Monthly Archives: July 2017

Zero pushback

Posted on by

That is what Tyler Cowen gives Atul Gawande when he says,

In the 1950s, we had no real FDA, and you had the opportunity to put out, to innovate in all kinds of ways, and that innovation capability gave us modern cardiac surgery and gave us steroids and antibiotics, but it also gave us frontal lobotomies, and it gave us the Tuskegee experiment and a variety of other things.

I thought that this comment of Gawande’s was pure demagoguery, and it should have received pushback.

The primary reason we abhor frontal lobotomies and the Tuskegee experiment is lack of patient consent. Patient consent is not the focus of the FDA at all. You do not need an FDA to enforce the patient’s right to consent. In fact, you can argue that the FDA acts contrary to patient consent, because it tells people what drugs they cannot have even if they are fully aware of the evidence regarding the risks of the drugs and the data on the drugs’ effectiveness.

Thoughts on public choice theory

Posted on by

A reader asks,

What (if any) would you consider to be the most powerful rebuttal(s) of public choice theory?

First, Bueller, what is public choice theory? Jane Shaw writes that its adherents believe that

although people acting in the political marketplace have some concern for others, their main motive, whether they are voters, politicians, lobbyists, or bureaucrats, is self-interest.

I think that captures the spirit of public choice theory, but I would tighten it up. I prefer:

Public choice theorists examine what is likely to occur if participants in the political process are motivated primarily by personal economic gain.

In any case, one rebuttal that leaps out at me is the fact that so many people vote, given the extreme unlikelihood that one’s vote will determine the election outcome, and the rather large unlikelihood that the election outcome really will directly affect your personal well-being in a deterministic way. From the standpoint of self-interest, the cost of voting far exceeds the expected personal benefit. If people were self-interested when it comes to voting, we would expect to see fewer people bothering to cast ballots.

The same argument applies to other participants in the policy process. Some people who run for office or accept government positions clearly lower their lifetime incomes by doing so. That should not happen if they are motivated primarily by personal economic gain.

There should be a literature demonstrating how court decisions are affected by the self-interest of judges. That literature, if it exists, has not come to my attention.

One colorful model of public policy is “bootleggers and Baptists,” both of whom would like to see alcohol made illegal. Public choice theory explains the bootleggers, but not the Baptists.

Finally, what of public choice theorists themselves? If everyone is always acting solely out of a goal of personal economic gain, then why trust what a public choice theorist says? (This is a problem for any universal reductionist theory of motivation. Was Freud just articulating his theories out of hatred for his father and love for his mother?)

Thinking about public choice theory as a project to reduce political science to individualistic economics, I judge it to be a failure. Instead, you have to bring in sociology, including status hierarchies, tribalism, and sources of group cohesion, especially symbols and language.

So there is a lot to criticize in public choice theory. And I have not even brought up the issue of how, if at all, a Constitution is supposed to solve public choice problems.

But if you should not try to do too much with public choice theory, to ignore it altogether is a serious mistake. And many economists make that mistake.

For example, textbook public finance is based on public goods theory, which says that government should (and presumably will) undertake policies to correct market incentives when those incentives would lead to underproduction or overproduction of certain goods. It assumes, or implicitly predicts, that economic analysis will be the main determinant of public policy.

Instead, public choice theory predicts that those with an economic stake in a policy outcome will work harder to achieve that outcome than people who have no stake. That prediction generally holds, and it matters. It is the influence of public choice theory that leads me to predict that when single payer health care comes to the U.S., the insurance companies will remain active as profitable public utilities rather than get shut out.

When I say that government intervention in a market almost always takes the form of “subsidize demand, restrict supply,” I am applying public choice theory. In contrast, standard public goods theory would not expect this combination of policies, because one serves to increase output of the good and the other serving to decrease output. From the public goods perspective, it is contradictory to subsidize demand while restricting supply.

An even more naive political model is “good guys are with me, but there are bad guys out there who mess things up.” That model serves as the basis for every Paul Krugman column, and it strikes me as the basis for Nancy MacLean’s infamous book. And it is not just people on the left who are guilty of using the naive model. The Three Languages of Politics shows how everyone uses the naive model.

I think that the public choice framework of interpretation has plenty of room for competitors. But there is little effective competition provided by the public goods framework or the naive framework.

Another definition of culture

Posted on by

From Pseudoerasmus.

‘Culture’ is defined as any information inside the mind which modifies behaviour and which got there through social learning — whether from parents, or peers, or society at large. Non-genetically inherited ‘content’ would obviously include technology/knowledge (“how to remove toxins from edible tubers”), beliefs (“witches can cause blindness”), and customs (use of knife & fork). But it also includes what economists would describe as “informal institutions”, i.e., mating systems, ethical values, social norms, etc.

