Strange Doctrines

A $100 Bill Is Lying on the Sidewalk

Unbelievable. Well, okay, somewhat believable. In any case, a rather large market niche has opened up.

Health Insurance and Health Care Denialism

I haven't had time to get up to snuff on the studies (or actually I guess it's just "study") Megan McArdle and others cite in support of the notion that health insurance has no discernible effect on mortality. But there are heuristics one can use to evaluate their claims.

The Altruistic Acceptance of Market Valuation

Proponents of so-called 'Rational Choice Theory' (first proposed in economics and then enthusiastically adopted by a number of political and legal thinkers) have tried hard to make us accept the peculiar understanding that rational choice consists only in clever promotion of self-interest (which is how, oddly enough, 'rational choice' is defined by the proponents of brand-named 'rational choice theory'). Nevertheless, our heads have not all been colonized by that remarkably alienating belief. There is considerable resistance to the idea that it must be patently irrational--and stupid--to try to do anything for others except to the extent that doing good to others would enhance one's own well-being." (Amartya Sen, via Linda Beale, via Ken Houghton.)

And yet:

For the last thirty years, in much of the English-speaking world (though less so in continental Europe and elsewhere), when asking ourselves whether we support a proposal or initiative, we have not asked, is it good or bad? Instead we inquire: Is it efficient? Is it productive? Would it benefit gross domestic product? Will it contribute to growth? This propensity to avoid moral considerations, to restrict ourselves to issues of profit and loss—economic questions in the narrowest sense—is not an instinctive human condition. It is an acquired taste. (Tony Judt, via ???.)

Bubblin' Crude

Michael O'Hare distills Dubai-ity.

But Supply Side Ideas Were Already Upside Down

Greg Mankiw quotes David Stockman quoting Ronald Reagan's parable about high taxes: "You could only make four pictures, and then you were in the top [tax] bracket. . . . So we all quit working after four pictures and went off to the country."

Hmmm. Maybe Reagan's true calling was to be a fitness trainer.

Anyway, Jonathan Bernstein decides to check the facts (apparently at task that neither Mankiw nor the Times were up to*) and runs the numbers by reference to Reagan's imdb page:

1937 - 2
1938 - 9
1939 - 7
1940 - 7
1941 - 4
1942 - 3
1947 - 3
1948 - 0
1949 - 4
1950 - 1
1951 - 4
1952 - 3

The moral of the story, I think, is that we should immediately return to the tax structure of 1948; a tax regime that resulted in zero Ronald Reagan pictures was clearly getting incentives right.

*This is slightly unfair to Mankiw, since the point of quoting Reagan stories is never that they're true, but that they're convenient.

(Via Brad DeLong.)

A Modest Proposal, Public Health Care Dept.

Via Alex Tabarrok, a healthcare hypo due to Greg Mankiw:

Imagine that someone invented a pill even better than the one I take. Let’s call it the Dorian Gray pill, after the Oscar Wilde character. Every day that you take the Dorian Gray, you will not die, get sick, or even age. Absolutely guaranteed. The catch? A year’s supply costs $150,000.

Anyone who is able to afford this new treatment can live forever. Certainly, Bill Gates can afford it. Most likely, thousands of upper-income Americans would gladly shell out $150,000 a year for immortality.

Most Americans, however, would not be so lucky. Because the price of these new pills well exceeds average income, it would be impossible to provide them for everyone, even if all the economy’s resources were devoted to producing Dorian Gray tablets.

So here is the hard question: How should we, as a society, decide who gets the benefits of this medical breakthrough? Are we going to be health care egalitarians and try to prohibit Bill Gates from using his wealth to outlive Joe Sixpack? Or are we going to learn to live (and die) with vast differences in health outcomes? Is there a middle way?

Solution: Tax the poorer people to subsidize those nearer (but just under) the purchasing margin so that they are able to afford the magic pill; then, when only the more productive members of society remain, reevaluate.

