Pursuit of Truthiness

my gut tells me I know economics

Archive for the ‘Economics’ Category

Want single-payer? Figure out how to fix Medicare.

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The biggest barrier to single-payer in the US, other than politics, is the inefficiency of Medicare. Medicare alone spends more than $2000 per American but only manages to cover 14% of us. Yes, they are a particularly costly 14%- but some governments, like Greece and Portugal, manage to cover 100% of their population by spending similar amounts.

Medicaid spends just under $2000 per American and manages to cover 20% of the population. Together our two big government health programs spend about $4000 per American and cover 34% of the population. Almost every country with universal coverage manages to achieve it while their government spends less than $4000 per person.

This means that Medicare and Medicaid are collectively either 3 times better, or 3 times more inefficient, than the government health programs in other rich countries. Which do you think it is?

The problem isn’t that American taxpayers aren’t willing to finance universal coverage. The problem is that they already pay enough for a competent government to bring about universal coverage, but our government does not seem to qualify.

Written by James Bailey

March 1, 2017 at 11:11 pm

Pope Francis and Economics: A Partial Reconciliation

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It is always easiest to evaluate the views of others by fitting them into pre-existing categories. When Pope Francis released his first encyclical, Evangelii Gaudium, many people pegged him as saying “left-wing economics good, free markets bad”. This lead to celebrations on the left and denunciations on the right. Some thought him to be showing ignorance of, or even Pope Paul V vs Galileo style hostility to, economic science.

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After actually reading much of the encyclical, I found it much more nuanced. In particular, the Pope seems to be deeply ambivalent about the welfare state, warning of those who exploit the poor for their own political interest. He would much prefer that people earn a living through work:

“Welfare projects, which meet certain urgent needs, should be considered merely temporary responses”

“it is through free, creative, participatory and mutually supportive labour that human beings express and enhance the dignity of their lives”

Of course, he does want these workers to be earning a “just wage”. While many readers will assume this implies a government-mandated minimum wage, Francis doesn’t go there; one could just as well expect that he is encouraging just wages through increased human capital, tax credits, employer generosity, or something else.

He is generally supportive of private property and business:

“The private ownership of goods is justified by the need to protect and increase them, so that they can better serve the common good”

“Business is a vocation, and a noble vocation, provided that those engaged in it see themselves challenged by a greater meaning in life; this will enable them truly to serve the common good by striving to increase the goods of this world and to make them more accessible to all.”

Like many on the left, the Pope is worried about inequality. But his reason for worry isn’t really about the distribution of material goods, so much as the social distance that economic inequality can create:

“the worst discrimination which the poor suffer is the lack of
spiritual care”

“No one must say that they cannot be close to the poor because their own
lifestyle demands more attention to other areas. This is an excuse commonly heard
in academic, business or professional, and even ecclesial circles”

For those worried about his Argentine background:

“I am far from proposing an irresponsible populism.”

He concedes a role for science in figuring out how best to do all this, though it does sound like he wants to make economics oikonomia again:

“Economy, as the very word indicates, should be the art of achieving a fitting management of our common home, which is the world as a whole.”

In any hundred page document, it can be too easy to cherry-pick quotes. Indeed this is what I have done here, if only to balance the much larger number of pieces that cherry-picked the quotes that seem to be from another side. But real people are usually more complex than a one-dimensional political spectrum.

Written by James Bailey

April 15, 2016 at 4:56 pm

Mad Economists

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Who is the closest person out there to being a “mad economist”, in the sense of a mad scientist?

I have a hard time thinking of anyone who really qualifies. I think this is because mad scientists do practical things that directly affect the real world- either by building crazy things (death ray, killer robot, 5 assed baboon, et c), or by using crazy methods for research (harming human/animal subjects, making their base underwater/ in an active volcano / on the moon).

Economists tend to be bound to relatively boring methods (doing math on a chalkboard or analyzing data on a computer) that lead to relatively boring outcomes (writing papers that expand our understanding of the world a bit and possibly tell policymakers what to do).

The recent trend toward lab and field experiments in economics certainly expands the possibilities for madness. Prisoners’ Dilemma experiments are a nice touch here, especially when someone decided to run them with actual prisoners. The Phillips machine was a fun one-off. But I can’t think of anything that rises to the level of psychology’s Milgram Experiment, much less the things that have been done in the “real” sciences of biology, chemistry and physics.

Occasionally economists get some power within companies, or start their own. But coming up with a new strategy for a hedge fund or designing auctions for Google doesn’t really get into “madness” territory either. Economists are forever telling the government what to do, but rarely get listened to. During total war they have been vested with lots of power over the economy, though I haven’t heard of any particularly crazy things they did with this power. Levitt’s long con to catch terrorists was a nice touch. Armen Alchian used economics to discover that lithium was the moderator for the atomic bomb, but his only plan to use that information was to write a paper about it, and he abandoned even that at the request of the government.

Image result for dr horrible

But is there anything an economist has done that rises to the level of a Tesla, Mengele, Musk, or TunaPig? Anything an economist might do that could match a single invention of Drs Kreiger, Evil, or Horrible?

Marx? GiveDirectly founders? Shleifer? Jeff Sachs?

In general, PhD economists (myself certainly included) are too much thinkers rather than doers. The closest people we have to mad economists are probably people who learned some undergraduate economics, then went out to change the world- people like Elon Musk or Dread Pirate Roberts.

Who am I forgetting? What would a real mad economist look like?

