Paul Blustein on the Misadventures of the Most Favored Nations

"Clashing Egos, Inflated Ambitions, and the Great Shambles of the World Trading System"
That's the subtitle of Paul Blustein's book, Misadventures of the Most Favored Nations. How can one not want to pick up a book with that title/subtitle?!

The Washington Post says, "Blustein has thoroughly mastered the craft of breathing life into intrinsically dull material with compelling thematic narrative and delicious character studies." Delicious, indeed.

Paul Blustein came to Georgetown Law today to talk about his book, and it was so fun! He read some pages from his book and at one point he pretended to be an army guy yelling at trade representatives.
Apparently, Americans attending the Doha round were given the password "paging Mr. Black," which meant that there was a terrorist threat and all Americans had to evacuate so they could be taken to navy ships nearby. (To hell with the reps from other countries, right? Haha.)

Blustein talked about the frustrations of different countries during multilateral trade rounds like Doha, and the challenges that must be overcome when negotiating a deal between parties with disparate views and priorities. Towards the end of his lecture, Blustein said he felt that a moratorium should be placed on bilateral trade agreements because they draw attention away from multilateral processes.
I thought this was an interesting statement for him to make since he had spent so much time talking about the doomed nature of multilateral trade rounds. If multilateral rounds are so ineffective, isn't the opportunity cost of focusing on bilateral trade agreements insignificant? Why not focus on the pareto improvements that could be made through bilateral trade agreements rather than those that will never be made through multilateral agreements?
Blustein clarified: Although the WTO has its flaws, countries need to preserve this organization that has done so much to prevent trade wars (through its dispute settlement system). When countries start shifting toward bilateral agreements, there is less of an incentive for them to pursue/cooperate in multilateral agreements that can lead to more benefits at the margin. (He explained all of this much more eloquently that I have...)

I agree that countries need to start thinking about themselves as part of a global community, and not just the European community, or the East Asian community, etc. Like Lant Pritchett said, we need to stop having these "imaginary communities."

The Washington Post says, "Blustein leaves the book's punch line until its final section: The benefits of free trade have been grossly oversold. By the WTO's own accounting, even the utopian elimination of all tariffs would boost world GDP by less than a half-percent, with most of that benefit going to the wealthiest nations." However, it is difficult to swallow this idea after reading pieces like "Ricardo's Difficult Idea" by Paul Krugman.

A friend of Blustein argued that by claiming that the sky is falling, one is only doing more to catalyze the self-prophesied failure of the WTO. It's kind of like deflation - if people go around saying that there is the threat of deflation, even when there is none, we could end up in a deflationary death spiral like Japan's lost decade...

Related Links:
Blustein mentioned Smoot-Hawley at one point and it reminded me of the '93 debate where Gore gives Perot a framed picture of Smoot and Hawley and says, "I framed this so you can put it on your wall if you want to." Ha!

Professor Johnson used to do Ross Perot imitations. Those were fun. (Sigh, I miss Wellesley.)

Greg Mankiw blogged about VAT not too long ago.

In other news:
I'll be blogging about ridiculous things countries have done to discriminate against certain imports. (Are all cows the same?! Are all sardines the same?! What exactly is a "like good?")

Filling out paperwork for my retirement account and health insurance has made me even more depressed about turning 22 this week...Melky Cabrera is only 3 years older than I am and he plays on the best baseball team EVER, AND he has crater like dimples. How am I supposed to beat that?!

Anyway, time for sleep. Tomorrow's Thursday - my favorite day of the week! (b/c I get to go to International Trade and get out of work knowing that the next day is Friday...but I assure you, Friday is not my favorite day of the week. My favorite day of the week is Thursday.)

Racism and Religionomics.

I had a conversation with a man who reminded me of a real life Michael Scott. And not in a good way.
Here's how it went.

