Monday, December 18, 2006

A Good Read

Tyler asks we write (buy) books that could have, should have been a long article. That is, why are so many books padded?

He mentions marketing and the sense of satisfaction. I have two perhaps more substantive reasons.

1) Reading books is a leisurely activity. I read journal articles at my desk, usually on the computer screen, while sipping coffee. I read books either lying on the couch or bed, before sleep. The intensity with which many journal articles are written is too much for leisurely activity. Many magazine and newspaper articles are written in a style suitable to lazy reading, but then again I don’t think they could replace most books.

2) People absorb material more slowly than it takes to say it. This is a common problem in lecturing. I could give most lectures in 75 minute lecture in seven or eight minutes if the students absorbed every single word. However, they don’t. So, most of the lecture is saying the same thing over again, or giving examples of how it might work, or saying it in a different way to catch a different student.

A similair thing happens with books. People want to walk away from the reading feeling like they got something, not just scratching their heads. Saying the same thing over gives the reader a chance to absorb before you move on to the next topic. The reader could stop and think about what the author is saying before moving on but this is a much less satisfying experience because lifting your eyes form the pages exposes you to different stimuli.

If you can keep the reader “engaged” while going over the same point again the experience will seem more complete.

Saturday, December 16, 2006

Too Cute: Immigration Edition

Apparently the fence designed to keep illegal immigrants from getting into the US is being built by, drum roll. . . . illegal immigrants. Still waiting for the foreman to argue that this is the only way they come in on time and under budget.

Friday, December 15, 2006

Saving China's Future

Bernake gives a detailed talk on China’s economic outlook.

One of the choice bits

Policies aimed at increasing household consumption would clearly benefit the Chinese people, notably by improving standards of living and allowing the fruits of economic development to be shared more widely. Such policies, by reducing saving and increasing imports, would also serve to reduce China's current account and trade surpluses.
. . .
Why is domestic saving so high at present? The high saving rate of households, even very poor households, likely reflects the relatively thin "social safety net" in China. . . . In the absence of a stronger social safety net, Chinese households save at high rates to protect themselves against risks such as unexpected medical expenses and poverty in old age.

The problem here is that China faces are very serious demographic shift. In the United States we are concerned about the retirement of the baby boom generation because the birth rate declined from a peak 25.8 (per 1000) in 1953 to 14.8 in 1973. Generation X is just not big enough to support its older cousins.

In China, however, the birth rate collapsed in the early 80s as the county moved from the “more people, more strength” doctrine of Mao to the one-child policy of Deng Xiaoping. The resulting one-two-four dilemma – one child has to support two parents and four grandparents in old age – makes saving a national necessity.

While the US’s population pyramid will flatten out by 2050, China’s will out right invert, leaving an amazing strain on the coming generation.

The solution to this problem is two fold. First, invest has heavily as possible in domestic infrastructure and technology to raise the productivity of the coming generation. Second, invest abroad to build up a nest egg that the nation can draw down on in the future. China is doing both. And while China is a major net exporter today, sign are that it will become a major importer tomorrow as America (Hispanamerica as Tyler likes to say) manufactures the goods that will sustain China's population in the future.

Hat tip to Mankiw

Tuesday, December 12, 2006

Too Much Health Insurance?

I have said before that I think the problem in the US is that altogether we have too much health insurance. Health insurance is like a big SUV on the road. It’s safer for the diver of the SUV but more dangerous for everyone else. For each individual its better to be clad inside of a tough truck, but if we all go out and spend money on big trucks we are collectively no safer?


Because congestion is just as much of an issue in the examination room as it is on the highway. The more doctor time we take up, the more lab time we take up, the less there is for everyone else. For most commodities this doesn’t matter because each person pays a little extra when he or she buys the good. When you buy a box of cereal for example there is one less box for everyone else.

Yet, you paid the full cost of that box, so you have an incentive not to buy more boxes than you need. With health insurance few of us pay the full cost of our treatment, so we have an incentive to get more treatment than we need. In fact, our doctors, if they are good doctors, have an incentive to prescribe more treatment than we need.

Every doctor wants their patient to have the best chance at good health. If prescribing one more test or one more drug doesn’t cost the patient that must a doctor would be remiss not to go the extra mile.

All of this means that an exam room resembles a highway lane more than it does a supermarket aisle. We all are driven to grab more of the medical pie than we need and this leaves less and less for those who are not fortunate to have insurance.

Similarly we are driven to drive bigger cars than we need and wind up making life more dangerous for those who cannot afford big SUVs. The solution is not to get everyone a big SUV but to stop buying big SUVs ourselves. This means less insurance and more of this

More people are heading to their local drug store instead of their family doctor for medical checkups. Establishments like MinuteClinic, Take Care and RediCare are taking up more space in major retail stores to diagnose, treat and write prescriptions for patients with common illnesses. . .
The clinics are typically small, with one or two exam rooms, and are staffed by board-certified nurse practitioners and/or physician assistants, but usually have a physician's oversight. . . .

