Sunday, March 4, 2007

The American South

I highly recommend this week's Economist Survey on the American South. It is several articles long but it goes through the great progress that has occurred during the past two generations. For the purposes of the survey, they define the South (as I do) to be the old Confederate states and OK and KY. Here are few bits parsed out from the whole article:
In 1937 southern incomes were only half the American average; today they are 91% of it. If you allow for the lower cost of living in the South, the gap all but vanishes. Since the 1960s, more whites have moved to the South than have left it. Since the 1970s, the same has been true for African-Americans. The South's share of America's population has risen from just over a quarter in 1960 to a third today, making it the most populous American region.

The convergence in living standards must be one of the top stories of past two generations of Southerners. But I still think one of the least known demographic facts of American life is that there has been a rather large re-migration to the South of black Americans pursuing economic opportunities. It says a lot about race relations that more blacks move into the South than away from it each year.
In 1942, 98% of southern whites told pollsters that blacks and whites should attend separate schools, and 96% favoured segregated buses. By 1963, when the civil-rights movement was in full voice, those numbers had fallen to 69% and 48% respectively. Today, open support for segregation is so rare that pollsters no longer bother to ask the question....

Furthermore, in 1958 only 4% of all white Americans approved of inter-racial marriage. As of 2003, 59% of white southerners were telling pollsters that it was “all right for blacks and whites to date”. That is double the 1988 number. Also, black median income in the South is 99% of black median income elsewhere in the country. Finally, "the Pew Research Center found in 2003 that southern blacks were more likely than non-southern ones (by 31% to 20%) to say that “discrimination against blacks today is rare”. In the 1980s southern blacks were no more optimistic on this score than northerners." If the race relations of LA, NYC, Chicago and Washington D.C. are any indication, the problem of racial discrimination may actually be worse outside of the South these days.

The other articles discuss religion, food, culture (branding), and politics. Without recapping all of them, I do highly recommend the politics article (found here) as a helpful primer for non-Southerns who seem to believe that race drives all Southern politics. It discusses the importance of religion and individualism in the shifting from Segregationist Democrats such as George Wallace to modern day Republicanism of the Gov. Sanford (SC) type. Without going into details, the Economist analysis dovetails with my minimal research into the fact that most segregationist Democrats stayed Democratic until they died. The uptick in Republicanism came mostly from their children and internal migration from the North, especially in all non-Presidential politics where Democrats controlled the South until the early 1990s.

All in all, it is a great survey for anyone not to familiar with the modern South. It talks about the good and the bad, but most importantly it helps dispel some of the uglier stereotypes which non-Southerners hoist upon their neighborhoods.

Wednesday, February 28, 2007

The urgency of reforming medical insurance system in the US, why relative poverty matters and why the reform must help the poorest.

It's a sensationalistic story.
It's not a comprehensive study.
It's only the account of one boy.
It's certain there are other reasons why this happened.

But does any of that matter? The fact that it happened at all is bad enough.

Children should not be allowed to die of toothaches because they don't have insurance or money to cover simple dental care. This definitely should not be allowed to happen in the US of A. This is why relative poverty matters. This is why health care in this country needs urgent reform. And this is most definitely why healthcare reform in this country should account for the poorest in this country, even if they are fabulously wealthy by global and historical standards.

Su Dongpo

Monday, February 19, 2007

Re: Poverty in America

Perhaps a redefinition of what constitutes poverty makes sense; but I think anyone engaging in this needs to take into account the fact that relative poverty can have equally damaging effects as absolute poverty.

It turns out that African American living in the US have a lower life expectancy than the more "absolutely" poor lower class in India. (See Amartya Sen, Development as Freedom).

Su Dongpo

Re: Nuclear Proliferation

I'm afraid we may just have to welcome the Ayatollahs to the nuclear club.

First of all, we're way too stretched out and too vulnerable in Iraq and Afghanistan to do anything. Rather than having them surrounded, we've entered their backyard and we have too many enemies there that we haven't defeated.

Second, if we were serious about nuclear non-proliferation we would've waved our big stick at North Korea, not at Iraq. We've lost all credibility in the world of weapons of mass destruction.

I agree with Hamilton's post below, this is a huge tragedy. More for the people of Iran than anything else. The people of Iran have been waging a slow cultural and democratic campaign to attempt to regain their freedom from the Ayatollahs without undoing their own identity. If the Ayatollahs get the bomb, it will most likely solidify that government's position.

Personally, I think a strike on Iran would be unjustified suicide. Iran is one of very few democracy like countries in that area. And they've got us with our pants down, vulnerable in both Iraq and Afghanistan.