Me: Hello. Can I help you?
----: Oh, my. What a cute voice you have. You're so cute. You must be brand new.
Me: Well, I just started 2 weeks ago...
----: Well, you're brand new and squeaky clean, aren't you?
Me (in my head): Well, I did take a shower this morning, but he doesn't know that...
----: I'm looking for L----. Is she here today?
Me: Yes, but I'm not sure where she is right now.

A little while later.
----: L----, isn't she nice? (points toward me) What's your name?
Me: Esther.
----: Oh, cmon. That's not your real name.
Me: My real name?
----: Is it?
Me: Uhh, yeah...
----: Where did you go to school?
Me: Wellesley.
----: (laughs) Oh, well I went to Babson. I know you Wellesley girls, with your noses in the air. Who did you date in college?
Me: No one. My econ textbooks. If we have our noses in the air, it's with good reason.
----: You probably only dated Harvard men, isn't that right?

WTF. Does he SERIOUSLY wonder why Wellesley girls wouldn't go out with him? I'm pretty sure it's not because he went to Babson...


Anyway, I've been feeling sick and went to bed at 7pm last night thinking that I would wake up in an hour or so. I ended up waking up at 9am the next morning. Haha. WIN.

I've been reading Brothers Karamazov, which I love love love. I just finished reading "Rebellion," a chapter in the book that makes one of the strongest arguments against the existence of God. (according to people who know way more lit than I do...) I will probably still go to church tomorrow and ask God to make sure I don't get H1N1. (Thanks, God.)

In Development Econ, Professor Lucas once asked us to name examples of things that are correlated with GDP per capita where the causation only runs from GDP per capita to that something, and not vice versa. It's actually kind of difficult, no? My group's response was religion. We figured that as countries become wealthier, they place less importance on religion. However, religion does not really have an effect on GDP per capita. [Apparently, the U.S. is an outlier and is very religious for its level of wealth.]

Robert Barro has also studied religion in the context of economics. It was mentioned in Marginal Revolution here!

The Economist had a little something about Islam: here.

As Voltaire once wrote, s'il n'existait pas Dieu, il faudrait l'inventer. [In Bound Together, Nayan Chanda claims that Voltaire drank 80 cups of coffee a day at Le Procope, to which I say, eww.]

It was probably not a good idea for me to blog in a feverish state...I don't think this is a very coherent post.

OMGSH GUYS. I just googled "religion economics" and found a blog called RELIGIONOMICS. HAHAHAHA. How funny is that?!

I also found this article about economists and religion.

That's all for today. Is it a bad idea for me to try to make Phoenician honey biscuits while sick?

Prizes!

This year's Nobel Prize for Economics: Elinor Ostrom & Oliver E. Williamson

Peace prize went to Obama...
A few economists commented, "it's like giving a Nobel Prize to an economist who is going to write a good paper..."
Haha.

Sorkin Book Excerpt: "Too Big to Fail"

Sorkin Book Excerpt: "Too Big to Fail"

Can you imagine someone telling Geithner to get f*cked?!

Posted using ShareThis

The Marshmellow Test

A lesson on hyperbolic preferences.

New Yorker had an article about it here!

Diversions.

I finally have some time to blog! These past two weeks have been crazy. By the end of this week, I will have been on a bus/car for a total of 27 hours...
I picked out my apartment in Pentagon City and it's going to be awesome! It's pretty much across the street from the Pentagon City mall, Pentagon City metro station, Costco and a Mr. Smoothie. What more could a girl who does not drive ask for? Maybe a puppy...

Anyway, I linked you guys to Jenn's blog earlier. She wrote an awesome post about Chavez's impact on Venezuela. As promised, here is my post on expropriation and social institutions. (I promised Jenn it would be meaty...)

In ECON 333, we studied a paper called, "Why do some countries produce so much more output per worker than others?" by Robert E. Hall and Charles I. Jones. In this paper, Hall and Jones hypothesize that output per worker is affected by differences in social infrastructure across countries. They assume that social infrastructure is determined historically by location and other factors captured in part by language.

