Sunday, February 24, 2008

Archives from the CEA: Economists as Mystic Soothsayer

So working at the White House meant I was precluded from posting anything political on my blog while working there. Here's one post that I had quarantined until now.

As a government economists, I sometimes feel like a soothsayer in a sophocles comedy (or tragey depending on the day). Indoctrinated through arduous arcane rituals, we are necessary before any decision is made. We utter our pronouncements "beware the ides of march" or "the price of oil increases due to a supply shock based on our econmetrically estimated price elasticities". Our exclusivity means there is rarely more than one of us in any meeting. But that's ok because the indoctrination of our brotherhood/sisterhood means we all share the same opinion. That gives us power. But yet our arcane methods means we are (like cassandra) never quite trusted. Thus we work from the background. Whispering portents and theories into the ears of the powerful, influencing by (selective) analysis but always in the shadows.

Ben "sayer of sooth" Ho

"Sooth!"

Friday, February 08, 2008

A comic I live by



I wrote this 700 word column explaining why I on the whole don't believe in voting. This comic says the same thing a lot more succinctly.

Sunday, February 03, 2008

Aha! Sovling the US healthcare paradox

The US spends twice as much per capita on healthcare (Americans devote about 1/6 of our annual income each year to healthcare) than the rest of the developed world. The US healthcare-industrial complex depending on how you measure things, probably spends more each year than the rest of the world combined. Yet it lags way behind in measures like life expectancy.

No one up until now has given me a good answer as to why. I have asked many health economists. I devoted two lectures to the class I taught trying to figure it out. I explored many possibilities, though none really seemed to explain it. Krugman claims it is administrative burden from having a private system (those his numbers don't really add up). Some cite lawsuits. Some cite immigration and inequality. Some cite the excessive cost of the uninsured. Some cite the excess cost we spend on end of life care. Some cite obesity.

But most of these don't add up. Despite media fear mongering, our obesity rates are not far off from other countries, (and are now on the decline). Our ratio of end of life spending is comparable to the UK and elsewhere. Medical equipment in the US is in the end comparable with other countries.

Lawsuits and inequality may be part of the story. Transaction costs from a private system may also be part of it. Higher doctor salaries are also part of it. But total numbers for each are small. They can't explain what we are getting by spending double, however.

So here's a factor no one's ever mentioned before that I heard from John Stossel. Controlling for violent deaths from transportation and homicides which are much higher in the US than elsewhere, a U of Iowa study find that life expectancy in the US is the highest in the world (they also note substantially higher survival rates for various cancers).

So the reason the US spends so much on healthcare is because healthcare is a luxury good, and as a country gets wealthier, it consumes more of it. Not because of waste.

Of course that doesn't explain why car accidents and homicides are higher in the US, but car accidents are easy: More cars and more roads (one estimate is that more people died after 9/11 due to excess traffic fatalities caused by people who chose to drive because they were afraid of flying than from people who died in the plane crash). And homicides is a totally separate problem. A lot can be explained by inequality and diversity. The mortality risk from homicide is 6 times higher for blacks than for whites in the US. A big problem, yes, but not a problem with the healthcare system.

This is important because most of the presidential candidates are maintaining that healthcare in the US is broken. The data suggest otherwise.

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