Wednesday, November 30, 2011

Who Profits from the Recession?

Reading Google News this morning, I noticed a headline:

Home Prices Continue to Fall:
D.C. Bucks Trend

I was particularly struck by it because yesterday, driving back to our temporary home in Fairfax from a visit to D.C., my wife commented on the amount of new construction we saw. The economy may not be doing so well, but the government industry is booming

Or, to quote my wife, "People talk about Main Street vs Wall Street. It should be Main Street vs the Beltway."

Monday, November 28, 2011

David Brin and Adam Smith

I've run into yet another case of someone complaining about conservatives falsely claiming Adam Smith in support of their views while doing exactly that himself. The complainer this time is David Brin, who wrote an interesting book on surveillance some years back but has, in my experience, a tendency to pontificate well beyond the limits of his knowledge.

In the relevant passage, he wrote:
But anyone who actually reads Adam Smith also knows that he went on and on about that "fair and open" part! Especially how excessive disparities of wealth and income destroy competition. Unlike today's conservatives, who grew up in a post-WWII flattened social order without major wealth-castes, Smith lived immersed in class-rooted oligarchy, of the kind that ruined markets, freedom and science across nearly 99% of human history. He knew the real enemy, first hand and denounced it in terms that he never used for mere bureaucrats.
In a comment, I asked him to produce a quote from Smith saying that excessive disparities of wealth and income destroy competition. He responded with the following (from The Theory of Moral Sentiments).
"This disposition to admire, and almost to worship, the rich and the powerful, and to despise, or, at least, to neglect, persons of poor and mean condition, though necessary both to establish and to maintain the distinction of ranks and the order of society, is, at the same time, the great and most universal cause of the corruption of our moral sentiments."
Which, as I pointed out in my response, has nothing to do with disparities of wealth and income destroying competition. Apparently Brin couldn't find any examples of Smith saying what he claims Smith went on and on about, so quoted something else instead.

I could have gone on to point out that Smith's attacks are not, for the most part, against the "class-rooted oligarchy," which at his time consisted mostly of the landed gentry. On the contrary, he tried to persuade the landowners that the policies he thought were in the general interest were also in their interest—sometimes stretching his argument pretty far to do so. His attacks were mostly directed at the "merchants and manufacturers."

But it didn't seem worth the trouble.

Those interested in reading Brin's post and our exchange of comments will find them here
My earlier post on people misrepresenting Smith while complaining about other people doing so is here.

P.S. Since I put this up, Brin posted another response and I answered it. As I suggest in my answer, my fundamental complaint about Brin is the same as my complaint elsewhere about Rothbard—that as long as he believes he is arguing for the right side, he doesn't really care whether what he says is true.

Friday, November 25, 2011

The Price of Money

I have stayed out of macro-economics in my work as an economist for a number of reasons, but it is a hot political subject at the moment and several times of late I have gotten involved in online macro arguments, so I decided it would be worth learning a little more about it. Someone sent me a copy of a recent book of essays by Tim Congdon, who has the interesting distinction of being both a monetarist and a fan of Keynes, and I have started reading it. 

The central claim of the first essay is that the views of the British Keynesians of the sixties and seventies were strikingly inconsistent with Keynes' own views. They saw inflation as a cost push phenomenon to which the proper solution was wage and price controls. Keynes, like later monetarists, saw it as a result of too much money and the solution as tight monetary policy. He was against wage and price controls, not for them.

One other thing struck me about the first essay: Congdon repeatedly refers to the interest rate as "the price of money." This is a very common error, and one that is not only wrong but dangerously wrong.

If the price of an apple is fifty cents, that means that if I give a seller fifty cents he will give me an apple in exchange. If the interest rate is five percent and that is the price of money, I ought to be able to buy money for five cents on the dollar. I doubt that Congdon, or anyone else, will be willing to sell it to me at that price. 

The price of money is what you have to give up to get it—the inverse of the price level. If the price of an apple is fifty cents, the price of a dollar is two apples. The interest rate is the rent on money, measured in money. A change in the price of money affects both the money you are renting and the money you are paying as rent, leaving the ratio of the two unchanged.

Suppose that at midnight tonight every dollar bill in the world twins, along with a similar change in the accounting entries for bank deposits, other forms of money, and all obligations denominated in money. By morning, there is twice as much money as before—and nothing else has changed.

I would ask Congdon whether, under those circumstances, he would expect the interest rate to drop. If his answer is yes, my next question is whether he would expect a much more extreme drop if we relabeled pennies as dollars and dollars as hundred dollar bills, thus increasing the money supply, measured in "dollars," a hundredfold.