Of course, a free market economist would object to this solution on moral grounds, because taxes are evil.

Solution, Take 2: It doesn't matter; in the long run, we are all immortal.

Taking the Right. Seriously.

Via Brad DeLong, the late, great Irving Kristol, providing more evidence that it's a pathology, not a tradition:

Among the core social scientists around The Public Interest there were no economists.... This explains my own rather cavalier attitude toward the budget deficit and other monetary or fiscal problems. The task, as I saw it, was to create a new majority, which evidently would mean a conservative majority, which came to mean, in turn, a Republican majority - so political effectiveness was the priority, not the accounting deficiencies of government....

Some More Unequal than Others

Will Wilkinson has a couple of snappy posts, defending his paper "Thinking Clearly about Economic Inequality" against attack from Jon Chait and Matt Yglesias/Conor Clarke. If you think it's just obvious that wealth inequality and diminishing marginal utility commend redistribution through taxation, then you should probably read Will.

(Chait's original column is here; Matt's blog post is here; and Conor's is here.)

Save It

Nate Silver beautifully disposes of Greg Mankiw's takedown manqué of Sotomayor in a single headline: "Grandmother of World's 23rd Best Economist Posthumously Offended by Sonia Sotomayor's Spending Habits; Will Obama Withdraw Nomination?"

And besides, how easily Mankiw forgets -- if we save, the terrorists will win.

(Via Jonathan Zasloff.)

It's the Strictures that Got Small

A Wall Street goon repines:

No one complains when Julia Roberts pulls down $25 million per movie or A-Rod has a $300 million guarantee. We have ex-presidents who cash in on their presidencies.... Honestly, you can pick on Wall Street all you want, I don't think it's fair. It's fair to say you ran your companies into the ground, your risk management is flawed -- that is perfectly legitimate. You can lay criticism on GM or others. But I don't think it's fair to say Wall Street is paid too much.

Hilzoy is ready for him:

People at firms that would not have survived without government assistance might have been Julia Roberts a couple of years ago. Now, they're Norma Desmond.

(Via Brad DeLong.)

Social Welfare Function Junction

From Brad DeLong's "Non-Socratic Dialogue on Social Welfare Functions":

Glaukon: "We are value neutral economists! We don't care about distribution! We care about efficiency!"

Agathon: "But claiming that you don't care about distribution is implicitly saying that shifts in distribution are of no account--which can be true only if the social welfare function gives everybody a weight inversely proportional to their marginal utility of wealth."

Glaukon: "You're introducing politics into a value-neutral technocratic social science."

Agathon: "Politics?! Moi? I'm simply evaluating the derivatives of a social welfare function under the assumption that the market allocation is its ArgMax.*

Read the whole thing. See also Robert Waldmann's comment here.

*This passage reads more elegantly in the original Greek.

Marginal Tax Advice

A trainer was overheard giving the following financial advice at my gym this morning:

Yeah, taxes get higher at higher incomes: the more you make, the more you pay. The way I see it, anyone who's making over, say, a hundred thousand is just stupid.

Mental Recessions

From Media Matters' Jamison Foser:

ABC News reports on "upper-income taxpayers" who are trying to reduce their income so they avoid proposed tax increases on those earning more than $250,000. 

According to ABC, one attorney "plans to cut back on her business to get her annual income under the quarter million mark should the Obama tax plan be passed by Congress and become law."  According to the attorney: "We are going to try to figure out how to make our income $249,999.00."  ABC also quotes a dentist who is trying to figure out how to reduce her income.

Apparently, ABC apparently did nothing in the report to correct the thinking [sic] given expression here. How do you make $250K and not know how a f$#&ing marginal tax rate works?

The irony is that most of the anti-tax animus is probably coming from people who (1) suffer from this same rudimentary misunderstanding, (2) are really, really angry that they could be taxed in such an outrageous way, and yet (2) have absolutely no chance of making $250K in any one year in their lifetime.

