November 04, 2014
August 25, 2014
Life's Hard Enough As It Is...
For the new study, a group of 116 men and women with severe osteoarthritis, between ages 50 and 85 years old and scheduled for knee replacement surgery in Canada, first filled out questionnaires assessing perceived injustice, how much they think about or worry about pain and their fear of movement or re-injury.
They rated their agreement with statements like, “It all seems so unfair” and “I am suffering because of someone else’s negligence.”
With another clinical questionnaire the patients gauged their pain levels and physical functioning.
After the knee replacement surgeries, which were all deemed successful, the patients rated their pain and function again at a one-year checkup.
The more a patient agreed before surgery that life seems unfair and others are to blame for their problems, the more pain they reported experiencing one year after surgery. That was true even when age, sex, other health conditions and pre-surgery pain levels were accounted for, according to the results in the journal Pain.
...“All of these psychological factors point to the fact that patients who perceive themselves as helpless, those who are afraid, those who feel loss of control, have a more difficult time,” Brander said.
“The contrary is also true - patients who exhibit high levels of ‘self-efficacy’ (that is, patients who have a high degree of confidence in their own ability to achieve a goal) appear to do best after knee replacement,” she said.
Hmmm.... there's a metaphor in there somewhere:
March 18, 2014
More Mean Spirited Thrashing of Conventional Wisdom
Interesting piece in The Economist:
Hayek, in the 1970s, came to be seen as opposing everything Keynes and the Keynesian consensus stood for. More recently, many see the change towards more free-market ideas since the 1980s as the victory of Hayek's ideas over Keynes'—a process that has since reversed as a result of the Great Recession. This academic battle of ideas has even made its way into popular media. On Youtube, there is a series of rap parody videos of the academic battle between Keynes and Hayek, available here, here and here.
But Keynes himself in fact did not dislike many of Hayek's ideas in the "Road to Serfdom". On the contrary, he had indirectly helped Hayek to write it. When Hayek and the rest of the London School of Economics moved to Cambridge in 1940 to escape the Blitz in London, Keynes found him rooms at his college, King's, to live and work in, and the two remained in regular contact until Keynes' death in 1946. Ideologically, they also sang from the same hymn sheet: both were liberals with a distaste for authoritarian regimes such as communism and fascism. Keynes agreed with Hayek that fascism was not a healthy reaction against communism, as many contemporaries in Britain thought, but was instead equally dangerous for liberalism.
Keynes rejected the populist interpretation of Hayek's argument—that any increase in state planning is the first step on the way to tyranny—but agreed with the overall view that the bounds of state intervention needed to be clearly defined for liberal democracy to remain safe (and more explicitly than even Hayek himself did in the book). Receiving an early copy of the "Road to Serfdom" from Hayek personally, Keynes wrote back to him, praising the book. But Keynes thought Hayek should have been more explicit in what sort of red lines would be necessary for increased state intervention not to imperil liberty:“You admit here and there that it is a question of knowing where to draw the line. You agree that the line has to be drawn somewhere, and that the logical extreme [total lassiez-faire policies] is not possible. But you give us no guidance as to where to draw it...as soon as you admit that the extreme is not possible and that a line has to be drawn, you are, on your own argument, done for, since you are trying to persuade us that as soon as one moves an inch in the planned direction you are necessarily launched on the slippery slope which will lead you in due course over the precipice.”
In short, Keynes took the lessons of Hayek's work as a warning that the expansion of state should be limited and politicians need to know when to stop—which he fundamentally agreed with. Although he thought more state control in some areas may be justified, governments always need to demark a line beyond which they do not traverse.
Yesterday the Editorial Staff learned (via Cathy Young) that Christina Hoff Sommers - a writer we had assumed leaned decidedly to the political right - is in fact a Democrat. Today we learn that Keynes and Hayek agreed that firm lines need to be drawn to prevent big government from trampling individual liberty.
The real world is always so much more complex and interesting than the simplistic stories we tell ourselves.
March 11, 2014
Sacre Bleu! Why Were We Not Informed of This???
Just in case any of you missed it the other day, this must-read article from the WSJ makes two points:
1. Contra the Left, worker's incomes have kept pace with gains in productivity. This is a particularly important argument as arguments to the contrary are a key justification for viewing income inequality as "unfair" (and for confiscating and redistributing the supposedly ill-gotten profits of employers):
Many pundits, politicians and economists claim that wages have fallen behind productivity gains over the last generation. This "decoupling" explains allegedly stagnant (or in some versions of the story, declining) middle-class incomes and is held out as a crisis of the market economy.
This story, though, is built on an illusion. There is no great decoupling of worker pay from productivity. Nor have workers' incomes stagnated over the past four decades.
