IRS has its own budget--hell, its own courts--which don't show up on Medicare's balance sheet. Private insurers negotiate with suppliers. Medicare does too, but most of the negotiation takes place between lobbyists and Congressmen who again, do not show up on Medicare's balance sheet. The Federal government has all sorts of these little items which relieve government agencies of reporting certain costs. But the costs remain.

My guess would be that these explicit costs are still lower than Medicare's. But then there are implicit costs to government fiat that markets don't have. As Tyler Cowen points out, taxation has deadweight losses, and Medicare is a tax on employment, which is something we are particularly anxious not to suppress right now.

The final point is that while people commonly think of administrative costs as "wasted", in fact, they are an important part of the market system. As Alex Tabarrok points out, and I have myself from time to time, many of the arguments in favor of national health care are literally socialist. And no, I am not using that term to apply to "anyone who is in favor of redistribution" or "government programs". But consider the following common arguments:

National health care will be cheaper because we will reduce administrative overhead
National health care will reduce wasteful competition in the form of me-too drugs
National health care will reduce wasteful competition in the form of advertising and other marketing expenses
National health care will allow us to rationally distribute care to where it does the most good rather than the current messy, wasteful hodge-podge
National health care will use resources for production instead of profits
National health care will achieve economies of scale in purchasing and record-keeping
People will not overuse free goods because there are hard limits to desired consumption

These were all arguments advanced in favor of socialism. Contrary to popular conservative belief, socialists were not unfamilier with either the incentive problems of communism (people will not work hard if there's no benefit to doing so) or the Hayekian argument about the value of prices, aka the Socialist Calculation Problem. Rather, smart socialists thought that they could overcome these problems with a combination of status competitions (Hero of the Soviet Union, Second Class) and massive efficiencies gained by wringing all that fragmented, wasteful competition out of the system. Economists who would be ashamed to make these sorts of arguments about Proctor and Gamble or the used car market suddenly start parroting these things as if they hadn't been thoroughly discredited by the last seventy years.

But why were they discredited? That list looks really, really good on paper, even to my jaded libertarian eyes. A lot of the answer lies in the reason that we don't like monopolies--even though that list is just as true of monopolies as it is of the government. Monopolies, government or private, are risk averse, slow to innovate, and generally run things for the benefit of themselves rather than their customers. Hamstringing them with regulations can limit measurable outcomes, like excess profit-taking, but not unmeasurable ones, like the people who might have been cured by a drug the system didn't invent. And the political system introduces its own problems. As Robert Heinlein pointed out years ago, systems that have only positive feedback loops tend to fail catastrophically.

My critics will want me to explain why, then, Europe can do it cheaper. The answer is threefold. First, most European nations have better governance than we do--the American political system is a Public Choice disaster. Second, they pay people less money in a way that's hard to replicate here (and even if it wasn't, would be a one time savings that wouldn't check the rate of growth). Third, we're still driving quite a bit of product innovation. Our messy, organic, wasteful, unfair, irrational system allows experimentation, and they cherry pick the best results. If we stopped doing this, their system would stop looking so good.

Question of the Day

Tue,07 Jul 2009 16:56:30 GMT

What happens to the cottage industry among Democratic-leaning armchair economists grinding out analyses proving that Democratic presidents are, like, totally awesome for the economy? Presuming that we're stuck--as seem very likely--in at least a couple of years of really grinding low-to-no growth, Obama is going to destroy their figures. Are we in for a resurgence of belief in exogenous growth factors?

Retraining Isn't the Answer

Tue,07 Jul 2009 14:42:31 GMT

Forgive me for going anecdotal for a moment. In 1995, having already lost two jobs to the recession and my affinity for parlous startups, I took a job as an administrative assistant at a non-profit. This had its upsides--the work was light enough for me to complete the worst novel ever written in the English language during my spare time. But it was tedious and offered few prospects for advancement. Like most non-profits, this one had a flat management structure: there were senior men who had been hired in from outside, and junior women who did their typing and filing.

It was not my cup of tea. On the other hand, I did like to eat regularly, and there were surprisingly few more lucrative opportunities for recently minted English majors.

Thus did I make one of the best and worst decisions in my life: I signed up for a course to become a CNE--a Certified Netware Engineer. I'd done some light network administration at the startup, and I thought I'd like to make a career of it.

The IT types among my readers are cringing. No one gets hired because they took some low-rent course and passed a computer adaptive test. Indeed, back in the day, hearing someone officiously announce that "I'm a CNE" was a warning sign not to let them anywhere near your network. It's like having a job applicant hand over their eighth-grade graduation certificate. Of course, everyone qualified has one to stick on the resume, but they don't talk about it, because it's not even a basic qualification. Anyone whose main qualification is a CNE knows just enough to be extremely dangerous.

But I didn't know that at the time. I financed a $3,500 course on credit cards, and dutifully trooped off to class four evenings a week. I passed all the tests. Then I found out what any professional could have told me: without actual work experience, no one would hire me.