Patients know ahead of time what they’ll pay for their treatment since prices are posted outside each center. . . those paying cash or credit card are charged between $49 and $59 per treatment. That compares favorably that to a standard doctor’s visit, which could cost over $100.

Speed Reading

Jane and Tyler yack it up about speed reading.

I have been told I read fast and I think I do it the same manner that I write fast - I ignore individual letters and sometimes words. Most of my frequent readers are familiar with my horrendous spelling and sometimes words. I also often use the wrong word if it sounds like the word I mean.

Some time ago I was told this is called chunking. Digesting whole words or phrases instead of their parts. If my upbringing is any guess it comes from reading lots and lots, so that just about any phrase you are likely to read in the future you have read many times before.

Just as most people recognize the letter "E" instantly without looking at its parts or recongnize the word "and" without looking at its letters I recognize whole phrases. It also means that I can write (or read) a jumbled phrase without realizing it.

Monday, December 11, 2006


From Krugman's latest:

Conservatives look at the virtues of market competition and leap to the conclusion that private ownership, in itself, is some kind of magic elixir. But there’s no reason to assume that a private company hired to perform a public service will do better than people employed directly by the government

I have been trying to open my fellow conservatives eyes to this for years. Competition not private ownership makes the market go around. There is no particular reason to expect crony capitalism to do any better than socialism.

Sunday, December 10, 2006

What's Important

Many Libertarians have begun to lean democrat. Those who don't point to the poor democratic record on trade and the minimum wage. However, they have overestimated what matters. The United States itself is the largest free trade block in the world and quite frankly most of our non-NAFTA trading partners are far away. Even in the modern world distance does still matter.

What matters most is right now is foreign policy and there is little evidence that many on the right have gotten the right message

Saturday, December 9, 2006

Deadweight at Christmas

Tyler rehashes the old debate about the deadweight loss of Christmas.

That is, is Christmas a net loss because everyone ends up getting worse presents for others than they would have bought from themselves. If everyone just gave themselves presents at Christmas would we all wind up happier.

Many note that this is precisely the type of reasoning that makes people hate economists but it has special meaning for me. As a kid I hate Christmas presents from anyone but my mother and father and only from them because they gave me the same thing every year, Avalon Hill boardgames.

I later discovered both why I hated Christmas presents and others love them. I am an Aspie, which means that I don't typically experience the guilt (or even self-knowledge) of being socially inappropriate. In particular, as I would tell my extend family, if an item was worth its price to me I would have already spent my allowance on it. If I do not have it, it must not be worth the money and so no present you can give me can ever be more valuable than money.

This was as a 6 year-old so you can see why I became an economist.

The key is, I felt no guilt at buying what I wanted. I felt no social pressure to save my allowance (though I usually saved for months) or spend it on what everyone else was spending it on. I bought soley the things I wanted, because I was too autistic to know that was odd.

Therefore, Christmas presents had no value to me, but they do to others. Its a time when the gifts are supposed to be about you. Its not about what you should buy and it's certainly not about feeling guilty for not saving. The gift of Christmas is not in the item itself, but it being able to engage in materialistic hedonism without being judged by those around you.

Thats why people love Christmas and thats why as an Aspie kid I never really saw the point.

Wednesday, December 6, 2006

Pigou You

There has been much hang wringing over the possibility of Pigouvian taxes, the proposed increase in the gas tax in particular, encouraging wasteful government spending. That is the government won’t use the money to reduce taxes or government debt, it will use the money to spend on more wasteful things.

Whether or not, give increased revenues the government will choose to lower the deficit or spend on new programs is an open question, but I think the 90s makes it clear that it is possible for Congress to decrease the deficit and even to pay down the debt.

Yet, all of this could be bypassed by simply writing the reduction of other taxes into the legislation that implements the Pigouvian tax. There are some efforts out there to lower the payroll tax. I don’t like this because its not targeted. I would prefer a gas tax EITC swap.

We increase the gas tax 10 cents every year for the next ten years and increase EITC funding $10 billion every year for the next ten years. This gets us a long way on many fronts. We lower consumption of gasoline and we give a break to the hardest hit members of the workforce.

This could also go a long way towards restoring faith in the market for lower income people. Absent any type of pro-market reform that betters their condition they will look for anti-market reform.

As an aside, however, I would like to point out that government spending is wasteful because, in general, it is not as productive as private spending. However, in the case of gasoline, some private spending has a negative productivity. That is individuals are spending money on things that make us all worse off. It’s hard for the government to do worse than negative. I mean we can argue about what the social return rate is on preschool funding but let’s not kid ourselves that it’s negative.