Should US Doctors Take Pay Cuts?

It is now almost a sure thing that medical insurance coverage will be one of the major campaign issues during the US elections. Most of the candidates that have looked at it carefully are obviously aware that it is much more than dedicating more money to the problem. The uncontested fact is that the US spends a higher proportion of its GDP on medical care than any appropriate comparator within the OECD. In spite of this total expenditure, in certain respects the degree of medical coverage does not match.

Various reasons are readily given for this state of affairs and these include the fact that the design favours insurance corporations which are motivated to exclude many ill people on the one hand and the high prices of prescriptions drugs on the other. One factor that has not been mentioned very little has been the compensation for US medics. Alex Berenson's article in the New York Times argues with data that the compensation of US medics is at least double that of their colleagues in other high-income nations.

Even taking into account the fact that the compensation figures cited are probably based on conversions of prevailing exchange rates, it is likely that they would still be substantially higher were they to be adjusted by Purchasing Power Parity (PPP). I am at a loss as to why Us surgeons and other medical practitioners seem to exercise this degree of market power especially as medical skills are largely transferable across nations. the article states that the way in which compensation is structured moves doctors to recommend expensive procedures that may have cheaper alternatives and this suggests that US patients may be over-medicated already. One would have to look at the regulation of entry into the medical profession as I would expect that to moderate the upward crawl of wages. It appears instead to be distorting it towards the higher paid specializations.

A Case for Legalized Sports Betting

Any all-round sports fan or junkie knows that this week has not been a good one for administrators. Starting with the farce that the Tour De France has become because of suspicion of widespread and systematic doping by race leaders, a top sports professional engaged in an underground dog fighting activity and to the news that an umpire with the National Basketball Association is under investigation for betting on games in the league, sports has provided entertainment of a very different kind.

Understandably therefore, Justin Wolfers a forensic economist says something about the NBa referee. In this article in the New York Times, he states that the existing structures that outrightly ban betting on sports in the the entire US except for the State of Nevada is partly responsible. It is noteworthy that Justin Wolfers, has earlier co-authored a paper that found discernible referee bias in calling fouls within the NBA. this did not please NBA commissioner David Stern but I think this revelation that one referee may be betting on games suggests that there's a bigger problem than Stern can explain away by merely stating that it is quite rare.

Prof. Wolfers does not belabor the point but proceeds to suggest a regulatory approach aimed at vastly improving the situation. In short, he states that the outright ban on gambling is ill-advised and should be reversed to encourage bets that do not provide an incentive for corruption. This favors legalizing bets on the outcomes of matches and driving illegal gamblers towards the legitimate market. He appears to think that retaining a ban on the points differential of games should be retained as this provides part of the motives for umpires and players to act strategically by betting on subtle outcomes that they could influence. Bringing sports betting to the open would be far better than any alternative but betting on the points differentials is far more sophisticated but i see no reason for retaining ban here.

Quoting John Kay

"Today, the improbable belief that opaque financing arrangements can generate returns far in excess of those earned on underlying investments acquires validity only from being generally believed". John Kay

Where Economists Should Start

Many well-educated people have an idea about what investments are and have heard it preached by the talking heads on television and other media about the need to save and invest sufficiently for retirement or to build one's wealth. At the same time, a high proportion of the same people have this accusation against economists (largely true) that the study of dry statistics about inflation and interest rates in particular is neither interesting nor useful to them.

In spite of this, the success of many DIY books on investments and building a sizable fortune, shows that accumulating money and building wealth is a legitimate concern for today's professionals in both low and higher income countries. In the contempt for the subject of economics, these investment hungry professionals forget that inflation is real and that returns must be corrected for inflation for the sake of accuracy.

Writing in the New York Times, David Leonhardt explains what the purported record values of the Dow Jones and illustrates the common misconception and failure to recognize that the value of investment returns ought to be calculated in real terms. One of the reasons financial products advisers fail to emphasize this in sales pitches is because it would reveal that a large number of stocks that people purchase often represent mediocre returns in real terms.

UK Committee Reviews Afghanistan Progress

Over the last few weeks, this blog has had posts here and here covering the faltering war against the Taliban, by arguing that a mixture of the objectives would be detrimental to the primary objective. It appears that to roll together the primary objective of decisively defeating the Taliban and eradication of opium poppy growing is not prudent. This is because the Taliban is the legitimate military enemy, while opium poppy cultivation is a means for extracting livelihoods for a growing number of Afghanistan's farmers.

Paul Wood,reports here that the defense committee of the UK's house of Commons have issued a report that questions that approach too. Point six on that list is profoundly clear: "You can't fight the Taleban and opium at the same time."

It results in an unnecessary diversion that militarizes the war against opium, corruption and loss of public support for NATO forces. Fighting power and technological superiority does not help when the policy is incoherent. Defeat of the Taliban is not only possible but desirable while eradication of opium poppy is not NATO's war.