My classmates were all in the same boat. Lik me, they had found themselves in career dead-ends. Unlike me, they weren't 22-year-olds who could live at home. They were people who had been made redundant by technology or competition: payroll machine operators, verizon line workers, office managers, various salesmen, secretaries who could type 100 wpm in an era when bosses were increasingly doing their own typing.

I got super lucky. The place where I'd trained was doing a corporate training startup, and they needed someone who could a) type b) work for low pay and c) futz with the network. The startup lasted for three months, then, like my jobs before, shut down. But now I had job experience. It was the tech bubble. I was laid off for less than twelve hours: I found out at ten, called an employment agency at 10:45, went on my first interview at 1:00, had two job offers by that evening, accepted one on Friday, and started my new job on Tuesday at a 30% bump in salary.

The rest of my class, nine months later, was mostly still looking. One other guy had found a job in technology. The others had wasted $3,500 and five months.

This is basically typical of job retraining. Students are overoptimistic. Schools encourage them in their folly while collecting checks. And employers demand real-world experience that training can't give. It works best on people near entry-level, and those with complementary skills. But that rarely describes the people most in need of retraining, like displaced autoworkers who have spent decades at semi-skilled labor no longer in demand.

Government programs do no better, possibly because they can't run trucking schools and electrician training programs themselves, so they end up contracting out to private parties like the school I attended (which did a lot of BOCES training for the state of New York) or hybrid institutions like community colleges. Educational output is hard to measure: much depends on the student themselves. So we tend to measure inputs instead. Or we measure outputs--"are they employed six months after graduation?"--without controlling for quality of the jobs.

So I'm not surprised to find out that when you actually do try to measure the impact on student lives, government training programs have a dismal record. This comports with our experience in the 1980s, when we tried to retrain people out of the rust belt, and the 1990s, when we tried to do the same for people displaced by trade. Yet whenever we experience a dislocating crisis like the auto collapse, all the pundits are out again calling for job retraining. They're not stupid or disingenuous; they just don't have any better answer for a very tough question.

But given my own experience, it strikes me that we might do better by targeting employment--offering employers a subsidy for hiring displaced workers into a job that pays $10 or more an hour. For skilled work, you might need to pair this with training. But that would give the workers what they actually need--a job on the resume and a new skill--rather than a useless diploma.

Political Constraints on Programs

Mon,06 Jul 2009 21:17:27 GMT

I wanted to do more Waxman-Markey blogging, but unfortunately I was overtaken by events. However, I think it's worth noting that what happened with the bill sort of goes to my point about Medicare cost control. One of the ways Obama was going to get the money to pay for health care was from auctioning carbon permits. That went away to get through the House. And the Senate is more conservative about legislation than the lower house.

Now, everyone on the left was united in favoring auctions over giveaways. Auctions also had a fair amount of support on the right, mostly from people who hate corporate welfare even if they also oppose cap-and-trade. And you can whine all you want about how the Republican party had a god-given moral duty to provide political cover to Democrats from coal states (though frankly the complaining about your party's 60-seat senate majority is really starting to sound quite idiotic), but the fact is that at the end of the day, you couldn't do this perfectly obvious thing that has surprisingly broad support among the policy elites of both parties. Instead, the bill was passed in a form that makes it more expensive, and almost totally ineffective.

The fact that you can imagine some perfect bureaucrat administering a beautifully-designed law does not mean that this is actually possible in the American political universe.

There's something else that has been bothering me. I have been urged to support Waxman-Markey on the grounds that we musn't make the perfect the enemy of the good, and maybe I do. But the mediocre can also be the enemy of the good. Even if you support national healtch care, you certainly wouldn't build Medicare in its current form. But there is path dependance in institutions: once they exist, they're precious hard to change. Enacting a crappy climate trading system in order to do something forestalls the possibility of enacting a better design five or ten years from now. Given that this bill is universally expected to accomplish virtually no significant emissions reduction in the foreseeable future, that should worry people. Other than me, I mean.

City Slickers Meet Farmhands

Mon,06 Jul 2009 20:24:15 GMT

I read this article on urban farming this weekend, and thought "heartwarming, but uselss." So far it's required subsidies of $1 million to produce a small amount of food--the Times glowingly says that it "provide(s) healthful food to 10,000 urbanites", but of course, all that means is that 10,000 people, give or take, have received at least one vegetable apiece. It's not providing anything like the majority of their food intake. And that's in a rust-belt city with a lot of spare land and spare labor.

Ezra argues that industrial agriculture gets subsidies too, and this is true--but not the things these people eat. More to the point, the subsidies are not why American agriculture has so many vile practices. What enthusiasm for these sorts of projects fail to deal with is scale.

Scale matters in two ways. First of all, scale is why so many promising pilot projects fail to yield results when they're implemented broadly--think how many terrific new education and medical programs you've read about over the years, which delivered mediocre results when they became more popular. Pilot projects have a deep pool of enthusiastic and skilled labor. There is the excitement of the new, of possible discovery, driving everything forward. Broad programs are applied by ordinary busy people with no stake in revolution. Over time, the enthusiasm wanes. Urban gardening is not new, after all--it was in vogue during the Settlement House movment, the 1940s, and again in the hippie sunset of my childhood, when I, along with the other children of PS 166, dutifully weeded little herb patches on 89th and Amsterdam. By the early 1990s, many of those lots had been abandoned or turned into condos.