The illusion is the result of two mistakes that are routinely made when pay is compared with productivity. First, the value of fringe benefits—such as health insurance and pension contributions—is often excluded from calculations of worker pay. Because fringe benefits today make up a larger share of the typical employee's pay than they did 40 years ago (about 19% today compared with 10% back then), excluding them fosters the illusion that the workers' slice of the (bigger) pie is shrinking.
The second mistake is to use the Consumer Price Index (CPI) to adjust workers' pay for inflation while using a different measure—for example the GDP deflator, which converts the current prices of all domestically produced final goods and services into constant dollars—to adjust the value of economic output for inflation. But as Harvard's Martin Feldstein noted in a National Bureau of Economic Research paper in 2008, it is misleading to use different deflators.
Different inflation adjustments give conflicting estimates of just how much the dollar's purchasing power has fallen. So to accurately compare the real (that is, inflation-adjusted) value of output to the real value of worker pay requires that these values both be calculated using the same price index.
2. Where has so-called "vanishing middle class" disappeared to? Turns out most have moved into higher income brackets:
The claim that ordinary Americans are stagnating economically while only "the rich" are gaining is also incorrect. True enough, membership in the middle class seems to be declining—but this is because more American households are moving up.
The Census Bureau in 2012 compiled data on the percentage of U.S. households earning annual incomes, measured in 2009 dollars, in different income categories (for example, annual incomes between $25,000 and $35,000). These data reveal that between 1975 and 2009, the percentage of households in the low- and middle-income categories fell. The only two categories that saw an increase were households earning between $75,000 and $100,000 annually, and households earning more than $100,000 annually. Remarkably, the share of American households earning annual incomes in excess of $100,000 went to 20.1% in 2009 from 8.4% in 1975. Over these same years, households earning annual incomes of $50,000 or less fell to 50.1% from 58.4%.
So to recap, upward mobility is alive and well in America and if you include total compensation (benefits that mostly didn't exist in our parents' time, plus wages), worker pay is not stagnant. Perhaps our President will learn this good news the way he learns what's happening in his own administration: by reading a newspaper.
A Blog Princess can dream...
February 12, 2014
Another NYT Reporter Mugged By Bent Cost Curve
Perusing the Paper of Record has been unexpectedly entertaining of late:
What drives shortages is often a mystery.
...Economic factors are also a contributing factor. Narrow profit margins are making some drug companies reluctant to invest in fixing old production facilities. Changes in Medicare reimbursement and the role of group purchasing organizations, which buy drugs on behalf of hospitals, could also be contributing, by further reducing prices that producers get for the drugs.
Mein Gott im Himmel! Is the Times seriously suggesting that capping prices without reducing cost might cause business owners to shift resources to more profitable product lines? Egad - that's exactly what they're suggesting!
... in a peculiarity of the generic drug industry, a drug is often made by only a few producers, making it difficult to mitigate the effects of a shortage when it happens. The accountability agency’s report cited a study that found just three manufacturers produced 71 percent of the country’s sterile injectable cancer drugs in 2008.
What is more, generic drug producers have significantly ramped up the number of drugs they are producing, pumping out many different drugs on a single production line, which stretches already limited factory capacity and creates a situation ripe for quality problems, the report said.
One study it cited found that production in the sterile injectable market had increased by half between 2006 and 2010, without a similar rise in manufacturing capability. Manufacturers, motivated by profit, will often choose to increase production of higher profit drugs on their busy factory floors, even if that means risking a shortage of less profitable drugs.
WHO COULD POSSIBLY HAVE FORESEEN THIS???? It's almost as though the real world operates under a set of rules (commonly referred to by the unwashed masses as "cause and effect") incomprehensible to politicians. A world where reality is kept strictly at arm's length. CWCID.
In related news, the EPA (following the wildly successful example afforded by the ACA) shows it can bend the cost curve too!
An Obama administration official has said that the new clean coal rules could increase electricity prices by as much as 80 percent.
Dr. Julio Friedmann, the deputy assistant secretary for clean coal at the Department of Energy, told House lawmakers that the first generation of carbon capture and storage technology would increase wholesale electricity prices by “70 or 80 percent.”
...“The precise number will vary, but for first generation we project $70-90 per ton (on the wholesale price of electricity),” Friedmann said. “For second generation, it will be more like a $40-50/ton price. Second generation of demonstrations will begin in a few years, but won’t be until middle of the next decade (2022-2025) that we will have lessons learned and cost savings.”
Friedmann added that these high costs could not be made up by power companies through increased production volumes.
Oh stop complaining. You didn't really want all that inferior, plentiful, cheap power did you? How can you be so selfish? We'll all be much better off in the long run.
January 12, 2014
Reality and the Object Lesson
An economics professor at a local college made a statement that he had never failed a single student before, but had recently failed an entire class. That class had insisted that Obama’s socialism worked and that no one would be poor and no one would be rich, a great equalizer.
