Monthly Archives: January 2014

My Review of Lant Pritchett

Posted on by

On the economics of education. The review starts,

In The Rebirth of Education: Schooling Ain’t Learning, development economist Lant Pritchett describes the challenges of education in underdeveloped countries. Because so many of the problems that he identifies are endemic to centralized, state-run education systems, I view the book as an instant classic in a genre that might be termed “applied libertarianism.”

I really think that the book deserves much more play. You may recall that I recommended the podcast in which Russ Roberts talked with Pritchett about the book.

Business Births and Deaths

Posted on by

A reader kindly sent me a spreadsheet with data from the business dynamics survey, in order to see if one can locate periods that correspond to the quadrant here. Some remarks on the data.

1. The rate of entry of new businesses (new businesses started per year as a percentage of existing businesses) was much higher in the late 1970s and in the 1980s than in subsequent years. One can tell stories for this, of course, but it is not what I would have expected.

2. The rate of entry of new businesses from 1994-2007 ranged from a low of 11.4 percent in 2000 to a high of 12.9 percent in 1997. In contrast, the figures for 2008-2011 were 10.4, 9.0, 10.0, and 10.4 percent, respectively.

3. The rate of exit of businesses from 2008-2011 was not too much higher than that in the 1994-2007 period. For the most part, the exit rate stayed between 10.0 percent and 11.9 percent from 1994 through 2011. The exceptional years were 2003-2005, when the exit rate was less than 10 percent.

The year 2009 stands out as a year of low creation and high destruction. This is consistent with the Minsky Recession story, but one could always choose to call it an aggregate demand story.

Romneycare Update

Posted on by

Philip Klein writes,

As Modern Healthcare reports:

Massachusetts, whose health care reform program was used as a template for the Patient Protection and Affordable Care Act, had the highest per capita health spending in the U.S. in 2009. According to the commission’s report, the state spent $9,278 per person on health care in 2009, which was 36 percent higher than the national average of $6,815, and 11.2 percent more than the next-highest state, New York, which spent $8,341.

When Romneycare was enacted, I wrote,

If more Massachusetts consumers enjoy coverage without any deductible, then the average per-person expenditure on health care of $6,000 seems likely to go up.

Indeed, it seems that per capita health spending went up over 50 percent in just the first three years under Romneycare. At the time, many of its proponents were saying that Romneycare would hold down health care spending.

When people are insulated from having to pay for health care, health care spending goes up. You might want to insulate them, anyway. But the theoretical ways that you reduce spending–by cutting down on emergency room visits, or through better prevention–do not pan out in practice.

Killing Financial Institutions with Kindness

Posted on by

Viral V. Acharya and Bruce Tuckman write,

Well, heck, I can’t copy/paste from the paper. Anyway, they suggest that when the lender of last resort provides funding to firms with illiquid assets, those firms remain too highly levered and actually increase their risk of default. They mention a number of solutions, but it seems to me that Bagehot had yet another–lend freely, but at a penalty rate. If the lender of last resort charges a high interest rate, then the recipient firms have an incentive to sell assets sooner rather than later.