Tyler Cowen notes his passing. One of his difficult books, The Escape from Hunger and Premature Death, had an enormous influence on my thinking. In fact, it was just one table, showing the long-term income elasticities of large categories of goods and services, that I have referred to many times. Indeed, The New Commanding Heights, the essay that Nick Schulz and I wrote, is hardly more than an extended riff on that table.
The Future of American Health Care Policy
The Singapore system, involving single payer for catastrophic expenses and health savings accounts for smaller expenditures. To varying degrees you can combine this with forced savings for the HSAs and price controls on service provision, both of which you will find in Singapore. Where “catastrophic” starts can vary as well. This is my first choice, although if you wish to dismiss it as “utopian” for the United States you have a point.
My view is that we are headed toward a two-tier system regardless of the political configuration. We will have a government system under which doctors are unhappy with how they are paid and how they are regulated, and in which consumers are denied some treatments that they otherwise would want. We will have a private system in which doctors and patients have more choice, but patients bear much more of the cost directly. People who rely almost entirely on the government system will tend to have lower wealth than people who use the private system.
I do not think that Americans are egalitarian enough or tolerant enough of a price-control regime to be willing to destroy the private tier. On the other hand, I do not think that they have enough confidence in markets to do without a large government tier.
I do not think that Americans would vote for the Singapore system. Maybe Singaporeans would not vote for it, either, but that country runs differently. Consider three choices:
1. Uninsured
2. Comprehensive insurance
3. Catastrophic insurance
Economists strongly prefer (3). But I think that most people around the world would prefer (1) or (2) to (3).
That does not mean that I want to give up on reforms that make catastrophic insurance competitive. On the contrary, I am willing to make the case for it any time I get the opportunity. Obamacare is designed to make it harder, not easier, for people to choose catastrophic insurance. That means either that Obama’s economic advisers failed, or perhaps didn’t try, to make a case that I believe they should have been making. As a result, I am pessimistic about the prospects for Obamacare. My book still needs to be read.
Comments on NSA Snooping
1. Anyone who desires or expects government agencies to relinquish the use of information-gathering should read David Brin’s The Transparent Society. Indeed, that book is a must-read for anyone who cares enough about the issue to pay attention to recent news reports.
2. I also claim that a must-read is my own article, The Constitution of Surveillance, written nine years ago.
3. I hope people are putting the NSA program in context with the Boston Marathon bombing. Here you go to all this effort to use Big Data to find terrorists, and when you are handed hard, actionable intelligence from the Russians you muff it.
4. I bet you will not find politicians putting the NSA program in context with Chinese cyber-spying, and explaining why ours is good and their is bad. I don’t think politicians are capable of doing the hair-splitting, so I think what they are left with is “What we do is good because we are good, and what they do is bad because they are bad.”
5. The issue is an uncomfortable one for libertarians, because I think that most people believe that the government is snooping in their interest. The majority may even be right about that. I myself have less of a problem with the snooping per se than with the secrecy of the programs. In my view, it is the secrecy, along with an absence of strong institutional checks, that is bound to lead to abuse. Also, see point (3).
6. The issue is an uncomfortable one for progressives, because their impulse is to treat the Obama Administration differently than they would have treated the Bush-Cheney Administration.
7. The issue is an uncomfortable one for conservatives, because it turns them into strange bedfellows. The civilization-barbarism axis clearly argues in favor of government snooping to defend citizens against barbarians, so conservatives feel inclined to betray libertarians and instead offer aid and comfort to President Obama.
8. How does snooping technology relate to the idea of competing private security agencies? Isn’t snooping technology going to be a vital tool for security agencies? What if a rogue private security agency conducts snooping in a way that customers of other agencies see as abusive? What if there are such significant economies of scale in snooping that it is a natural monopoly? David Friedman probably has thought about this.
Maybe the key point is (5). Government officials will argue that what they do must remain secret. They cherish secrecy. They claim that it is for our own good that we do not know what they do. I would say that such claims are often made and rarely true.
Obviously, a lot of other people have written about this. I recommend David Strom’s post (he is the St. Louis technology consultant, not the North Carolina libertarian) for its useful links.
Yet another idea for an Education Start-up
So, I tried to read my free review copy of The UnStoppables, by Bill Schley. I hate his writing style, but I think that on substance the book, which is a guide/pep-talk for entrepreneurs, is actually good. In talking about how to come up with a business idea, Schley suggests asking yourself these questions (p. 22):
1. I wish I could, so why can’t I?
2. What if?
3. How come no one ever fixed that?
4. Why does this have to be such a pain?
For a long time, I have wished that I could better navigate the world of online learning. What if there were a guide for online learning that students could use to find the best resources and that educators could use to benchmark the competition and share resources? There are lots of great learning videos online, but there is a lot of garbage, and it’s not easy to get straight to the best. How come no one ever fixed that? As a teacher, I find it very difficult to share learning resources with other teachers–using some of their videos, adopting some of their online quizzes, etc. Why does this have to be such a pain?