The reason the description of the interest rate as the price of money is not only wrong but dangerously wrong is that it implies a simple relation between money and the interest rate—in the extreme (but not uncommon) version, the belief that interest rates are set by central banks, with high interest rates the result of a tight monetary policy.

A central bank can create money and lend it out, increasing the supply of loans (which reduces the interest rate) and increasing the money supply. That is the one element of truth to the relationship. But what is affecting the interest rate is not the amount of money but the amount of loans; the government could get the same effect by collecting more in taxes than it spends and lending out the difference.

The interest rate is a market price—the price paid for the use of capital—and the central bank controls it only in the same sense in which the government can control the price of wheat by choosing to buy or sell some of it. The central bank does not have an unlimited amount of capital from money creation to lend and so has only a limited ability to shift interest rates from what they would otherwise be. Furthermore, a continued expansion of the money supply creates the expectation of future price rises, which pushes the nominal interest rate up, not down. 

I have been unable to locate an email address for Tim Congdon, so am unable to point out his error to him directly. If any of my readers has one, I would be grateful if you would send it to me.

[Two people have now provided me with his email, I emailed him and received a friendly response.]

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Wednesday, November 23, 2011

How to Destroy the Publishing Industry: Take Three

It is now both easy and inexpensive for an author to self-publish his work, either as a print-on-demand paperback or an ebook; for the former I recommend CreateSpace, Amazon's POD subsidiary, which my wife and I used to self-publish a historical cookbook. Self-published books of either sort can be sold through Amazon, making them easily available to anyone who wants them. Thus two of the functions of a publisher, producing books and distributing them, are no longer necessary.

Publishers also help authors write their books by providing copy editors, locating cover artists, occasionally even providing useful feedback on the contents. But all of these functions can be provided almost equally well in other ways. Copy editors are for the most part self-employed free lancers rather than employees; there is nothing to stop the author from cutting out the middleman, or the author's agent from stepping in to fill that role. The best editorial help I ever got came not from a publisher but from my agent.

There remains one more function—filtering. The fact that a book has been published by a major publisher is no guarantee that it is worth reading but pretty good evidence that it is at least worth looking at. To finish the job of replacing the publishing industry, we need a substitute filter, a way in which readers can find, out of a million self-published books, the top ten thousand or so. My experience so far suggests that Amazon reviews are not adequate for the purpose; the novel that I self-published as a kindle has gotten reviews ranging from four to five stars, but sold few copies. We need something better.

My latest idea is to leverage the Kindle. Have Amazon get permission from Kindle owners to have their machines report, anonymously, on how long the owner spent reading each book on the machine. The longer the time spent, the better evidence that the book was, for that reader, worth reading. The rating algorithm should take account of differing book lengths and ignore books that were never looked at.

To make this work better, make downloading free for the first month, in order to increase the number of people who download each book and take at least a brief look at it. Once the month is up, the book price goes to whatever price the author chooses. A fancier version, probably not beyond the technology, is to make such a free book vanish from the Kindle a month after it is downloaded, leaving behind a link to where it can now be bought. 

An even simpler approach would be to leverage the "sample the beginning of this book for free" option that Amazon already provides, implementing it in some form that lets Amazon find out how many of the readers who started the free sample finished it.

As its title suggests, this is not my first post on the subject. Readers interested in my previous suggestions for eliminating the publishing industry will find them here and here.

Saturday, November 12, 2011

Fracking and Earthquakes: Bug or Feature?

According to a recent news story, there is good evidence that forcing water into deep wells, done (among other reasons) in the process of fracturing rock to get at natural gas, causes earthquakes. The story takes it for granted that this is an argument against fracking, but while that might be true, it is by no means obvious.

The energy for an earthquake has to come from somewhere, and I don't think the amount of energy that goes into pumping water underground can be close to enough. What is presumably happening is that pumping in the water causes the release of energy that is already there. Dissipating that energy might mean lots of small earthquakes instead of a small number of big ones, which would probably be a net benefit. 

If so, what has been identified is not a bug but a feature.

Do any of my readers have more information on the subject?

Thursday, November 10, 2011

International Healthcare Comparisons

Some years back, I had a post criticizing the widely cited (and often misrepresented) WHO study comparing medical care in a large number of countries. More recently, an online discussion resulted in someone pointing me at a book by Sheila Leatherman and Kim Sutherland, aimed mainly at evaluating the British National Health Service but with a number of international comparisons, in most cases among the U.S., UK, Canada, Australia and New Zealand. Parts of the book are available online at Google Books.

