Archive for the 'Economics' Category

What Women Want: It’s Not Just Wallet Size

Published
by
Steve Landsburg
on May 3, 2010
in Economics and Oddities
. 23 Comments

If you’re planning to lie about your weight on an online dating site, you’d be well advised to shade downward if you’re a woman and (more surprisingly) upward if you’re a man.

That’s one apparent lesson of the data in this recently published paper by three careful researchers. If I’m reading their tables correctly, they say roughly this:

Taking as given your reported age, height, race, weight, income, attractiveness, education, marital status and so forth, there is some class of users who have about a 50/50 chance of contacting you. Now if you are a 5’4″ woman and you subtract 11 pounds from your reported weight (lowering your body mass index, or BMI, by about 1), then you’ll hear not from 50% of that class but from almost 60%. On the other hand, if you are a 5’10” man and you *add* 7 pounds to your weight (adding about 1 to your BMI), you’ll hear from about 53%.

Moreover, these effects fall off very slowly, so that even very thin women gain from underreporting their weights, and even very heavy men gain from overreporting. The effects also fall off very slowly with BMI differences, so that even quite heavy men prefer thinner women, and even quite thin women prefer heavier men.

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Why I’d Rather Be Blogging

Published
by
Steve Landsburg
on April 22, 2010
in Blogging, Economics and Policy
. 60 Comments

You guys—with your thoughtful, witty and relevant comments—have made me thankful I took up blogging. My (considerable) experience with the mainstream media suggests that you meet a much lower class of people there. Let me give you an example.

Once upon a time I wrote a Forbes column drawing an analogy between protectionism (which discriminates on the basis of national origin) and racism (which discriminates, of course, on the basis of race). (Of course the analogy isn’t perfect. For example, racism can be a solitary hobby, whereas protectionism by its nature forces other people to discriminate as well.) There were many responses, of which my favorite was Pat Buchanan’s screed containing both some hilariously misguided economics and a paragraph I’ve had posted on my office door ever since:

Now I do not know what parents pay to send their kids to the University of Rochester. But if the philosophical imbecility of Landsburg is representative of the faculty, it is too much.

Shortly afterward, I was scheduled to appear on John Gibson’s program on Fox News, where the following exchange took place:

This, in turn, led to a flurry of email. To give you the full flavor, and so as not to bias the sample, I am appending every single email I received on this subject, excepting only one relatively positive note from my mother.

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The English Patient

Published
by
Steve Landsburg
on April 20, 2010
in Bad Reasoning, Current Events, Economics and Policy
. 31 Comments

whiteheadA friend living in England (the philosopher Jamie Whyte, actually, whose writing has graced this very blog) sends along a little vignette for the benefit of my American readers who see European health care systems through rose colored glasses.

A 64 year old breast cancer survivor suffering severe back pain is told she’ll have to wait five months for an appointment with an orthopedic surgeon through the National Health Service (NHS). She therefore (and perfectly legally) chooses to pay 250 pounds (about 385 dollars) for a private appointment. He puts her on a waiting list for surgery to remove a cyst from her spine, surgery which is routinely covered by the NHS. But the NHS decides that since she can afford 250 pounds for a private appointment, she can also afford 10,000 pounds (over 15,000 dollars) for private surgery. They therefore deny to provide her the surgery for which she’s been paying taxes her whole life.

This was not an isolated incident; until recently, cancer patients were routinely denied further NHS treatement after privately purchasing lifesaving drugs that are not available through the NHS.

More details here. It’s worth reading the comments, where readers excoriate the patient for “queue jumping” because she used the price system to signal her high demand for medical services. Note that nobody complains about “queue jumping” in the market for, say, oranges, because oranges are not rationed by government bureaucrats and therefore do not generate queues.

The lesson, I think, is that once an inefficient bureaucracy becomes entrenched, a certain fraction of the electorate becomes incapable of imagining anything better. In this case, that fraction seems to have forgotten first that some people need medical care more desperately than others, so that “queue jumping” can be desirable, second that private payments to doctors actually call forth more medical care and therefore shorten queues, and third that maybe it would be better to have a system that didn’t require queuing in the first place.

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Tax Relief, Obama Style

Published
by
Steve Landsburg
on April 16, 2010
in Current Events, Economics, Policy and Politics
. 41 Comments

What a relief. Now that April 15 is out of the way, my tax rate is back to zero for another year.

