Month: January 2014

The U.S. GDP is now about 22% of the global total, and very likely to keep declining in the next few decades. But policy discussions in the U.S. often don\’t really come to grips with the fact that the U.S. has limited power in this globalizing economy. Here are a few examples.

Concerning climate change policy: Here\’s a recent report from Reuters on China\’s announcements about expanding coal production. \”China approved the construction of more than 100 million tonnes of new coal production capacity in 2013 – six times more than a year earlier and equal to 10 percent of U.S. annual usage – flying in the face of plans to tackle choking air pollution. The scale of the increase, which only includes major mines, reflects Beijing\’s aim to put 860 million tonnes of new coal production capacity into operation over the five years to 2015, more than the entire annual output of India.\”  While U.S. can (and should) argue about appropriate policies to address carbon emissions, choices made in the U.S. and Europe will not be the primary determinants of future carbon emissions.

Concerning corporate taxation: American citizens and politicians can argue all they want about what it is \”fair\” for corporations to pay in taxes, but in an economy with global supply chains and rising trade, corporations will inevitably have greater power to shift operations and use accounting to move profits between jurisdictions.  Signing some international agreements about corporate taxation won\’t change this basic fact. If you want to tax high-income people, then it makes more sense to focus on their tax rates, rather than trying to tax corporation.

Concerning the directions of future technology growth: Here in America we like to have arguments over what kind of research on, say, genetic issues or using human tissue should be acceptable. But the U.S. share of global R&D fell from 38% in 1999 to 32% by 2009. China has now outstripped Japan for second place in global R&D spending, and China\’s R&D spending is similar to that of Germany, France, and Italy combined. A report just published in the New England Journal of Medicine notes that U.S. biomedical R&D spending dropped from 2007-2010, while the world total is rising. In the past, the rest of the world sometimes complained that global R&D was dominated by U.S. priorities. This complaint will be less true in the future.

Concerning blockbuster movies: The rest of the world used to complain, with some justice, that they were forcefed a diet of mass entertainment based first and foremost on the desires of U.S. customers. But now blockbuster movies are made with the global market in mind. Superheroes, cartoons, robots, global crime, and natural disaster play well everywhere.

Concerning globalization itself: When the subject of trade agreements comes up, like the Trans-Pacific Partnership, Transatlantic Trade and Investment Partnership, and Trade in Services Agreement, the tone of the discussion often seems to imply that U.S. policymakers are deciding on the future of globalization. But they are not. Globalization is speeding ahead without any permission from them, based on advances in transportation, information, and communications technology, along with actions by other countries. Trade policy is only trying to shape the direction of globalization a bit, and to negotiate around the margins some of the terms under which globalization will proceed.

Just to be clear, the U.S. economy is not becoming a economic minnow like Belize or Burundi. But 65 years ago, as the high-income countries climbed out of the wreckage left by World War II and today\’s emerging economies had not yet engaged in the global economy, the U.S. economy had an extraordinary time of dominance. For a time in the 1960s, it was common to hear that the planned economy of the USSR would outstrip the U.S. economy. In the 1970s and into the 1980, Japan was going to rule the world economy. Around 2000 and the launch of the euro, there was talk about the economic rise of the European Union. But now, we are seeing the rise of a multipolar and distributed world economy, with faster growth happening in the emerging economies, but with stronger linkages of trade and global supply chains reaching across the world economy. The U.S. can certainly be an active and leading participant in shaping the world\’s economic future. But neither the U.S., nor some combination of high-income countries around the world, has the power to dictate what configurations will emerge.

Back in 2006, the Nobel Peace Prize was awarded to Muhammad Yunus and Grameen Bank \”for their efforts to create economic and social development from below.\” With a few exceptions, like the award to Norman Borlaug for his work on the \”Green Revolution\” back in 1970, The award is usually given for efforts involving human rights, democracy, international affairs, and peace. I know I wasn\’t alone among economists in appreciating the recognition that improvements in economic life could contribute to peace, too.