Milwaukee, unlike many cities, probably has a lot of abandoned property. But it probably doesn't have an unlimited supply of urban farming volunteers, or people interested in buying organic local watercresss at $16 a pound. And if Milwaukee did try to grow most of its own food, it would have the problems that areas with lots of farms experience, like massive pest infestations. (Agriculture has terrific network effects--for bugs and mold spores). And, um, smells, which are the first thing that urban transplants to farm country tend to complain about, particularly if animals are involved. Don't grow animals, you'll say; they're bad for the planet anyway. But animals are key suppliers of key organic inputs like bone meal and manure.

Then there's the reason industrial agriculture is like it is: economies of scale. Agriculture has extremely high capital requirements, and thank God, because all that capital is the reason that you and I (aka Shiva, Destroyer of Houseplants) are spending our days on the internets rather than poking at weeds or staring at the back end of a mule. But capital means high fixed costs for land and equipment. Industries with high fixed costs naturally gravitate towards large producers who do a lot of volume. America has a lot of cheap land far from its cities, which is where that scale can be most easily achieved. The subsidies are pernicious, but they are a sideshow. Remove them, and it's quite possible that we'd see a more concentrated, more socially irresponsible industry forcing even more negative externalities onto the rest of us.

That scale has, up until now, been least achievable with produce. Produce is also the area of farming which recieves the fewest subsidies, probably because when our farming policy was framed, produce was a perishable sideline for most cash croppers. But as picking becomes more mechanised, and various technologies enhance the returns for those with capital to invest, that is changing. I don't see how urban or suburban farming becomes anything but a sideshow for a few committed souls. The returns to scale are simply too great.

Is Our Stimulus Working?

Mon,06 Jul 2009 15:59:00 GMT

Paul Krugman is a very smart economist, far smarter than I am. So when I do not understand this post, I assume that I must be missing something.

Bruce Bartlett has written that the Obama administration underestimated how quickly the stimulus would affect the economy, reducing unemployment almost immediately. Krugman calls this "totally false":

Did Bartlett even look at the Bernstein-Romer paper? Here's the key graph:

The predicted impact from the stimulus is indicated by the difference between these two curves. We're now at the very beginning of 2009Q3; they predicted that the unemployment rate right now would be only a fraction of a percent lower now than it would otherwise be. The impact wasn't supposed to be really noticeable until late this year, and wasn't supposed to peak until late 2010.
The problem, in other words, is not that the stimulus is working more slowly than expected; it was never expected to do very much this soon. The problem, instead, is that the hole the stimulus needs to fill is much bigger than predicted. That -- coupled with the fact that yes, stimulus takes time to work -- is the reason for a second round, ASAP.

But when I look at the graph, it looks to me as if the stimulus was supposed to affect the unemployment rate immediately. Specifically, it was supposed to dramatically lower the rate of increase in unemployment immediately. By now, at the beginning of Q3, unemployment was supposed to start falling. But unemployment has continued to rise apace. It definitely isn't falling.

Also, I don't understand what he's trying to get at when he says that unemployment was only supposed to fall by a fraction of 1% by now. In my experience, "a fraction of one percent" is usually used to refer to a small fraction of one percent, i.e. a trivial number. As "fractions of 1%" approach 1%, it gets increasingly hard to distinguish them from 1%, because of measurement error inherent in collecting economic data.

But this fraction is certainly not trivial. Eyeballing it, it seems to be in the neighborhood of .7%. Since the maximimum reduction promised for the stimulus looks to be about 1.8% by Q3 2010, this means that we already should have seen more than a third of the employment benefit from the Obama plan. By their own estimates, the stimulus seems to have failed badly. I see little sign at this point that it's even moderating; rather, the seasonal adjustments seem to be improving because college graduates, who are being frozen out of the job market it record numbers, don't show up in job losses and unemployment claims.

It seems to me that a better defense against the Newsweek graph I linked is simply that models like this don't work very well, so expecting any sort of precise number from them is silly. The problem is, those are the same models used to justify the stimulus in the first place. There's no question that in theory, ceteris paribus, a stimulus helps the economy return to full employment. But as with tax cuts and other macroeconomic medicine, the size of the effect is an open question, one that has to be modeled against an extremely complicated and unpredictible economy.

Omnibus Link Farm

Mon,06 Jul 2009 13:41:22 GMT

Well, it's been a very busy couple of weeks, and blogging has suffered accordingly. Now, back to blogging. Some of the things I saw, but didn't blog:

California creates own currency
Why you spend so much time with your kids
Incandescent lightbulbs get more energy efficient
GM Section 363 sale goes through smoothly
Information may want to be free, but landlords want to get paid
Change you can believe in: three-day weekend reform