At least that’s the way the President of the United States seems to have it figured—your tax burden, according to him, is measured by what you’re paying right this moment as opposed to what you’re obligated to pay in the future.

taxburdenThat’s the only possible interpretation of his statement last night that Tea Partiers (and others) should be thanking him for cutting taxes. The reality is that President Obama, like President Bush before him, has rather dramatically raised government spending and therefore has raised your taxes. To say otherwise is like saying you got your new swimming pool for free because you put it on your credit card.

Once the money is spent, the bill must eventually come due—and there’s nobody around to foot that bill except the taxpayers. We are locked into higher current spending and therefore locked into higher future taxes. The president hasn’t lowered taxes; he’s raised and then deferred them. To say otherwise is—let’s be blunt—a flat-out lie.

Click here to comment or read others’ comments.

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Krugman on Climate—Some Final Words

Published
by
Steve Landsburg
on April 14, 2010
in Economics, Paul Krugman and Policy
. 13 Comments

Having blogged twice this week (here and here) on Paul Krugman’s green economics essay, I want to add a couple of quick comments on what it takes to contribute usefully to this discussion.

Continue reading ‘Krugman on Climate—Some Final Words’

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Krugman on Climate

Published
by
Steve Landsburg
on April 13, 2010
in Economics, Paul Krugman and Policy
. 17 Comments

Yesterday I blogged about Paul Krugman’s recent piece on climate control policy. The bottom line: After recovering from a shaky start, Krugman does a good job of laying out the issues and posing many (though not quite all) of the right questions. But I’m not sure he gets the answers right.

A few years ago, writing in Slate, I listed the key questions that the Al Gores of the world mostly fail to address or even acknowledge. (See also the discussion on pages 186-190 of The Big Questions.) Krugman (thankfully) is no Al Gore, and he does address most of these questions. Let’s see how he does with them.

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A Tale of Three Economists

Published
by
Steve Landsburg
on April 12, 2010
in Current Events, Economics, Paul Krugman and Policy
. 12 Comments

Halfway through reading Paul Krugman’s New York Times piece on green economics, I had my snarky retort all ready to go. Then in the second half he went and got all reasonable on me. I still don’t buy his conclusions, but (sadly for readers who like fireworks), he’s not (at least in this instance) nuts.

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Hearing Problems

Published
by
Steve Landsburg
on April 6, 2010
in Economics and Musings
. 33 Comments

hearingFirst, kudos to both Bennett Haselton and Xan, each of whom nailed yesterday’s puzzle in comments. Bennett’s answer has the advantage of requiring no knowledge of algebra; Xan’s has the advantage of giving a (much) more precise bound on how long it takes for history to repeat itself.

Now on to something completely different:

During a belated conversation about health care policy, a colleague remarked that “of course, nobody would want to live in a world where rich people and poor people got the same kind of health care”. The economists around the table all nodded in agreement and moved on to matters that were actually controversial.

It occurs to me that had there been a few non-economists at the table, someone might have objected to my colleague’s matter-of-fact (and surely accurate) observation. And it occurs to me also that maybe there’s a general lesson here about how economists communicate—or fail to communicate—with the world at large.

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The Tragedy of the Chametz

Published
by
Steve Landsburg
on April 2, 2010
in Economics, Ethics and Religion
. 34 Comments

matzahIt is the season of both Lent and Passover, which means that for Christians and Jews it is the season of making small but pointless sacrifices. This always strikes me as mildly tragic. If you’re going to sacrifice your pleasures in order to feel virtuous, why not at least do it in a way that helps someone? Instead of giving up meat or leavened bread, donate a few hundred dollars to a worthy cause.

[Before you tell me that giving up meat is socially beneficial because it holds the price of meat down, remember that low prices are good for buyers only to exactly the same extent that they’re bad for sellers. Changing a price does no net good. The rigorous proof of this is part of the theory of pecuniary externalities, on which the Wikipedia entry is uncharacteristically useless.]

Observing Lent or Passover has much in common with things like running around a track: You push yourself to do something hard, you feel good about it, and you leave the world pretty much the way you found it. What a shame that you didn’t push yourself to do something useful instead. I bet you could have learned to feel almost as good about that.

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When Is It Okay to Counterfeit?

Published
by
Steve Landsburg
on April 1, 2010
in Economics and Ethics
. 15 Comments

counterfeitsWhen I spoke at George Mason University last week, grad student Eli Dourado brought me up short with a question I wasn’t prepared for. He was riffing off the following passage from The Big Questions:

Is it okay to steal? Certainly not, and I’ve already told you why: The time and effort you spend stealing things is time and effort you could spend producing things instead. Theft leaves the world poorer than it could have been.

