links for 2008-02-10

• Paul Romer is Interviewed - Mauritius Times
• Now, Feed the Data to the Subprimeoscope - New York Times
• Why It Was Called 'Water Torture' - washingtonpost.com
  
• The Bag of (Budget) Tricks Is Almost Empty - New York Times
  
• Market Failure - Second Opinion on U.S. Health Care Costs - NEJM - Kuttner

Comments

[hari]

Mark -

Thanks for the Paul Romer interview with Mauritius Times.
There's simplicity in his approach and lots of value in terms of cognition. Education! Education! Education!

Mauritius is a favourite island where there're no so-called natives. Everyone is an expatriate, in a sense.
First they spoke French and then English. In terms of East African States, they're the most developed at the present time. The economy was based on cane sugar and now it's deversified with tourism a significant part of the mix.
There's offshore financing facility which is used by non-resident Indians (NRI) for FDI in India.

This interview could just as well be applicable in US/EU in terms of coping with disclocations caused by globalization.

[anne]

http://krugman.blogs.nytimes.com/2008/02/09/george-the-unlucky-and-poor-ben-too/

February 9, 2008

George the Unlucky (and Poor Ben, Too)
By Paul Krugman

You know, if it wasn't for the bit about lying us into war, lying about just about everything else, fearmongering for political gain, making America synonymous with torture, busting the budget to cut taxes for the rich, and so on, I'd almost feel sorry for George W. Bush.

You see, it's gradually becoming clear that the second half of the 1990s was in many respects just a lucky period for the U.S. economy — and that our luck has now run out.

Import prices were falling in the 90s, partly because of a surplus of oil, partly because third-world exporters were flooding the world with cheap goods, partly because the dollar was strong. Here's the ratio of the BLS measure of import prices to non-energy, non-food consumer prices:

Cheap imports no more [Chart]

And productivity growth was high, probably because of the big early payoff to the internet and other forms of networking:

Productivity boom, gone [Chart]

I remember describing it at the time as "1979 upside down": the bad things that happened in the late 70s, with soaring oil prices and lagging productivity, were running in reverse. Now it seems to be all over.

Bill Clinton got some credit for all this — but the big, undeserved beneficiary was Alan Greenspan, who looked like a genius when he was mostly just in the right place at the right time.

Now Ben Bernanke is having to try and clean up the mess Greenspan made — and do it in a much less favorable environment.

[Second Opinion Article]

"Despite our crisis of escalating costs, dwindling insurance coverage, and deteriorating conditions of medical practice, true national health insurance that would not rely on private insurers remains at the fringes of the national debate."

This seems to be the case. Nothing substantial is being done. 500,000 Americans are forced to become medical tourists each year in a desperate effort to find affordable treatment. Emergency rooms are shutting down at an alarming rate. The current proposals would do nothing to address the main problem. It appears that it may take decades before major change is forced on the US, followed by a steep learning curve for the new system.

[robertdfeinman]

This "economics" article was in the Week in Review section, so may have been missed by those who only look in the usual places.

You Are What You Spend

Two economists from the FRB Dallas show that things aren't really as bad as some might think for the bottom fifth since they are spending twice what their income is. Not only is the idea heartless and thoughtless, but their analysis is so biased as to make one wonder how they can hold down their jobs. A choice quote:
The bottom fifth earned just $9,974, but spent nearly twice that — an average of $18,153 a year. How is that possible? A look at the far right-hand column of the consumption chart, labeled “financial flows,” shows why: those lower-income families have access to various sources of spending money that doesn’t fall under taxable income. These sources include portions of sales of property like homes and cars and securities that are not subject to capital gains taxes, insurance policies redeemed, or the drawing down of bank accounts.

The part that I've emboldened shows the disconnect between ideologues and reality. There is one dramatic characteristic of those on the bottom of the economic ladder, they have no assets. So how can they be selling homes, securities and collecting capital gains?