\”All the allegations that you have listed, again and again have been demonstrated, we sent all the information to the public to make sure that they understand it’s all baseless, there is no ground for it. For example, the case of tax evasion, it was decided in the cabinet meeting that my tax information should be examined by the tax authorities and that report should be submitted to the cabinet itself, the cabinet of ministers. They did that, they said we’ve investigated every detail, so Professor Yunus has tax returns and if he did everything correctly, we have no problem, we have not missed any single penny in taxes, so we have no problem with that. But the cabinet was not satisfied with that report, they sent it back again to make more inquires so that they can find something else.\”

If it is possible to have less than zero knowledge of a subject, my knowledge about the internal politics of Bangladesh would qualify. I also know nothing at all about the personal finances of Muhammad Yunus. But it does appear as if the current government of Bangladesh views the Yunus and the Grameen Bank as a force that needs to be brought to heel. Yunus describes Grameen like this: 

\”We work it all over Bangladesh, every single village in Bangladesh has access to domain bank microcredit program, so we have borrowers all around the country, we have 8.5 million borrowers, 97 percent of them are women. They are all connected within our system. I should mention that the bank is owned by the borrower, so the borrower is not somebody outside this; she is in control, she is the borrower and she is the owner, and she sends a representative to sit in the board, whoever is making a decision is actually her representative and a borrower like her. So, it’s not something in some big banks when somebody came and give you a loan, and they don’t know you and you don’t know them, it’s not like that, it’s a family kind of thing, it’s 8.5 million women’s family. So, we work at it as a kind of organization to be with them and for them.\”

For an academic take on microfinance, a useful starting point is \”Microfinance Meets the Market\”

\”We estimate that roughly 40 to 80 percent of the populations in most developing economies lack access to formal sector banking services. All sides agree that access to reliable financial services might help hundreds of millions, perhaps billions, of low-income people currently without access to banks or at the mercy of exploitative moneylenders. Muhammad Yunus and Grameen Bank led the way by showing that with donor support a wide range of poor and very poor customers are bankable—they can borrow and save steadily and pay substantial fees. …

\”Microfinance will no doubt continue to expand and become part of the financial mainstream. Experience so far, though, suggests that the profile of commercial banks that offer microfinance in low-income communities looks different from that of nonprofit microfinance institutions run by nongovernmental organizations. Commercial microfinance banks are more likely to have for-profit status and to involve an individual lending method, larger loans, fewer women customers, lower costs per dollar lent, higher costs per borrower, and greater profitability. Nongovernmental microfinance organizations are more likely to be a nonprofit employing a group lending method, giving smaller loans, serving more women, employing subsidies more heavily, facing higher costs per dollar lent, and being less profitable. …

\”The original idea of microcredit focused on funding small, capital-starved businesses. Several decades of experience has shown that the demand for loans extends well beyond customers running businesses. Even customers with small businesses often seek loans for other needs, like paying for school fees or coping with health emergencies. … [H]half of recent loans taken by poor households in Indonesia were used for purposes unrelated to business. … The future will likely see a movement toward new loan products for general purposes, new savings products, and better ways to reduce risks. Poor and low-income households typically devote much energy to juggling complicated financial lives, and improving their basic financial capabilities can be greatly beneficial to them, even if it does not lead to wide-scale poverty reduction or national-level economic growth.\”

Larry Summers, The Man Who Always Has Something Interesting To Say, delivered the 2013 Martin Feldstein lecture at the National Bureau of Economic Research on the topic, \”Economic Possibilities for our Children.\” The title is a play on a famous 1930 essay by John Maynard Keynes called \”Economic Possibilities for Our Grandchildren\” (discussed here). In both cases, the speaker is attempting to look beyond immediate economic distress and consider longer-term trends. Here are a few thoughts from Summers, but the entire essay is short, readable, and worth reading.

On the predictions from Keynes back in 1930: 

\”At one level, by the way, Keynes did pretty well. He predicted that incomes in the industrialized world would rise eightfold between 1930 and 2030 and they\’ve risen a little more than sixfold so far, so he\’s looking pretty good on that prediction. But Keynes also got some things wrong. He predicted that as incomes rose eightfold, the workweek would fall to 15 or 20 hours. … The reason is that people with higher wages now work more hours than people with lower wages. … Over time, as we have all gotten richer, the number of hours worked for many people has risen.\”

\”When I was an MIT undergraduate in the early 1970s, a young economics student was exposed to the debate about automation. There were two factions in those debates. There were the stupid Luddite people, who mostly were outside of economics departments, and there were the smart progressive people, who at that time were personified by Bob Solow. The stupid people thought that automation was going to make all the jobs go away and there wasn\’t going to be any work to do. And the smart people understood that when more was produced, there would be more income and therefore there would be more demand. It wasn\’t possible that all the jobs would go away, so automation was a blessing. I was taught that the smart people were right. Until a few years ago, I didn\’t think this was a very complicated subject; the Luddites were wrong and the believers in technology and technological progress were right. I\’m not so completely certain now. … In the United States today a higher fraction of the workforce receives disability insurance than does production work in manufacturing. (Many workers in the manufacturing sector are not production workers.) … I think it is also fair to say that the evolution and growth of disability insurance is substantially driven also by the technological and social changes that are leading to a smaller fraction of the workforce working. At the same time, as has famously and repeatedly been noted, the share of income going to the top one percent of our population has steadily increased.\”

\”The extent to which differential productivity growth characterizes our economy is, I think, sometimes underappreciated. The Bureau of Labor Statistics normalizes the consumer price indices at 100 in the period 1982 to 1984. Below are some recent values of the Consumer Price Index (CPI) for 2012.