The professor then said, “OK, we will have an experiment in this class on Obama’s plan”.. All grades will be averaged and everyone will receive the same grade so no one will fail and no one will receive an A…. (substituting grades for dollars – something closer to home and more readily understood by all).
After the first test, the grades were averaged and everyone got a B. The students who studied hard were upset and the students who studied little were happy. As the second test rolled around, the students who studied little had studied even less and the ones who studied hard decided they wanted a free ride too so they studied little.
The second test average was a D! No one was happy. When the 3rd test rolled around, the average was an F. As the tests proceeded, the scores never increased as bickering, blame and name-calling all resulted in hard feelings and no one would study for the benefit of anyone else.
To their great surprise, ALL FAILED and the professor told them that socialism would also ultimately fail because when the reward is great, the effort to succeed is great, but when government takes all the reward away, no one will try or want to succeed.
Economic Theory vs. Economic Reality
Good video on how minimum wage laws make inexperienced and unskilled workers less employable:
Possibly related - over at The Atlantic Anne-Marie Slaughter complains that the US economy doesn't value caregivers enough:
An America that puts an equal emphasis on care and competition would be a very different place. We would invest in a national infrastructure of care in the same way that we invest in the infrastructure of capitalism. We would institute:
•High-quality and affordable child care and elder care facilities
•Higher wages and training for paid caregivers
•Support structures to allow elders to live at home longer
•Paid family and medical leave for women and men
Flexible work arrangements and career life cycles to give breadwinners who are also caregivers equal opportunity to advance over the course of their careers:
•Financial and social support for single parents
•Far greater social esteem for the “caring” professions
Not being cared for is just as much a marker of inequality as being discriminated against.
In short, we would build a social infrastructure that allows people to care for one another, in the same way we provide the basic physical infrastructure that allows them to compete.
The blog princess is always somewhat mystified at demands that people value some-thing-or-other more than they already do. For what little this may be worth, she actually agrees that the world would be a far better place if people valued caregiving more.
But the progressive answer to the valuation question always seems to require the use of government force (laws requiring employers to act in ways that are often inconsistent with staying in business, or laws that further disadvantage already-disadvantaged workers) combined with the forcible confiscation of income required to bridge the yawning gap between abstract theories of what people should want and how they should behave and the demonstrable ways they DO think and behave.
With an aging population and a growing number of mothers choosing to work, the caregiver field is likely to be a growth industry over the next decade or so. But the ugly truth here is that few skilled workers want to be caregivers (we'll skip the Princess's favorite rant about "Why don't more men rescue underachieving boys by going into teaching"). The pay is low because for the most part, only the least skilled workers are willing to take such jobs.
There is no "Department of Valuation" that decides these things - wages result from the individual cost/benefit calculations of millions of employers and employees.
Thinking that somehow, wishful thinking will cancel out all the very real considerations that go into these calculations is just delusional. But when logic is in short supply, there's always coercion.
November 20, 2013
Don't Know Much About Economics
Bryan Caplan has written a wonderful post on the frankly ludicrous economic ideas embedded in American history textbooks:
In 11th grade, I took Advanced Placement U.S. History. I enjoyed it at the time. Once I started studying economics, however, I was outraged by the economic illiteracy of my history textbooks. Mainstream historians barely mentioned the unprecedented miracle of sustained economic growth. Instead, they focused on distribution: How poor workers used labor unions and regulation to pry their fair share from the heartless capitalists who employed them. These historians never mentioned the negative side effects of unionization and labor market regulation - or even the view that such negative side effects existed.
Too good to even try to excerpt - read the whole thing.
September 24, 2013
The Old Normal
Quote of the day, from a list of tips for jobless grads:
That afraid feeling you have is never really going away. I hate to be the bearer of bad news, but folks who were raised in the Great Depression were kind of neurotic penny-pinchers who fretted about financial security far more than the prosperous generations before and after. (Ask your parents about the older relatives who collected tin foil and rubber bands in big balls so that you could reuse them. I kid you not. That was a Thing Grandparents Did when I was growing up.) The bad news is that I, too, am also an obsessive penny pincher -- after two years of massive job uncertainty, followed by more years of earning much less money than my student loans would suggest. The good news is that your fear will end up having surprising upsides: there’s a reason that the U.S. household savings rate peaked right along with the earnings of the Great Depression kids. When they retired, savings went off a cliff. So instead of letting your fear ride you, use it constructively, to make you thriftier and more careful.
The entire list was excellent, but these items in particular stood out:
You need to take a job, any job.
Don’t say you can’t work a lesser job because you won’t be able to focus on your job search.
In a bad labor market, the only way many of you are going to get a good job -- or get ahead -- is to ask.
Have more than one iron in the fire. The more options you’re pursuing, the more likely one of them is to turn into a job.