So, what exactly is "social infrastructure?" Unfortunately, social infrastructure is not easily quantifiable. However, Hall and Jones think that "the ideal measure of social infrastructure would quantify the wedge between the private return to productive activities and the social return to such activities. A good social infrastructure ensures that these returns are kept closely in line across the range of activities in an economy." Good social infrastructure protects people against "diversion." Diversion includes things like expropriation, corruption, etc.

Not surprisingly, Hall and Jones find that:
1) Differences in social infrastructure across countries cause large differences in capital accumulation, educational attainment, and productivity, and therefore large differences in income across countries.

One might argue that there is a feedback effect from output per worker to social infrastructure (i.e. high output per worker may lead to the creation of better social infrastructure). However, Hall and Jones control for this feedback by using instrumental variables.* This is explained in their last finding:
"The extent to which different countries have adopted different social infrastructures is partially related to the extent to which they have been influenced by Western Europe. Using distance from the equator and language data, we conclude that our finding that differences in social infrastructure cause large differences in income is robust to measurement error and endogeneity concerns."

Basically, Hall and Jones are saying that countries that have been influenced by Western Europe tend to have better social infrastructure and higher output per capita. They study a sample of 127 countries and give a nice table of different countries' productivity levels as ratios to U.S. values.

Here are some figures:
Canada: 0.941
U.K.: 0.727
Japan: 0.587
India: 0.086
China: 0.060
Zaire: 0.033
The average for 127 countries was 0.296 w/a standard deviation of 0.268.

Why is the quality of social infrastructure so different across countries? (UGH, my mom just pulled a white hair out of my head as I was typing...WTF. THAT HURT.)

Anyway, there are several theories that address the above question, but I think I'm going to need another blog post to write about Acemoglu, Johnson & Robinson, and Engerman & Sokoloff...

* Instrumental Variable:
Let's say we want to find the effect of "x" on "y." However, "x" is not quantifiable. So, we create an instrumental variable, "z," which is quantifiable. "z" affects "y" ONLY through "x." A bad instrumental variable affects "y" through other pathways.
For example,
x = total number of hours of TV watched
y = prevalence of autism in a city
z = amount of rainfall in that city

If we had no way of measuring the number of hours of TV watched in a city, but wanted to study its effect on the prevalence of autism, we could create instrumental variable "z," which is the amount of rainfall in that city.

More rain --> More kids stay indoors and watch TV --> higher prevalence of autism(?)

However, "z" is not a very good instrumental variable because you can make a pathway like this:

More rain --> More kids wear raincoats --> higher prevalence of autism(?)

Does all of that make sense?

OMGSHHH. I'm going to die laughing. I'm watching FRIENDS DVDs and my dad says, "Why do these people never look older? They're still so young!" I told him I was watching DVDs, and he said, "Oh okay. So they're old now, right?" Haha. LOVES IT.

Succexy (Like the song by Metric!)

I am no longer frictionally unemployed! YAYAYAYAY!

Thanks so so so much to friends who have helped me along the way! Could NOT have done it without you. I <3 you!!!

I'll be working at Georgetown Law/thinking about going to law school because it will be FREE.

Here is the awesome Professor with whom I will be working: John H. Jackon
I'll have a chance to go to his International Economic Law seminars/classes. YAY! I'm SUPER EXCITED.

AND I WILL HAVE HEALTH INSURANCE! YESSSS!

Please visit me in D.C. PLEASE?!

<3
ESJ

The Middle Finger of the South.

Hi! So I started writing this over the summer, but got distracted. Enjoy!

The Economist (a while ago): "Morton Marcus, a prominent local economist, calls [Indiana] 'the middle finger of the South thrust into the North.'"