Television sets at five stand out. That is obviously a reflection of a rather energetic hedonic effort by the Bureau of Labor Statistics. One suspects that equally energetic hedonic efforts are not applied to every consumer price. But nonetheless, the simple fact is that the relative price of toys and a college education has changed by a factor of ten in a generation. The relative price of durable goods or clothing as a category and all goods has changed by a factor of almost two in a generation. This table provides a somewhat different perspective on the common and valid observation that real wages have stagnated in the United States. The observation that real wages are stagnant reflects wages measured in terms of the overall consumer price index. But this obscures the truth that real wages measured in terms of different goods have behaved very differently.\”

The table is worth mulling over. The average price increase for \”All Items\” from the 1982-84 period was from 100 to 231 by 2012–that is, an increase of 131%  A number of  categories increased by about that much: Services, Energy, Food, Housing, Transportation. But at the top, college education and health care increased in price by dramatically more. At the bottom, clothing, durable goods (like home appliances), toys, and televisions saw much smaller increases or an outright decline. (The \”hedonic\” adjustment that Summers refers to means that the government statisticians make an adjustment for the quality of the good–which is obviously necessary if one is to compare a 1982 television set to a modern one.) At some level, the differential movement in prices explains why so many Americans spend so much of their time looking at screens, while worrying about the cost of health care and education.

Douglas Clement has yet another in his string of excellent interviews, this one with Neil Wallace, in the December 2013 issue of The Region, published by the Federal Reserve Bank of Minneapolis. In much of the interview, Wallace discusses his views on the underpinnings and functions of money. The headings that follow are my own; the comments are from Wallace.

Money is Memory

A professor at Texas A&M put me onto a 1923 book called Monetary Theory Before Adam Smith. It was a Harvard Ph.D. dissertation on the history of thought concerning money. And its author, Arthur Eli Monroe, asks, did Aristotle have this absence-of-double-coincidence notion? Probably not. But he finds someone named Paulus, a Roman jurist in the second or third century A.D., who said something like, when two people meet, it’s often the case that one has something that the other person wants, but not vice versa. And without money, nothing can happen. …

Now, this story is incomplete. That’s what I tell students: It’s incomplete. Why is it incomplete? Well, think about some isolated pioneer family. At times, someone is going to not feel so well, so he or she isn’t going to be able to chop down wood for a fire. There’ll be lots of absence of double coincidences that arise in that family situation, many cases where one family member is called on to do a favor for another family member. … Now think about Robinson Crusoe, after he meets Friday. They don’t need money, but again, there might be plenty of absence of double coincidences. Now think further. Here we are in the middle of Pennsylvania. There are lots of Amish communities around here. When they’re isolated, the usual story about an Amish community—or an isolated Israeli kibbutz—is that they didn’t use money. … Think about this Amish community. The vision is, if my barn burns down, then everybody will come and help me rebuild it. In economics, we try to rationalize behavior without altruism, if we’re able to; so what makes that work without altruism? Everybody notices who shows up to help rebuild it. …  And the guy who doesn’t show up, if he does that repeatedly, will get kicked out eventually. This can work without money because people remember what people have done in the past. … Yes, “money is memory” is a casual way to state that. Now, that’s a hugely powerful idea that I and other people have been working with. …

“Money is memory” is a better idea. It leads you to think about various kinds of payment instruments in terms of the kind of informational structure that supports them. The money that is the best current counterpart to the “money is memory” idea is currency. You don’t need much of an informational network for currency; in fact, you probably don’t need any, except for worrying about counterfeiting. When you use a credit card, you’re issued a loan. Why are you able to receive one? Because there’s an informational network behind your card. Your bank is actually guaranteeing your credit payment up to probably some large amount, as large as you mostly use. And they’re doing that because they know something about you.

Back in the early 1960s, spending on health care in the United States was under 6% of GDP. In the data released for 2012, U.S. health care costs are 17.2% of GDP. As the share of the economy being spent on health care has tripled, arithmetic teaches that the share being spent on everything else must diminish. When I was first studying health economics back in the late 1970s, it was common to hear that rising health care costs were already out of control. But we have now reached the point where many people have been facing the trade-off of more costly health insurance from their employer at the cost of lower take-home pay. The long run budget problems of governments at all levels are largely driven by the prospect of continually rising health care costs.