On my recent vacation, I saw how Rick Steves and tripadvisor.com have gone a long way toward solving these problems for travel. So my latest idea for an education start-up is something like a Rick Steves or tripadvisor.com for online learning resources.
The Rick Steves model ensures consistency of how evaluation takes place, and it gives you the voice of a dedicated, opinionated consumer. The tripadvisor.com model uses crowd-sourcing, so you get less consistency of methodology but broader, timelier coverage.
Let’s assume the Rick Steves model, and take first-year statistics as the prototype. If you were Rick, you would list the topics that you think generally belong in such a course. Then go through all the online materials available from Khan, Kling, Udacity, Coursera, Carnegie-Mellon, etc., and create a model itinerary for students. If one of these brands just dominates in every topic within first-year statistics, then recommend that brand. Otherwise, for each topic, list the top three explanatory videos, the top three sets of interactive exercises, etc.
It is important to remember that your perspective is that of a typical student, not that of someone with an advanced background in statistics. Your advanced background may lead you to over-rate deep, brilliant lecturers (like Udacity’s Thrun) and under-rate folks like Khan who keep it simple and glide past issues that someone pursuing a Ph.D in stats would want to treat more carefully.
Two factors would make the online learning space harder to profit from than the travel space. First, the online learning world changes more rapidly. It takes a couple of years to put up a new hotel. It takes much less time to put up a new lecture or quiz on the central limit theorem. So you couldn’t sell printed books easily, since they would be out of date before they are published. Even with a web site, a lot of the work you do in 2013 will have to be tossed out or re-done in 2014.
The second factor is that it would be harder to generate revenue from advertising. Travel web sites are complementary to the existing bricks-and-mortar folks (hotels, restaurants, rental car companies), who get the concept of advertising. Bricks-and-mortar educators, on the other hand, view the online world as a competitive threat rather than as a pure complementary good. It’s not clear that a for-profit university or textbook publisher would see any point in advertising on the sort of site that I have in mind.
Alberto Mingardi’s Reading List
Compiled in 2002, it is here, and I am sorry to say that I have (so far) read none of these works.
Pointer from Amy Willis.
Mingardi writes,
Carl Schmitt’s Concept of the Political (University of Chicago Press, 1996, reprint) regarded by Leo Strauss as “an inquiry into the ‘order of human things,'” is fundamental. Schmitt conceptualizes the “political” in terms of a primordial and definitive antithesis between “friend” and “enemy” (“foe”). The very existence of the state rests on this dichotomy. This means that, far more than being a third, “impartial” actor, the state is always the expression of a particular group of individuals. Schmitt teaches that no political order can be conceived as universal, but always and only as a form that originates from a concrete partiality. Against the manipulated justification of government by law, Schmitt’s realism demonstrates how, in reality, there are no abstract institutions, but only clusters of men counterposed as “friends” and “enemies.”
This is what my father (no libertarian) always tried to impress upon me. Politics is about conflict. The “public good” is a woolly concept. So, for that matter is “the state.” Many of the other books on Mingardi’s list appear to treat “the state” as if it were a single individual, rather than an arena through which various individuals and groups engage in conflict.
Labor’s Share of Income
Timothy Taylor quotes a report by the International Labor Organization showing that labor’s share of income has declined between 1990 and 2009 in 26 out of the 30 countries surveyed. Taylor comments,
When a trend cuts across so many countries, it seems likely that the cause is something cutting across all countries, too. Looking for a “cause” based on some policy of Republicans or Democrats in the U.S. almost certainly misses the point.
This is a stereotypical Tim Taylor find–who else would read through an ILO report?
Aggregate Supply and Demand
A lot of economics bloggers have been discussing the merits and flaws of the paradigm of aggregate supply and demand. Mark Thoma linked to a couple of the more recent examples.
I think that, viewed on its own terms, AS-AD is confusing (or confused). That is, mainstream economists do not know what to put on the vertical axis. If you put the price level on the vertical axis, you get a nice textbook model, but no connection to the real world, where economists talk in terms of inflation rather than the price level. On the other hand, if you put inflation on the vertical axis, that does not work very well, either, as I explain in this 8-minute video. (Comments, other than about my handwriting, are welcome.)