Is it okay to counterfeit? Certainly not, because counterfeiting is stealing. The time and effort you spend producing a phony dollar bill entitles you to a Hostess cupcake or a bus ride or a Blockbuster video rental without adding anything to the world’s stock of food, transportation, or entertainment. The cupcake you eat is made of flour and sugar that someone else could have eaten.

With that as background, Eli asked me this:

Is it okay for me to counterfeit if the central bank is not being sufficiently expansionary?

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Tipping Points

Published
by
Steve Landsburg
on March 26, 2010
in Economics, Fairness and Outrage
. 35 Comments

tippingMario Rizzo has a post on why he gives small tips to cab drivers and Brad DeLong concludes that Rizzo is a liar, a cheat and a psychopath-in-the-making.

You’d never know it from DeLong’s selective summary, but Rizzo’s post is dense with interesting (if elementary) economics. A key point is that when you think you’re tipping a New York cab driver, you’re really tipping the medallion owner. (A medallion is a license to drive a cab; medallions are in fixed supply and currently trade for a price of about three quarters of a million dollars. Your driver is probably leasing his medallion from its owner.) If we all started tipping, say, an extra $2 per ride, then medallion owners would demand another $2 per ride in rental fares—effectively claiming all the additional tips for themselves. (Click here for a slightly longer explanation.)

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Three Sides to the Story

Published
by
Steve Landsburg
on March 25, 2010
in Anniversaries, Economics, Illiteracy and Policy
. 48 Comments

Today is the ninety-ninth anniversary of the legendary fire at the Triangle Shirtwaist Factory, which reigned for ninety years as the worst workplace disaster in New York history. A hundred and forty six workers died that day, most of them young women. Escape routes were cut off by doors that were kept locked to prevent employee pilfering. The main exit from the factory floor was designed so that only one person at a time could pass through; departing workers had their handbags inspected by a night watchman. “It comes down to dollars and cents against human life, no matter how you look at it”, in the words of then-Fire Chief Edward Croker.

Well, yes, of course it comes down, at least in part, to dollars and cents against human life (where “dollars and cents” are, of course, stand-ins for “a whole lot of other things we care about”). The interesting question is whether the terms of trade were favorable. In other words: If the workers, in advance of the fire, had been fully informed of all the risks and all the potential consequences, would they have wanted those doors locked or open? Or more generally: When the New York state legislature responded to the fire with over two dozen new occupational health and safety laws, were they compounding the disaster?

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What Really Went Wrong

Published
by
Steve Landsburg
on March 17, 2010
in Current Events and Economics
. 25 Comments

bankrun

Banks, by their nature, are susceptible to bank runs. Depositors panic and demand their money back, the bank doesn’t have enough cash on hand to meet all the demands, this generates even greater panic and even more demands, and pretty soon the bank is selling off assets at fire sale prices in a desperate attempt to placate the depositors. Back before Federal deposit insurance, this used to happen from time to time. According to Yale’s Professor Gary Gorton, author of Slapped By the Invisible Hand: The Panic of 2007, it happened again recently. The great crisis of the past few years was just another bank run, pure and simple.

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How to Be Fiscally Responsible

Published
by
Steve Landsburg
on March 11, 2010
in Economics, Policy and Politics
. 21 Comments
piggybank

Suppose that year after year, you spend more than you earn. You are worried that you’ve become fiscally irresponsible. Which of the following is not a path back to fiscal sanity for your household?

  1. Spend less.
  2. Earn more.
  3. Stop at the ATM more often so you’ll have more cash in your pocket.

Do we all understand why the answer is C? Good. Now let’s try another one.

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Krugman versus Krugman

Published
by
Steve Landsburg
on March 7, 2010
in Bad Reasoning, Economics, Outrage and Paul Krugman
. 34 Comments

I don’t usually post on Sundays, but this letter to the New York Times from the indispensable Don Boudreaux is too priceless to pass up.

Edited to add: I don’t always read Krugman’s column, but since Don’s link sent me there today, I can’t resist noting one more outrage: Krugman thinks that extending estate tax relief to the top .25% of estates is a policy “on behalf of” that .25% of the population, as opposed to a policy on behalf of everyone who benefits from capital accumulation, higher wages and economic growth.