Thus, the possibility of a slowdown in health care costs is big news, and that is what is reported by
Anne B. Martin, Micah Hartman, Lekha Whittle, Aaron Catlin, and the National Health Expenditure
Accounts Team in an article called \”National Health Spending In 2012: Rate Of Health Spending Growth Remained Low For The Fourth Consecutive Year.\” It\’s in the first issue of Health Affairs for 2014 (pp. 67-77). (The article is not freely available on-line, but many will have access through library subscriptions.) The authors are government actuaries and staff working for the Centers for Medicare and Medicaid Services.

Here\’s a graph in which the blue line shows national health expenditures (NHE) as a share of GDP since 1990, while the red line shows the annual percentage growth rate of health care spending.

The red line makes two obvious points. First, the slowdown in rising health care costs started back around 2002 or 2003. Indeed, health care economists have been writing about it for a couple of years now, and OECD evidence point out that a similar slowdown seems to be occurring across high-income countries. Thus, eager claims by Obama administration officials about how the Affordable Care Act–although still far from fully implemented–is bringing down the rise in health care costs are a prime example of finding a parade, running to the front, and then claiming to lead the parade. As the writers of the Health Affairs article note: \”The Affordable Care Act (ACA), which was enacted in March 2010, had a minimal impact on overall national health spending growth through 2012.\”

Second, a slowdown in health care costs is also apparent back in the 1990s. At that time, the common explanation was that the spread of \”managed care\” plans was holding down costs. For connoisseurs of the embarrassing moments of economists. the Journal of Economic Perspectives (where I\’ve worked as Managing Editor since the first issue 1987) published a paper in the Spring 2003 issue by Sherry Glied called \”Health Care Costs: On the Rise Again.\” Gleid reflected the consensus of the time by pointing out how unexpected the slower rise in health care costs had been in the 1990s, and predicted that such low rates of rising health care costs would not recur. She also pointed out that \”forecasts of health care costs growth are notoriously unreliable.\”

So are we seeing a slowdown in the rise of health care costs that is likely to last? Or a shorter-term swing in health care costs like the 1990s? My crystal ball is cloudy, cracked, and stuck in the back of a closet. The government actuaries note that part of the reason for slower growth in health care expenditures in 2012 were factors like the \”availability of lower-cost generic drugs [as some widely used drugs went off-patent] and changes in Medicare payments for nursing home and physician services.\” Medicaid enrollments slowed down in 2012, as the economic recovery took hold, but as the Affordable Care Act takes effect they seem certain to rise. In general, 2012 was a year when prices for health care rose relatively little, while quantities of health care consumed rose more quickly–a pattern than may not be sustainable, either.

The actuaries write: \”However, this pattern is consistent with historical experience when health spending as a share of GDP often stabilizes approximately two to three years after the end of a recession and then increases when the economy significantly improves. Recently, however, the question has arisen about whether a more fundamental change is occurring within the health sector and whether this stability will endure. From our perspective, more historical evidence is needed before concluding that we have observed a structural break in the historical relationship between the health
sector and the overall economy.\” While it\’s fine to hope that the rise in health costs is slowing, it seems unwise to plan as if it is a sure thing.

If you strongly and thoroughly disagree with someone\’s political beliefs, can you still be best friends? Can you be friends at all?  Robert Dorfman tell the story of two famous economists who disagreed completely while remaining best friends in \”Thomas Robert Malthus and David Ricardo,\” an essay that appeared in the Summer 1989 issue of the Journal of Economic Perspectives. (Full disclosure: I\’ve been Managing Editor of the Journal of Economic Perspectives since the start of the journal in 1987. All articles in JEP from the first issue to the most recent are freely available on-line, courtesy of the American Economic Association.)

