393 (30 October 2019)

Welcome!  The articles below caught my attention this week.  What are intended to be relatively objective “briefs” are preceded by dashes (——–), whereas additional material or relatively subjective comments are preceded by asterisks (********).  Article titles preceded by [SR] require a subscription.

(22 October 2019)A brilliant economist diagnoses the U.S. healthcare system—from beyond the graveThe Los Angeles Times

——–“When the economist Uwe Reinhardt died unexpectedly in November 2017, his colleagues and followers lamented the silencing of one of the most penetrating, objective and effective voices in the healthcare debate. . . . With the posthumous publication this month of his final work, a book entitled “Priced Out: The Economic and Ethical Costs of American Health Care,” Reinhardt’s reputation for cutting to the quick of the issues in U.S. healthcare reform is only enhanced.  The book should be required reading for anyone who professes to have an interest in the debate — economists, journalists, legislators, doctors and patients.”

            Reinhardt’s book raises a question that few have been willing to raise explicitly: “To what extent should the better-off members of society be their poorer and sick brothers’ and sisters’ keepers in health care?”  As he notes, “Every other developed country has long since pondered this fundamental question and concluded that healthcare is a social good that should be ‘available to all on roughly equal terms.’” 

********Reinhardt’s book seems to have grown out of a celebrated article that he co-authored published in 2003: “It’s The Prices, Stupid: Why The United States Is So Different From Other Countries.”  An updated of the article was published in 2019 by his co-authors: “It’s Still the Prices, Stupid: Why The US Spends So Much On Health Care, And A Tribute To Uwe Reinhardt.”  The 2003 article indicates that higher U.S. prices are largely due to “the private insurance sector, which played a much larger role in America than in other countries; the public sector, represented here [in the U.S.] mostly by Medicare and Medicaid, was roughly as cost-effective as public health programs elsewhere.”  The updated version “came to the same conclusion.”  In the book, Reinhardt attributes much of the price differences between the U.S. and other countries to “the insane administrative complexity of the American system, especially in the private sector.”  An example given reports that “the Duke University hospital system, which had 956 beds in 2017, employed 1,600 billing clerks.”

            A great example of “insane complexity,” provided by my son in a different context, is “Death Star Thinking and Government Reform,” by Jennifer Pahlka.  It shows how the concatenation of perfectly reasonable rules, considered one at a time, can easily result in unreasonable complexity for the system as a whole.  “Death Star Thinking” comes from the first Star Wars movie and is easily recognizable as the familiar term “Magic Bullet.”  To counter “Death Star Thinking,” Pahlka argues that the “interconnected, complex, self-adaptive systems” characteristic of government require creating “new conditions, new capabilities, and new sensibilities.” 

            Two articles related to “Death Star Thinking,” largely because they shed light on ignorance and faulty thinking patterns, are “Unknown Unknows: The Problem of Hypocognition” and “Different Kinds of Stupid.”  I became award of these interesting pieces via Ritholtz’s Reads.  In the former article the notion of hypercognition—a malady suffered by many experts—is introduced.  It is the over-application of “a familiar concept to circumstances where it does not belong.”  A lengthier exposition of hypocognition can be found here by downloading the relevant pdf. 

(22 October 2019)The New Economics: Data, Inequality, and PoliticsThe New Yorker

********This is a review of Unbound: How Inequality Constricts Our Economy and What We Can Do About It, by Heather Boushey.  Boushey “assimilates a great deal of recent economic research and argues that” what amounts to a paradigm shift is underway, moving from an emphasis on theory to policy-oriented work that embodies “data-driven discoveries.”  As columnist John Cassidy notes, “The book’s footnotes, which reference hundreds of different studies, are a treasure trove.”  Unbound has three parts: (I) How Inequality Obstructs; (II) How Inequality Subverts; and (III) How Inequality Distorts.  In exploring them she shows that “inequality of various kinds impedes economic development at the individual and aggregate levels.”  At 304 pages, this seems like a good companion for ethically-based arguments for reducing inequality.

            In light of the historical background provided by Unbound, this week’s (27 October 2019) edition of Economic Principals is a nice companion.  David Warsh writes “And Now, the ‘Methods Revolution’.”  In doing so he adds to the recent coverage of the 2019 Nobel Prize in economics, providing references that expand upon and are critical of randomized controlled trials, which were at the heart of the work of the latest Nobel laureates.  Nonetheless, Warsh holds that the 2019 Prize “is the first step in what will surely be a series of prizes to be given for new methods-driven results.  There will be many more.”  A nice complement to Warsh’s post is “Why Are Random Trials So Common in Anti-Poverty Work?JSTOR Daily, which builds upon “The Success of Randomized Controlled Trials: A Sociographical Study of the Rise of J-PAL to Scientific Excellence and Influence.”