Indiana is a rather dichotomous state. On July 21 and 22, the Indiana Office of Energy Development hosted an event called WIndiana. The conference focused on wind farming in Indiana, and according to the American Wind and Energy Association, "Indiana leads the nation in the growth of wind energy." On May 29th, Indiana celebrated the construction of Fowler Ridge Wind Farm, which will eventually produce 750 MW of wind energy (enough to power ~200,000 homes). However, only 2 out of 5 Dems in Indiana voted in favor of the climate change bill. The climate change bill is pretty flawed, but these Dems didn't oppose the climate change bill because of the $600 billion in forgone revenue (free permits vs. auctioned permits). They opposed the bill because they believed that stricter energy standards in Indiana would translate into a loss of jobs.

Indiana ranks 3rd in per capita consumption of coal (10.45 tons per year in 2007-2008) and approximately 94% of its electricity comes from coal. U.S. Rep. Joe Donnelly opposed the clean energy bill because he believed that Indiana's manufacturing sector would no longer be able to compete with those of China and India if stricter clean energy standards were imposed. In the face of such difficult times, the American Coalition for Clean Coal Electricity created this fabulous ad. I remember first hearing about this on Wait Wait...Don't Tell Me! Oh, such wonderful things I learn from Peter Sagal and Carl Kassel!

Anyway, I think America needs to quit whining/blaming foreign competition and up its game. Also, I think it's ironic that poorer countries are most adamantly opposed to clean energy standards even though they will be hit the hardest by climate change. Although, their opposition is more understandable. If you have to choose between food in your stomach and clean air in your lungs, you're going to choose food. Mmm....food. Lunch time! Peace out!

Also, I'm going to post about expropriation/nationalization next. And I think you should all read Jenn's post about Chavez to prepare yourselves!

News

Hi everyone! These past two weeks have been absolutely crazy, so I haven't had a chance to blog much...

However, a few tidbits from the news:
Taxpayers are realizing profits as big banks repay their loans. This article reminded me of the Resolution Trust Corporation from the S&L crisis.

The WTO ruled that the U.S. would face ~$300 million in annual sanctions as a result of illegal subsidies to U.S. cotton growers. WP article here. Hrm...does this remind anyone else of corn subsidies?! Corn subsidies and sugar tariffs also make it impossible for Brazil to export sugar cane based ethanol, which is more environmentally friendly than corn based ethanol. Boo. I imagine Professor Johnson shaking his fists angrily as he tells his students this...

Paul Krugman's reaction to Greg Mankiw's post on SAT scores here. I guess even grown ups have frienemies...haha.

Pieces on health care from Free Exchange and WP.

Going to meet Chanda for bubble tea now! She is leaving for Peking University tomorrow. I am 80% excited, and 20% sad. Chanda, NY will miss you! That's right. ALL OF NEW YORK WILL MISS YOU, ESPECIALLY ME!

<3
ESJ

LaRouchies

OMGSH guys, remember that time I got into a huge 2 hour argument with that guy outside my office from the LaRouche organization or whatever it's called?

Check this out!

So the argument that I had with the guy outside my office was about oil prices and speculation. LaRouchies were stopping people on the street and telling them that speculators were the reason oil prices were so high. When they stopped to tell me this, I asked, "have you considered reverse causality?"

I argued that speculators were perhaps betting on higher oil prices BECAUSE oil prices were rising. Maybe it's not the speculators who are driving prices up. Rather, it is our increased demand for oil that is driving oil prices up...

And then, of course, we got into an argument about whether climate change is real. They don't believe in climate change.
They also hate Britain.
I don't really know why...Britain has good scones. Mmmm. Scones...

Anyway, Susan, Anli and I wrote this in response to an ECON 321 [Money & Banking] p-set question. We mentioned oil speculation...

