Econ-Atrocity Bulletins

Robert H. Frank, co-author of The Winner-Take-All Society and, more recently The Economic Naturalist: In Search of Explanations for Everyday Enigmas (I haven’t read that one yet), among others… in general someone who’s worth paying attention to, now makes his film acting debut:

Yes, the Dude most definitely abides.

Just a quick note from Atlanta. It’s the end of the second day of the first US Social Forum. Due to travel ‘difficulties’,  I was not here yesterday. My spies on the ground tell me the march yesterday morning to kick off the Social Forum was 10 to 20 thousand people strong. Always hard to say, exactly, but a quick examination of the program (with over fifty workshops and panels going on at once for three days) and taking in the attendance at the panels I’ve attended, and just the sheer number of people on the streets of downtown Atlanta with their USSF ID badges, this is clearly the largest such gathering I’ve ever seen in the US. Thousands of people together to discuss and strategize a different US, something so necessary for the world as a whole, and no less so for us US’ers.

And the conversations happening go far beyond simple critiques of today’s neoliberal capitalism (too easy, anyway). They’re talking about concrete alternatives that are working on the ground now, and strategizing about scaling them up going forward. Of course there’s still a long way to go, but this forum represents a most welcome development: the coming together of disparate ’single-issue’ groups to hammer out common ground and devise strategies to move forward as one. I’m sorry you’re not here!

More specifics later, must sleep….

[Disclosure: I have been trying to sell my own house for ten months]

Kudos to Andrew Leonard at Salon for his insight into many economists’ delusions of perception (see No one wants to buy a home. Whose fault is it?)! He correctly points out that many so-called experts have a skewed view of when human psychology comes into play in their market decisions. So potential homebuyers are now fearful about what the housing market will do in the future (continue to crash, perhaps even burn? Or turn around?). No arguments there, just rueful agreement (in my case; see disclosure, above). But what about when gloom and doom forecasts are not heard far and wide? Well, it turns out people might be just as whacky during the boom as they are during the bust. Feel free to gasp now.

An important debate in the social health literature is whether more inequality causes worse health. At some later date I’ll post a bibliography, or maybe commenters can help. In any case the list of publications is long, the contributors illustrious, and the findings varied and at odds with each other. Some of the most important papers representing a range of findings include those by Deaton, Deaton and Lubotsky, Mellor and Milyo, Lynch, et al., Kawachi, Subramanian, et al., Navarro, et al., Wilkinson, et al., and Marmot, et al.

Note that the debate is about the effect of inequality, per se, on health. Everybody knows that being rich reduces mortality and being poor increases it. The relationship between income and health (mortality, infant mortality, life expectancy, morbidity) is so well known in the literature that it is simply known as “the gradient.” It obtains at the macro and micro levels in dozens of studies. For example, let me quote Angus Deaton, who is BTW an inequality-mortality skeptic, “Men in the United States with family incomes in the top 5 percent of the distribution in 1980 had about 25 percent longer to live than did those in the bottom 5 percent. Proportional increases in income are associated with equal proportional decreases in mortality throughout the income distribution” (Angus Deaton “Policy Implications Of The Gradient Of Health And Wealth”). But I digress.

There are three basic channels through which an association between inequality and health could occur. The first two are causal in that social inequality affects individual health.

1. Direct. Inequality creates stress, which is bad for health.
2. Indirect. Inequality disrupts the production of health-supporting public goods or causes the production of health-reducing public bads, which is bad for health.
3. Artifactual. More income improves the health of the poor more than it improves the health of the rich. (The health-income relationship is concave.) A more unequal society will have worse average health than a more equal society with the same mean income because the health gain to the rich from being much richer is not as great as the health loss to the poor from being much poorer. Note that individual income only affects individual health, but the distribution of income affects average health.

