Healthcare.gov Could Have Been Worse

CNN reports,

On the first day, there was a big problem that we hadn’t heard about before. “There was a fix regarding residency for Medicaid and CHIP that was not fixed correctly and is denying … 90% of people based on residency,” the war room notes from the day read.

As the documents move on and issues are tackled one by one, sweeping problems continue to appear.

October 9: “A new problem in the system has been identified: for about 30% of the 70,000 applicants, the system has skipped applicants through ‘events’ that are required to complete the application.” In other words, nearly a third of applicants couldn’t fill out the form, because the website was skipping “events” or entries they needed to make.

Imagine what would have happened had there been no issues with speed on the site, and tens of thousands of people had been able to use it at once. The results would have been so catastrophic that they would have had to shut down the site. Of course, if this were a private-sector project, it would not still be live. I cannot imagine any private-sector company willing to take the sort of risks that the government is taking right now.

As an aside, here is columnist Suzanne Fields picking up on the suits vs. geeks divide.

As another aside, in another article from several years ago, the geek, Robert N. Charette writes,

If there’s a theme that runs through the tortured history of bad software, it’s a failure to confront reality.

That might serve as an epitaph for the healthcare.gov rollout. The entire article is worth reading.

What I’m Reading

1. The Nov.-Dec. issue of Technology Review is one of the best in a long time. I liked the article on the fall-off in editorial participation at Wikipedia, the article on the challenges with making driverless cars practical, and especially the business report on health care cost containment

2. The Downfall of Money, about Germany’s hyperinflation. I will say more when I am finished. At this point, I am inclined to think that the key driver of hyperinflation was the politics of reparations. It was in the interest of both Allied and German politicians to overstate what Germany was being asked to pay. The Allied leaders could boast to their home constituents and the German politicians could ask for sympathy from theirs. Had Germany cut spending or raised taxes, this would have been perceived as making ordinary Germans suffer in order to pay the hated reparations. So the political process kept seeing deficit spending as the least-bad alternative. Many Germans suffered under hyperinflation, but this was politically easier to swallow than making it easier for the Allies to extract their tribute.

Judging the Education Olympics

Timothy Taylor writes,

The OECD has also published its own first tabulation of these results, with much additional discussion, in OECD Skills Outlook 2013: First Results from the Survey of Adult Skills. It note that only three countries have below-average scores in all of these domains: along with the United States, the other two are Ireland and Poland. In a fact sheet summarizing the US results, the OECD writes: “U.S. performance is weak in literacy, very poor in numeracy, but only slightly below average in problem solving in technology-rich environments.”

Taylor sees this as an indictment of the U.S. educational system. I am not confident that better teaching methods would have produced adults with more skills. However, I am pretty sure that we could have gotten the same mediocre results while spending a lot less money.

The Real Government Balance Sheet

Cullen Roche writes,

total fossil fuel resources owned by the Federal government are valued at over $150 trillion alone.

Pointer from Mark Thoma.

My guess is that land is the largest real asset of the government. So there is a case for saying that even with all the unfunded liabilities that the government has accrued, the government is not broke.

I think that the best argument against those of us who say that the U.S. will have to inflate away its debt at some point is the argument that the government could sell assets if it wanted to.

Fantasy Despot Syndrome

In this essay, I offer a deeper diagnosis of the problems with healthcare.gov.

Cutler’s memo strikes me as shallow and self-serving. He is shocked, shocked to find that when his pet health care reforms are passed through the political process, their implementation is hampered by politics. In that sense, Cutler suffers from Fantasy Despot Syndrome.

I go on to contrast people who try to solve problems and undertake reforms by starting businesses with people who try to impose solutions through the political process.

Meanwhile, I’m seeing reports of progress on fixing the web site. It is impressive that the tech folks have been able to improve the performance of the system without any major setbacks (data losses or multi-day outages). They must have a pretty robust release process in place.

Getting the front-end enrollment process functioning should give them time to iron out the remaining technical problems. However, other business issues remain with this startup-without-a-CEO. Will individuals who are not experienced health insurance shoppers be able to figure out how to choose?. Do the insurance plans have enough doctors willing to participate to sustain consumer satisfaction? etc.

Judging the Health Care Olympics

Avik Roy writes,

What’s just as interesting is that Japan, the country that tops the overall life expectancy tables, finished in the middle of the pack on cancer survival.

He finds, as have others (John Goodman comes to mind), that the five-year cancer survival rates tend to be higher in the U.S. than in other countries. The one issue I would raise with this is that survival is measured from the point of diagnosis, so that if we diagnose cancer sooner (or diagnose more non-lethal cancers), then we would come out ahead on that measure.

Roy continues,

A few years back, Robert Ohsfeldt of Texas A&M and John Schneider of the University of Iowa asked the obvious question: what happens if you remove deaths from fatal injuries from the life expectancy tables? Among the 29 members of the OECD, the U.S. vaults from 19th place to…you guessed it…first. Japan, on the same adjustment, drops from first to ninth.

I think this study offers more reason to believe that the U.S. is really number 1 when it comes to health care outcomes. Still, it may not show that the U.S. is number 1 in terms of cost-effectiveness of health care. My guess is that comparing the additional amount that we spend on health care to the additional longevity we obtain would yield a very large cost per year of life saved.

I have long argued against using longevity statistics to judge what I once called the international health care Olympics. As I pointed out in that essay, it would lead policymakers to make some really perverse choices. But even if we are number 1 in terms of medically-treatable life expectancy, that is no reason to be complacent that our system is cost effective.

