Timothy Taylor on Hansonian Medicine

He writes,

The good news is 50,000 fewer deaths, along with health improvements and saving money. The bad new is that the rate of hospital-acquired conditions basically fell from one patient in every seven patients to one out of every eight. Sure, hospital-acquired conditions will never fall to zero. But it certainly looks to me as if at least tens thousands of lives were being lost each year because that rate had not been reduced, and that tens of thousands of additional could be saved be reducing the rate further.

Read the whole post.

Robin Hanson has observed that:

1. Some medical interventions clearly prolong life.

2. On average, medical interventions do not prolong life.

He infers from this that the successful interventions must be offset by interventions that make things worse.

Trade Facilitation

Timothy Taylor writes,

reforming the legal and regulatory processes around customs, and reducing delays, means that there is less reason to pay bribes to facilitate the process–and thus reduces corruption.

Read the entire post. It takes some nuggets from one of those reports that only Taylor seems to find, the source in this case being the World Trade Organization. The point is that there are many administrative and legal processes that inhibit cross-border trade, and reform of these processes could generate a lot more trade and economic improvement.

Another AS-AD Anomaly

Timothy Taylor writes,

[Alan] Krueger argues that the patterns of wage changes and unemployment are roughly what one should expect. He focuses only on short-term employment (that is, employment less than 27 weeks), on the grounds that the long-term unemployed are more likely to be detached from the labor force and thus will exert less pressure on wages. Increases in real wages are measured with the Employment Cost Index data collected by the US Bureau of Labor Statistics, and then subtracting inflation as measured by the Personal Consumption Expenditures price index. In the figure below, the solid line shows the relationship between short-term unemployment and changes in real wages for the period from 1976-2008. (The dashed lines show the statistical confidence intervals on either side of this line.) The points labelled in blue are for the years since 2008. From 2009-2011, the points line up almost exactly on the relationship predicted from earlier data. For 2012-2014, the points are below the predicted relationship, although still comfortably within the range of past experience (as shown by the confidence intervals). For the first quarter of 2015, the point is above the historical prediction.

As an aside, note the particular selection of data series. I am not saying that Krueger is wrong for choosing short-term unemployment, the employment cost index, and the PCE deflator. In fact, I think he shows good taste here. But there are other choices available, and I can think of economists who have defiantly done so, cheered on by other prominent economists.

What I wish to point out is that the relationship as depicted is an anomaly with respect to textbook AS-AD, including both Keynesian economics and Sumnernomics. Timothy Taylor refers to the relationship as a Phillips Curve. However, the Phillips Curve relates nominal wages to unemployment, and the chart shows real wages and unemployment. Although in standard macro nominal wages may rise as the unemployment rate falls, real wages are supposed to move in the opposite direction. In standard macro, aggregate supply is derived from movement along the demand curve for labor. When real wages rise by less than productivity increases, demand for labor rises and output goes up. When real wages rise by more than productivity increases, demand for labor falls and output goes down.

Thus, rather than confirming conventional macroeconomic analysis, Krueger’s chart demonstrates an anomaly. In fact, this is hardly a new anomaly. The procyclical behavior of real wages was something that I had observed when I was in graduate school more than 40 years ago.

Of course, you can modify the Keynesian model to accommodate procyclical real wages. Or, you can find data that you believe demonstrate countercyclical real wages (I think that Sumner would try this latter approach). But that is because Keynesian economics is what I call an interpretive framework. How many anomalies you can tolerate before you discard an interpretive framework is a matter of choice. For me, the AS-AD paradigm has too many anomalies to live with.

Other Countries Matter

Timothy Taylor writes,

the number of cars sold in China has exceeded the number sold in the U.S. market for several years now.

…in 2001 the US was about half of the global market for movies. Now the US/Canada share of the global market for movies is just over one-quarter, and falling.

…more and more, Americans are going to be seeing brands and titles and products where the US market is just one among several–and not necessarily the most important one.

Read the whole post.

Life Expectancy and Income

Timothy Taylor writes,

the reasons for this growing gap in life expectancy by income are not altogether clear. Some explanations clearly aren’t supported by facts. For example, although overall levels of tobacco use are down, the decline seems to have happened in much the same way across income levels, and thus can’t explain the life expectancy factors. Obesity levels are up over time, but they seem to be up more among those with higher incomes, so that pattern doesn’t explain a growing gap in life expectancy by income, either. One hypothesis recognizes that there is a correlation between education and health, and also between education and income, so perhaps factors related to education and health have become more important over time. For example, perhaps those with higher incomes are better at managing chronic diseases like high blood pressure or diabetes. But again, this is an open question. Other possible explanations are looking at how the nature of jobs and job stress may have changed over time for jobs of different income levels, or whether greater inequality in a society may create stresses that affect health.

Before you comment, note carefully the methods used to assess life expectancy.

My own view is that the distribution of conscientiousness has become more unequal over time, and this has implications for both income and life expectancy.