A fairly recent entry in the field is Leigh and Jencks, “Inequality and mortality: Long-run evidence from a panel of countries” (Journal of Health Economics 26 (2007) 1-24). Here is a link to a working paper version which is very similar to the published version. In a nutshell, the income share of the richest 10 percent of the population is the measure of inequality, and life expectancy at birth and infant mortality are the two main measures of health outcome. Read more »

The 14,500 doctors and 58,000 nurses of this health-care organization serve 7.6 million enrollees, delivering care that outperforms both commericial insurance and Medicare–let alone poor, underfunded Medicaid–on a host of indicators of quality of process and outcome. While Medicare costs increased from $5,000 to $6,800 (36 percent) per patient-year between 1996 and 2004, its costs stayed constant at $5,000 per patient-year. And the patients receiving this high-quality, moderate-cost care are disproportionately poor and disabled.

Is it Kaiser Permanente? Is it a new for-profit chain of health clinics? No, it’s the Veterans Health Administration (VHA).
Read more »

As summer rolls around, there’s been a spike in interest in the American vacation deficit.

David Moberg, writing in the excellent progressive bi-weekly In These Times, surveys the field in “What Vacation Days?” Since we’re interested in policy, here’s the punch line,

Why do workers in other rich countries have more paid time off? Mainly because laws demand employers provide it. The European Union requires its members to set a minimum standard of four weeks paid vacation (covering part-time workers as well). Finland and France require six weeks paid vacation, plus additional paid holidays. Most countries require workers to take the time off and employers to give them vacation at convenient times. Some governments even require employers to pay bonuses so workers can afford to do more than sit at home on vacation. On top of that, unions in Europe and other rich industrialized countries—whose contracts cover up to 90 percent of the workforce—typically negotiate additional time off. Meanwhile, the standard workweek is slightly shorter in many European countries, and workers retire earlier with better public pensions.

For the heavy quantitative lifting, Moberg cites a survey of comparative vacation legislation, “No-Vacation Nation” recently published by CEPR (May 2007). The summary is here and the full report is here.

This report reviewed international vacation and holiday laws and found that the United States is the only advanced economy that does not guarantee its workers any paid vacation or holidays. As a result, 1 in 4 U.S. workers do not receive any paid vacation or paid holidays. The lack of paid vacation and paid holidays in the U.S. is particularly acute for lower-wage and part-time workers, and for employees of small businesses.
Read more »

Jonathan Teller-Elsberg, CPE Staff Economist

A few weeks ago, CPE Staff Economist Jerry Friedman wrote an Econ-Atrocity reviewing Bill McKibben’s new book, Deep Economy. Though he says McKibben “has written a clear attack on much of what ails us,” Friedman nonetheless criticizes McKibben for approaching the environmental and social problems of the day from an individualist perspective. For all that McKibben wants to promote and revive “community,” he has the attitude (says Friedman) of a “personal Salvationist . . . [who thinks that] the enemy [is] ourselves: we use too much, waste too much, want too much; and the only salvation for the environment is to change our preferences, use less, recycle more, and choose to live simply.” What McKibben misunderstands or ignores, Friedman argues, is the power of social institutions to drive behavior, regardless of the desires and seemingly free choices of individuals.

I think that Friedman will find solace in Peter Barnes’ recent book, Capitalism 3.0: A Guide to Reclaiming the Commons, since Barnes’ approach is definitively institutional. The problem, according to Barnes, is that the structure of the economy and society leave too much power in the hands of corporate capitalism. Even if all the CEOs and boards of directors and politicians were replaced with kind-hearted souls like McKibben, we would still face pretty much the same issues of environmental decay, economic inequality, and other social ills—the logic of capitalism and the legal structure of private property rights force the leaders of corporations to do what they currently do. He learned this from personal experience as co-owner and manager of several business ventures, most famously Working Assets (a telephone and credit card company that donates one percent of gross revenues to progressive charitable organizations). “I’d tested the system for twenty years, pushing it toward multiple bottom lines [that consider social and environmental impacts in addition to profit concerns] as far as I possibly could. I’d dealt with executives and investors who truly cared about nature, employees, and communities. Yet in the end, I’d come to see that all these well-intentioned people, even as their numbers grew, couldn’t shake the larger system loose from its dominant bottom line of profit.” (Ironically, Bill McKibben is quoted on the front cover of Capitalism 3.0 helping to promote Barnes’ book.)
Read more »

Berkeley economist Brad DeLong offers a qualified (”coming from a guy who is not a real health economist but has an undeserved reputation because he was good at translating the economese spoken by real health economists”) proposal for health care reform. Here are the highlights:

• 20% Deductible/Out of Pocket Cap
• Single-Payer for the Rest
• Sin Taxes [and public-health education, exhortation, etc.]
• Serious Research on Best Public-Health, Chronic-Disease, and Hospital Practices

Here’s what’s good, what’s bad, and what can be improved:What’s good?