Social Heterogeneity in Real Wages

From my latest essay.

for middle- and upper-income parents, it is a matter of taste if one chooses to spend a substantial sum to send a child to an elite preschool, or to live in a neighborhood with an elite public school, or to send a child to an elite college. Given the child’s ability, such schooling decisions make relatively little difference at the margin.

The point of the essay is that long-term calculations of “the” real wage assume homogeneity of tastes.

The Minogue Litmus Test

My review of The Servile Mind is available. I do not think liberaltarians or bleeding-heart libertarians will be comfortable with Minogue’s swipes at cultural decadence. My conclusion:

Overall, I would say that for libertarians Minogue’s book provides a litmus test. If you find yourself in vigorous agreement with everything he says, then you probably see no value in efforts to work with progressives to promote libertarian causes. The left is simply too dedicated to projects that Minogue argues undermine individual moral responsibility, and thus they are antithetical to liberty. On the other hand, if you believe that Minogue is too pessimistic about the outlook for freedom in today’s society and too traditional in his outlook on moral responsibility, then you would feel even more uneasy about an alliance with conservatives than about an alliance with progressives.

A Finance Practitioner’s Perspective

John Hussman writes,

the past 13 years have chronicled the journey of valuations – from hypervaluation to levels that still exceed every pre-bubble precedent other than a few weeks in 1929. If by 2023, stock valuations complete this journey not by moving to undervaluation, but simply by touching pre-bubble norms, we estimate that the S&P 500 will have achieved a nominal total return of only about 2.6% annually between now and then.

He uses the Shiller P/E ratio as his measure of over- or under-valuation. Thanks to Timothy Taylor for the pointer.

What I found even more interesting was a paragraph later in Hussman’s essay.

On careful analysis, however, the clearest and most immediate event that ended the banking crisis was not monetary policy, but the abandonment of mark-to-market accounting by the Financial Accounting Standards Board on March 16, 2009, in response to Congressional pressure by the House Committee on Financial Services on March 12, 2009. The change to the accounting rule FAS 157 removed the risk of widespread bank insolvency by eliminating the need for banks to make their losses transparent. No mark-to-market losses, no need for added capital, no need for regulatory intervention, recievership, or even bailouts. Misattributing the recovery to monetary policy has contributed to a faith in its effectiveness that cannot even withstand scrutiny of the 2000-2002 and 2007-2009 recessions, and the accompanying market plunges. This faith is already wavering, but the loss of this faith will be one of the most painful aspects of the completion of the present market cycle.

And I cannot resist the subsequent paragraph:

The simple fact is that the belief in direct, reliable links between monetary policy and the economy – and even with the stock market – is contrary to the lessons from a century of history. Among the many things that are demonstrably not true – and can be demonstrated to be untrue even with simple scatterplots – are the notions that inflation and unemployment are negatively related over time (the actual correlation is close to zero and slightly positive), that higher inflation results in lower subsequent unemployment (the actual correlation is positive), that higher monetary growth results in subsequent employment gains (the correlation is almost exactly zero), and a wide range of similarly popular variants. Even “expectations augmented” variants turn out to be useless. Examining historical evidence would be a useful exercise for Econ 101 students, who gain an unrealistic sense of cause and effect as the result of studying diagrams instead of data.

Social Heterogeneity

Kevin Drum writes,

Via Harrison Jacobs, here’s a recent study showing the trend in income segregation in American neighborhoods. Forty years ago, 65 percent of us lived in middle-income neighborhoods. Today, that number is only 42 percent. The rest of us live either in rich neighborhoods or in poor neighborhoods.

Pointer from Tyler Cowen.

Drum goes on to say,

We increasingly lack a shared culture or shared experiences, and that makes democracy a tough act to pull off. The well-off have less and less interaction with the poor outside of the market economy, and less and less empathy for how they live their lives.

Some comments:

1. The increase in segregation by income over the past forty years is something that one can see and feel, at least if you are as old as I am.

2. My guess is that you could observe similar trends in terms of education. I would bet that today more Harvard students come from the top 20 percent of the income distribution than was the case 40 years ago. I would bet that more students who do not attend college come from the bottom 20 percent of the income distribution. Note that by “more” I do not mean “every.” With “gifted and talented” programs, “magnet schools,” and whatnot, school classrooms are much more segregated by income class than they were forty years ago.

3. Many trends are at work that are reducing social homogeneity. Skills are diverging, tastes are diverging, and cultural habits are diverging.

4. Both liberals and conservatives lament heterogeneity and would like to undertake a project to restore America to some prior era of less diversity. For liberals, economic homogeneity takes precedence. For conservatives, cultural homogeneity takes precedence.

5. Music might be a useful metaphor. In 1970, a lot of people listened to two or three popular radio stations in every city. Probably 3/4 of Americans recognized most of the top ten songs of that year. Even today, my high school students probably would recognize some of those songs. But music is much more fragmented now. Songs are iconic only for particular sub-cultures and only for short periods of time.

6. It could be that the project of returning to some bygone age of cultural and/or economic homogeneity is as unrealistic as expecting everyone to enjoy Simon Garfunkel, the Carpenters, and The Guess Who.

7. The middle of the twentieth century was about masses. Mass consumption. Mass production. Mass warfare. Mass destruction. Mass politics. We are not in the middle of the twentieth century any more.