For a view the conscientiousness is the endogenous variable (rather than exogenous, as I think of it), see Elliot Berkman. Pointer from Mark Thoma. He has another post on a piece saying that educational inequality has widened. Again, I have the same diagnosis–that the distribution of ability has widened.

How Bad was 2008?

Timothy Taylor writes,

my point here is not to parse the details of economic policy over the last seven years. Instead, it is to say that I agree with Furman (and many others) on a fundamental point: The US and the world economy was in some danger of a true meltdown in September 2008. Here are a few of the figures I used to make this point in lectures, some of which overlap with Furman’s figures. The underlying purpose of these kinds of figures is to show the enormous size and abruptness of the events of 2008 and early 2009–and in that way to make a prima facie case that the US economy was in severe danger at that time.

Taylor highlights the fall in house prices, the drop in bank lending, and the rise in the TED spread. However, if you look at just these indicators, the crisis ended relatively quickly. But employment just kept dropping (long after the official end of the recession). So it looks to me like the policies had a neutron bomb effect. The buildings (banks) were left standing but the people (workers) died.

As Taylor says, these are points that are not going to be settled. In my terminology, there are many frameworks that can be made consistent with observed economic performance. Some of these frameworks will be consistent with policies having made a positive difference, and others will not.

David Colander on the Economics Profession

Timothy Taylor points to an interesting series of essays by Colander. Self-recommending*. I was drawn to the one on Harvard-MIT incest.

What I’m saying is that modern mainstream economists seem to lack the all-round wisdom reflective of the great policy integrators of the past, such as Bob Solow, Charlie Kindleberger, Charles Goodhart, Paul Samuelson, Art Okun, Jim Tobin, Herb Stein, and Paul Streeten, to name just a few.

I agree that there is a generation gap. More recent generations take their own work much too seriously. I think that economists offer interpretations of reality, and alternative interpretations often have as much validity. I think that the older economists understood this, even if they did not explicitly articulate it. Subsequent generations lost this wisdom.

He goes on,

Modern mainstream economics is a bit off as a result of too much inbreeding. Specifically, my argument is that the gene pool of economists in the replicator dynamics of the profession is too small to prevent undesirable recessive traits from showing up in mainstream economists from time to time.

Recall that I describe Stan Fischer as the Genghis Khan of macroeconomics, because essentially every macroeconomist is descended from him.

*self-recommending is a Tyler Cowen term, which I recall he defined as a project that by virtue of the topic and author is likely to be worth reading.

A Robot Cambrian Explosion?

The Journal of Economic Perspectives, which Timothy Taylor has been editing since its inception, has a symposium on robotics. One of the articles is by Gill A. Pratt.

The exponential growth in computing and storage performance has led researchers to explore memory-based methods of solving the perception, planning, and control problems relevant to the development of additional degrees of robot autonomy. Instead of decomposing these tasks into a set of hand-coded algorithms customized for particular circumstances, large numbers of memories of prior experiences can be searched, and a solution based on matching prior experience is used to guide response.

… human beings communicate externally with one another relatively slowly, at rates on the order of 10 bits per second. Robots, and computers in general, can communicate at rates over one gigabit per second—or roughly 100 million times faster. Based on this tremendous difference in external communication speeds, a combination of wireless and Internet communication can be exploited to share what is learned by every robot with all robots. Human beings take decades to learn enough to add meaningfully to the compendium of common knowledge. However, robots not only stand on the shoulders of each other’s learning, but can start adding to the compendium of robot knowledge almost immediately after their creation.

He does not predict when it will occur, but he thinks that at some point these sorts of capabilities will result in a rapid increase in robot intelligence.

Timothy Taylor on Nudging and Public Choice

He writes,

think about elected officials and regulators in the spirit of behavioral economics: they often lack self-control; have a difficult time evaluating complex situations; tend to stick with rules-of-thumb and default options rather than accept the cognitive and organizational costs of re-evaluating their positions; do not evaluate costs and benefits in a consistent way across different contexts; are not good at evaluating risks accurately, instead often respond to limited information and hype; and are overly averse to the risk of taking responsibility for decisions that might turn out poorly. This perspective must have widespread implications for decisions involving the complexities of the tax code or government budgets, policies affecting the workforce and the environment, openness to new sources of domestic and foreign competition, and foreign policy as well.

He is riffing off a paper by W. Kip Viscusi and Ted Gayer.

Timothy Taylor on Coal’s Resurgence

He cites in particular a paper by Jan Christoph Steckel, Ottmar Edenhofer, and Michael Jakob. Of all of the factors affecting carbon dioxide emissions, the most important is probably the increase in the carbon intensity of energy use in Asia and in developing countries, fueled (so to speak) by coal. Taylor notes that simply going for a global crackdown on coal use would punish countries that are well behind the U.S. and other developed countries in terms of wealth. He concludes,

if you aren’t a big supporter of near-term, large-scale, non-coal methods of producing electricity around the world, you aren’t really serious about reducing global carbon emissions.