Wednesday, September 30, 2009

The Uncommon App

I'm sorry to revisit an old, and extremely tiresome, debate. If you didn't go to Chicago, feel free to tune out. But this is exactly right:
For the past few years, elite colleges and universities have ... unveiled some very generous “grand prizes” in the form of making college free for low-income students,eliminating loans for others, or capping payments for improperly defined “middle income” individuals. But while this makes for a big payoff, the school doesn’t have to worry too much—they can keep costs down by controlling who they let in and the extent to which they sell these policies to lower-income students.

To an elite institution, these policies are a win-win calculation: good press for seeming generous, but it doesn’t have to worry about going too far in letting in these more expensive low-income students because it doesn’t take a proactive approach to recruiting them and convincing them to apply

if institutions are truly committed to improving their socioeconomic diversity, then they need to do more just announce a new policy with a flashy press release. Instead, admissions officers should do a better job visiting lower-income high schools, forming relationships with guidance counselors where they can, and generally take a more proactive approach to identifying promising lower-income students. Admittedly, this is labor intensive and has some costs, but without a greater commitment, these generous financial aid policies will be little more than a flashy exercise with little risk of significant success.
Many people point out that income mobility is pretty bad right now. The argument, which one gets by innuendo, is that Republicans have raided the economy and are keeping all of the jobs for themselves. There may be some truth to this. But overwhelmingly, the path to a better life is through education; and schools are not following through.

The UofC in particular is pretty damnable. On the plus side, it doesn't really do legacies, and has historically done well by taking in smart kids who are discriminated against elsewhere (Jews in the 50s, Asians today. This analogy actually goes pretty far. Schools started looking at evaluations and so forth because otherwise they would have to admit Jews who scored high on the SATs, and they use essays today in a similar way for Asians.). On the down side, 13% of Chicago students have Pell Grants, a reasonable indicator of low family income. This beats Harvard, but trails a number of other schools--like MIT and Amherst--and falls way behind the California system, which have over the past half century dramatically expanded to offer a great education to many deserving kids.

It's bad enough that elite Universities like Chicago have chosen, instead of opening up like UC Berkeley, to hunker down and amass enormous endowments which they display mostly for prestige (or else blow it all on gyms and fancy science buildings). What's worse is that people complain when someone actually tries to do something about it.

That's what the Uncommon App debate was about. The rich and connected kids already know about Chicago and can get their maids to fill out ten forms duplicating their home address. It's promising low-income students--who are put off enough by the high sticker price--who you get by making it easier to apply. No, putting the application in a slightly less hokey and pretentious package will not destroy the brand.

Ultimately, this is not a big issue, and I'm almost sure I'm the only person still thinking about it. But what's at stake is the character of the school and how accessible you are. One side wants to let in the elect, while keeping out the lazy rif-raf, and then withdrawing behind those walls to rise in oaths of brotherhood to those they kept outside. And I think this about concludes the series of screechy op-eds I never sent in to the Maroon.

Wednesday, September 16, 2009

Healthcare Reform

Most of the healthcare reform bills being considered entrench the status quo, which is unsustainable. What would a better plan look like? Here's my cut:

1) Health Savings Accounts
The "use it or lose it" penalty for health savings accounts would no longer apply--put money in, tax free, into a health savings account; and you can use it whenever you want. The money would also be invested and interest accumulates in your account (if you don't like stocks, they can be put in inflation-protected Treasuries). Once you get old, you have the chance to move some of this money into your retirement account.

2) Mandatory Release of Costs for Hospital Procedures
Put them on the internet, nail them to churches, print them on the back of driver licences, burn them into the backs of people's retnas for all I care. It's insane that people will drive for miles to shave off a penny per gallon of gas but don't--and can't--know how much an MRI costs.

3) A Public Plan
The public plan would only offer catastrophic coverage (ie, severe emergency room care only) with high deductibles. Under the government plan, you, by default, put in ten percent of your salary into a Health Savings Account to handle most health spending. Preventative care is covered.