Malthus and Ricardo apparently met around 1813 in a dispute over the \”corn laws,\” a protectionist policy of import tariffs and export subsidies that sought to benefit English farmers. Ricardo was opposed; Malthus was in favor. But in arguing it out, they jointly developed a theory of rent; a theory of how national income would be distributed among workers, merchants, and landed gentry; and thus a basis for growth theory. They wrote copious letters to each other and published pamphlets. Dorfman writes: \”They labored together to understand the economic consequences of the Corn Laws. Their discussions led them to a deeper understanding of economics than anyone had attained before. But they could not agree on the substantive matter of policy.\”

The English economy then suffered a postwar depression after the battle of Waterloo, which led Malthus to take the Keynesian position of explaining that if saving was too high and demand too low, the economy might suffer unemployment, while Ricardo argued that overproduction could only be a temporary state of affairs. This was followed by another dispute over the ultimate source of value, in which Malthus argued for a labor-based theory of value and Ricardo argued for a cost-of-production based theory. Many more letters followed, along with copious paragraph-by-paragraph criticisms of each others\’ pamphlets and books. And yet Malthus and Ricardo were best friends. Dorfman writes:

\”They were still at it on August 31, 1823, when Ricardo was beginning to suffer severe headaches from an abscess on his brain. On that day, Ricardo wrote Malthus a long letter, which began, \”I have only a few words more to say on the subject of value, and I have done.\” After about two pages of careful reasoning, he concluded, \”And now, my dear Malthus, I have done. Like other disputants, after much discussion we each retain our own opinions. These discussions, however, never influence our friendship; I could not like you more than I do if you agreed in opinion with me. Pray give Mrs. Ricardo\’s and my kind regards to Mrs. Malthus. Yours truly …\”

\”Two weeks later, Ricardo was dead. At his funeral, Malthus is reported to have said, \”I never loved anybody out of my own family so much. Our interchange of opinions was so unreserved, and the object after which we were both enquiring was so entirely the truth and nothing else, that I cannot but think we sooner or later must have agreed.\”

Malthus and Ricardo laid down some challenges worth considering in one\’s own life. Do you go the extra distance in at least a spirit of collegiality, to explain your views? Do you try just as hard to hear validity in the criticisms of others as you do to explaining your own views? Do you leave open the possibility that your own views are only an imperfect approximation of truth, just as the views of others are an imperfect approximation of truth, so that perhaps you are searching for answers together, rather than opposing each other? Can you completely disagree but still be friends?

Here\’s the last word from Dorfman:

\”It is as though each served as the anvil for the other\’s hammer, and their ideas were hammered out in their efforts to persuade each other. They were two men obsessed by a common enthusiasm, tirelessly pursuing a common goal: to understand the economy. But they did not share a common vision of the good society and thus were condemned to wrestle interminably, though remarkably fruitfully, over the roles of the social classes. Their struggles to convey to each other their views of the forces that drove their economy are an inspiring case study in both the difficulty and the possibility of human  communication. These two friends, sustained by enormous affection and respect for  one another, never could nullify the differences in preconception and mental style that separated them, but still could help each other attain a deeper understanding of their economy than anyone had achieved before. To do this required invincible faith in each other\’s candor and open-mindedness, great patience, inexhaustible good will, and unflagging civility.\”

In the 21st century, it\’s useful to remember that social media snarkiness and flame wars are a choice, and other choices are possible.

Claudia Goldin delivered the Presidential Address at the American Economic Association meetings last week entitled \”\”A Grand Gender Convergence: Its Last Chapter.\”  The talk is traditionally published in a few months in the American Economic Review. But a pre-copy-edited final draft version is available at Goldin\’s website here.

Goldin points out that the ratio of the median woman\’s wage to the median man\’s wage has been closing over time: \”The mantra of the women’s movement in the 1970s was `59 cents on the dollar\’ and a more recent crusade for pay equality has adopted `77 cents on the dollar.\’\” (For a post from last September on this change, see here.) A substantial part of this change is that what economists call the \”human capital\” characteristics of women–often measured by educational attainment and years of  workforce experience–now look quite similar to those of men. So why does a gender wage gap remain? Goldin argues: \”As women have increased their productivity enhancing characteristics and as they `look\’
more like men, the human capital part of the wage difference has been squeezed out. What remains is largely how firms reward individuals who differ in their desire for various amenities. These amenities are various aspects of workplace flexibility. Workplace flexibility is a complicated, multidimensional concept. The term includes the number of hours to be worked  and also the need to work particular hours, to be “on call,” give “face time,” be around for clients, be present for group meetings and so forth.\”

The typical pattern here is that women have a fairly small gender wage gap when they first start their careers. However, as women reach their child-bearing and child-raising years, the gender wage gap opens up. Women who don\’t have children experience a much smaller gender wage gap. In addition, Goldin shows that this pattern commonly exists within many different occupations, although the size of the wage gap does vary across occupations.  She writes: \”The main takeaway is that what is going on within occupations—even when there are 469 of them as in the case of the Census and ACS [data]—is far more important to the gender gap in earnings than is the distribution of men and women by occupations. … If earnings gaps within occupations are more important  than the distribution of individuals by occupations then looking at specific occupations should  provide further evidence on how to equalize earnings by gender. Furthermore, it means that changing the gender mix of occupations will not do the trick.\”