But most importantly, we really need to rethink what war is. War is not a tool. It is not a means of diplomacy. It is not a means of meddling with other people's governments and decisions. War is a ghastly human tragedy that should only ever be the utmost last resort of a democratic people. War should never be voluntary. See The End of Iraq by Peter Galbraith.

Su Dongpo

Re: Medical Insurance System

Here is an excellent Paul Krugman article about the inefficiency of our health care system...

Goes to show how good Krugman could be when he isn't ranting about things he knows very little about and instead sticking to economics.

A Proposition for the medical care and insurance crisis in the US

Experimental proposition to be fleshed out:

We should expand the and reshape the two tier form of medical care, coverage and insurance that we currently have in this country into a three tier system that would look something like this:

First tier - strictly market based, completely deregulated tier, especially for the treatment of complex and difficult diseases such as cancer. Allow as much competition as possible by federalizing the regulatory system at this level.

Third tier - a universally covered medical system run by nurse practitioners who have been extensively trained in standard Western triage and diagnosis skills and pain management skills not unlike and perhaps even based in Chinese medicine. This tier should screen and manage all complaints before referral to the second tier. Practitioners at this level would devote substantial amounts of time to each patient and would not earn as much as practitioners at other tiers through the market mechanism, but through a substantial increase in government spending in programs similar to medicare and medicaid, they would still earn good money. In order to accomplish this military spending would have to be cut and lots of money would have to go into recruiting qualified nurses from abroad and subsidizing the training of individuals in the US.

Second tier - the usual medical industry composed of doctors who only see patients from the third tier who have clearly medical pathologies - i.e. bacterial infections, cancers etc but who cannot necessarily afford the more expensive market based systems.

All doctors would participate in all three tiers through some regulation (management of nurses in third tier) but how this would work I'm not entirely sure.

The purpose is to compromise between not impairing what works about the US system - obscure and complicated treatments are readily available for those who can afford them - but fixing what doesn't work - those who can't afford medical treatment tend to suffer disproportionately. The Canadian system errs on that side by allowing everyone the same access but thereby artificially restricts the access of those who can afford better treatment and consequently reduces incentives for improving and experimenting in medical techniques.

This is a very raw idea. This is my proposal, I'm curiously to hear constructive additions and modifications of this proposal. Help me flesh this out.

Su Dongpo

Intellectual Property & Research Incentives for making drugs

In a recent talk, nobel laureate Joseph Stiglitz asserted two very interesting ideas that need substantiation and evidence:

1) First he stated that the patent process is socially inefficient because it awards pharmaceutical companies monopoly power over their particular drugs, thus allowing them to reap large profits off of potentially small contributions but also giving them the incentive to maintain that monopoly power. To bolster this idea he put forth as a fact the idea that pharmaceutical companies spend more on marketing and advertisements than research. The implication being that pharmaceutical companies are using patents to solidify monopoly power rather than to do more research - which is the ostensible social purpose of patents - to give incentives for further research. But the question is, is it true that pharmaceutical companies spend more on marketing and advertising? And if so, where are these figures and what are these figures? Is it a 5 to 1 ratio and who is claiming this? Is this information being spun? And if it is not, shouldn't we be outraged?

2) Stiglitz made a second and similar proposition: he stated that pharmaceuticals spend more on lifestyle drugs - see viagra - then they do on lifesaving drugs. First, is this true? Second, what are the implications of this? I'm guessing my market oriented colleagues will suggest that the market wants what the market wants and that's ok. But as a matter of public policy, especially where lives are at stake, should we be willing to accept this? My answer to that question is an unequivocal no. But then this begs the question of what solution to the problem? Should some lines of research be sponsored wholly by government funding? And if so what implications for the patent process?

Su Dongpo

Saturday, February 17, 2007

Fascinating article

Very possible the greatest failure or the biggest sign of the overall incompetance of this administration is its inability or create a new framework or regime for how the country and world is going to deal with proliferation issues.

There was a great appearance by Henry Kissinger on Charlie Rose not long ago in which he was discussing proliferation issues and he in an off-hand remark indicated his prediction that it will take a major nuclear attack on a world capital and then the world powers would really start to get serious about proliferation issues. One very strong advantage of a strike on Iran (although I see the disadvantages still outwieghing the advantages) would be sending a message to future countries looking to obtain nuclear capability.

