Friday, October 30, 2009

An Interesting if Incomplete Narrative on Income Inequality

From Arnold Kling:

"I think that perhaps the most important trend of the past thirty years is the increased importance of cognitive skills relative to physical labor. Obviously, this has been going on for more than just the past thirty years, but during the past thirty years we saw an acceleration. This has had a number of consequences:

1. It changed the role of women. Their comparative advantage went from housework to market work.

2. This in turn, as Wolfers and Stevenson have pointed out, changed the nature of marriage. Men and women look for complementarity in consumption rather than in production.

3. This in turn leads to more assortive mating, with achievement-oriented men looking for interesting mates rather than for good maids.

4. This in turn leads to greater inequality across households. It also fosters greater inequality among children. The children of two affluent parents are likely to have much better genetic and environmental endowments than the children of two (likely unmarried) low-income parents.

5. Inequality is exacerbated by globalization and technological change. If your comparative advantage is basic physical labor, you have to compete with machines as well is with workers from the Third World.

The net result is an economy that has improved considerably for people with high cognitive skills, but which has improved only somewhat for people with relatively low cognitive skills."

There is one thing that this narrative leaves out: the top 1%. It does seem that when you are looking at that top 1%, which has been pulling away from the rest of the population, I think you see two trends: 1) a greater return for entrepreneurs as a result of lower startup costs and easier access to capital (a positive development); 2) eroding social norms relating to CEO pay generally and the finance industry as a whole thus enabling CEO/finance to extract greater rents from shareholders.

Wednesday, October 28, 2009

UAW's Game Plan

Labor is its own worst enemy. The UAW membership are killing a plan that their leadership negotiated with Ford management that was more generous than they obtained from Chrysler and GM (courtesy of Uncle Sam and their respective perverted and politicized bankruptcies). While Ford seems to be turning around and has a decent cash cushion, it also has a pile of debt and a decreasing though still significant burn rate. This seems quite foolish on the UAW's part. If Ford continues to be at a labor induced competitive disadvantage (compared to non-UAW manufacturers and now Chrysler/GM which are partially owned by the UAW) chapter 11 is likely in its future. There is a greater likelihood by that time that some entity other than Uncle Sam will be able to provide Debtor-in-Possession financing in which case it is unlikely that the bankruptcy proceedings will be tilted to the UAW's benefit as much as they were for GM and Chrysler.

Monday, October 26, 2009

Cowen on Mandates

Tyler Cowen has an article on the problem with the individual mandate. I think his point is valid but without a mandate you have a significant free rider issue. I have been going back and forth on which is better: buying across state lines or setting up a national exchange. The principal concern I have with a national exchange is that it will increase the prospect of regulatory capture by the AMA. If it is the only means of purchasing health care there is a risk that doctors will lobby congress to mandate benefits ultimately causing an increase in premiums. That said, a national exchange is better equipped to deal adverse selection since you could conduct an ex post risk adjustment on all providers on the exchange to ensure that insurers do not select only good risks.

Zingales on Gramm-Leach-Biley

Here is an interesting observation from Zingales:

"The real effect of Gramm-Leach-Bliley was political, not directly economic. Under the old regime, commercial banks, investment banks, and insurance companies had different agendas, and so their lobbying efforts tended to offset one another. But after the restrictions were lifted, the interests of all the major players in the financial industry became aligned, giving the industry disproportionate power in shaping the political agenda."

hat tip:
Arnold Kling


Tuesday, October 13, 2009

My Prediction on Health Care

I think the bill will ultimately die. I think once it gets to the floor the amendment process will yield more extensive coverage benefits, reduced medicare cuts, and weakened pay-fors causing the bill to collapse in on itself.

Monday, October 12, 2009

Watching the VA Gov Debate

McDonnell seems like a car salesman but I think he will win. Deeds stutters. This is a fundamentally trivial observation but given that the average voter is completely arbitrary I think it is something that will cut against deeds at the ballot box.

Friday, October 09, 2009

Obama on the Nobel Prize

While I think this whole deal is absurd, I am always impressed at how classy Obama is. Here is the transcript:

Good morning. Well, this is not how I expected to wake up this morning. After I received the news, Malia walked in and said, "Daddy, you won the Nobel Peace Prize, and it is Bo's birthday!" And then Sasha added, "Plus, we have a three-day weekend coming up." So it's good to have kids to keep things in perspective.

