Experts at self-deception

mythsAmericans’ proclivity to embrace myths is a frequent topic on this blog, so this Will Wilkinson post regarding Paul Krugman and this engaging William Easterly post on complexity and spontaneous order (among other things) is right up our alley. As Wilkinson notes:

It’s clear by now that Paul Krugman thinks there is something seriously wrong with Republicans.  .   .  .

Though it is a challenge to accept that a man of Mr Krugman’s intelligence truly believes America’s ills flow exclusively from the intellectual and moral failures of the people who disagree with him, I don’t believe he is arguing in bad faith. He really is that self-righteously Manichean. What drives Mr Krugman absolutely nuts is that people who are wrong about everything are just as self-righteously Manichean as he is. Where do they get off? [.  .  .]

.  .  .there is something quite significant about the evidently negative rhetorical charge of "welfare" and "food stamps" among smaller-government, freer-markets types. And there is something quite significant about Mr Krugman’s evident confusion about American public opinion and his genuine alarm over libertarian "taxation-is-theft" rhetoric.

Although Americans left and right have remarkably consistent "ideologically conservative but programmatically progressive" preferences when it comes to redistributive social policy, it benefits political parties and party politicians to greatly exaggerate their differences. Partisan brand identity and distinction is achieved largely through a commitment to a certain stock of rhetorical tropes and symbolic gestures that float almost entirely free of the party’s substantive commitments. People are suckers for rhetoric, which is why merely rhetorical differentiation works at both the grocery store and the polling station. It is also why we are prone to believing crazy things about what the other "side" believes. And this leads to a rhetorical atmosphere corrosive to the trust necessary to facilitate compromises over policy that would be agreeable to most everyone.

Our problem, and Mr Krugman’s, is that we believe our own BS.

The wisest health care finance investment

healthcare-reform2009-06-18-1245364138Three articles caught my eye recently regarding America’s health care dilemma.

This LA Times article reports on the declining quality of the end-of-life period of many Americans:

Life expectancy soared over the last part of the 20th century as treatments for major diseases improved and infectious diseases were quelled by vaccines and better treatment. The most recent data, however, hint that life expectancy is no longer growing. According to a new study, we may spend more years sick than we did even a decade ago. [.  .  .]

According to the analysis, the average age of morbidity – which is defined as the period of life spent with serious illness and lack of functional mobility – has increased in the last two decades. For example, a 20-year-old man in 1998 could be expected to live an additional 45 years without at least one of these diseases: heart disease, cancer or diabetes. That number fell to 43.8 in 2006. For women, the expected years of life without a serious disease fell from 49.2 years to 48 years over the last decade. [.  .  .]

"There is substantial evidence that we have done little to date to eliminate or delay disease or the physiological changes that are linked to age," the authors wrote.

Meanwhile, a part of that problem is the result of the fact that many Americans have no idea what – or how much – they are eating:

Nearly 90% of respondents to a Consumer Reports telephone survey thought they were eating right — saying that their diet was either somewhat (52.6%), very (31.5%), or extremely healthy (5.6%).

But when they were asked about what they actually eat, far fewer seemed to be in following a healthy diet.

For instance, of the 1,234 people surveyed, only 30% said they eat five servings of fruit and vegetables every day, just 13% step on the scale every morning, and a meager 8% monitor their daily calorie intake. [.  .  .]

bout a third of those who said they were a healthy weight actually had a body mass index (BMI) in the overweight or obese range (30% and 3%, respectively).

"It’s likely that Americans are thinking about health more, and that’s a good thing," said Keith Ayoob, EdD, RD, of Albert Einstein College of Medicine. "Still, nine out of 10 think they’re doing pretty well, and to that, I’d say let’s talk again."

So, asks this Dana P. Goldman/Darius N. Lakdawalla article, what would be the best investment to generate significant improvement in the health of Americans?:

The first step is to invest–not in the healthcare system, but in education. We should take the $120 billion it might cost for universal coverage, and use it, instead, to provider earlier education and to improve the quality of education. Better-educated people live longer, are less likely to be disabled, and engage in healthier behavior.

For nearly 40 years, distinguished health economists led by Michael Grossman have observed that more-educated people have much more powerful incentives to protect their own ‘investments’ in education by practicing healthier habits and reducing their risks of death. They also are better at self-managing chronic diseases. And, unlike universal coverage, more education has other valuable benefits to a person and to society. Less crime, less divorce, and higher earnings–can universal health insurance promise that?

The second place to invest is prevention. Primary prevention has the capacity to slow or reduce the rising prevalence of chronic disease, and simultaneously attenuate the downstream spending that is associated with it. Equally importantly, however, prevention leads to a life with less disability and more years of an active lifestyle. It simply makes a lot of sense to avoid disease in the first place, rather than try to treat it later.

The problem that no big city mayor wants to confront

gpensionThe turmoil in the municipal bond markets over the past week got me thinking.

Bill King has done a great job (and see generally here) of explaining how Houston’s unfunded public pension obligation represents an untenable burden on the city government’s financial condition. The problem is not just Houston’s, either.

