Health Care Innovation

I review the book by Jonathan Bush and Stephen Baker. An excerpt:

Bush argues that for most medical services, flagship research hospitals are high-cost providers. He believes that in a rational marketplace, the leading hospitals would have to specialize in particular areas of expertise. A hospital with unique skills at treating a certain type of cancer might attract patients from all over the United States with that cancer. However, it would not treat local patients for ailments that are more common and more easily treated. Instead, those cases would be handled by smaller community hospitals or clinics.

Thought on a Strategy

What should be our strategy?

Think about what has worked and what has not worked for us in Iran, Afghanistan, and the Arab world. Consider the various types of regimes, and ask how well we have been able to work with them to achieve American interests:

1) Islamic totalitarian
2) Democracy
3) Kingdom
4) Military strongman

In my view, these are listed in order from worst to best (or least bad), in terms of how well they have worked to align these countries with our interests in general, and with restraining Islamic militancy in particular. If that is correct, then the obvious strategy is to try to replace the Islamic totalitarians (Iran, ISIS, Hamas) with military strongmen.

What is interesting is that no one is proposing this. I would not expect the left to support a policy that favors a military strongman. And I would not expect libertarians to support any attempt to actively shape another country’s political system. But I do not even hear any conservatives proposing such a solution. The neocons thought that democracy was going to be the panacea. Do they still think that?

Ralph Musgrave on 100 percent reserve banking

He writes,

if it is thought that a 25% or so capital ratio really DOES MAKE banks entirely safe, then there is no difference between the risk run by bank shareholders and depositors. That is, shareholders and depositors essentially become the same thing. And that is what full reserve consists of: it is a system where only shareholders fund lending entities / banks

Pointer from John Cochrane.

The way I think of this is that there are several ways that people take positions in bank assets. You can be an insured depositor. You can be an uninsured creditor. You can be a shareholder. And you can be a taxpayer who sometimes takes part in bailouts.

As the bank’s capital requirements go up, some of the uninsured creditors and insured depositors have to be induced to become shareholders and/or the bank has to hold fewer assets. Unless the bank is able to offset these effects by taking on higher risk, this will reduce the value of the subsidy provided by taxpayers.

It is my view that relatively few people want to hold mutual funds that invest in risky projects. They would prefer instead to be insured depositors. They probably are willing to collectively provide insurance. However, in practice, the government ends up eager to bail out not only insured depositors but uninsured creditors and often shareholders as well.

WSJ on Boettke

A nice article (you may have to use Google News to view it).

the 50-year-old professor of economics at George Mason University in Virginia is emerging as the intellectual standard-bearer for the Austrian school of economics that opposes government intervention in markets and decries federal spending to prop up demand during times of crisis. Mr. Boettke, whose latest research explores people’s ability to self-regulate, also is minting a new generation of disciples who are spreading the Austrian approach throughout academia, where it had long been left for dead.

Spectrum Price Discrimination Using Zero-rated Apps

The Washington Post reports,

Apps and Web sites that don’t count against the users’ data plan are popping up both in the United States and abroad, often under names like Wikipedia Zero or Facebook Zero.

Pointer from Tyler Cowen.

If what wireless companies need is congestion-pricing or peak-load pricing, then my prediction would be that we will not see zero-rated apps that allow video anywhere, any time. To get that, you will have to pay something.

There is now a vocal “net neutrality” chorus that will fight any form of price discrimination in wireless services, including fighting zero-rated apps. I think that they are misguided and represent no actual consumers. However, the FCC will do everything to make them seem important, because that in turn justifies having the FCC do more regulatory meddling.

Trends and Cycles

Tyler Cowen writes,

The arrival of the cyclical event, in due time, makes the negative underlying trend more visible. At first people blame everything on the cycle/crash, but a look at the slow recovery, combined with a study of pre-crash economic problems, shows more has been going on.

Read the whole thing. I found it difficult to excerpt.

If you insist on Keynesian methodology, then trend and cycle are separate by construction. You wait until there is full employment, and then you draw a line connecting the full-employment dates and call that the trend.