A. Hamilton

Monday, February 12, 2007

Poverty in America

Out of a lunch discussion with another one of the group, I wanted to put up a couple thoughts on poverty in America. First, I think this post over at Free Exchange frames our discussion well:

Now that poverty means a risk of obesity, rather than starvation, it is harder to decide what constitutes the minimal decent standard of living a society should provide. On the one hand, there are those who feel that the minimum should basically be some fixed fraction of the top incomes—in essence, that it is indecent for anyone to be more than X times richer than the worst off. On the other hand, there are those who believe, as P.J. O'Rourke so pithily put it, that "the biblical injunction is to clothe the poor, not style them." For those people, once society has made sure you have three squares, a roof over your head (okay, with electricity and plumbing), and something to keep the wind and rain off your skin, then you've got all you're entitled too.

This seems to me much too narrow; after all, we could take care of that by putting everyone without a well-paying job in prison. Other things matter too, like the opportunity to fulfill ones potentials. But which things, exactly? I am still working that bit out.

With that in mind, I think it is important to note that the term poverty is unfortunately ambiguous. When I served in the Peace Corps poverty meant something far different from what it means in America. The best way to understand this is to separate from absolute poverty from relative poverty. Absolute poverty is lacking the means to meet basic human needs such as shelter and food. While around 1 billion people in the world still suffer in absolute poverty, almost no one in the United States does for an extended period of time. According to the USDA, less than .5% of Americans on any given day suffer hunger due to lack of funds for food. It would be wonderful to get that done to zero, but it is at a level now where community service groups, churches, non-profits, and food kitchens can generally provide for the small number of people who need food on any given day. Furthermore, Eighty-nine percent of the poor report their families have "enough" food to eat, while only 2 percent say they "often" do not have enough to eat.

To get a better picture of Americans who live below the poverty line, here are some statistics from the Census Bureau:
  • Forty-six percent of all poor households actually own their own homes. The average home owned by persons classified as poor by the Census Bureau is a three-bedroom house with one-and-a-half baths, a garage, and a porch or patio.
  • Seventy-six percent of poor households have air conditioning. By contrast, 30 years ago, only 36 percent of the entire U.S. population enjoyed air conditioning.
  • Only 6 percent of poor households are overcrowded. More than two-thirds have more than two rooms per person.
  • Nearly three-quarters of poor households own a car; 30 percent own two or more cars.
  • Ninety-seven percent of poor households have a color television; over half own two or more color televisions.
  • Seventy-eight percent have a VCR or DVD player; 62 percent have cable or satellite TV reception.
  • Seventy-three percent own microwave ovens, more than half have a stereo, and a third have an automatic dishwasher.
  • Since America (and much of the developed world) does not really suffer from existential threats due to a lack of funds, our discussion on poverty is much different than an international focus on third world poverty. Americans worry about relative poverty. This is a much more difficult issue, because whereas everyone agrees that people living in conditions that are practically inhospitable is not to be tolerated, there is a healthy debate as to what an acceptable level of relative poverty a meritocratic society can or should have. I leave that discussion for later. Here I merely want to point out something I have found to be true talking to many people about poverty. Specifically, the American measurement of poverty includes many people who most Americans would not consider poor.

    What Is Poverty?

    For most Americans, the word "poverty" suggests destitution: an inability to provide a family with nutritious food, clothing, and reasonable shelter. For example, the "Poverty Pulse" poll taken by the Catholic Campaign for Human Development in 2002 asked the general public the question: "How would you describe being poor in the U.S.?" The overwhelming majority of responses focused on homelessness, hunger or not being able to eat properly, and not being able to meet basic needs.

    But if poverty means lacking nutritious food, adequate warm housing, and clothing for a family, relatively few of the 35 million people identified as being "in poverty" by the Census Bureau could be characterized as poor. While material hardship does exist in the United States, it is quite restricted in scope and severity. The average "poor" person, as defined by the government, has a living standard far higher than the public imagines.

    So the original discussion at lunch considered whether the income level that defines poverty in America should be raised in order for more Americans to be considered poor and collect more government services. I think an interesting argument could be made in the opposite direction that the current income level the defines poverty does not accord with what most Americans consider to be poverty. The issues of the working class are more important now that welfare reform has enabled many formerly poor to become contributing members of society. But those issues are distinct from hunger, homelessness, and underclass that have become less acute as the nation has grown richer. Perhaps it is time to redefine poor in a way that comports with common impressions and work on policies that address low-income workers who often do not consider themselves "in poverty."