Or more precisesly, he doesn’t think that. But he says it.

Click here to comment or read others’ comments.

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Arsenic and Gold Medals

Published
by
Steve Landsburg
on February 26, 2010
in Economics
. 41 Comments

I stirred up some controversy on Tuesday with my post equating Olympic athletes to Ponzi schemers, so I want to provide a little more explanation.

What do scammers and Olympians have in common? Let’s start with a simpler question: What do sugar and arsenic have in common? Answer: There’s such a thing as having too much of either. With arsenic, any amount is too much; with sugar, some is good but too much is bad. Likewise for scam artists and athletes. Scam artists, like arsenic, are bad in any quantity; athletes, like sugar, are good in moderation and bad in excess.

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So How’s That Fiscal Stimulus Working For You?

Published
by
Steve Landsburg
on February 24, 2010
in Economics and Policy
. 77 Comments

Harvard’s Robert Barro, who is good at this stuff, estimates (in round numbers) the effects of last year’s stimulus package (numbers represent billions of dollars):

The executive summary is that income (that is, the total income of all Americans) rises in 2009 and 2010 (while the stimulus money is being spent), and continues a bit higher for another year after that, but falls in later years (when the taxes, with their accompanying disincentive effects, come due). (Of course, the day of reckoning can be delayed, but not forever—so the arithmetic still rules). Adding up over five years, income falls by $300 billion, or about $1000 per American.

These numbers confirm my prejudice that the stimulus package is a bad idea, but they still make me uncomfortable. Let me first add a few remarks about what the numbers mean and then I’ll tell you what I don’t quite get about them.

Continue reading ‘So How’s That Fiscal Stimulus Working For You?’

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The Olympics, Bernie Madoff and Me

Published
by
Steve Landsburg
on February 23, 2010
in Economics
. 53 Comments

madoffWhat must it be like, I wonder, to be the parent of an Olympic athlete, watching your kid accomplish magnificent feats of almost no social value? When your kid is a taxi driver or a shoe salesman or a carpenter, you can take pride every day in knowing that he or she has taken someone home, or helped someone walk, or given someone shelter. When your kid is an Olympic gold medalist, mustn’t you feel a little sheepish about all the superhuman effort that went into nothing more than taking a gold medal away from someone else?

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Fairy Tales Can Come True

Published
by
Steve Landsburg
on February 2, 2010
in Economics and Policy
. 77 Comments

Back in March, 2001, I wrote a little fable about taxation for the op-ed piece of the Wall Street Journal. Several readers have asked me to post that fable here on the blog. Your wish is my command. At the bottom of this post, I’ll say a few words relating the fable to another recent blog post.

****************

Once upon a time, a man went to work and earned a dollar. He used the dollar to buy a share of stock. The stock paid a dividend of 10 cents a year, 10% being the going rate of return in the land.

Continue reading ‘Fairy Tales Can Come True’

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Both Sides of the Aisle

Published
by
Steve Landsburg
on January 29, 2010
in Blogging, Economics, Policy and Politics
. 0 Comments

Interviews with Democratic Representative Barney Frank and Republican Senator Richard Shelby are the final installments in BigThink’s series of video interviews on “What Went Wrong?” during the financial crisis. (You’ll also find links to all the previous installments.) If you have a taste for politics, you can comment here on what you thought of them.

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A Quick Economics Lesson

Published
by
Steve Landsburg
on January 27, 2010
in Bad Reasoning, Economics and Policy
. 96 Comments

I am opposed to all taxes on interest, dividends and other forms of capital income. Supporters of these taxes keep making the same fallacious argument. The purpose of this post is to shame those people out of ever making that argument again. (They are, of course, free to make other arguments.)

The fallacy I have in mind goes like this: First, economics teaches us that everything should be taxed at the same rate to avoid unnecessary distortions. Second, QED.

With appropriate caveats, the first part is true. The problem is with getting from there to the second part.

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Office Politics

Published
by
Steve Landsburg
on January 21, 2010
in Economics and The Ethicist
. 12 Comments

While scanning Randy Cohen’s recent Ethicist columns for something to complain about, I found this query about allocating faculty offices:

I am a faculty member at a university undergoing major campus renovations, including new office spaces. Departments were asked to determine their own ways of assigning rooms, but the task is complicated by factors like seniority and rank — does someone with tenure deserve a better room? Some faculty members have greater teaching demands and might need larger rooms to meet with students. What is the most ethical way to allocate offices: seniority? Rank? Lottery?