4) Guaranteed issue, community rating, and mandatory coverage
Everyone needs to buy health insurance. You can buy the government plan, or a private one. No insurer can turn down anyone who wants care, and can only charge premiums based on age.

5) Insurance Exchanges
All insurers must provide a "basic" plan that offers similar catastrophic care as the public option, as well as a more traditional package. Benefits are standardized across the two levels to allow easy comparison shopping. These exchanges are set up on a national level. All insurance spending (but not health account savings) is taxed.

That's it. The left should love the plan because it eliminates (or greatly reduces) the uninsured population while allowing people with pre-existing conditions to purchase insurance. The public option keeps insurers "honest." The right should love the plan because it increases competition--instead of insurance companies making their money by refusing care, they now make money by holding costs down. Young people should love it because they can purchase the public option cheaply. And everyone should love the plan because it reduces healthcare costs: the more people are accountable for their own spending, the more costs go down.

In the long-run, Medicare and Medicaid would be obsolete. People will start entering retirement with lots of money to pay for their own care; those (young or old) who can't afford care will be given subsidies to buy their own insurance (paid out of taxing insurance coverage). This will stave off the government's looming fiscal collapse.

Naturally, we're not going to see anything like this plan.

Sunday, September 13, 2009

Obama v. Daniels

While Obama starts a trade war with China, Mitch Daniels successfully leads a trade delegation there.

Just sayin'. Just as Kevin Rudd gained power in Australia partially on the basis of his foreign policy chops, and as it helped Tim Geithner gain the Secretary of Treasury position, it's easy to imagine skill at foreign negotiations become an increasingly important qualification for the Presidency. Obama definitely benefitted from this trend.

Then again, Rudd also arguably benefited from being sighted at a New York strip club, so maybe Australian politics is just out there.

Healthcare and Technocrats

I've been growing increasingly worried as I look deeper into how healthcare technocrats think. Here's a piece from CAP:
When Texas capped non economic medical malpractice damages to $250,000 in 2003, most conservatives argued that the reform would free doctors from having to prescribe unnecessary treatment. It didn’t happen. According to the Dartmouth research on disparities in health care spending, many Texan doctors are still prescribing aggressive treatments that don’t improve outcomes. In fact, as of 2006, Texas was still at the top of the list of high-spending states.
Ignore the bit on malpractice; just look at the bit on Texas as a high-spending state. But high spending in this context really refers to high Medicare spending; and Medicare funds substitute for other health dollars. Overall, it's not clear that Texas is spending "too little" or "too much" on healthcare.

But suppose it, and all other "high spending" areas, were overall high spenders. What would that mean? If you check out the link, you'll see what the Dartmouth people call "high spending" areas. By and large, these are urban areas with lots of poor people, and large huge health needs.

Just consider how silly this exercise would be if we looked at any other profession. What if we found that lawyers cost more in New York than Albany. Does all that extra New York spending reflect "waste" that we can costlessly cut through bureaucrats? Or is it just that the cost of items varies; and that cities in particular have high costs due to high costs of living, etc.?

It's even worse for healthcare because different populations and people will respond differently to medicine. You need to do a far more detailed analysis on the subgroups involved, etc. to get an idea of how medical dollars are being spent. But the Dartmouth group doesn't do this; they're convinced that 30% of healthcare spending is waste, and any difference in costs or outcomes around the country can be attributed to that.

It is probably true that a lot of health spending is wasted or unneccessary, for any number of reasons, some government related. But I doubt these problems can be easily fixed by cutting health spending for poor urban areas. In the past, when Medicare has cut reimbursements, doctors have responded by increasing the number of billed operations, and increasing the total cost. So top-down economizing could even have perverse results.

This is a tough issue, and clearly reform--particularly of Medicare--is necessary. But I have an instinctive fear of overly-ambitious policy wonks and technocrats. We'll see what kind of difference they make to policy.