Financial asset markets often fail to exhibit the "law of demand" we learn in ECON 101, in which price increases lead to decreasing demand and increasing substitution. In these financial asset markets, however, rising asset prices actually cause higher demand and falling asset prices are a signal to sell. This failure of the "law of demand" in financial asset markets means that asset price movements feed upon themselves. Once they're going up, they continue to do so. As the Economist writes, "asset prices pull themselves up by their own bootstraps." But once there is a downturn, prices drop very quickly.
In the case of Lehman's collapse, one can argue that the reluctance of other financial institutions - BofA and Barclays - to buy Lehman, even at bargain prices, served as an indication that the government and other banks were losing faith in the financial system. After the collapse of Lehman, the prices of such debt instruments as MBSs and CDSs fell in price, further contributing to higher debt to asset rations for surviving banks. This led to a freeze-up in credit as surviving institutions tried to liquidate their balance sheets.
The market for oil and oil speculation is another example of the failure of the "law of demand." During the summer of 2008 [when I got into that argument with the LaRouchie!], many domestic consumers of oil complained that high prices were being driven by speculation. However, the Economist argued that in reality, high prices may have been driving speculation.

[To which the LaRouchies would say, "but how can we trust The Economist? it's from Britain!"]

GRE. GROSSLY RIDICULOUS EXAM.

As I bury myself in GRE books, I find myself daydreaming about grad school. Ugh, I really just want to go to school. On that note...

This post reminded me of Stuy, which is NOT a private school.

Correlation between income and SAT scores for this year. Greg Mankiw and I had the same reaction to this...
If only I could also sell millions of textbooks every year. Haha.

Jenn, Toby, do we really want to be professors? I'm convinced professors have the best lives...

Response from Professor Case! (Of the Case-Shiller Index)

Response from Professor Case @ Wellesley regarding Nami's question on my previous post:
Thanks, Professor!

Question: wait, what about this in america, now? http://www.calculatedriskblog.com/2009/08/research-on-homeownership-rate-through.html
from homeowners to renters?
explain plz

Response from Professor Case:

In 1989, Greg Mankiw and David Weil wrote a paper called "the baby boom the baby bust and the housing market." It made a big splash because it said the housing market would collapse in the U.S. during the 90's. He found a very strong correlation between household formation and house prices. Since the baby boomers were housed and the baby bust meant fewer households would be formed, he called for a big bust. Needless to say he was wrong. The 1990's and 2000's saw the biggest boom ever. I wrote a paper called "Land Prices and House Prices in the United States" published in an NBER volume edited by Jim Poterba some years ago, taking issue with Mankiw's result. I am attaching a copy. The real issue is how long will the boomers stay in their houses? I suspect they will stay a long time. They also buy houses like we buy cars...many own more than one. Consumer confidence is also not a strong predictor of behavior. Look at pages 40-45....Finally they forgot immigration....in the 1990 census we discovered about 10 million folks that we didn't know we had.... I also wrote the attached paper fpr Brookings

soooo

...contrary to what you read, there may no be such a big housing market effect...Quigley and I also find that falling house prices don't lower spending

Karl E. "Chip" Case

What Would Obama Do? And What Does Greg Mankiw Do?

South Korea just wrapped up its free trade agreement with India. WSJ article here. It's been kind of hard to tell how Obama will address the issue of free trade...The Washington Post speculates...

Class of 2009, rejoice! Unemployment may be a lagging indicator, but do recent numbers give us hope? Or will we have to be more patient?

Also, I think this is so cute! Greg Mankiw at a Jason Mraz concert?! Haha.

Candles vs. the Sun

I have rediscovered my love for Bastiat's Petition [brilliantly witty]. Too bad Bastiat is dead. I feel we could have been great friends!

Lunch and Lecture with Subir Lall!

Thoughts after having lunch with Subir Lall, an expert on Korea at the IMF...

