Secrets in War

Thanks to the miracle of DVRs, I just started watching Ken Burns’ PBS documentary The War. It’s impressive, and it benefits from the fact that, so many years later, so much more is known about what was really happening. I was unaware, for example, of the extent of German U-Boat attacks on the East Coast in the early days of the war. I’m sure that the huge losses in American ships were not publicized.

Which brings me to our own awkwardly named War on Terror. We were told, at the outset, that much of the war would be prosecuted by clandestine means. We probably know less about what is going on than most people knew about WW II. That doesn’t keep some people from trying to piece it together. But since so much is secret, these analysts tend to sound like nutcase conspiracy theorists. Are they? Or are we getting a more or less accurate view into a secretive war? It’s impossible to say. But if you’ve never encountered this kind of thing on the Web, you might want to read this.

What The Doctor Ordered

Suppose you’re ill, with something fairly serious. Your doctor proposes two treatment options. One is 98% effective, the other is 99% effective. Which one would you pick?

Easy, huh? Now suppose the 98% effective treatment will cost $1000 and the 99% effective treatment will cost $100,000. Which one would you pick? It might depend upon who pays. If you’re paying out of pocket, the 98% solution looks pretty good. If someone else pays, what the heck - go for the 99% solution. And that, dear friends, is the problem with American health care. If someone else pays, too many of us have a “beggar thy neighbor” attitude. It doesn’t matter whether it’s single payer, employer provided, government provided, or something else - if someone else pays, most of us go for the max. But remember - your neighbor is making the same decision - he’ll go for the “money is no object” approach because he doesn’t have to pay - you do!

In the American health care system, it’s usually insurance companies that try to restrict the “money is no object” attitude. In many other countries, the government does. Governments have more clout than businesses, so they do a better job of restricting treatment options. That’s why many treatments, commonly available in the USA, are often rare overseas. And that’s why American health care is so expensive.

We will soon get to weigh in on this in the political arena. Should we restrict treatments and curtail research by squeezing the drug companies? There sure are a lot of politicians who think that’s what the doctor ordered.

Nothing Fails Like Success

Since I’ve started taking snapshots of the articles I’ve found and liked, it gives me more time to think them through rather than being on a deadline to post my additional thoughts. The most interesting article this week might have been Megan’s article on the Priest Gods.

I have no knowledge regarding the efficacy of evidence base medicine in health care or Direct Instruction in education, but it sounds suspiciously similar to the problem with mutual funds. Everyone should know that unmanaged index funds outperform most actively managed mutual funds. Nevertheless, every year there are some mutual fund managers who “beat the market” and a few who do so consistently for many years. Investors flock to these funds, but are often disappointed. In the long run, the simple unmanaged approach of indexing prevails. Early success can delude us into thinking that we’re pretty smart when we’ve actually pretty lucky.

I suspect doctors and teachers are in the same boat. A few early success can make them think that they are better than the robotic methods of evidenced based medicine and Direct Instruction teaching. We humans have great difficulty with statistical thinking and easily delude ourselves. Most drivers think they are better than average. I imagine something similar is true for doctors, teachers, and mutual fund managers.

This seems inherent in human nature and perhaps there’s little we can do about it on a societal basis. But on a personal basis, here’s my advice: worry more about your successes than your failures.

Information Overload

My methodology, if you can call it that, is to read my favorite sources and then link to the better entries here, adding whatever commentary I feel is appropriate. Well, I’m reading too much good stuff to handle that way. So I’m going to revert to my old technique of providing a link to what I’ve read lately that I think is worth passing on. This is the link. I won’t add commentary - you’ll just have to draw your own conclusions. I will continue to post here, but not as frequently.

Why We Don’t Think Clearly

One reason we don’t think clearly is explored by Arnold Kling. The idea that hindsight bias is an adaptive mechanism has a lot of appeal.