Saturday, September 12, 2009

Obama's Healthcare Speech

Some thoughts on the speech:

I think it's interesting that two of the proposals that Obama outlined--mandates and taxing employer-provided care--were signature issues on the campaign trail as well. Mandates were one of the few big policy differences between him and Clinton--and he was opposed to them. Then Obama put out many, nasty ads against McCain because he wanted to tax healthcare. It's true, as many people say, that Obama's focus on healthcare was a defining characteristic of his campaign, and attracted many voters. But his actual policy stances have turned a full-180. Bizarrely, no one seems to have noticed, but I suspect that this is one reason why the issue is proving so intractable.

And stop blaming Republicans. Democrats, just a couple of years ago, showed no willingness to go forward with Social Security reform, and that's going to cost all of us who are young hundreds of thousands of dollars. Opposition parties sometimes behave as if they're in opposition, deal. If you have a majority in both Houses, just pass a bill.

I also see that one of the ridiculed conservative ideas on healthcare would be to "turn Medicare into a privatized voucher program." But that would be amazing! That forces people to be more responsible about their spending, while still funding it for people who don't have it. Note that countries with universal private insurance mandates--like Switzerland or the Netherlands--give out exactly these types of subsidies for people who can't afford care.

Obama apparently wants to cut Medicare Advantage. See Marginal Revolution for a run-down of these plans; basically they are plans which allow seniors to purchase additional care. So while people under 65 would be forced to purchase healthcare; people over 65 would be limited in their ability to purchase healthcare.

Also check out this great interview with a hematologist criticizing the "Dartmouth" approach to healthcare, which is convinced that 30% of healthcare costs as the result of waste and fraud, and can be cut through technocratic means. The counterpoint is that areas of high Medicare spending spend a lot for a reason. Atul Gawande singled out McAllen, for instance, as an area of high Medicare spending. But it's also a poor area with many health problems and little private insurance; the system overbills Medicare to sustain itself, but overall it's not a high cost area. Other analysis suggests that higher health spending is, in fact, related to better outcomes.

Monday, September 7, 2009


Here's the NYT on Lego's rebirth:

But the story of Lego’s renaissance — and its current expansion into new segments like virtual reality and video games — isn’t just a toy story. It’s also a reminder of how even the best brands can lose their luster but bounce back with a change in strategy and occasionally painful adaptation.

Nevertheless, Lego hasn’t entirely shed its Scandinavian sense of social mission when it comes to making toys. It kept quality high and never moved any manufacturing to China, avoiding the lead paint scare and grabbing market share when rivals stumbled amid multiple recalls.

Maybe it was a great strategy for Lego not to outsource manufacturing. Maybe it would even have been a good idea for Denmark to prevent Lego from doing so. But protectionism isn't moral. What's moral, and in line with a social mission, is helping millions of people rise out of absolute deprivation.

At least we're consistent in lauding aid agencies and local manufacturing--both fail to help poor people, and both are socially conscious.

Nussbaum on College

Here's what Martha Nussbaum says about College:
It’s easy to think that college classes are mainly about preparing you for a job. But remember: this may be the one time in your life when you have a chance to think about the whole of your life, not just your job. Courses in the humanities, in particular, often seem impractical, but they are vital, because they stretch your imagination and challenge your mind to become more responsive, more critical, bigger. You need resources to prevent your mind from becoming narrower and more routinized in later life. This is your chance to get them.
This claim is often made, and I would probably agree with it. But I don't think it's too much to ask that the claim be made through slightly less hackneyed language. You would never drop two hundred grand more on a house because a highly interested party said it would "stretch your imagination and challenge your mind to become bigger," so use some of that supposedly non-narrow, non-routinized brainpower to write something better.

Of course, maybe I'm assuming too much about College kids. Maybe they need to major in the Humanities before they can realize how tired and bad some of the arguments are for taking the Humanities.

Sunday, September 6, 2009

How Financial Markets are like Highways

Cheap Talk makes the interesting point that Finance is like driving in highways, but takes a sour view on arbitrage:

The parallels are clear between financial markets and driving in traffic. Arbitrage is the controlling force. For example, on the freeways arbitrage equalizes the traveling time across lanes, the commuters version of the efficient markets hypothesis.