From Rice to Riches. (Like the rice pudding place in Soho!)
After the division of the Korean peninsula at the 38th parallel in 1945, the economy of South Korea was comparable to those of Cameroon, Ghana, and Malaysia. However, it effectively utilized foreign aid and pursued measures that would boost exports. Thus, South Korea established itself as the 16th largest economy by GDP by pursuing export-led growth. It has improved human welfare through what Robert Barro calls "capitalism without apology." As GDP per capita increased for Koreans, so too did domestic demand. This increased domestic demand may help Korea get through the financial crisis as it mitigates the sharp decrease in global demand. However, it is not enough to maintain medium to long term growth. Some issues that need to be addressed: rigid labor market, economic diversification, low savings rate.

The Labor Market
Although flexible labor markets can cause unemployment to be higher in countries like the U.S. than in countries like Korea (b/c it is much more difficult to fire people in Korea), in the long run, flexible labor markets promote long term growth through quicker and more efficient redistribution of resources. Dr. Lall commented that although the U.S. has done well in promoting flexible labor markets, it has not provided an adequate social safety net for times like these when the flexible market can cause unemployment to reach very high rates. Historically, the U.S. has relied on credit to serve as a social safety net. People would borrow against future earnings to get through times of frictional unemployment, etc. However, credit is not a guaranteed social safety net, as we discovered during the "credit crunch." Like the U.S., Korea also needs to expand and improve its existing social safety net. While doing so, it also needs to promote more flexible labor markets that will be necessary in order to allocate resources efficiently and promote long term growth.

The Government
One thing Korea has done well in the face of the crisis is execution. In the U.S., the passing of a fiscal stimulus bill does not immediately lead to a distribution of funds. However, when a fiscal stimulus bill is passed in Korea, they are quick to get funds where they are most needed.

Economic Diversification
Because Korea has depended on export-led growth for so long, its government is accustomed to providing incentives for export industries. However, these industries no longer need government support, and Korea might get more bang for the buck, or wham for the won?? if it were to provide incentives for entrepreneurs. Korea has an abundant supply of human capital and needs to find more outlets for its educated workers. Dr. Lall suggested that Korea pursue Silicon Valley type projects.

Korea also needs to expand its labor market and work its women! Korea isn't all that into gender equality, and I always tell my mom that I can't marry a Korean guy because I find them to be chauvinistic. I say this because I think it's kind of true, and also because it annoys her to no end that I don't date Korean guys. Haha.
Anyway, back to economics...productivity in non-tradable sectors stands at about 2%, while that of the manufacturing sector stands at about 4.6%. In order to compensate for the low productivity in the services sector, Korea needs to expand its labor market. It needs to include young people, old people, women...you get the idea.

Save, save, save!
If you go to outlet malls in New York or Boston, I promise, you will run into a group of Korean tourists. That's right. Outlet malls are a Korean tourist attraction. Why? Because Koreans are obsessed with designer clothes, bags, shoes, napkins...everything.

The Washington Post recently had an article about this phenomenon. At lunch, Dr. Lall mentioned the article, and I opened my bag and was like, "oh yeah! This article!" Haha. What a dork I am.
Anyway, low savings is dangerous in countries like Korea because the population is aging. Well, all populations age of course, but the birth rate is not high enough for the ratio of workers to old people to remain constant.

Wow! I'm amazed by how much I learned just by having lunch with Dr. Lall. I told him I felt like I was back at Wellesley sitting in a lecture. [a great thing for someone who is homesick for college!]

Fat Tax

Interesting take on the taxes that I mentioned in an earlier blog post: here. From the Economist. =)

Also, Greg Mankiw's blog post!

Stuff I wrote before about fat taxes and health care.

Singapore and Tajikistan

One of the most efficient health care systems that we studied in Advanced Health Econ was that of Singapore. Bryan Caplan blogs about it here.

The Embassy has been rather busy this week...the IMF will be releasing a forecast of the Korean economy in the next few weeks. (Details on Korea's economic recovery coming soon!) Apparently, the IMF gets calls from other countries asking how Korea plans to recover from the financial crisis because Korea has been rather resilient in dealing with economic crises...

In other news: One of my housemates just returned from Tajikistan! He's in the army and was studying Farsi.