Paying The Freight

I groan every time I read an opinion about the relative merits of public transport versus highways and roads. This is better than most. Almost all these discussions overlook an important fact: highways are used to carry freight. Everything we eat, wear, and otherwise use gets to us on highways and roads. Diverting funds from highway funds to public transit will always cause an increase in the cost of haulage. Even people who don’t own a car are impacted. Unfortunately, there is no easy way to calculate the economic benefits of one versus the other. Most attempts to do so don’t take freight into account. Given the feeble arguments used, I’m suspicious of the economic merits of public transit. On the other hand, I can’t make a sound opposing case. In terms of transit policy, we are groping in the dark.

End Game

Everyone knows that Social Security is headed toward technical bankruptcy and that Medicare is in even worse shape. But did you know that similar problems exist in almost all developed economies? So how will this play out?

I believe that there are only 4 things that can happen in some combination. In order of increasing probability:

1. Social welfare systems could be reformed, but any reform will be limited by the willingness of the electorate to accept them. Because of the demographic bulge, any reform is likely to be insufficient to fix the problem.
2. Governments can and will raise taxes of every kind in an attempt to correct their balance sheets. But there is a limit to how high taxes can go without crippling the economy and causing a taxpayer revolt. The problem can be mitigated, but not fixed, with taxes.
3. Interest rates will have to climb as governments borrow ever increasing amounts of money. This just digs the hole deeper in the long run, but it seems inevitable.
4. Inflation could run wild. Yes, central banks will try to control inflation by adjust interest rates (see above), but inflation is calculated by including some items and not others. Today, food and energy are excluded from “core inflation” numbers. We can expect, and are already seeing, food and energy prices reach for the sky.

So, the social welfare systems will stay in place, but the value of the checks people receive will diminish greatly, interest rates will rise, and taxes will increase. And, by the way, expect to see this result in a serious scarcity of medical care. It sure isn’t a rosy picture - but fortunately, it isn’t the only picture.

Government revenues depend on economic growth. An economy can theoretically “grow out” of the problem. This depends upon innovation, high levels of employment, free trade, low taxes, and low interest rates. But can the economy grow faster than the demographic burden? And how can the need for economic growth be balanced against the worthwhile goal of balanced budgets?

I suspect reality will be somewhere in between the extremes. We won’t actually be able to grow our way out of the mess, but growth can mitigate the impact. This is why the government’s economic policies (mainly taxes and trade) are so important. Stay tuned!

Religion, Law, and Economics

As Glenn Reynolds said, if religious leaders are going to pronounce about doings in the secular world, it might help if they knew something. In terms of law and economics, they often don’t. There is, however, a glimmer of hope.

Good Medicine, Good Argument

I try to keep my expectations low, so I haven’t been surprised that most everyone wanting to “do something” about health care is proposing that we head full speed in the wrong direction. So, I was pleasantly surprised to find this article that gets to the nub of the problem and hints at the solution. It’s not a new argument - lots of economists have pointed out the same flaws in our current approach and the proposed “solutions”. But it’s not enough to have good logic - you have to have a persuasive argument as well. This goes to the craft of wordsmithing, a skill most economists seem to lack. It’s a good thing to have a good idea, but it’s a better thing to promote a good idea in a way people can understand and can be motivated.

Division of Leisure

I found an interesting article discussing microtrends and the “niching of America”. It’s well known that the division of labor is accelerating and that there is an ever increasing number of “job categories”. But the “niching of America” applies to leisure time, not working time. Are we finding more and more ways to entertain ourselves? Of course we are: just look at the number of books published, the number of TV channels, the number of Web sites. Every one has consumers associated with it. All this is happening because we are vastly more wealthy than any previous society.

So I’ll make a fearless prediction. We spend our leisure time pursuing inalienable goods. But marginal utility tells us that the value of an additional hour of doing anything is less valuable than the prior hour. Thus, with increasing leisure time, we become less likely to do more of the same and more likely to do more kinds of things to entertain ourselves. This, in turn, produces more cross-cutting cleavages. If you’re with me so far, I think this means that the “niching of America”, rather than producing a less cohesive society, will produce a more cohesive society. Just as with labor, each pursuing his own well-being in leisure should result in greater well-being for all. Think about it.