Here\’s a figure showing the overall pattern. Each of the lines is a birth year for women. The horizontal axis shows the age of the woman. The vertical axis shows the gender wage gap at that age. The vertical axis is measured on a logarithmic scale, and for those who aren\’t familiar with that scale, Goldin inserts the percentage wage gap in brackets. You can see that the lines for women born more recently are higher on the graph, which shows that the gender wage gap is diminishing over time. You can also see that from about age 25 up to about age 40, the gender wage gap expands, whereas after about age 45, it contracts.

Goldin looks at data on wages by gender across these 469 occupational categories. She finds some overall patterns, like the gender gaps tend to be bigger in business occupations and smaller in technology and science occupations.  She focuses on whether an occupation is \”linear,\” which basically means that if someone works 50% more hours than someone else, they earn 50% more. The alternative is whether an occupation is \”non-linear,\” which means that if someone works 50% more hours than someone else, they earn a substantial amount more than 50% more. Careers in business and law tend to be nonlinear: that is, those who work very long hours can make extremely high rewards, and those who work 30 hours per week earn considerably less than half as much as those who work 60 or more hours per week.

As an example of a linear career, Goldin points to pharmacists. (For a detailed analysis of pharmacists, see \”The Most Egalitarian of All Professions: Pharmacy and the Evolution of a Family-Friendly
Occupation,\” by Claudia Goldin and Lawrence F. Katz, National Bureau of Economic Research Working Paper #18410, September 2012). Women were less than 10% of all pharmacists back in the 1960s, and are now more than half. But the nature of the job has also changed. Back in the 1960s, about two-thirds of all pharmacists were independent; now, only about 15% are independent, and the rest work for big organizations like hospitals or drugstore chains. Pharmacists who work part-time earn about the same hourly wage as those who work full-time, or more than full-time. Goldin explains what is behind this pattern:

\”The last chapter must be concerned with how worker time is allocated, used and remunerated and it must involve a reduction in the dependence of remuneration on particular segments of time. It must involve greater independence and autonomy for workers and the ability of workers to substitute seamlessly for each other. Flexibility at work has become a code word to mean shorter hours. It also means temporal flexibility such that total hours worked are the same. Flexibility is of little value, however, if it comes as a high price. There are many occupations that have moved in the direction of less costly flexibility. … Some changes have occurred organically often due to economies of scale (as in the cases of physicians, pharmacists and veterinarians), some changes have been prompted by pressure on the part of employees (as in the case of various physician specialties such as pediatricians), and yet other changes have occurred because of a desire to reduce costs. What the last chapter must contain for gender equality is not a zero sum game in which women gain and men lose. Many workers will benefit from greater flexibility, although those who do not value the amenity will likely lose from its lower price. The rapidly growing sectors of the economy and newer industries and occupations, such as those in health and information technologies, appear to be moving in the direction of more flexibility and greater linearity of earnings with respect to time worked. The last chapter needs much more of that.\”

Aaron Steelman of the Richmond Fed conducted an \”Interview\” with John Cochrane that has been published in Econ Focus (Third Quarter 2013, pp. 34-38). It\’s full of Cochrane\’s characteristically crackling commentary. Here are some snippets:

On the Dodd-Frank financial regulation law

\”I think Dodd-Frank repeats the same things we’ve been trying over and over again that have failed, in bigger and bigger ways. … The deeper problem is the idea that we just need more regulation — as if regulation is something you pour into a glass like water — not smarter and better designed regulation. Dodd-Frank is pretty bad in that department. It is a long and vague law that spawns a mountain of vague rules, which give regulators huge discretion to tell banks what to do. It’s a recipe for cronyism and for banks to game the system to limit competition.\”

On how to stop bailing out large financial institutions

You have to set up the system ahead of time so that you either can’t or won’t need to conduct bailouts. Ideally, both. 

On the first, the only way to precommit to not conducting bailouts is to remove the legal authority to bail out. Ex post, policymakers will always want to clean up the damage from crises and worry about moral hazard another day. … You also have to let people know, loudly. The worst possible system is one in which everyone thinks bailouts are coming, but the government in fact does not have the legal authority to bail out.

On the second, if we purge the system of run-prone financial contracts, essentially requiring anything risky to be financed by equity, long-term debt, or contracts that allow suspension of payment without forcing the issuer to bankruptcy, then we won’t have runs, which means we won’t have crises. People will still lose money, as they did in the tech stock crash, but they won’t react by running and forcing needless bankruptcies.