• Single payer for the rest. Much of the current health care mess in the U.S. comes directly from the competitive private insurance market. Insurance companies reap rewards for avoiding sick patients and have little incentive to provide continuity of care (follow-up on patients with chronic illness, preventative care, etc.). Administrative costs and profits are also ridiculously high. Single payer, which means that the government or a quasi-governmental trust is the unique, universal insurer, is the obvious solution, a proven winner in one form or another in almost every other industrialized country.
• Serious research (and development). Medical and information technology could be applied much more effectively to monitor and to ameliorate chronic diseases and other health risks. We can learn more at the cutting edge, we can better disseminate and reward the adoption of demonstrated good practices, and we can help people monitor and improve their own health (while respecting their privacy).

What’s bad?

• 20% Deductible/Out of Pocket Cap. DeLong’s proposal would tax 20 percent of income for health care: 15 percentage-points worth would go into a personal health-spending account and 5 percentage-points worth would go into a health insurance pool. The phrase “for the rest” following single payer means that complete insurance would apply all health care problems in excess of 15 percent of income. At least there would be some means testing but there is little else to recommend this proposal. The impetus for high deductible is that patients should be encouraged to shop around and competitive pressures will contain costs. Otherwise, patients, or more likely their providers, face a moral hazard to overuse care. Some so-called cost sharing is compatible with single-payer, but here’s the problem. The 5 percentage points of income isn’t enough to provide insurance to people who need it. Health problems and the associated costs come in very concentrated bursts. According to the director of social scientific research at the Federal agency responsible for health research (AHRQ), “Nearly 30 percent of health care expenditures are accounted for by the top 1 percent of spenders, while more than half of all health care expenditure are accounted for by the top 5 percent of spenders.” Because health-care expenditure is about 16 percent of all income, the top 1 percent of spenders alone use up almost the entire 5-percent insurance pool (because 30 percent of 16 percent is 4.8 percent). There is essentially nothing left to pay for unexpected health care needs for the other 99 percent of the population beginning with the next sickest 4 percent. So we don’t need to debate the morality or excoriate the immorality of the “first out-of-pocket, and only then insurance” approach. Nor do we need to offer (perfectly reasonable albeit difficult to defend) opinions such as, “No one gets excess health care for fun.” Health care costs cannot be contained by widespread cost-sharing because of their fundamental distribution.

What can be improved?

• Sin Taxes [and public-health education, exhortation, etc.] Reinvigorating the public-health approach makes lots of sense. DeLong smartly suggests increasing the employment, skills, and portfolio of nurses, other primary-care providers, health educators, health-care paraprofessionals, nutritionists, et al. A lot of the public-health problem may come from the time bind that Americans face. When the health educator knocks at the door (see the proposal), will anyone be home? We are more likely to be commuting, alone, in a car, to a distant job with long hours. The proposed sin taxes should include unequal incomes and long hours. And public health should include a vacation.

In his column today, David Brooks furthered the argument that education is the key to reducing inequality, improving one’s lot, etc, etc. He says that

“when you look at the details, you find that most
inequality is caused by a rising education premium, by changes
in household and family structure, by the fact that the rich now
work longer hours than the less rich and by new salary structures
that are more tied to individual performance.”

He argues for a lot of swell policies that would make a difference in a
lot of people’s lives. But he (along with so many other intelligent people) overlooks a tragic flaw in this argument: while a better education will certainly benefit any given individual, that does not mean that better educations for everyone will benefit everyone. A little thought experiment might make this point clearer. Read more »