So, it was refreshing to come across this Maria D. Fitzpatrick/Stanford Institute of Economic Policy Research paper (H/T Craig Newmark) that indicates that now may be the best time for Houston and other over-stretched local governments to attempt to do something about this mess:

ÔªøÔªøÔªøÔªøThe results show that the majority of Illinois public school teachers are willing to pay just 17 cents for a dollar increase in the present value of expected retirement benefits. The findings therefore suggest substantial inefficiency in compensation as the public cost of deferred compensation exceeds its value to employees.  .   .   . [. . .]

In this context, the main finding of this paper, that the majority of IPS employees value their pension benefits at about 17 cents on the dollar, has two important implications. First, it suggests a possible Pareto-improving and politically feasible solution to the current inability of states to pay their promised pension benefits to public employees. Governments could offer to buy back pension benefits from teachers and other public sector employees. If the results here generalize, governments may be able to buy back promised employee pension benefits, or at least some of these promised benefits, for as little as twenty cents on the dollar. Doing so would draw down the pension obligations of governments both significantly and immediately, rather than waiting for a reduction in benefits to take effect years in the future.

Meanwhile, in this WSJ op-ed, Roger W. Ferguson, Jr. passes along an innovative approach that Orange County, California – the site of one of the largest municipal bankruptcies in U.S. history back in the mid-1990’s – is taking to deal with its unfunded pension obligations:

The plan is a hybrid model: It combines contributions by the county and its employees with both a traditional defined-benefit pension and individual accounts, which the worker can take with him from job to job.

Here’s how it works: New hires can choose either the old defined-benefit plan or the new hybrid plan when they sign up for benefits. The plan maintains a strong traditional pension, but it reduces the requisite contribution for both the county and its employees. It also redirects a portion of that money into the defined-contribution part of the plan where the money can grow over time.

Unlike a typical 401(k), the defined contribution part of the hybrid plan emphasizes retirement income as the primary goal. It incorporates affordable deferred annuity options during employees’ working years that can deliver income in retirement that compares favorably with what workers can expect from the traditional pension plan alone. The hybrid plan also increases workers’ take-home pay because workers’ contributions are lower than they are in the old defined-benefit plan.

This new program helps workers to think about how much monthly income they will need in retirement–as opposed to how big a nest egg they’re building. [. . .]

Sometimes real change begins with compromise. A new approach on pensions won’t close the gap between current pension promises and the public’s ability to afford them. But it points the way forward and acknowledges the reality that we have to start somewhere to address our nation’s public pension woes.

Are you listening, Mayor Parker?

I Have a Dream

No question about it, Martin Luther King could flat out give a speech.

And here is Robert F. Kennedy’s moving tribute to Reverend King immediately after his death:

How to Build a Toaster

Thomas Thwaites with a practical lesson on the importance of facilitating trade.

Agents Prosecuting Agents

ribsteinInasmuch as I’ve been in an extremely busy period in my practice recently, I haven’t had time to blog much. But I came across something yesterday that I wanted to pass along.

Larry Ribstein — the University of Illinois law professor who has done more than anyone in the blogosphere to decry the enormous financial and human cost of the federal government’s criminalization of business lottery over the past decade – has posted on SSRN a new paper that he has been working on for some time – Agents Prosecuting Agents:

Significant questions have been raised concerning the efficiency of criminalizing agency costs and the problems of excessive prosecution of crimes committed by corporate agents. This paper provides a new perspective on these questions by analyzing them from the perspective of agency cost theory. It shows that there are close analogies between the agency costs associated with prosecutors in corporate crime cases and those of the agents being prosecuted. The important difference between the two contexts is that prosecutors are not subject to many of the standard mechanisms for dealing with corporate agency costs. An implication of this analysis is that society must decide if prosecuting corporate agents is worth incurring the agency costs of prosecutors. [.  .  .]

This paper contributes to this debate by approaching the subject from the perspective of agency theory and analogizing abuses of power by prosecutors to those of corporate agents. It shows that prosecutors’ conduct involves many of the same agency cost problems as the corporate conduct they are prosecuting. At the same time, the sort of market and institutional mechanisms that can constrain corporate agents may not be effective for prosecutorial agents. Moreover, the particular challenges of corporate criminal prosecutions exacerbate prosecutorial agency costs in this context.

This agency analysis illuminates whether and to what extent corporate agency costs should be criminalized. It shows that if the criminal justice system is to be used to punish corporate agents for harm they cause in the course of their employment, then society must be prepared to tolerate increased costs associated with delegating discretion to its own agents, those who prosecute these crimes. Prosecutorial agency costs, in turn, must be taken into account in designing and weighing the costs and benefits of criminal liability of corporate agents. [.  .  .]

The agency costs associated with prosecution of corporate crime are at least as consequential as those related to the crimes being prosecuted. This matters for at least two reasons. First, combining analyses of the two types of agency costs sheds light on how to appropriately constrain excessive or misguided corporate prosecutions. Second, prosecutorial agency costs bear on the extent to which the conduct of corporate agents should be criminalized at all given the weak constraints on prosecutorial conduct in enforcing the criminal law. The criminal laws may provide significant deterrence of corporate agents’ misconduct that other mechanisms cannot fully supply. However, we should not assume that it is socially valuable to use the criminal laws to ensure totally loyal corporate agents unless we are ready to demand similar perfection from our prosecutors.

We in Houston know all about the implications of the problem that Professor Ribstein addresses.

The amazing Barry Sanders

You will not see a running back in the NFL Playoff games this weekend who could hold a candle to Barry Sanders.