Melting Indian Coins for Value

Because coins are metallic and durable over time, the value of the metal used to make them exceeds the face value of that coin. As soon as this happens, astute traders begin to collect coins with a view to converting them to metal and make money out of that difference. The material effect of this arbitrage is that the Central Bank and tax payers lose from the fact that the cost of making coins is well above their face value.

I argue that this practice is a carryover from the days when gold or bronze currency reflected the value of the valuable metal from which it was extracted. Small traders in India have noted the measurable differences in the alternative value of Indian coins and are furiously collecting the same, having them melted and making impressive returns on that investment in spite of the fact that it is illegal to do so. As Subhir Bhaumik writes here, the coins are melted down, sent to Bangladesh and converted into razors. The incentive derives from the fact that the difference in the face value of the coin and the total value of the razors is 3500%. In between those boundaries is an opportunity to extract profits after deduction of the costs of melting and transportation across the border into Bangladesh. As the story states, even beggars are sufficiently astute to engage in arbitrage.

It appears that notwithstanding the reduction of the metallic content of the coins at the mint by the government of India, the arbitrage continues and the attempts to flood the market with coins only fuels the trade. The only workable and stable policy option would be to raise the value of the rupee coin closer to 35 Rupees. Otherwise, the economics of it is truly clear and the shortage of the coins will continue.

Inflation and HIV Infections in Zimbabwe

This article in the Washington Post reports that Zimbabwe has benefited vicariously from the poor economic management by the autocrat Robert Mugabe. The argument is that the extremely high rates of inflation have coincided with a systematic decrease in new infections with HIV over the last few years. The main reason posited is that most males in Zimbabwe had the opportunity to maintain multiple relationships but are unable to do so due to the drastic erosion of their incomes. More particularly, the story reports that this development is peculiar to Zimbabwe in the southern African region and is therefore a reflection of internal dynamics.

Admitting that the long-argued connection between HIV infections and economics are not very clear, one detects the thinking that the article and most of the persons quoted in the article think that the poor economic performance is responsible for the reduction in rates of infection.

While this idea is plausible, this blogger is cautious about the broad assumption. First, one ought to be careful with cross-country data on HIV infection rates in southern Africa and the entire continent in general. Secondly, correlation is obviously not tantamount to causation and besides poor economic performance, there may be other variables driving the fall in infection rates. All the anecdotes about men being unable to keep multiple relationships going do not substitute for real data. Thirdly, this blogger is not sure that HIV infection rates in Zimbabwe is singularly or overwhelmingly driven by prostitution as is assumed. Finally, it would be interesting to note the price and substitution effects to the reduced earnings of adult males. It just does not sound convincing that it takes a crisis in governance for people to realize that AIDS is a killer.

Wimbledon: Equal Pay with Equal Play is Fairer

I start with unreserved congratulations to Venus Williams and Roger Federer who are this year's women's and men's tournament winners of the tennis grand slam tournament held in Wimbledon. It is not appropriate to compare their paths to the championship that each deserves richly. Also different is the manner in which each closed the final match because Venus Williams quickly gained momentum and overcome her opponent in two sets while the men's final match was far more competitive and required as much perspiration as inspiration over five sets.

However, this year's tournament was the first during which the respective champions took away equal prize money. In this blogger's view, that was patently unjust to the men's champion and his opponents. The prize money was about US$ 1.4 million for each of the winners of the singles tournaments. Now, I fail to see the claim of equal treatment because without doubt, we all can count that the men's match was decided over five sets while the ladies match ended after Venus won in two straight sets.

Indeed, there's already the very reasonable and altogether just argument that the Women's game ought to be decided by the best of five sets in every round too. Neil Harmann of The Times reports on the finals and traces the logic for this argument here. Now that would be equal pay for equal work! Awful Announcing makes a similar argument.

Who's the Most Dependable Frauds Buster?

Suzy Jagger's story in The Times newspaper online story summarizes the results of an interesting study undertaken by the university of Chicago's Graduate School of Business. I have not managed to read it but it reveals that most of the corporate fraud in a large number of corporations in the US was reported upon by lower level employees. The story states that post room workers and secretaries are more reliable in reporting fraud than are their bosses, the Securities and Exchange Commission and auditors. These lower level employees then become the natural allies of shareholders.

I wonder why those at the bottom of the corporate rung are the ones that are most prone to honesty than the rest. I surmise that the rest are also most likely to be the beneficiaries or co-conspirators in cases of corporate fraud.

Forced Eradication of Opium in Afghanistan

In this earlier post, this blogger pontificated on why the fusion of the efforts to eradicate the cultivation of opium poppy in Afghanistan should not be fused with the real war against the Taliban. A very elaborate article by Jon lee Anderson in The New Yorker here traces the complicated results of the militarized approach that is informed by the misguided thinking that the two are correlated.