True to form, Cohen has nothing interesting to say, and offers no rationale for his random suggestions. It never seems to have occurred to him that scarce resources tend to be allocated most efficiently by markets. If he’d done a little research, he might have found this charming account of how the economists at Arizona State solved the office allocation problem.

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Trial by Ordeal

Published
by
Steve Landsburg
on January 19, 2010
in Economics and History
. 12 Comments

ordealPeter Leeson of George Mason University (currently visiting the University of Chicago) offers a new take on the medieval practice of “trial by ordeal”:

“For 400 years the most sophisticated persons in Europe decided difficult criminal cases by asking the defendant to thrust his arm into a cauldron of boiling water and fish out a ring. If his arm was unharmed, he was exonerated. If not, he was convicted.”

According to Leeson, this is less crazy than it sounds: As long as defendants believe (superstitiously) that ordeals yield accurate verdicts, guilty defendants always confess to avoid the ordeal. At the same time innocent defendants always opt for the ordeal—and are always acquitted, provided the priests cheat by (for example) substituting tepid for boiling water, or “sprinkling” a few gallons of cold holy water over the cauldron, or liberally redefining what counts as “unharmed”.

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Wind Production

Published
by
Steve Landsburg
on January 11, 2010
in Bad Reasoning, Economics and Paul Krugman
. 34 Comments

Once upon a time in America, whenever an administration spokesman spouted economic nonsense, you could rely on Paul Krugman for a sneer, a blast of outrage, and frequently an imputation of the basest motives. That time ended on approximately January 20, 2009. Today Krugman sleeps at the wheel while administration press spokesman Robert Gibbs spews forth the following:

I think it’s safe to say that for quite some time, when it came to building the solar panels and the wind towers and the wind turbines and a lot of the manufactured equipment for clean energy, we had a number of foreign countries that were doing much better in addressing that demand than we were. And as the President has said often, the type of demand for these components in manufacturing is only going to increase as we seek solutions to our energy problems.

And we have to ask ourselves as a country, are we going to create those jobs and create those components, or are we going to import those components from overseas? The President believes that we have an opportunity to lead the world in this type of manufacturing.

Nobody in the Bush administration ever displayed more economic ignorance, but Krugman was all over those guys every time they came close. Now he lets it slide. So let me do his job for him:

When the domestic demand for a product increases, the law of comparative advantage tells you to import more of it, not less. If it is in fact true that “the type of demand for these components is only going to increase” then American manufacturers might want to start producing them, but American consumers will certainly want to import more of them, and any attempt to circumvent that is a good way to make Americans poorer.

(For those following along in their economics textbooks: The world supply and demand for, say, wind turbines, must be more elastic than the domestic supply and demand, so a demand shift has a smaller effect on the world price than the autarkic domestic price and so must increase the foreign comparative advantage—or decrease the domestic comparative advantage, if any.)

For goodness’s sake—if Barack Obama or Robert Gibbs discovers that he really likes bananas on his Cheerios, is his first thought that he’d better start growing bananas, or is his first thought that he’d better figure out where to buy them? That’s the kind of question Paul Krugman used to ask. I miss him.

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What Went Wrong

Published
by
Steve Landsburg
on January 5, 2010
in Bad Reasoning, Economics and Policy
. 29 Comments

At Big Think, a consortium of bloggers (including me) have been invited to submit questions for use in video interviews with major players in the financial crisis. I posed a question to Mark Zandi, the chief economist at Moody’s, who had recently said this:

“It’s no coincidence that the great recession ended just as the stimulus package began providing its maximum economic benefit.”

My question was:

How do you know?

Here, from the video, is Mr. Zandi’s answer:

Continue reading ‘What Went Wrong’

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Happy 99th Birthday, Ronald Coase

Published
by
Steve Landsburg
on December 29, 2009
in Birthdays, Economics and Heroes
. 18 Comments

ronald-coase1In the theory of externalities—that is, costs imposed involuntarily on others—there have been exactly two great ideas. The first, forever associated with the name of Arthur Cecil Pigou (writing about 1920) is that things tend to go badly when people can escape the costs of their own behavior. Factories pollute too much because someone other than the factory owner has to breathe the polluted air. Nineteenth century trains threw off sparks that tended to ignite the crops on neighboring farms, and the railroads ran too many of those trains because the crops belonged to someone else. Farmers keep too many unfenced rabbits when they don’t care about the lettuce farmer next door.