(24 October 2019)The Great Antitrust Awakening Can’t Be StoppedBloomberg Businessweek

********This article provides a brief summary of antitrust thinking and behavior from the publication of Robert Bork’s 1978 book The Antitrust Paradox, which enshrined the “consumer-welfare standard” as the basis for antitrust deliberation to Lina Khan’s 2017 paper “Amazon’s Antitrust Paradox,” which takes a much different view in light of changing technological circumstances.  Bipartisan consider among politicians about the uncompetitive nature of firms such as Facebook, Amazon, Apple, Netflix, and Google have proceeded apace.  Democrats, as exemplified by Senators Cory Booker and Elizabeth Warren have expressed their concerns.  “But it’s “not just Democrats . . . Josh Hawley, Missouri’s new Republican senator, is a harsh critic of the tech companies.  Other Republicans complain that Facebook and Google, in particular, are biased against conservative viewpoints and want to reduce their power over public discourse.”

            On the theme of the antitrust awakening, further evidence for it is provided by NYU finance professor Thomas Phillopon in his just-released book The Great Reversal: How America Gave Up on Free Markets.  He provides an overview of its argument in “The U.S. Only Pretends to Have Free MarketsThe Atlantic.  The article notes that the EU prices of a variety of widely used services have declined significantly for the EU relative to the U.S. “The irony is that the free-market ideas and business models that benefit European consumers today were inspired by American regulations circa 1990. Meanwhile, in industry after industry in the United States . . . incumbent companies have increased their market power by acquiring nascent competitors, heavily lobbying regulators, and lavishly spending on campaign contributions.”  Interestingly, “In Europe, greater integration among national economies turned out to be a force for greater competition within individual economies.  The very same politicians who disliked free markets at home agreed to promote the at the European level.  Why?  Because everyone understood that the single market required independent regulators as well as a commitment that individual countries would not subsidize their domestic champions.”

(25 October 2019)Freelancers fear California’s new gig worker law will wipe them outThe Los Angeles Times

——–The Dynamex decision of the California Supreme Court “tightened the rules for when a worker must be considered a company’s employee rather than an independent contractor.”  But California Assembly Bill AB 5, “a statute enacted this year that codified the Dynamex decision and expanded its reach,” has generated “angst among the freelancers in journalism.”  Now “Writers and photographers who submit more than 35 published works per year to a publisher must be treated as an employee of the publisher. . . . Although every employer located in California is subject to the law, freelancers fear that AB 5 will discourage more employers from out of state from hiring Californians to avoid the paperwork and legal liabilities implicit in the law.” 

            The free lancers “may have a point.  Gig economy ride-hailing firms such as Uber and Lyft—the most prominent targets of AB 5—have no choice but to employ California drivers if they want to participate in the lucrative California market. . . . That’s not true of the writing trade, which often can be pursued from anywhere.”  As San Diego writer David Swanson notes, “AB 5 simply makes it unattractive to hire writers from California.”

********A good example of a presumably unintended consequence of AB 5.  As the article notes, “AB 5 specifically exempts about a dozen work categories from its provisions, such as doctors, accountants, fisherman, stockbrokers and travel agents.”  But journalists were not excluded and now another challenge is being presented to an industry that is in decline.

(29 October 2019)America’s Middle  Class Is Addicted to a New Kind of CreditBloomberg.com

——–“The payday-loan business was in decline.  Regulators were circling, storefronts were vanishing and investors were abandoning the industry’s biggest companies en masse.  And yet today, just a few years later, many of the same subprime lenders that specialized in the debt are promoting an almost equally onerous type of credit . . . the online installment loan, a form of debt with much longer maturities but often the same sort of crippling, triple-digit interest rates.  If the payday loan’s target audience is the nation’s poor, then the installment loan is geared to all those working-class Americans who have seen their wages stagnate and unpaid bills pile up in the years since the Great Recession.”

********The article indicates that the imposition of limitations on payday lending was the impetus for the development of new financial products, i.e., payday loans were largely supplanted by online installment loans.  The article references The Unbanking of America: How the New Middle Class Survives, by Lisa Servon of the University of Pennsylvania.  Servon worked in a variety of financial institutions to learn how entrepreneurs are reacting to “the unbanking of America by designing systems likely to change how we bank and how we live our financial lives.”­

May you have a good week!  

Bruce

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