Tuesday, March 22, 2011


I cannot resist joining the chorus of linkers to news of this major theoretical breakthrough.

Saturday, March 19, 2011

Saturn fly-by video

Tuesday, March 15, 2011

Diagnosis and literacy

Here's another excellent site for diagnosing common diseases. On the other hand, a lot of people aren't all that literate, so for them a doctor could add more value:
A 2006 study by the U.S. Department of Education found that 36 percent of adults have only basic or below-basic skills for dealing with health material. This means that 90 million Americans can understand discharge instructions written only at a fifth-grade level or lower. About 52 percent had intermediate skills: They could figure out what time a medication should be taken if the label says "take two hours after eating," while the remaining 12 percent were deemed proficient because they could search a complex document and find the information necessary to define a medical term.
I found this quote via Arnold Kling, who advises ignoring health insurance and improving literacy to improve health outcomes.

Monday, March 14, 2011

Pessimism on pilot programs

The context is health care reform:
Here’s the problem. Both in health care and in education we have lots of examples of low-cost, high quality service. As in other bureaucratic systems around the world, excellence exists, and it’s often known about, acknowledged and even studied. It also tends to have three characteristics: (1) islands of excellence spring up in a sea of mediocrity and they tend to be distributed randomly—they’re not correlated with anything; (2) they almost always exist because of the effort, ingenuity, enthusiasm, energy, and vision of a few people involved in actual production, and almost never are the result of anything that’s happening on the demand side of the market; and (3) (most importantly) they tend not to have any objective characteristics that anyone else can copy.
I agree, and think of the issue in terms of Baumol's cost disease. To a first-order approximation, artisanal industries never increase their labor productivity until they are industrialized. The population-to-doctor ratio is about 390:1 in the US. It's about 300:1 in Europe, whose health care systems are admired by many in America. (On the other hand, doctors in Europe aren't paid as much.) Somalia has a 25,000:1 ratio; can they teach us about efficiency? The population-to-doctor ratio was about 700:1 in colonial America. In contrast, we went from most colonial Americans working on farms to less than 2% of Americans even living on farms today.

You might argue that a doctor that saved your life by prescribing you antibiotics was a lot more productive than a doctor that prescribed leeches to your distant ancestor. However, the modern doctor's value-added was merely his diagnosis of bacterial disease. Most literate people with an internet connection could diagnose most instances of dangerous bacterial disease, so the value-added was probably close to value of the patient's time saved by going to the doctor instead of the internet: small or negative. Some medical diagnoses are much more valuable, but keep in mind that doctors' wages, nurses' wages, and medical lab costs have increased a lot since colonial times.

And doctors still aren't that great at diagnosis. Like Alex Tabarrok, I would prefer to be diagnosed by a computer. Until I am diagnosed by a computer, I don't expect health care costs to get under control. Until my students are taught by a computer, I don't expect education costs to get under control. There are ways to achieve cost control without AI, but they are not going to happen.

Remember: Recovery from the Great Depression was not due to fiscal stimulus; it was due to devaluing the dollar relative to gold.

Thursday, March 10, 2011

Pyramid schemes?

Sadly, Karl Smith seems to agree with Matt Yglesias that 401(k)s are as much pyramid schemes as Social Security:
The core issue, that Matt hints at, is that having an equity stake in the America’s future capital is not somehow more fundamentally sound than having an equity stake in America’s future labor.

International capital flows could mitigate this somewhat by allowing American corporations to seek out opportunities in other countries the drive down in the real rate of return could be avoided. However, at the same time international labor flows could solve the Social Security problem.

Or, Americans workers could just invest more in foreign corporations. Through Social Security, I have a claim on future American payroll tax revenue, but US GDP is roughly 1/5 of world GDP. Therefore, I have internationally diversified my individual retirement savings and other investments. If investing in the world economy is a pyramid scheme, then at least it's the biggest pyramid scheme available.

Alas, the Social Security Administration has yet to diversify; it only buys treasuries. Worse, most of my Social Security taxes aren't invested at all; they're used to pay current retirees (and, to a much smaller extent, pay the disabled, widows, etc.). Thus, even if the SSA is never abolished/privatized, a huge improvement would be to slowly diversify its $2.6T accumulated surplus (the "Trust Fund"). Hey, inflation is below-target, right? The Fed could start buying the SSA's treasuries, and the SSA could start buying equities. Another huge improvement would be to transition away from pay-as-you-go, but that transition would be a huge one-time cost---probably in the form of payroll tax increases. For the moment, monetizing the Trust Fund looks like an easier sell.

Friday, March 04, 2011

Educators' value added

International comparison: Crude demographic disaggregation suggests that American schools add more value than Western European schools.

Interstate comparison: A similar disaggregation suggests that Texas schools add more value than Wisconsin schools.