He told us so many stories about Tajikistan! Apparently, they have a lot of natural resources, but none of it is really tapped because it's as if the country is being run by the mafia. He pointed out that Tajiks are somewhat lazy in that most businesses are owned by Russians or Chinese immigrants. Of course, I argued that if property rights are non-existent and Tajiks are constantly afraid of expropriation, they would not be motivated to start businesses, etc. He agreed that Tajikistan's property rights are somewhat antediluvian. (GRE word, Jenn!) Apparently, if a man builds a business on a piece of land and gets killed, whoever gets there first (I'm assuming it would be the killer) could claim that piece of land. (To which I say, WTF?!) Jonny Steinberg mentioned that in Africa, there was a man who had a really successful store in the neighborhood and he told his neighbors that the store was owned by a white man because he was afraid of backlash from the neighbors, etc. Jonny said the man lived in constant fear that people would kill him out of jealousy. Maybe Tajiks have the same fear?

J bought a Russian fur hat in a store whose owner was on the losing side of the civil war. He had a whole bunch of fur hats of Russians that he had killed with pictures of their corpses...J bought the hat, but left the picture of the corpse at the store...

Also, if an American is shot by a Tajik policeman, the Tajik gov't shoots that policeman and calls it even stevens...

In another adventure, he was being driven up a path that had a rising cliff on its right side and a cliff edge on its left side. And if you looked over the cliff edge on the left side, you could see cars that had fallen off in the past. There were many...
Upon seeing these car-wrecks, his friend said, "why are we driving so close to the left?! I like the right side so much better!" Haha.

In Tajikistan, they eat something called "osh." Apparently it's served on a rug on the floor. It's a pile of rice and oil and onions. Everyone sits around the rug, sits on their left hand, and eats with their right. When J tried to wash his hands before eating, he was told that it was an insult because he was implying that the woman's rug was not clean. He got sick later that night.

Currently, J is enjoying his first real shower in 6 weeks. Apparently, the running water in Tajikistan is muddy, and he said he felt as if he were trading sweat for filth...

I hope he doesn't fall asleep in the shower!

Waiting.

While you hold your breathe and wait for me to post again (ha): Martin Feldstein in the Washington Post here. Remember him from my previous blog post?! We are obviously BFF.
Also, an older NYT editorial here.

Sorry it's taking me so long to post about other health care systems. It's difficult because there are so many that are better than our own...

Dizzying Health Care in America

Things I remember from ECON 230 [Economics & Politics] and ECON 332 [Advanced Health Econ].

Basic Facts:
Medicaid: means-tested program that provides health insurance for low-income individuals. Medicaid is federally funded.

Medicare: not means-tested, which means even Bill Gates will receive Medicare. And why shouldn't he? He seems like a lovely fellow. I'm sure he will also need help from the government when he turns 65!
Anyway, it's for people over 65 years old who have paid Medicare taxes.

Medicare funding:
40% payroll taxes, 39% general revenues, 12% beneficiary premiums [yeah, I know, these numbers don't add up to 100, but that's what they are in the Kaiser factsheet]

Part A [Hospital Insurance]: 85% funding comes from payroll taxes (2.9% from employers and employees, each paying 1.45%), the rest comes from general rev.

Part B [Supplementary Medical Insurance/Non-hospital]: 75% general rev, 25% beneficiary premiums.

Part C [Medicare Advantage Plans/private]

Part D [Drugs, but not the bad kind. The gov't will not fund your crackhead habits!]: 77% general rev, 13% state payments for dual eligibility, 11% beneficiary premiums. [again, these numbers do not add up to 100]

U.S. Health Care Spending [click images to enlarge]



From oecd.org, here.

Why Costs are Increasing
1. adverse selection/moral hazard: Unhealthy people are more likely to buy insurance. People with insurance are more likely to engage in dangerous/unhealthy activities, driving up health care spending.