How large government debts affect monetary policy

Monetary policy will be different in the shadow of huge debts. For example, suppose the Fed wants to raise interest rates to 5 percent tomorrow. The Treasury would then have to start rolling over its debt at that higher interest rate, which means a net flow of about $800 billion of extra deficit that has to come from somewhere — more taxes or less spending eventually. Will Congress still say, “Sure, go ahead and tighten”? After World War II, we had a similarly huge debt and Congress simply instructed the Fed to keep interest rates low to finance the debt. That could happen again. How independent can monetary policy be in the shadow of huge debts?

The issue of time-varying risk premiums

One big unresolved issue in finance is why risk premiums are so big and why they vary so much over time. You can look at the spread between what you have to pay to borrow and
what the U.S. government pays in order to see that risk premiums are big and varying. … For macroeconomics, the fact of time-varying risk premiums has to change how we think
about the fundamental nature of recessions. Time-varying risk premiums say business cycles are about changes in people’s ability and willingness to bear risk. …

On tax-favored savings accounts

Medical savings accounts are a great idea, although the need for special savings accounts for medicine, retirement, college, and so on is a sign that the overall tax on saving is too high. Why tax saving heavily and then pass this smorgasbord of complex special deals for tax-free saving?  If we just stopped taxing saving, a single “savings account” would suffice for all purposes! 

Here\’s a hypothesis: If people who don\’t have health insurance were covered, then they could get preventive care before they became sick and go to primary care doctors when they were a little sick, instead of going to emergency rooms after the symptoms get even worse. Thus, giving them health insurance would cut costs by reducing the number of more costly emergency room visits and also improve health outcomes.

What\’s the best way to get evidence on how whether hypothesis holds true? Or how large the cost savings or health effects might be? Well, imagine a situation in which a state looks at a group of 90,000 people who lack health insurance, and randomly selects 10,000 of them to receive government-provided health insurance. As long as the observable characteristics of the group that get health insurance look the same as those who didn\’t (and this can be checked by a researcher), then one can reasonably compare the outcomes for those who got health insurance with those that didn\’t.

But where to find such an experiment. The answer is \”Oregon.\” Back in 2008, Oregon wanted to expand health insurance coverage, but it only had enough money to cover 10,000 people. So it held a lottery, which attracted 90,000 applicants, and then selected the 10,000 people at random. Since then, a group of economists and public health researchers have been collecting evidence. Their latest publication is \”Medicaid Increases Emergency-Department Use: Evidence from Oregon\’s Health Insurance Experiment,\” by Sarah L. Taubman, Heidi L. Allen, Bill J. Wright, Katherine Baicker, and Amy N. Finkelstein. It was published on-line by Science magazine on January 2, and if you don\’t have access through a personal or library subscription, it is available with free if clunky registration.

They find that health insurance leads to more emergency room visits, not fewer. From the abstract of their paper: \”We find that Medicaid coverage significantly increases overall emergency use by 0.41 visits per person, or 40 percent relative to an average of 1.02 visits per person in the control group. We find increases in emergency-department visits across a broad range of types of visits, conditions, and subgroups, including increases in visits for conditions that may be most readily treatable in primary care settings.\”

Also in Science, Raymond Fisman offers a commentary on these results, called \”Straining Emergency Rooms by Expanding Health Insurance.\” The vertical bars on the figure show how much of an increase in  emergency room visits occurred for the insured patients. The bars separate out different causes for the emergency room visit. Fisman writes: \”Visits that require immediate ER care and could not have been prevented are “emergent, not preventable.” Visits that require immediate ER care and could have been prevented with ambulatory care are “emergent, preventable.” Visits that require immediate care but could be treated in an outpatient setting are “primary care treatable.” Visits that do not require immediate care are “non-emergent.” The lines through the middle of the bars show the 95% statistical confidence intervals.

As Fisman points out, the fact that various primary care treatable conditions and \”non-emergent\” conditions end up in emergency rooms doesn\’t prove that people with health insurance are doing anything wrong. When primary care doctors are fully booked or overbooked for a day, or if it is after normal visiting hours, then primary care doctors often send patients to emergency rooms. In addition, just because a chest pain turns out not to be a heart attack, it may still make sense for the person to head for the emergency room when such a pain occurs.