As is clear from this recommended piece, needless deaths have resulted from the march to clear poppy plants from small farms while the larger cultivators remain untouchable. Jon L. Anderson's sojourn through Afghanistan reveals why the approach has currency. it is that the eradication units are headed by officials that will not review their thinking but also need to emphasize that connection because they have a financial interest in eradication in spite of its efficacy or necessity. A number of them cite efforts in Colombia, Bolivia and other Latin American states without stating the benefits that emerged from that disastrous record. The prospects are far from good especially since the farmers are aware of the financial advantages of growing the opium poppy over cultivation of wheat. Apparently, what makes sense to these villagers is lost to well-traveled bureacrats!

Who's Rationing Fuel in Iran?

Over the last few weeks, news reports such as this one on the BBC news site have recorded the incidences of public and violent protests by some citizens of Iran because of the institution of a rationing of fuel that will be provided at heavily subsidized prices. To this blogger, apart from the reasons given about the need to build new refineries to process more petroleum, it is a bit clear that the economists in Iran ought to use this mini-crisis as the opportunity to educate their garrulous president on price theory. They may start by making this simple statement: Any good or service that is provided below cost will eventually have to be rationed because it will be consumed at far higher quantities than is efficient. added to the inflation rate that is estimated at between 20-30% annually, something will eventually have to give. The violence and the queuing is part of that large cost.

Covering the same story, this article in the Houston Chronicle reports that the animated crowds seemed to blame it all on president Ahmedinejad and wondered why a nation that bears a large endowment of crude petroleum should have to ration fuel. This is not a serious question and to assign the fault to an individual is unfair because the heavy subsidies are not entirely his creation. It has merely unraveled during his watch, no doubt prompted by the fear of impending sanctions regarding the ongoing plans to construct a nuclear complex that could be used for weapons production. In all fairness too, that substantial subsidy estimated at close to US$ 10 billion per annum could have been better designed and issued in form of vouchers.

While the sanctions would probably be an ineffective and blunt political tool, the main lessons ought to be that the great revenues from the sale of petroleum are not used well in keeping petroleum prices artificially low and that industrial policy ought to concentrate on expanding refining capacity. The pursuit of a nuclear plant building plan seems throughly misplaced while the crowds are rioting because of the lack of fuel.

Industrial Espionage In Formula 1

The Formula 1 team, Scuderia Ferrari dismissed an employee following allegations of unsanctioned transfer of its engine designs and technical data to an engineer from a competing team. In turn, the McLarens Mercedes team suspended its chief designer at whose residence the a sizable amount of data and technical designs were seized. Alan Henry summarizes the story on the Guardian here.

Whereas the McLarens team has undertaken to cooperate fully with the investigation and have not been accused of complicity in the theft, this blogger wonders what value the designs would have for individual engineers. However, with the benefit of hindsight, it is clear that the data and the plans have potentially enormous value for competing teams even if they did not intend to directly copy the designs. It is difficult to explain away the reason for the alleged transfer of the hundreds of drawings as reported in Planet 1. In addition, one can see very clearly the motivation that any employee would have to retain unauthorized information and exchange that for another good such as new job or simply to get back at an employer that has treated one unfairly.

Because this case is not concluded, I will be posting further updates on the real facts behind these allegations as they surface during the court hearings. The lesson here is that as property becomes increasingly held in intangible forms, the premiums attached to their acquisition will invariably rise. Whether technology driven corporations have understood the security requirements is another matter. What is clear though is that increasingly, the human element will remain the weakest link.

Goolsbee's Take on Sicko

Moderate views regarding the appropriate policy approaches to fixing health care messes in the US are a bit rare at this time. More often what this blogger encounters are vituperative statements that are not only lacking in subtlety but heavily-laden with smear words such as "greedy health insurers" on the one side and "socialized medicine" on the other. Taking a more incisive view, it is not difficult to see why blatant mis-characterizations abound. It is because the market for health care is particularly difficult to design well and protect against market failure. Dispassionate analysis has almost entirely disappeared in the shouting matches that have been generated by Michale Moore's movie, Sicko.

Austan Goolsbee, writing in the Slate Magazine here, runs through the facts of the problem on financing health care in the United States. Pointing out some of the glaring facts that the movie fails to acknowledge, he however concludes that the diagnosis of the problem is right while the policy prescription is not as well-informed.

Essentially, the well-argued piece sums up what this blogger has alluded to in earlier blog posts. First, the existing model for financing health care leaves many US citizens without any cover while placing a disproportionate burden on employers. Secondly, the insurance companies have an understandable incentive to keep the really ill from treatment because they pose higher risks. Thirdly, the possibility of a single-payer or universal health plan funded by government will not be the silver bullet because the demand for medical care will far exceed the supply.