2. malpractice insurance: Evs, I can't find the paper that we read about malpractice insurance for ECON 332, so correct me if I am wrong. I think this is what the paper said. I'll try to find it later...
Anyway, In rural areas, doctors have fewer patients per whatever unit of area you want to use than in cities. Therefore, when malpractice insurance costs increase, rural doctors pass these costs onto their patients. Since there are fewer rural patients per doctor, these patients feel increasing costs more acutely than do patients in the city. Overall, the impact of malpractice insurance premium increases is not very large...

3. defensive medicine/over-utilization: here

4. technological advances/improved quality of life: Clifford Asness of AQR Capital Management points this out (very avidly) in the paper linked in my previous post. (thanks, tina!) He says, "I’m reasonably certain the cost of 1950’s level health care has dropped in real terms over the last 60 years (and you can probably have a barber from the year 1500 bleed you for almost nothing nowadays). Of course, with 1950’s health care, lots of things will kill you that 2009 health care would prevent. Also, your quality of life, in many instances, would be far worse, but you will have a little bit more change in your pocket as the price will be lower. Want to take the deal?"

4. Americans are fat. When I was home, I saw a commercial protesting taxes on junk food and soda...has anyone seen it? I tried finding it on Youtube, but was unsuccessful. In the commercial, there's a family going camping, and they've packed chips and soda and stuff, and the voice in the background is like, "so many Americans are facing tough times, and now is not the time to tax simple pleasures like chips and blah blah blah. write to your congressman, etc, etc."

I'm sorry, simple pleasure of what? Being FAT? Is it much more difficult to pack baby carrot sticks and peanut butter than chips during a recession? Does the recession somehow make juice and water less appealing than soda? Does being FAT somehow make being poor more bearable? I don't get it...and this is coming from someone who also writes in a blog called Fat Kid Adventures.

Also, don't be like this. If someone asks you why HFCS is bad, you can respond with, "large quantities of fructose stimulate the liver to produce triglycerides, promotes glycation of proteins and induces insulin resistance." [wikipedia] in other words, it makes you FAT.

In one of my many classes with Prof. Johnson (I can't remember which), he pointed out that people who smoke around us are not just hurting our lungs, but they're stealing from us! His argument was as follows:
People who smoke are a negative externality because they are more likely to get lung cancer, throat cancer, etc. Health care spending will go up. As a result, health insurance premiums will go up. Of course, smokers pay more in premiums anyway, but I think the same logic can be applied to people who consume junk food excessively.

Health insurance companies have ways of attracting "good risks." Prof. McKnight told us about "3rd floor walk up" policies - policies that are meant to keep out those who wouldn't be able to walk up three flights of stairs without passing out. For example, some health insurance companies offer deals at ski resorts because they know that healthier people go skiing, spend more time working out, etc.

Sneaky, right? And you thought the health insurance companies just wanted you to have more fun...

Anyway, I need to go study for GRE. I finally registered for Sept. 24th!

But don't worry Tina, I'll post about other countries' health care systems. [South Korea, Singapore, etc] In ECON 332, different groups presented on different health care plans/countries. Those were fun...will post [soon!]

Dizzying Health Care in America [Intro]

So I just got a FB message from Tina asking me to blog about universal health care. I didn't realize how long it's been since I last blogged! Sorry for being so MIA!

I've had vestibular vertigo for the past week and a half and have been horribly dizzy. I have been to the hospital 5 times in the past 6 days for an MRI, ENG, hearing test, vestibular rehab, etc. Fortunately, no brain tumors or calcium deposits were found. That means the vertigo should go away on its own in about a month. Although I will have fully recovered by then, I doubt the American health care system will have made as much progress. This whole ordeal has made me realize (again) that American health care is in desperate need of reform...

But I'm going to dins with the fams right now, so I'll blog about universal health care when I get back! [but I have to pack for DC tonight, so I might post tomorrow night]

Thanks for pulling me back into the blogging world, Tina! And thanks for linking me to this paper!