Then of course there's Joe the Plumber, who once probably fell into this same category, but who now will (improbably) make $250K (at least in 2008) thanks to the fact that FOX News and John McCain exploited his ignorance about marginal tax structure (among other things).

At all events, have I got an opportunity for that attorney...

(Via Paul Krugman.)

UPDATE: Daniel Davies observes (regarding another case): "what a great country America is, where someone can earn a quarter of a million dollars without understanding the concept of a marginal tax rate."

Adventures in Job Hunting, Post-New EconomyTM Edition

Or "When the Hunter Becomes the Hunted." From my craigslist jobs feed this morning:

And DeLong thinks economists got it bad...

Something To Fear Other Than Fear Itself

The incomparable, unstoppable Will Wilkinson has expressed fears that the Obama administration's supposed fear-mongering about the economy could stir up fears about the economy, allowing it to pass horribly destructive legislation that will ruin the economy. So be very afraid!

As I pointed out in a comment under this take-down manqué of Paul Krugman, however, yelling "Fire!" in a crowded movie house actually is a decent policy when, you know, there is a fire.

Suppose then for the moment, and counterfactually, that Obama's (or Paul Krugman's) rhetoric about the state of the economy reached the same level on the fear-o-meter as President Bush's did in 2002 (or any other year, FTM). What would that tell us about the appropriateness of such rhetoric? Nothing, actually.

UPDATE: My Fire Analogy^TM is really spreading like...well, don't make me say it. (Seriously -- it's mine; who else would ever have thought to analogize a catastrophe of any sort to a fire for crysake?)

Exploring the Pareto Frontier

From Three-Toed Sloth:

Deep Thought (On the Ethical Relevance of Economic Analysis)

Restoring stolen goods to their rightful owners is not Pareto-improving.

Cute. But what about incentives?

Rigid Advocation

George Mason University economist Bryan Caplan castigates the lawyers:

At [the] risk of offending my many friends in the legal academy, I think that law is a shockingly phony discipline.  Virtually everyone - liberal, conservative, Marxist, libertarian, or whatever - imagines that the law conveniently agrees with what they favor on non-legal grounds.  Almost no one admits that many, if not most, laws are so vague that there is no "fact of the matter" about what they mean.

Once in a while, I should add, a law professor has told me this verbatim, and then gone back to arguing about the law.  The philosopher in me insists, "If there's no such thing as unicorns, we can't argue about unicorns," but the Great Unicorn Debate never stops.

I think Bryan is wrong. (For example, the minimum age for President is 35, whereas I believe it should be 33; thus, the law and I are in inconvenient disagreement.) But at least we can agree that the kind of ideological biasing he adverts to is completely alien to economics.

(Via Ilya Somin.)

The Canine Economy

Since I don't have much time today to do much else, following after the fold is a note I left Will Wilkinson (under this post) regarding the degree to which the current economic downturn implicates libertarian anti-regulatory doctrine.

Best. Investor. Ever.

Jeez. According to CQ Politics,

An internal investigation by the popular online market Intrade has revealed that an investor has been attempting to artificially boost the prediction that Sen. John McCain will become president.

Over the past several weeks, the investor has pushed hundreds of thousands of dollars into one of Intrade's predictive markets for the presidential election, the company said, resulting in great financial losses through a strategy that belies any financial motive.

Which means the valuation of McCain futures here* --

-- was inflated.

Truly, it sucks being John McCain.

* Screenshot created 5:01p October 16, 2008

UPDATE: Nate Silver detected the chicanery back in September. (Via Paul Krugman.)

McCain's Healthcare Plan? Don't Bank On It

Brilliant catch by Paul Krugman's correspondent.

Shorter John McCain, POW ^TM: We can fix our healthcare system by making it more like our banking system.

(Via Mark Kleiman.)