Judging by the information on the pages shown, the widely believed claim that the U.S. not only spends more per capita on health care than other developed countries but also gets worse results for its money is not supported by the evidence. The webbed parts of the book contain the following comparisons (pp. viii-xviii):

---
For “mortality from causes considered amenable  to healthcare,” “in 1998 the UK had the highest mortality rates of the five countries compared.”

“England continued to have the highest breast cancer mortality rates among these comparator countries.”

“Of the five countries compared, the US had the highest survival rates from breast cancer, ...”

For colorectal cancer, “New Zealand had the highest mortality rate ... and the US had the lowest.”

“In 2001, England's mortality rate from stroke ... was lower than that in Australia ... but higher than that in the US ...”

“82% of UK respondents indicated that they were treated in [Accident and emergency] in less than four hours, a figure broadly in line with comparator countries (AUS 87%; CAN 74%; NZ 86%; US 87%).

“Patient reports of access to primary care within 48 hours saw the UK … outperform both the US and Canada” (Australia and New Zealand did still better).

“In response to a question regarding whether recent [Accident and emergency] visits would have been necessary if appropriate primary care had been available … the UK had the best result.”

“The UK had the lowest level of health consequences resulting from … errors and mistakes.”

 ---

I think these are all of the pieces of information shown that provide information on the relative performance of either the U.S., the U.K. (or in some cases England), or both, although I might have missed something. I am not including various input measures.

By my count, U.S. medical outcomes (including things such as speed of treatment) are superior to U.K. outcomes (in some case English outcomes) on five different measures, inferior on three. On two measures the U.K. (or England) is the worst of the five countries considered, on two the best; on three the U.S. is the best of the five (counting one tied for best), on none the worst. 

There are four pure outcome measures, mortality and survival rates from various causes. The US was superior to the UK on all of them, best of the five countries on two. The UK was worst of the five countries on two.


The overall conclusion, based on this (very fragmentary) data, is that U.S. healthcare outcomes are on the whole better, not worse, than UK healthcare outcomes.

These results might change if I had a chance to look at the entire book. Unfortunately, neither the library at GMU, where I’m currently visiting, nor the library at SCU, where I teach, appears to have it. If by any chance someone reading this has access to the book, I would be interested in a more complete list of comparisons.

Two other points in the book struck me. Judged by per-capita spending on health the U.S. is  the worst of the five, as I would expect, but North Ireland and Wales are close behind, which surprised me a little.

Also, the text has, under “Waiting for elective surgery,” the information that “The UK in 1998 and 2001 had high numbers of patients waiting: and in 2000 had long waits for elective surgery, relative to comparative countries.”

That’s a charge often made against the English system by its critics and routinely denied by its supporters. In this case it is coming from authors whose speciality seems to be the study of NHS performance.

Tuesday, November 08, 2011

Reason Magazine, Sarah Palin, and the Huffington Post

In a webbed "candidate profile" of Sarah Palin, Reason.com writes:
Regarding the invasions of Iraq and Aghanistan, she said, "Our national leaders are sending U.S. soldiers on a task that is from God."
The actual quote is available in a variety of places. The following is from the Huffington Post; the accompanying video of the speech is no longer up:

"Pray for our military men and women who are striving to do what is right. Also, for this country, that our leaders, our national leaders, are sending [U.S. soldiers] out on a task that is from God," she exhorted the congregants. "That's what we have to make sure that we're praying for, that there is a plan and that that plan is God's plan."

What she is saying is not that the war is a task that is from God but that her listeners should pray that it is. She even says it twice over. Asking people to pray that something is true implies, not that you know it is true, but that you are afraid it might not be.

Reason converted "Pray that X is true" into "X is true." That is either incompetent journalism or a deliberate lie.

During the 2010 elections, I found I had a new hobby—defending Tea Party candidates from claims that they were nuttier than they actually were. One pleasant surprise was the discovery that the Huffington Post, at least in the cases I looked at (example), was a reliable source of information, even when reporting on people whose views they obviously disagreed with. 

One unpleasant surprise was discovering, on Reason.com, words attributed to a candidate, given in quotation marks, which the candidate had not said. The author of the piece had altered both words and meaning. When I pointed that out to him by email he defended what he had written. The misquote was only corrected after I pointed it out to someone else at Reason.

I find it unfortunate that the leading libertarian magazine is a less reliable source of information than a leading publication on the other side.