But whatever the justifications for higher emergency room use, the pattern itself seems clear. If health insurance is expanded, there are likely to be more patients in emergency rooms, not fewer. Fisman writes:

If all goes as planned, many more Americans will soon be covered by some type of health insurance. Although much of the United States looks very different from white, liberal, urban Portland, and the OHIE [Oregon Health Insurance Experiment] involved a small, rather than universal, expansion in coverage, there is no obvious reason to expect that insurance will have drastically different effects elsewhere. That is, based on this paper’s findings, we have good reason to anticipate a large increase—and almost surely not a decrease—in traffic to already overburdened emergency departments across the country. Whether or not you think universal coverage is a good idea, we had better start planning for it.  Clearly, the answer is unlikely to be just increasing ER budgets to accommodate more patients: There are surely better ways to manage health delivery to low-income populations, particularly with an eye to long-term preventive care rather than short-term treatment.

This paper is the third published study of the Oregon Health Insurance Experiment, as it is coming to be called. The first paper, published in the Quarterly Journal of Economics in August 2012, noted that those who received health insurance utilized more health care and reported less financial stress over paying for health care. The second paper, published in the New England Journal of Medicine, May 2, 2013. It found that \”Medicaid coverage had no significant effect on the prevalence or diagnosis of hypertension or high cholesterol levels or on the use of medication for these conditions. It increased the probability of a diagnosis of diabetes and the use of medication for diabetes, but it had no significant effect on the prevalence of measured glycated hemoglobin levels of 6.5% or higher. Medicaid coverage led to a substantial reduction in the risk of a positive screening result for depression. This pattern of findings with respect to clinically measured health — an improvement in mental health but not in physical health …\”

In short, the evidence so far from the Oregon health insurance experiment shows that those who receive health insurance consume more health care, including emergency room care, and also that measures of their mental health seem to improve (less financial stress from health care costs, reduced diagnoses of depression). However, the evidence so far does not suggest that actual physical health status is improved by having health insurance. This is perhaps not a huge surprise, given that the accumulated evidence covers only a couple of years. We know that actual health outcomes are more a function of diet, exercise, smoking, drinking, violence and so on, rather than access to health care.

I am congenitally suspicious of surveys in which people are asked about whether they have acted in charitable ways. But nonetheless, the World Giving Index 2013, which is published by the Charities Aid Foundation based on survey data collected around the world by Gallup, offers all sorts of room for rumination. The survey asks whether a person has participated in three kinds of charitable behavior in the previous month: helping a stranger, donating money, or volunteering. It doesn\’t ask about the quantities of these behaviors: how much help, how much money, or how many hours of volunteering. But as a sort of Rorshach test to stimulate speculation and story-telling, here are some main findings.

First, here are the top-ranked countries, where the overall ranking is determined as the average of the percentages of those who say that they participated in one of the three behaviors. The U.S. ranks first, thanks in large part to the very high score on \”helping a stranger.\”

And here are the bottom 10 countries for these giving behaviors. One might expect that countries which have experienced different kinds of civil strife might rank lower on giving, which holds true in different ways for a number of these countries. But I find it remarkable that in China, only 33% of people report helping a stranger, 10% report giving money, and 4% report volunteering. And in Greece, these percentages are as low or lower. Perhaps this is a sign that in China, people don\’t want to answer questions from surveys? Perhaps in Greece, it\’s a sign that the social divisions following from the economic turmoil of the last few years are leaving a scar? As I said, these kinds of tables are an inkblot where you can tell your own story.

Here are the top ten and bottom 10 countries for each of the behaviors separately. In helping a stranger, the US ranks first, followed by the highly heterogenous list of Qatar, Libya, Colombia, and Senegal.

Here are the bottom 10 countries for helping a stranger. Remember that these are survey data. In these countries, less than 30% of people report to the survey that they have helped a stranger in the previous month.

In the percentage of those having given money, Myanmar (!?!) ranks at the top, followed by the United Kingdom, Malta, Ireland, and Thailand.

In the bottom 10 countries of those who report giving money, 8% or fewer of all respondents say that they have given money in the previous month. A few of these countries have low levels of per capita income, like Niger and Mali. But a number of others–Russia, Ukraine, Georgia, Greece, Armenia–are not especially low-income by world standards.

In the percentage of those volunteering time, Turkmenistan leads the way, with Tajikistan and Uzbekistan also in the top 10, with Sri Lanka, the US, Myanmar, and the Phillipines, also ranked near the top.

And here are the bottom 10 countries, in which 7% or fewer of respondents say that they have given time in the last month.

These survey responses are distinctive enough that it feels to me as if they mean something. But I don\’t know if the appropriate stories need to be told on a country-by-country basis, or if one can make useful arguments about patterns across certain areas or regions. Let the hypothesizing begin.