Now if you include the suddenly poor (rather than just the chronically poor) it's true that they may be selling off assets to avoid immanent starvation or health collapse, but that is not a sign of a minor problem, but of an even greater problem to come.

Other gems include comparing the speed at which electricity was adopted with consumer purchases of cell phones. In one case the entire country needed to have a new infrastructure created, something that an individual has no control over, in the latter case one can get a cell phone for $10. This shows nothing about the relative wealth of individual economic classes, nor of the benefits of international trade (their ultimate point).

If the Fed bases economic policy on analyses like this we are really in for trouble.

[anne]

[Something is wrong with Typepad. Post go to Preview only.]

[anne]

{Sorry, but a Paul Krugman post keeps going to Preview while a warning was posted above. I do not understand what Typedpad is doing, but do not think I am making any mistake.]

[anne]

http://krugman.blogs.nytimes.com/2008/02/10/income-and-consumption-inequality/

February 10, 2008

Income and Consumption Inequality
By Paul Krugman

So Cox and Alm have a piece * in today's Times arguing that consumption inequality is much less than income inequality, so nothing to worry about.

Now, there's no question that consumption inequality at a point in time is less than income inequality. But the CEX study on which they rely is widely believed to be seriously flawed, especially for tracking recent trends. For whatever reason, the survey seems to be missing a lot of consumption growth among the affluent. There's a good summary of that discussion in Gordon and Dew-Becker. **

You probably should also know that Cox and Alm previously tried to make the case *** that there is huge income mobility in America — unconvincingly. In fact, they repeated in full arguments that had been thoroughly debunked **** years earlier. (Also see Gordon and Dew-Becker on this.)

So my basic reaction to the piece was, there they go again. There's some truth in what they say, but no news.

* http://www.nytimes.com/2008/02/10/opinion/10cox.html

** http://www.people.fas.harvard.edu/~idew/papers.html

*** http://query.nytimes.com/gst/fullpage.html?res=9A04E6DF1639F936A15757C0A960958260

**** http://www.pkarchive.org/economy/therich.html

[anne]

[Please notice, Typepad is still not allowing a Paul Krugman post in reply to a New York Times article, but putting is in review repeatedly. Also, the blog is responding slowly which I suspect is Typepad. Here then is another experiemental post.]

[anne]

[Forgive these stupid tests posts which obviously have gotten through. Possibly only posts with no URL address are being allowed by Typepad. The blog however also seems slow in responding at all for some reason. Sorry to mess up a thread with tests.]

[wjd123]

A second opinion on US health care cost

A comprehensive national system is far better positioned to match resources with needs — and not through the so-called rationing of care. (It is the U.S. system that has the most de facto rationing — high rates of uninsurance, exclusions for preexisting conditions, excessive deductibles and copayments, and shorter hospital stays and physician visits.) A universal system suffers far less of the feast-or-famine misallocation of resources driven by profit maximization. It also saves huge sums that our system wastes on administration, billing, marketing, profit, executive compensation, and risk selection. When the British National Health Service faced a shortage of primary care doctors, it adjusted pay schedules and added incentives for high-quality care, and the shortage diminished. Our commercialized system seems incapable of producing that result.

Despite our crisis of escalating costs, dwindling insurance coverage, and deteriorating conditions of medical practice, true national health insurance that would not rely on private insurers remains at the fringes of the national debate. This reality reflects the immense power of the insurance and pharmaceutical industries, the political fragmentation and ambivalence of the medical profession, the intimidation of politicians, and the erroneous media images of dissatisfied patients in universal systems.5--Kuttner

[ddt]

So it turns out burning food instead of oil isn't such a good idea.

Studies Say Biofuels Worse Than Gasoline
http://blog.wired.com/wiredscience/2008/02/studies-say-bio.html

[anne]

DDT, the report on biofuels is quite worrying and corresponds to the concerns I have been hearing informally from environmentalists-ecologists for months.