In real time, this does not work so well. In the 1970s, we never got back to what was thought to be full employment. So economists had to first re-define full employment as the NAIRU and then allow for drift in the NAIRU. In fact, to speak of NAIRU drift is to speak of a phenomenon that is neither purely trend nor purely cycle.

From a PSST or Schumpeterian perspective, there is no distinction between trend and cycle. There are booms, during which new projects are launched with optimism while the businesses they are destined to destroy continue in blithe ignorance or denial. There are busts, during which out-moded businesses get shut down but entrepreneurs have not yet figured out uses for the resources that have been freed, and for various reasons unemployed workers appear to have higher reservation wages than their value to firms.

The idea that what is described as a cycle is more like the recognition/amplification of a trend makes sense to me.

Note also the new paper by Acemoglu, Autor and others on the role of imports in what they call the “employment sag” that has taken place since 2000. The macroeconomic story may ultimately be less about the 2008-2009 financial crisis and more about the challenges that the economy faced in dealing with the great factor-price equalization.

A Classic Paper on Spectrum Property Rights

From Arthur S. DeVany and others.

One possible way to take explicit account of the unpredictable variations in field strength is to devise a stochastic definition for the spectrum-use property rights. For example, an operator could be permitted to exceed the field-strength limit (X v/m) in adjacent areas by up to 10 percent during 15 percent of the time he transmits.

The problem is that your cow could randomly walk from your field over the edge into my field. If I insist that any intrusion is a violation, then you have to keep your cow well inside your field, effectively reducing the size of your field. A stochastic definition of my property rights could allow your cow to come 10 percent into my field 15 percent of the time without penalty. In the end, though, the authors think that a stochastic definition is not better than a fixed definition. I would agree. To me, it seems that under the stochastic definition, the size of my field has been effectively reduced, because I cannot be sure that my crops near the edge won’t be trampled by your cow.


intermodulation interference occurs in a third frequency only when the frequency equals either the sum of the other two frequencies or their difference.

I do not know with modern technology how important this is. If it is important, then authors propose a rule for assigning liability for such interference, and that rule puts the burden on the owner of that transmitter to negotiate a solution. Again, I have no idea where that solution is practical in today’s environment.

Still later,

require that all agreements by TAS [Time/Area/Spectrum] owners relating to the use of spectrum be recorded in a central registry.

This is analogous to having property deeds recorded in a central registry, such as the county recorder’s office. Right now, the FCC has to manually approve every transfer of spectrum. In a true spectrum market, the FCC might be responsible for maintaining the database, but private parties would not require approval for spectrum transfer. TAS means that what you own is the right to use at a particular time (which might be 24 hours a day) in a particular area a particular band of spectrum.

On the one hand, I am very pleased to see detailed specifics in their proposal for spectrum property rights. On the other hand, I worry that over fifty years later some of the analysis needs to be redone.

A Spectrum of Possibilities

How can the United States make better use of wireless spectrum? Broadly speaking, there are three categories of tools.

1. Engineering. Design and deploy transmitters and receivers that allow more data to be transmitted within given bands.

2. Allocation. Take spectrum away from owners who use it inefficiently and give it to more productive owners.

3. Pricing. Improve the incentives for users to make efficient use of spectrum

More discussion below the fold. Continue reading

Why I would be inclined to replace the FCC and the FDA

Francis Fukuyama writes,

Institutions are created to meet the demands of specific circumstances, but then circumstances change and institutions fail to adapt. One reason is cognitive: people develop mental models of how the world works and tend to stick to them, even in the face of contradictory evidence. Another reason is group interest: institutions create favored classes of insiders who develop a stake in the status quo and resist pressures to reform.

Pointer from Tyler Cowen.

The same holds true in business. Business organizations develop group-think biases and constituencies that resist change. However, if this gets to the point where the organization becomes dysfunctional, the market weeds out the organization. Government agencies lack such a weeding-out mechanism.

Overall, I found Fukuyama’s views did not correspond well with mine. I am concerned with the fundamental knowledge gaps that plague government policymakers. I think that the difference between market competition and government monopoly is significant. I also think that there are diseconomies of scale and scope in government.