Written by James Bailey

January 18, 2016 at 6:42 pm

Craft-Beer-O-Nomics

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A new article in the Journal of Wine Economics gives an informative and interesting history of beer in the United States, with a special focus on craft beer. While they do some statistical analysis at the end, most of the article tells a story that everyone should be able to understand. I could give you the basics of the story but I think their graphs do that best:

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We have gone from the dark ages of 1979 when Americans only drank Bud and Miller to the amazing variety of beer available today. Check out the article for stories of the people behind the craft beer revolution, and for an attempt to explain why it happened and why it happened in the states where it did.

Written by James Bailey

January 6, 2016 at 4:37 pm

Took our jobs, took our businesses? American entrepreneurs and immigration.

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Just about everyone has heard something of the debate over how immigrants affect the jobs and wages of natives. The general consensus in economics is that immigration has neutral to positive effects on the average native. This can happen because immigrants aren’t just substitutes for the native labor supply- they can also be complements for native labor, and their consumption increases the demand for American goods. Much ink has been spilled over the remaining contentious point of whether any major group of natives is harmed even if most Americans aren’t, with Borjas and some others finding that low skilled Americans see a slight wage decline, and Peri and others arguing they don’t.

One often-cited reason that immigration can benefit natives is that immigrant entrepreneurs start businesses that end up hiring Americans. But this point relies on one crucial assumption- that the immigrant-founded businesses aren’t simply displacing native-founded ones. While there has been a huge body of research on whether immigrants take American jobs and wages or not, there has been drastically less written on whether immigrants “take” American businesses. Perhaps immigrants willing to accept lower profits push out native businesses.

Keshar Ghimire, an economics PhD candidate at Temple University, answers the question in his innovative job market paper. A straightforward way to go about this would be to see whether states with more immigrant-founded businesses have fewer native ones. Keshar does this and finds that states with more immigrant-founded businesses actually have more native ones. But, he argues, this may simply be because some states are better for business and so attract both types of entrepreneurs, rather than immigrant entrepreneurs actually causing natives to start businesses.

To determine the real effect of immigrant businesses on native ones, he needs to find a change in the number of immigrant entrepreneurs in a state that wasn’t just caused by changing business conditions affecting everyone; it should be something that only affected immigrants. He finds such a change following the 1996 welfare reform. The national reform largely removed immigrants from eligibility for welfare. But 15 “generous” states allowed immigrants access to the new State Children’s Health Insurance Program (S-CHIP), which provides insurance for children whose families have relatively low income but who are too wealthy to qualify for Medicaid. Keshar finds that these states got a huge 22% increase in immigrant entrepreneurship. While my own work shows that health insurance isn’t always a barrier to entrepreneurship, one good study found that Medicare leads to a similar increase, so I find this plausible.

So what happened to native entrepreneurs in the 15 states that got this big influx of immigrant entrepreneurs? Keshar finds that they were not scared off. There was no change in the amount of unincorporated businesses owned by natives in these states relative to the others. The number of natives with incorporated businesses actually went up- so much that every two new immigrant businesses lead to one new native business. It turns out that just like workers, businesses can complement each other rather than only compete.

In sum, more immigrant entrepreneurship actually attracts native entrepreneurs rather than scares them away. I hope that this finding will make it in front of states considering S-CHIP eligibility, and in front of the US Congress debating immigration- especially on whether we should create a “founder visa” easing the way in for those who plan to start businesses, as some other countries have.

Written by James Bailey

December 17, 2015 at 1:04 pm

Open Borders and the Welfare State: Must We Choose?

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“You can’t have both open borders and a welfare state” –Milton Friedman

Friedman’s concern is that immigrants are disproportionately poor, and would overwhelm the resources of the welfare state.

Friedman’s dictum has been widely accepted across the political spectrum. Modern liberals might like to have both open borders and a welfare state, but have settled for just a welfare state, partly out of this concern. Conservatives have used the trade-off to argue against both immigration and the welfare state, though neither is a goal many hold dear these days. A few people, mostly libertarians, actually want open borders and see the trade-off as an argument against the welfare state- noting that the welfare state isn’t really pro-poor if it supports the relatively rich first-world poor while keeping others trapped in third-world poverty.

But I haven’t seen many people question Friedman’s welfare/immigration trade-off in principle, except for open borders advocates noting that immigrants can be legally excluded from welfare (in fact to some extent they already are in the US).

But consider the United States- we have open borders within the country, from Maine to Hawaii. US welfare programs are largely administered at the state and local level, and the generosity of these programs varies widely (see Medicaid expansion, for instance). I’ve been all over the US, and I’ve heard many people complain about welfare being too generous, and worry about immigrants coming here just to get on welfare. But I can’t say I’ve ever heard someone complaining about people migrating from other US states to get on welfare in their state, even in a relatively generous state like New York or California.

Am I just living in a bubble, or do people really never worry about this? And if so, what does this imply for the Friedman immigration/welfare trade-off?

Written by James Bailey

November 7, 2015 at 6:45 pm

Regulating Away Competition

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People have long wanted to know (or thought they knew) the extent to which regulation hurts business. Diana Thomas and I tackle this question: the paper is here, or see our US News op-ed for a summary.

An even briefer summary:

New data on the Code of Federal Regulations finally allows us to figure out its impact. It looks like regulation stops potential entrepreneurs from starting new businesses, but doesn’t really drive existing firms out of business- and might actually help the biggest businesses.
Regulation is not so much govt vs business, as govt and big business vs entrepreneurs and job seekers.

Written by James Bailey

September 14, 2015 at 2:23 pm