    Tuesday, February 6, 2007

    Minimum Wage Addendum

    There is a decent post up on the Economist's blog concerning the minimum wage. It presents a few of the rarer arguments against the minimum wage, but what caught my eye was its explanation for why many Big Businesses support an increase:
    CEO's who support higher minimum wages are not, as the media often casts them, renegade heros speaking truth to power because their inner moral voice bids them be silent no more. They are by and large, like Mr Sinegal, the heads of companies that pay well above the minimum wage. Forcing up the labour costs of their competitors, while simultaneously collecting good PR for "daring" to support a higher minimum, is a terrific business move. But it is not altruistic, nor does it make him a "maverick". Costco's biggest competitor, Wal-Mart, also supports a higher minimum wage, and for the same reason. Wal-Mart's average wage is already above the new minimum; it will cost the company little, while possibly forcing mom-and-pop stores that compete with Wal-Mart out of business. This seems blindingly obvious to me. Though I don't expect we'll see "the minimum wage—it's great for Wal-Mart!" in many Democratic campaign commercials.
    Just wanted to make sure that all those in favor of increasing the minimum wage know that a) They are taking Wal-Mart's side on the issue and b) They are pushing out mom-and-pop stores so they can feel better about themselves while making no sacrifices.

    Tuesday, January 30, 2007

    EITC v. Minimum Wage

    1. Demand is downward sloping. There are almost no examples of any good (including labor) that you can charge more for it and not get less. The higher the price, the lower the quantity purchased. This happens in many ways, but in recent times it is most often seen in the move toward automation. For one example, see self check-out at grocery stores. If the government forces employers to pay their 20 workers more, some will fire 10 and install automated systems.

    2. The real question is how elastic demand is? Will a increase in cost of 40% create a drop in employment in the minimum wage labor force by 10%, 40%, or 60%. My educated guess is in the 10-25% range. Since the other 85% of workers are unaffected, the affect on overall unemployment will be small. For example, if 10% of minimum wage worker lose their job within two years then the affect on overall unemployment would be 1.5%. (10% of 15% is 1.5%).

    3. There is no such thing as a free lunch. It would behoove those who support the minimum wage for political reasons to at least acknowlege that there is a cost to the program. The most apparent cost is the increased unemployment among low wage workers. That unemployment may be worth the increased wage for the 75%-90% who do not lose their job, but the increased wage is not costless.

    4. Does it matter who benefits? To many people, I don't think it matters to them who actually benefits from an increase in the minimum wage.* As an anti-poverty tool, it is rather poor one. Less than 20% of minimum wage earners have a family income below the poverty level. The average family income of people working for the minimum wage is $49,885. This is because most people working for minimum wage are not breadwinners.

    5. The unseen losses. The most unfortunate part of the debate over the minimum wage from my perspective is that most of those who lose when the price floor is raised go unnoticed. Minimum wage earners are usually new entrants into the labor force. After establishing the ability to work on time and efficiently, most get a raise, promotion or leave to go to a better paid job quickly. Specifically, more than 2/3rds of minimum wage earners make more than the minimum wage within a year.* It is the first rung on the ladder of success for many workers. If you take away the first rung, some (although not all or most) of those workers will not get to the second rung. And most unfortunately, no one will really notice that those people are unemployed because of a feel good piece of legislation.

    6. Why France sucks. As the Nobel Laureates point out, France has a miserable problem with youth unemployment. The rate is in the 20% range for the youth and higher in poor segments of the country. This unemployment causes a myriad of other social ills. On the flip side, the U.S. minimum wage is at its lowest point in real terms in 50 years. And our unemployment rate is incredibly low by historical standards at 4.5%. Possibly more important to some, the unemployment rate for blacks is lower than all but a couple years at any time over the past 40 years at 8.4%. I am happy to place a nice bet on the fact that the black unemployment rate will be higher than 8.4% in two years if the minimum wage is increased to $7.00 or higher.

    So all in all, I just hope you do take the time to read both sides of the issue. The real costs of any policy change need to at least be recognized. Then one can debate whether the benefits are worth the costs. And when there are a number of notable Noble Laureates bringing up the topic, it seems especially wise to not brush them off based on political reasoning rather than even-handed discussion of the implications of a policy. And as someone who has researched the topic a bit, I'm happy to talk with anyone who has questions about the economics of the minimum wage.

    Monday, January 29, 2007

    Earned Income Tax Credit versus Minimum Wage

    In this post I am responding to a Wall Street Journal article entitled "How to Make the Poor Poorer" the gist of which was that by enacting a raise in the federal minimum wage, the new congress would not only make the poor poorer but also missed the opportunity to pass a raise in the Earned Income Tax Credit.