Let this open you up to things you’d never have considered. I had no plans to be a journalist; I stumbled into it. And if I’d had better-paying options, I might not have dared to take that job at the Economist...
The common thread in all of these tips is, "be flexible". Don't expect everything to go your way. Employers don't exist to help you find your dream job. They're focused on their own goals: providing a service and making money. Figure out what they're trying to do and help them do it better.
I'm always slightly amazed when I see various pundits lamenting "the new normal" in which people are forced to accept less than they wanted, don't end up in the field they hoped to work in, take a different path in life than the one they originally intended taking. That's not the new normal - it's the way our parents and grandparents and great grandparents did things.
We look back at the end of their lives and think, "Grandpa was a doctor", or "Mom was a nurse" and assume that's all there is. But if we were to ask them about the dreams they dreamed when they were young, I'd be surprised if most of them ended up exactly where they planned to be.
September 16, 2013
The Stability Bubble
Robert Samuelson offers an interesting perspective on Obama's "Blame Unregulated Markets and Evil/Greedy Bankers" explanation for the 2008 financial crisis. Unexpectedly (!), it turns out that these greedy bankers lost more of their own money when the housing bubble burst than other professionals did:
Take the popular notion that banks and investment banks (“Wall Street”) knowingly packaged bad home mortgages in securities that were then sold to unsuspecting investors. The bankers, the story goes, understood that there was a housing bubble — that prices would crash and defaults explode — but peddled bad loans because it made them rich.
Although this happened, it was the exception, not the rule. That’s the conclusion of a study by economists at the University of Michigan and Princeton. They reasoned that if the investment bankers packaging mortgages expected a housing collapse, they would have been careful in their own home purchases. So the economists compared the bankers’ home-buying with that of lawyers and stock analysts who lacked specialized housing knowledge. The study, published by the National Bureau of Economic Research, found that the bankers showed little “awareness of a housing bubble and impending crash.” During the boom, they bought larger homes and second homes. Compared to the lawyers and stock analysts, their housing purchases fared “significantly worse.”
What explains their lapse? Probably this: Before the real estate collapse, there was a widespread belief that housing prices would rise indefinitely, preventing (by definition) a bubble. We now know this belief was mistaken, stupid and suicidal. But for many, it was genuine. An earlier study by economists at the Boston Federal Reserve reached a similar conclusion.
We've written about skewed expectations many times but it's an important point, so allow us to flog that decease equine flesh a few more times. Before the crisis, American households were saving far too little and borrowing far too much.
The financial crisis was a much needed correction to a distorted market made possible by overleveraged overconsumption. "The way things used to be" was not just unhealthy - it was unsustainable. Instead of looking at bubble-based affluence as the solution, we should be looking at it as the problem.
People once thought the future was more stable and more predictable; now they fear it’s less stable and less predictable. Their behavior becomes more precautionary. For consumers and companies, there’s a greater bias against spending, lending, hiring and taking economic risks of any kind. The economy, though not crippled, isn’t invigorated either. With changed behavior, economic models based on past patterns frequently over-predict growth.
The second reason to reexamine the crisis involves policy. The “scoundrel” theory of causation suggests that, once defects in the economic system are identified, they can be rectified with “reforms.” The Dodd-Frank financial legislation reflects this philosophy. The true history of the crisis raises a larger problem. Success in stabilizing the economy in the short run fostered greater long-run instability. What are the limits to stabilization policy? Might more short-term upsets minimize long-term calamities? Economists should be wrestling with these and other hard questions. They aren’t.
More and more, I'm becoming convinced that even the smartest people aren't terribly rational. As a homeowner, I can remember thinking back in 1983 when we bought our first home that we were in a housing bubble. It's not as though there was any shortage of predictions that the era of continually rising housing prices could not last forever.
Prices are signals. So are market fluctuations. Economic policies whose explicit goal is to distort or entirely block those signals produce a false sense of security that perversely magnifies the damage from the inevitable reckoning with reality:
Prices operate as signals in a free marketplace, efficiently allocating goods to those who want them and are able to pay for them. Few Americans would accept the proposition that we don't need information to make intelligent decisions and yet too many Americans buy off on the notion that markets will operate efficiently if the federal government restricts the free flow of information between consumers and producers.
It's almost as though we were living in an alternative universe where reality is kept strictly at arm's length.
We never learn.
July 02, 2013
Where the Jobs Are
This isn't surprising, given the combination of massive public investments and changing demographics:
In the last ten years, job growth in America's non-health-care economy has been dreadful. Just 2.1 percent total -- or barely 0.2 percent per year. (Yes, that's point-two percent annual growth.) In that time, the U.S. health care sector has grown more than ten-times faster than the rest of the economy, adding 2.6 million jobs.
The 20 year trend is even more impressive.