Wednesday, February 27, 2013

Time Magazine's wrong on the cost of healthcare


Time magazine devotes an entire issue to the economics of healthcare, and while I appreciate the effort, and it gets somethings right, its written by someone who makes really basic fundamental mistakes in terms of the economics of cost benefit analysis, and focuses on a really minor part of the problem, which is the difference between list price and actual price.

It makes for shocking anecdotes to look at the markups hospitals charge for things like asprin (10000%), but since the only people who pay the list price are the handful of patients who don't have insurance but are rich enough to pay the list price, it is hardly a fundamental problem. Lots of industries have odd markups and strange pricing (like airlines or government contractors or consultants), and yes this is problematic, but I'm not sure this is fundamental.

His larger point that we should have price competition is a popular solution by conservatives, it was big under the W. Bush administration, but hardly any other country in the world relies on price competition to set prices. Also his other proposed solution of using medicare to set prices is a popular solution amongst marxists, but is also problematic. The distorting effect of government set pricing has been shown to create huge costs.

The article also to make this more dramatic, talks about the large profits for non-profit hospitals. So this is odd since non-profit hospitals are by definition zero profit companies. So in perhaps the only footnote i've ever seen in a magazine, it defines profit as revenue minus operating cost and depreciation. What he calls profits, is the money spent on expanding the hospital. The author defines this as pure waste and spends most of the article talking about how to get rid of it, but usually when its measured, most healthcare spending does seem to yield real returns. So getting rid of these "profits" really means getting rid of future healthcare services.

The fundamental flaw is he makes the freshman mistake of conflating cost and price. The cost of something is the opportunity cost of producing it. A real cost. The price represents a transfer. There's a difference. Transfering $1 from me to you, by itself represents no real cost to the economy. I lose $1, you gain. The net is zero. The cost occurs only from the distortions that occur.

Wednesday, February 13, 2013

My Sorry dissertation as an SMBC comic


The economics of apologies. Actually the comic is more a reflection of Aaker Fournier and Brasel (2004) who actually did this experiment by creating an online photo company, and then losing people's pictures. My model and experiments (2012) suggests that this is an out of equilibrium outcome. as mistakes can never generate a net benefit if players have rational expectations.

Tuesday, February 12, 2013

Amazon Auto-Rip

Well this is super neat. The frustrating thing for me is having bought songs in different formats, and being forced to buy them again. Amazon is automatically moving any physical CD purchased from amazon onto their cloud player system and available for mp3 download. The next thing I'm wishing for is to find some way to convert all the mp3s i've purchased from itunes and convert that as a down-payment for  some kind of spotify type subscription, which to me is the most sensible way to listen to music.

Sunday, February 10, 2013

Arbitrariness of Aesthetic Judgment

Sabbatical has allowed me to finally make a dent on my pile of unread economists. Finally nearing the bottom of the stack, that are just over a year old. Found this article today...

As in the wine trial, where experts prefer New Jersey wines to the top French vintages in blind trials and think wine tastes better when they have a higher price tag, in blind randomized trials, experts prefer modern violins to the 17th centuray Stradivari that are typically coveted.

Friday, February 08, 2013

Energy Density is Inconsequential Comic

This is the comic I need to put up whenever someone makes an energy density argument to defend their favorite pet fuel. For whatever reason, one of the most common argument scientists or engineers in the field of energy make in favor or against any particular fuel is always about energy density. Ethanol's not as good as gasoline as it has lower energy density. Gasoline's not as good as diesel. Plants have a very low energy density so biofuels are dumb. Honestly, after net energy balance (something almost as useless) you hear this argument second most often. But that's only because as scientists its one of the only numbers they can grasp but its about as consequential to choosing a fuel as the color. If energy density really mattered, we'd only use uranium.

What really matters is an accounting of ALL the costs and ALL the benefits. Uranium may be a viable alternative fuel source but its costs and benefits have very little at all to do with the energy density. Just saying plants have a very low energy density doesn't mean it might not be cost effective. Sure, it takes 4.2 bushels of corn to make one gallon of ethanol based gasoline, but if it costs less (including all the externalities) of making energy that way compared to say getting an equivalent amount of power from building a solar power plant, shipping in materials, accounting for depreciation, building  a billion new electric cars, then ethanol is a better fuel source. The energy density is irrelevant.

Saturday, February 02, 2013

Reviewlet: Steve Martin's Object of Beauty


Just had the best dentist appointment of my life (friendly, clear prices, online booking, neat video technology, efficient cleaning by the dentist instead of a hygeneist) on the 7th floor of the Gallery building in midtown Manhattan chock full of little art galleries selling both contemporary art but also niches like Duchamp and Picasso sketches. Walked into one, where a gallery girl (like the eponymous awful Bravo reality show) was listening to a live art auction, which was appropriate since I just finished Steve Martin's Object of Beauty, about the contemporary art world over the past 20 years that starts off in the back rooms of Sotheby's.

The title refers to a line about when a painting goes from being an object of beauty to an object of value, or if you want to be fancy, the commodification of art. Though the title could be read also as the Objective of Beauty, or equally as a reference to the main character, Lacey Yeagar, an eager ruthless bright pretty young object, a gallery girl who is compelling and irresistible but ultimately empty and flat. She stands in contrast to the paintings that she sells the best of which pop and come to life. The book follows Lacey's career from art world debutante in the 1990s (like HBO's Marni) to running her own gallery in the present day (like HBO's Charlotte).

Calling it a novel is misleading, because there is no plot, no conflict, the characters don't change. The characters are mostly as lifeless and empty as a Popper street scene, a Chardin stil life, or a Warhol silk screen (perhaps intentionally), the book is more like what Sophie's World did for philosophy, or Atlas Shrugged for Objectivism, a portrait of the world of art commerce that hangs on a novel-like frame.

Given what I do for a living, its perhaps surprising that I know far about the aesthetic side of art rather than the commercial, so I was fascinated about the "insider's perspective" of art gallery careers, art patrimony from Russia to China, art criticism, art crime, art auctions, and the manufacture of value for something as inherently valueless as a dollar bill. All while bouncing around what are still fashionable Manhattan locales.

The book contains beautiful reproductions of a dozen or so paintings that does fairly well much of mostly American art (rendered beautifully in the kindle App), and does a nice job in helping appreciate these paintings through the mind of a collector.

While an enjoyable read (you can occassionally here Steve Martin's voice in the narration), it wasn't quite a rich experience, and I probably would have gained just as much from a long form New Yorker article on the same subjects.
Final Grade: C+

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