    Becker and Posner state that raising the minimum wage will raise the price of consumer goods and hurt the poor by increasing unemployment. First of all, I don't think raising the minimum wage has substantial effects on the costs of consumer goods. Why? For one, the chump change that minimum wage employers are paying their employees likely do not constitute their most significant expenses. As a corollary to that, the consumer most markets seek to target is not the minimum wage consumer, but the above minimum wage and middle class consumers that have the money to buy not only want they need but also what they want - (see overeating as a perfect example).

    Next, businesses such as McDonalds, Blockbuster and their franchisees are in no danger of going out of business. Therefore, they will continue to maintain the same size skeleton screw of workers without firing any, even if they have to spend a little bit more on their employees. Small businesses, the supposed hero of the libertarian, are already more likely to be paying the workers they know personally and care for more than the minimum wage and thus should be effected less.

    Here's an article opposing the minimum wage that cites empirical evidence supporting my proposition that in fact raising the minimum wage has very little effect on unemployment:

    The authors fundamental argument is that a minimum wage increase is unfair in that it distributes the burden onto a very small percentage of people - onto employers. But like I argued before, let's look at who those employers are. The second half of the article refers to an ordinance that would have raised the minimum wage in the city of Chicago only. I totally agree that this is really stupid idea, but only because differential economic rules cause business to flee - especially when they can move ten miles down the road. However, these problems are removed with a national minimum wage increase and the results would still be on those that pay minimum wage.

    Third, EITC? This is a benefit that you have to claim on your tax form: Are you kidding me? These guys clearly don't know anyone who earns minimum wage. People earning minimum wage are doing so because they have not had better opportunities in life, because they don't have the education to know to successful navigate the bureaucracy to get the benefits of things that they claim on their taxes. (This is not to insult those on minimum wage, I barely know how to navigate the bureaucracy involved with the tax system.) Give people the money up front, an EITC is like a rebate that no one mails in. This is not to say that their isn't a role for the EITC. Let's have both the EITC and the minimum wage increase. Hopefully another blogger will better explain the EITC.

    Fourth, Posner and Becker may claims implying that increasing the EITC will harm teenagers: I say when it comes to important policy decisions affecting the poor, forget teenagers. I don't care about the job summer job prospects of this guys highschool aged son. Clearly, if his son doesn't get employed over the summer, his son's going to be ok.

    As a corollary to this, Posner and Becker make claims that similar systems of entitlements for the poor in France are responsible for the upset of Muslim youth there. On the contrary, references to French muslim youth are illegitimate. France has a highly nationalist/racist entitlement system; it's generosity is not the problem, its racism is. But never mind that, for so many other reasons, France is France and the US is the US. Here our racist entitlement system takes the name of the above mentioned EITC and company. France seems to be a favorite referent of libertarians; they even rent soft porno movies entitled: Welfare Gone Wild, France Shows its Feel Good Tits but Welfare Gone Wrong, We See France's Unshaven Armpits. I refer these people to the many other successful welfare states in Europe.

    Finally, I have come to strongly suspect that the motivations of those seeking tax breaks and spending at every turn. The only logical conclusion is that they aim to destroy the government through bankruptcy or they hope to strong arm our debtors at some future date. Neither of these is very promising.

    A line of thought I intend to develop here is the idea that some of those who have profited most from capitalism are dissatisfied with the egalitarian effects capitalism has and are trying to send us back to the medieval Europe where class lines, determined by wealth in this case, are distinct enough that the upper class could truly revel in their wealth.

    Free markets have been the greatest friend of the egalitarian in the history of humanity; but not in a vacuum. The collapse of the necessary social and political institutions supporting and surrounding otherwise mostly free markets would undo all of this. What really are people thinking the government is going to do over the long run by spending hand over fist while taking in almost no money? I may be wrong, but I would guess that Becker and Posner are not in support of new taxes despite his disingenuous suggestion otherwise.

    Now don't get me wrong, an increased minimum wage is not a panacea, it may not even be the best solution, but it is a step in the right direction if we're going to simultaneously dismantle government based social support networks and support a broader meaning of corporate governance than Adam Smith or the Founders of this nation ever intended. And I certainly do agree with Mr. Becker's implied argument that our current politicians are spineless worms who do little more than stick their moist fingers in the air in the hope of purposeless and futile reelection.

    As this is my first post, let me introduce my concerns. In the following statement the term that concerns me the most is the word all: I believe in freedom for all. The perspective I am attempting to develop is a Daoist politics (only somewhat of a contradiction) that essentially focuses on compassion and minimal regulation of behavior, but has a conservative humility about what politics and humanity can do.

    Su Dongpo

    Discordant Opinions

    Welcome to Discordant Opinions...