You don’t have to have spent much time on the freeways to understand why arbitrage is not always efficient. An individual driver can get where he is going faster by changing lanes, but since there is a fixed capacity on the road this is always at the expense of somebody else. In equilibrium the total distance traveled by all is the same as if everybody were required to stay in their lanes. The arbitrage turns out to be a pure social loss due to the increased frequency of accidents.

I take a more sympathetic view to arbitrage (cars careening across highways). Here are three theorems in highway-finance:

1) Inefficient Highways Hypothesis: If not all drivers are willing to change lanes, differences in travel times can persist across lanes. The lack of 'leverage' on highways--you only control your own car--sharply limits efficient travel.

2) Arbitrage is always efficient: Suppose you have two lanes, a fast and slow lane. If enough cars move from the fast to the slow lane so as to equalize the travel times, average speed will decrease for everyone. Moreover, such arbitrage always decreases variance speed across lanes, allowing drivers to better predict travel times.

3) Noise-Drivers are efficient: Suppose drivers randomly change lanes. As drivers spend more time in slow lanes than fast ones, over time highways will move to the efficient solution where travel times are constant (but, by Theorem 1, will probably never reach there).

There are other similarities, in the form of "traffic waves." Like manias, booms, and busts; traffic tends to cluster into times of congestion, which generally can't be fixed by shifts from individual drivers (investors). And just as financial instruments are ultimately a function of the real economy, highway travel ultimately depends on people getting to actual places.

Saturday, September 5, 2009

Does the Minimum Wage increase Unemployment?

Many studies find that minimum wage hikes have small effects on employment. To an extent, this is unsurprising--most people are paid well above the minimum wage. Alternately, employers can respond by cutting hours or benefits rather than employment.

But there's at least one subroup--teenagers--who should be much more affected by changes in the federal minimum wage, which just went up from 6.55 to 7.25 now.

Teenage unemployment? It's jumped to 25.5 percent, from 24 percent. Unemployment for everyone has gone up as well, to 9.7%.

Of course, this risecould be the result of many things--worsening labor markets, etc. But it's highly suggestive.

What we really need are wage subsidies. We have unemployment because wages are inflexible during recessions, as companies would rather fire people than deal with grumpy workers. Providing wage subsidies allows companies to pay less, while letting people take home the same amount of money in wages. Singapore has tried this (France as well) and found that unemployment stayed below 6%, even while GDP dropped somewhere in the double digits.

Doing this, combined with a payroll-tax holiday and mortgage modification plan, would do a whole lot more for struggling families than bridges to nowhere and a higher minimum wage.

Wednesday, September 2, 2009

Kids These Days...

One of my pet peeves is people who complain that we don't read enough books, and how this spells cultural doom. Here's Matt Yglesias on the issue:

Between 1939 and 2009, human ingenuity has invented a lot of new things one can do with one’s time. Human ingenuity has not, however, invented a method for stuffing more hours into the day. Consequently, if you look at just about anything that people could do in 1939—read for pleasure, take care of children, cook, etc.—they do somewhat less of it in 2009. People who are really into books, or cooking, or natalism, or what have you tend to interpret this inevitable crowding of the timespace as a sign of cultural crisis and decline but it’s an inevitable result of heterogeneous preferences and innovation.

I feel that's about right. There's nothing particularly special about "books" or "classical music" or "theatre" that sets these apart from other media or cultural productions. Sure, they all have their strengths, but this means that we're all better off for having tons of options for consuming information and media. Maybe kids can't translate Latin or whatever as well as they used to; but that's inevitable as something has to give way as they pick up other skills and talents suited for today. Instead of worrying about how to force high school students to read things they aren't prepared to understand, schools should instead focus on how to introduce kids to a broad variety of media that they'd find interesting and accessible.

Twitter, however, is one social medium too far. It really is the sign of cultural decadence.