Pointer from Tyler Cowen.

Apparently this is an updated version of an earlier essay. I recommend the piece as an excellent survey. Many sentences are worth quoting, including:

One might argue, the real institutional difference between developed and developing countries is actually a “social capital” gap: there are just many more coordination failures in developing countries.

Of course, you do not explain North Korea vs. South Korea on the basis of a “social capital gap.” But I think that the concept does have value in many other instances.

If you want to jump to the bottom line,

So to answer the question at the head of this post, “where do pro-social institutions come from?” — if ‘bad’ institutions represent coordination failures, then intelligence and patience must be a big part of the answer.

And, yes, he does get around to citing Garett Jones.

A book recommendation

Posted on by

from Jonathan Haidt and Greg Lukianoff:

The social psychologist Jean Twenge has just written a book, titled iGen (which is short for “internet generation”), in which she analyzes four large national datasets that track the mental health of teenagers and college students. When the book is released in August, Americans will likely be stunned by her findings. Graph after graph shows the same pattern: Lines drift mildly up or down across the decades as baby boomers are followed by Gen-X, which is followed by the millennials. But as soon as the data includes iGen—those born after roughly 1994—the rates of anxiety, depression, loneliness, and suicide spike upward.

Due out one month from now.

CBO under attack

Posted on by

Marc Short and Brian Blase write,

The CBO’s methodology, which favors mandates over choice and competition, is fundamentally flawed. As a result, its past predictions regarding health-care legislation have not borne much resemblance to reality. Its prediction about the Senate bill is unlikely to fare much better.

1. Note that both authors work in the Trump Administration.

2. Sherry Glied and others wrote,

This analysis finds that the CBO overestimated marketplace enrollment by 30 percent and marketplace costs by 28 percent, while it underestimated Medicaid enrollment by about 14 percent. Nonetheless, the CBO’s projections were closer to realized experience than were those of many other prominent forecasters.

I would not take the position that there is an obviously better model than what the CBO uses. The problem in the policy environment is that CBO estimates are treated as scientific truth. This misleads participants in the policy process into believing that predicting the outcomes of policy is a science. This in turn biases policy toward aggressive intervention.

The false belief in economic science imposes a real cost. Legislators and bureaucrats become overconfident in their ability to manage market processes.

Catherine Rampell takes the opposite point of view as mine.

Contrary to the predictions of economists everywhere, the HHS propaganda document claims that the Cruz amendment would cause insurance coverage to go up and premiums to fall. Astoundingly, even premiums for people in the Obamacare-compliant plans — which, again, economic theory suggests would get stuck with only the very sickest, most expensive Americans — would allegedly decline relative to current law. (Compare “2020 Current Law Enrollment Weighted Average” to “2020 Silver ACA Compliant” in the chart below.)

This is garbage, and exactly why we need nonpartisan scorekeepers like the CBO.

Rampell is right to attack the memo that she criticizes. But she is wrong to wish to anoint the CBO as a scientific umpire.

Suppose that the CBO were asked to “score” the employment effects of a minimum wage increase, and suppose that their most preferred model projected a large decrease in employment. Would the Catherine Rampells and the Mark Thomas be so eager to say that “this is exactly why we need a CBO”–in order to settle the argument about the minimum wage?

If the science is not definitive with respect to the employment effect of the minimum wage, then it is surely not definitive with respect to the insurance-market effect of allowing health insurance companies to offer less comprehensive policies with lowerpremiums. The CBO should not be the ultimate arbiter of contested economic analysis.

Nancy MacLean: ignoring the central ethical issue

Posted on by

Henry Farrell and Steven Teles write,

MacLean is not only wrong in detail but mistaken in the fundamentals of her account.

I have met both Farrell and Teles, at dinners organized by Teles and Brink Lindsey, for “liberaltarians.” The liberaltarian project always seemed to me to be quixotic, but it did demonstrate overlap between (some) progressives and libertarians on a few economic issues, particularly related to Public Choice. Farrell and Teles strike me as coming more from the liberal camp as opposed to the libertarian camp. But because they are receptive to Public Choice ideas, some progressives might consider them to be heretics.

Historian Andrew Seal writes,

Some of my colleagues and I at the Society for US Intellectual History Blog and I are planning a roundtable to discuss Democracy in Chains as a work of intellectual history, in large part because we feel that the critiques of MacLean’s work have not adequately engaged with its core arguments and because these critiques often seem unfamiliar with the “best practices” of intellectual history.

For me, the central issue is scholarly ethics. I expect that when it comes to history, many books will be written that have narratives that are controversial and have flimsy support. That is acceptable.

The ethical issue is whether the historian has an obligation to make the effort to elevate truth above narrative. Did Nancy MacLean make that effort, as Seal’s use of the phrase “best practices” implies?

