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Nobody Really Cares About Inequality

At least as it’s measured by statistics.


Here’s an argument I have heard multiple times from people on the left side of things: yes, this policy may shave half a percentage point or so from the growth rate, but do people want to be a few percent richer if they have to live in a more unequal society?

If this was true, then why is there nobody on the Left celebrating the last few years? They could even hail Obama as a great leftist: for the moderate price of a less than a percentage points of GDP growth (growth just below 2% instead of just above it), inequality is coming down. Seriously, has anybody actually stood up and said this economy is what we’ve been fighting for? Without too much searching, I think the answer is No.

In abstract, sacrificing just a few percentage points of GDP sounds easy. In practice, it’s actually pretty nasty.


Do people want to be a few percent richer if they have to live in a more unequal society? Yes.


Europhilia in the Republican Party

Herman Cain wants to make the US tax code more like a typical European country (i.e., less progressive, broad base, more consumption based). I agree with this.

Rick Perry’s fascination with a model of strong states and a weak, mostly coordinating, centre could have as its model, the European Union. Even the hard money advocates, like Perry and Boehner, could be interpreted as saying “we want the Fed to be more like the ECB”.

I have to conclude that there is an undercurrent of closet europhilia in the Republican Party.



We’re not just a specialist society, but also a very meta society.


Beira Project Fundraiser

One of my projects, the Beira Project, is holding its annual fundraiser next week-end (September 3, in Pittsburgh).

It will be a great party and for a great cause.

If you happen to live in Pittsburgh, be sure to stop by. Of course, you can always just donate online.

Hope to see you all there next week.


Can the US Government say NO to health care spending?

Ezra Klein has the liberal work argument for single-payer healthcare. If I may borrow a phrase from Megan McArdle, it falls for the immaculate negotiation argument. Here’s how I think Ezra imagines negociations would go:

Gov Official: Your drug is too expensive.
Pharma: It costs us a lot to develop, we need to charge 100 for it.
Gov Official: 50.
Pharma: No, we cannot sell it this cheap. How about 95?
Gov Official: Nope, it’s either 50 or nothing.
Pharma (grumbling): Ok, 50, but we’re not happy.

Here’s how I think they’ll go:

Gov Official: Your drug is too expensive.
Pharma: It costs us a lot to develop, we need to charge 100 for it.
Gov Official: 50.
Pharma: Let us think about it.

Pharma leaks a story about government death panels putting a value of life. Some congressman are asked about it my a news station friendly to the opposition party. A bipartisan effort is made to care for the needy.

Pharma: We thought about it and it’s still 100.
Gov Official: Ok.
Pharma: Next year, we’ll have a cost of living increase. It’ll be 110.
Gov Official: Let us think about it.
Pharma: Maybe this should a public discussion.
Gov Official: No need, 110 is very fair.

Your ability to negociate is exactly defined by your ability to walk away. In many of these cases, there is no way that the government will walk away. If anything, it’s the providers who routinely threaten to walk away from Medicare!

What do you think that doctors and patients would feel and do if there was a guideline for what fraction of a doctors Medicare cases could be prescribed brand-name medication or referred to specialists? The reason that the US government doesn’t do this now is because people don’t want it to do it. In other countries, the general population accepts this (in large measure because the richer, more educated, population who would protest is the one who ends up getting those brand-name medications and expensive procedures).

One of the most irritating things about the health care debate from the liberal side is that they propose often very sensible ideas, but then fail to actually argue that it should be done, saying they’ll press for them in 2016 if only you agree to spend a few billion dollars now.

Two weeks ago, as the FDA revoked the license for Avastin for breast cancer as evidence mounted that it is ineffective and it may even be detrimental. Medicare immediately announced it would continue covering it at full cost! What is stopping Medicare from taking advantage of this long-hanging fruit: stop paying for a very expensive treatment that probably makes people worse. It could do it now. There will be a backlash, sure; why won’t there be one in 2016?


Cheating and Incentives

A pretty good article on cheating at a business school (and, at least all anecdotal evidence I have, supports the hypothesis that business majors cheat a lot more than anybody else).

I bet that most business schools have some ethics guidelines and lectures. I also bet that most of them teach basic econ and that incentives matter. They either don’t believe the incentive theory or the ethics statements, because they then refrain from properly punishing cheaters.


Efficient Markets

The efficient market hypothesis (EMH) is one of those subjects one which there are basically two views:

1. It’s obviously true.
2. It’s obviously false.

People that claim (1) mean that markets are the best predictors of the future. People that claim (2) mean that markets are not perfect predictors; they are often wrong. The two are not incompatible and are in fact both obviously true.

As a general rule, you cannot beat markets as they make the very best prediction that is humanly possible with current knowledge and technology; still, the very best prediction is still often wrong.


Security Theatre

The guy in front of me just went through security with a crummy photocopy of his ID.

If this is theatre, it’s bad theatre; in good theatre, the actors at least pretend to care for the enterprise.


Markets Attack Italy

It’s interesting that the language is always active, whilst the greatest fear is not that markets do something (whatever that means), but that, a country stages an auction and nobody shows up to bid.

There is a bit of a teenage girl feel to this. You know, the bitchy girl with an attitude throws a party, nobody cares to come because they are doing something better and she spends a month arguing that everyone ganged up on her.

I wonder whether people’s views would be different if the phrasing was more along the lines of “nobody is buying Italian sovereign debt.” “Italy throws an auction and nobody shows up.”

(Yes, I know you can often bet on the other side, actively shorting a bond; but it still wouldn’t matter if people showed up at your auction.)