I am both surprised and deeply humbled by the decision of the Nobel Committee. Let me be clear: I do not view it as a recognition of my own accomplishments, but rather as an affirmation of American leadership on behalf of aspirations held by people in all nations.

To be honest, I do not feel that I deserve to be in the company of so many of the transformative figures who've been honored by this prize -- men and women who've inspired me and inspired the entire world through their courageous pursuit of peace.

But I also know that this prize reflects the kind of world that those men and women, and all Americans, want to build -- a world that gives life to the promise of our founding documents. And I know that throughout history, the Nobel Peace Prize has not just been used to honor specific achievement; it's also been used as a means to give momentum to a set of causes. And that is why I will accept this award as a call to action -- a call for all nations to confront the common challenges of the 21st century.

These challenges can't be met by any one leader or any one nation. And that's why my administration has worked to establish a new era of engagement in which all nations must take responsibility for the world we seek. We cannot tolerate a world in which nuclear weapons spread to more nations and in which the terror of a nuclear holocaust endangers more people. And that's why we've begun to take concrete steps to pursue a world without nuclear weapons, because all nations have the right to pursue peaceful nuclear power, but all nations have the responsibility to demonstrate their peaceful intentions.

We cannot accept the growing threat posed by climate change, which could forever damage the world that we pass on to our children -- sowing conflict and famine; destroying coastlines and emptying cities. And that's why all nations must now accept their share of responsibility for transforming the way that we use energy. We can't allow the differences between peoples to define the way that we see one another, and that's why we must pursue a new beginning among people of different faiths and races and religions; one based upon mutual interest and mutual respect.

And we must all do our part to resolve those conflicts that have caused so much pain and hardship over so many years, and that effort must include an unwavering commitment that finally realizes that the rights of all Israelis and Palestinians to live in peace and security in nations of their own.

We can't accept a world in which more people are denied opportunity and dignity that all people yearn for -- the ability to get an education and make a decent living; the security that you won't have to live in fear of disease or violence without hope for the future.

And even as we strive to seek a world in which conflicts are resolved peacefully and prosperity is widely shared, we have to confront the world as we know it today.

I am the commander-in-chief of a country that's responsible for ending a war and working in another theater to confront a ruthless adversary that directly threatens the American people and our allies. I'm also aware that we are dealing with the impact of a global economic crisis that has left millions of Americans looking for work. These are concerns that I confront every day on behalf of the American people.

Some of the work confronting us will not be completed during my presidency. Some, like the elimination of nuclear weapons, may not be completed in my lifetime. But I know these challenges can be met so long as it's recognized that they will not be met by one person or one nation alone. This award is not simply about the efforts of my administration -- it's about the courageous efforts of people around the world.

And that's why this award must be shared with everyone who strives for justice and dignity -- for the young woman who marches silently in the streets on behalf of her right to be heard even in the face of beatings and bullets; for the leader imprisoned in her own home because she refuses to abandon her commitment to democracy; for the soldier who sacrificed through tour after tour of duty on behalf of someone half a world away; and for all those men and women across the world who sacrifice their safety and their freedom and sometime their lives for the cause of peace.

That has always been the cause of America. That's why the world has always looked to America. And that's why I believe America will continue to lead. Thank you very much.

FHA Bailout


It looks like the FHA will require a bailout. Here is a chart detailing their delinquencies.

Nobel Peace Prize

Barack Obama won. I think he won because he is not George Bush. I suspect that the American voter was the original intended recipient until somebody in the Nobel Committee realized that George Bush was term limited.

Update: Maybe he is getting the Nobel for sending more troops to Afghanistan?

Update 2: Some will point out that when Obama was nominated that he had only been in office for 12 days. Well, maybe those were a very eventful 12 days?

Update 3: Mickey Kaus has a novel suggestion: decline it.

Thursday, October 08, 2009

Other People's Money

The graph above is very telling. Over the last thirty years out of pocket spending has fallen precipitously. In this same period health care expenditures have risen tremendously. The reason I focus on out of pocket spending is that it's absence is illustrative of two major definciencies in the health care system:

1. Administrative Inefficiency (at an absurd level): Adding third and fourth parties to a transaction typically raises the cost of said transaction

2. Perverse Incentives: When you are spending other people's money you are more prone to waste. In the health care context this is the equivalent of ordering expensive tests with limited value, brand name drugs were generic drugs are adequate, etc.