I developed PSST as an alternative to AS-AD. PSST does not appear to explain nearly as much as AS-AD. That may look like a feature in AS-AD, but on closer inspection it is a bug. The explanatory “power” of AS-AD is a delusion.
1. The AS-AD paradigm is invoked to explain changes in the combination of inflation and unemployment. If one goes up while the other goes down, we call this an aggregate demand shift. If both move in the same direction, we call this an aggregate supply shift. Thus, we can explain anything. But there is a lot of hand-waving involved. The stories we tell about AD and AS are always post hoc, just-so stories.
2. In the 1970s, we had a huge rise in the combination of inflation and unemployment. What caused this? The rise in the price of imported oil is often cited, but it cannot possibly account for the large acceleration in inflation. At most, it would cause a temporary increase in inflation, followed by a decrease. Many (most?) macroeconomists attribute the 1970s disaster to a “rise in inflation expectations.” Prices rose because they were expected to rise. Through habit and repetition, we have come to accept this story. But how intellectually satisfying is that?
3. Turning to events since 2008, the typical macroeconomist describes the rise in unemployment as the result of a “demand shock.” However, they do not all agree on what the shock was. Scott Sumner says that it was a contraction by the Fed. Others say that it was the wealth effect of a decline in house prices. Others say that it was a credit crunch. Others say that it was the effect of inflation dropping too close to zero. All of these are just-so stories.
From April of 2003 through April of 2008, the rate of growth of the CPI averaged 3.2 percent. From April of 2008 through April of 2013, it averaged 1.6 percent. If in 2007 you had asked macroeconomists to predict the consequences of a decline in the inflation rate of that magnitude, how many would have told you to expect unemployment to rise above 7 percent? None of them would have foreseen it. My guess is that many of the macroeconomists would have regarded a drop in inflation of 1.6 percentage points as close to a non-event for unemployment. (Note to Scott Sumner: yes, the decline in nominal GDP growth was much bigger than the decline in inflation. But that only restates the mystery–it doesn’t solve it.)
The terms “aggregate demand” and “aggregate supply” are highly loaded. That is, they lead economists to imagine something analogous to supply and demand in microeconomics. But the analogy is mostly misleading, and economists who invoke AS and AD are the ones who are most misled.
Reform Conservatism
Ross Douthat defines it.
The core economic challenge facing the American experiment is not income inequality per se, but rather stratification and stagnation — weak mobility from the bottom of the income ladder and wage stagnation for the middle class. These challenges are bound up in a growing social crisis — a retreat from marriage, a weakening of religious and communal ties, a decline in workforce participation — that cannot be solved in Washington D.C. But economic and social policy can make a difference nonetheless, making family life more affordable, upward mobility more likely, and employment easier to find.
Let’s evaluate this along the three-axes model. Even though Douthat shows concern for low-skilled workers, he views the problem in terms of the civilization-barbarism axis rather than the oppressor-oppressed axis. On the freedom-coercion axis, although Douthat throws libertarians a bone by saying that the problems cannot be solved in Washington, he thinks that Washington “can make a difference nonetheless.”
Pointer from Reihan Salam. Indeed, the paragraph above sounds like a reprise of Douthat and Salam’s Grand New Party. Not that there is anything wrong with that.
Read the entire post. If we think in terms of the current institutional structure, I would be willing to sign on to Douthat’s agenda. (One difference is that I would be more favorably disposed to easing up on immigration for low-skilled workers. I think it is at least as likely that low-skilled immigrants are complements for low-skilled domestic workers as it is that they are substitutes. And in general I do not think that protectionist measures can do much for low-skilled workers: protect them from labor at home and they still can face competition from labor abroad, from capital, and from consumer substitution away from artificially high-cost goods and services.)
However, I think that for libertarians, attempting policy reforms within the current institutional structure is an exercise that uses up a lot of energy without moving the ball very far, if at all. I think that any significant motion in a libertarian direction will have to come from an evolution toward competitive government. We need to restructure government services so that there is less centralization, less bundling, and less protection from private competition.
Of course, that is nothing but a reprise of the widely-unread Unchecked and Unbalanced.
Self-Promotion
My Latest Review Essay
About The End of Power by Moises Naim, I write.
Naim combines strong conceptual thinking with an ability to summon impressive statistical evidence. His book is particularly valuable in showing the importance of growth and change happening in the emerging economies of the world. If those of us who lean libertarian differ from Naim’s conclusions, we should still be aware that his views are much closer than ours to those of most of the world’s elite.
It might be interesting to compare and contrast his book with my book on the knowledge-power discrepancy.