Pigou’s solution—and it’s often a good one—is to make sure that people do feel the costs of their actions, via taxes, fines, or liability rules that allow the victims to sue for damages. Do a dollar’s worth of damage, and you’re charged a dollar.

Pigou endorsed this policy not because it seems fair, though it does seem fair to many, but because it yields, under what he believed to be very general conditions, the optimal amounts of damage. We don’t want too much pollution, but we don’t want too little, either, given that pollution is a necessary by-product of a lot of stuff we enjoy. Pigou offered a proof—now standard fare in all the textbooks—that his policies lead to the perfect compromises, in a sense that can be made precise.

The second great idea about externalities sprang full-blown from the mind of a law professor and subsequent Nobel prize winner named Ronald Coase, who stunned the profession in 1960 by pointing out that Pigou’s argument runs both ways. If you breathe the pollution from my factory, I’m imposing a cost on you—but at the same time, you’re imposing a cost on me. After all, if you lived somewhere else, you wouldn’t be complaining about the smoke and I wouldn’t be getting punished for it.

Continue reading ‘Happy 99th Birthday, Ronald Coase’

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The Big Answers, Part II

Published
by
Steve Landsburg
on December 23, 2009
in Economics and Puzzles
. 21 Comments

Merry Christmas. As my gift to you, I present the long overdue answers to the remaining problems from my Oberlin honors exam. The original questions are here and here; the first round of answers is here.

Continue reading ‘The Big Answers, Part II’

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A Christmas Post

Published
by
Steve Landsburg
on December 21, 2009
in Economics and Literature
. 24 Comments

In the spirit of the season, I offer you one of the most popular of my old Slate columns. Merry Christmas.

What I Like About Scrooge

Here’s what I like about Ebenezer Scrooge: His meager lodgings were dark because darkness is cheap, and barely heated because coal is not free. His dinner was gruel, which he prepared himself. Scrooge paid no man to wait on him.

Scrooge has been called ungenerous. I say that’s a bum rap. What could be more generous than keeping your lamps unlit and your plate unfilled, leaving more fuel for others to burn and more food for others to eat? Who is a more benevolent neighbor than the man who employs no servants, freeing them to wait on someone else?

Continue reading ‘A Christmas Post’

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Of Jerks and Bullies

Published
by
Steve Landsburg
on December 18, 2009
in Bad Reasoning, Book, Economics and Policy
. 20 Comments

Over at National Review Online, John Derbyshire starts off with some kind words about The Big Questions, and then goes off on an ill-considered screed about immigration. First, by all means let’s quote the kind words:

Steven’s new book, The Big Questions, has a lot of good things in it, as one would expect from an author who proudly declares himself a math geek. His explanation of Heisenberg’s uncertainty principle (pages 135–141) is a model of clarity in the popularization of science. His geometrical illustration of a Talmudic rule on the division of an estate (pages 205–213) shows the mathematical imagination at its best.

Landsburg is an economist by profession — a professor of economics, in fact — and has the economist’s insight that many matters commonly discussed in terms of morality can be reduced to cold arithmetic: “When things are priced correctly, there’s no need to moralize about them.” He gives some illuminating examples.

But then things take a darker turn:

Continue reading ‘Of Jerks and Bullies’

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Health Care Postscript

Published
by
Steve Landsburg
on December 16, 2009
in Economics and Policy
. 16 Comments

Over at Econlog, Arnold Kling chides me for the way I concluded yesterday’s post on health care and Harvard Professor David Cutler:

My gut instincts point me in a different direction that Professor Cutler’s do, but I think we agree on what the big problems are and on what would count as solutions. I think almost all economists would agree on that much, and that’s a lot.

Here is Arnold:

My disagreement with Cutler is more than mere gut instinct. Cutler and I might agree that there is overuse of medical procedures with high costs and low benefits. We might agree that incentives affect this. However, Cutler is confident that central planning represents the solution, not the problem. He believes that remote bureaucrats can measure health care quality well enough and implement compensation schemes that are fine-grained enough to achieve significant improvement.

For the record, Arnold and I are saying the same thing, though I tried to say it a little more politely. David Cutler, Arnold Kling and I all agree that incentives matter and that it’s important to get them right. Arnold Kling and I agree that David Cutler probably doesn’t know how to do that.

Continue reading ‘Health Care Postscript’

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