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August 7, 2012

Latest Posts from Economist's View

Latest Posts from Economist's View

Posted: 30 Jun 2012 04:05 AM PDT
Short travel day by train. Next stop: Lindau, Germany for this year's Lindau Nobel Laureate Meeting dedicated to Physics.
Here's the program for the firsmorning:
09.00 Plenary Lecture Main Hall
Brian P. Schmidt: Observations, and the Standard Model of Cosmology
09.30 Plenary Lecture Main Hall
John C. Mather: Seeing Farther with New Telescopes
10.00 Plenary Lecture Main Hall
George F. Smoot: Mapping the Universe in Space and Time
11.00 Plenary Lecture Main Hall
Paul J. Crutzen: Atmospheric Chemistry and Climate in the Anthropocene
Plenary Lecture
Main Hall
Mario J. Molina
The Science and Policy of Climate Change
12.00 Plenary Lecture Main Hall
Ivar Giaever: The Strange Case of "Global Warming"
12.30 Plenary Lecture Main Hall
Hartmut Michel: Photosynthesis, Biomass, Biofuels: Conversion Efficiencies and Consequences
I'm particularly interested in the sessions on climate change.

Posted: 30 Jun 2012 01:17 AM PDT
Miles Kimball:
Future Heroes of Humanity and Heroes of Japan, by Miles Kimball: ...massive balance sheet monetary policy on the part of the Bank of Japan could put to rest the idea that balance sheet monetary policy doesn't work. The Bank of Japan has amazing legal authority to print money and buy a wide range of assets, and has the rest of the government actually pushing for easier monetary policy. So they could do it. They just need to buy assets chosen to have nominal interest rates as far as possible above zero in quantities something like 30% or more of annual Japanese GDP. ...
I spent two weeks at the Bank of Japan in each of May 2008 and May 2009 precisely because I think there is no central bank in the world that could do more to help the world economy as a whole, as well as Japan's, by improving its monetary policy. I know that some on the Bank of Japan's monetary policy committee do not think that printing money and buying massive quantities of assets will work. But the value of experimentation in economic policy is vastly underrated: trying a policy of "print money and buy assets" on a massive scale such as 30% or more of the value of annual GDP is the way to find out. And there is no country in the world for which the possible side effect of permanently higher inflation would be more harmless. The Bank of Japan has officially set an inflation target at 1%, which is 1% higher than where Japan is at, and there would be nothing terrible about having a 2% inflation target, like the inflation targets for the Fed and the European Central Bank. So the Bank of Japan should do it. If the Bank of Japan shifts to such a decisive policy, those pushing for this approach on its monetary policy committee will ultimately go down in history as heroes of humanity as well as heroes of Japan. That statement is written with every ounce of seriousness and passion I am capable of.
Posted: 30 Jun 2012 12:06 AM PDT
Posted: 29 Jun 2012 07:11 AM PDT
In my discussion of the economics underlying the reason for the mandate (and the penalties needed to enforce it), I talked about the adverse selection problem, but I wish I would have talked about moral hazard as well since that is also part of the problem.
Under adverse selection, relatively healthy people drop out of insurance pools because they expect their health costs to be less than they would have to pay for insurance. As the relatively healthy people drop out, it raises the average cost of covering people (since the relatively healthy are no longer in the pool), which causes more people to drop out (the ones with expected costs that are now less than the higher premiums), which raises the price again, which causes more people to drop out, and so on until the market breaks down entirely.
But even healthy people have some chance of catastrophic illness, illness that could be deathly for example, so why wouldn't they purchase insurance in case this happens?
People know we are a compassionate society, and if they come down with a life threatening disease we will take care of them even if they don't have insurance, i.e. even if moral hazard causes them to shirk the personal responsibility conservatives hold so dear. Thus, relatively healthy people can take a chance and go without insurance secure in the knowledge that they will be treated if something awful happens. Broken bones, catastrophic illness and so on will be covered. But covered by whom? In many cases, the individual will not have sufficient resources to pay for the medical care, it would bankrupt them, so there is no choice but for all of the rest of us to pick up the bill.
A mandate stops this from happening. It forces those who would take a chance and go without care, those who are relying on all of the rest of us to insure them against large, unavoidable medical costs, to insure themselves against this. That is, it stops this moral hazard behavior. (Essentially, adverse selection is about the average or mean cost, moral hazard is about the variance -- loss of life, for example, can be viewed as a very bad draw that occurs with some probability and imposes very large, perhaps infinite costs.)
Adverse selection and moral hazard are not mutually exclusive. As you can see, they work together -- people with expected costs lower than premiums drop out knowing they are covered by the rest of us against a bad draw. A mandate, or its equivalent, helps to overcome both of these problems.

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