For example, I could wish to create a narrative that tries to portray Dr. Martin Luther King as a racist, and I could do so while staying within ethical boundaries. It might not be very persuasive, of course. But if I quote Dr. King as saying “I have a dream that my four little children will one day live in a nation where they will…be judged by the color of their skin” (i.e., leaving out the word “not”), then that is unethical. That seems pretty clear to me. And it seems to me that MacLean’s conduct comes pretty close to that, yet I do not see it condemned outright as unethical by Farrell and Teles, much less by Seal.

Let me put it this way: if MacLean’s actions do not constitute easily-recognized and serious violations of the ethics of the history profession, then that profession has no ethics. And historians on the left ought to be thinking about whether that is what they want.

Math and uncertainty

Posted on by

A commenter writes,

if the math is done right, it should then say precisely that: there isn’t enough data to resolve the parameters you’re trying to impute with any reasonable degreee of confidence. The ‘anti-math’ people seem to forget that uncertainty is itself a quantifiable thing.

This does not address the problem that Richard Bookstaber and others call radical uncertainty. Consider what the CBO director wrote concerning the agency’s evaluation of the ARRA (the 2009 Stimulus bill).

The macroeconomic impacts of any economic stimulus program are very uncertain. Economic theories differ in their predictions about the effectiveness of stimulus. Furthermore, large fiscal stimulus is rarely attempted, so it is difficult to distinguish among alternative estimates of how large the macroeconomic effects would be. For those reasons, some economists remain skeptical that there will be any significant effects, while others expect very large ones.

Note that he did not attempt to quantify this uncertainty, nor could he have done so. Note also that what Congress and the public focused on were the apparently precise numerical estimates of the CBO model, rather than the uncertainty of those estimates.

The CBO uses a standard macro model, in which there is only one type of worker in the economy. I believe that workers in today’s economy are highly specialized, and that this accounts for the difficulty in creating new patterns of trade when old patterns become unprofitable. It is easier to use math to analyze a model with one type of worker than it is to apply math to my model. I think that is an argument against the tyranny of math in economics.

The Behavioral Scientist

Posted on by

it is a web site that may prove interesting. For example, David Rand and Jonathan Cohen write,

Within a population, controlled processing may—rather than ensuring undeterred progress—usher in short-sighted, irrational, and detrimental behavior, ultimately leading to population collapse. This is because the innovations produced by controlled processing benefit everyone, even those who do not act with control. Thus, by making non-controlled agents better off, these innovations erode the initial advantage of controlled behavior. This results in the demise of control and the rise of lack-of-control. In turn, this eventually leads to a return to poor decision making and the breakdown of the welfare-enhancing innovations, possibly accelerated and exacerbated by the presence of the enabling technologies themselves. Our models therefore help to explain societal cycles whereby periods of rationality and forethought are followed by plunges back into irrationality and short-sightedness.

Call it the theory of mediocracy.

Elsewhere, Jason Collins writes,

Absent limiting human intervention to the right level, the pattern we will see is not humans and machines working together for enhanced decision making, but machines slowly replacing humans decision by decision. Algorithms will often be substitutes, not complements, with humans left to the (at the moment, many) places where the algorithms can’t go yet.

The case against charities

Posted on by

A commenter writes,

charitable organizations will be [in] competition for donors and offer only care to make donors feel good about themselves. So charities will raise money for extreme cases like the British Charlie Gard and not say reasonable care rural clinics in Kentucky.

I agree that accountability to donors creates distortions. Only in the for-profit sector is accountability to customers a consistent, important factor.

Accountability in government is even less well developed than it is in charitable organizations.

I think that the role of competition and choice in fostering accountability is something that cannot be stressed enough. Instead, people over-rely on the intention heuristic, meaning that they treat charitable organizations and government programs as if their good intentions were sufficient to achieve good results. But good intentions do not substitute for accountability.

John Goodman on health legislation prospects

Posted on by

He writes (email newsletter, I can’t find a web link),

This is a $3 trillion industry and basically all the special interests want to keep the basic structure of Obamacare. Each wants to get rid of its own Obamacare tax. But they want to keep the taxes on everyone else. That’s the main reason why the Obamacare revenues will stay in the system and there will be almost no federal health reform.

My takeaway is that the optimistic case for the bill is that it will allow the states to go in separate directions on health care, and perhaps in some states more market-oriented approaches will have an opportunity to succeed. The pessimistic case is that the health care system will remain a kludge, and the next time the Democrats are in power they will institute single payer.

But the single payer that we get will be much uglier than what other countries have, because of the power wielded by the provider interest groups. In fact, don’t be surprised if it turns out that the health insurance companies stay smack dab in the middle of our version of “single payer.”