Tuesday, June 26, 2007


A woman died waiting in the ER at the troubled MLK hospital in LA. One particularly shocking element to the story is that the woman called 911 from the ER itself, and was not helped.
LOS ANGELES - A woman who lay bleeding on the emergency room floor of a troubled inner-city hospital died after 911 dispatchers refused to contact paramedics or an ambulance to take her to another facility, newly released tapes of the emergency calls reveal.

Relatives said Rodriguez was bleeding from the mouth and writhing in pain for 45 minutes while she was at a hospital waiting area. Experts have said she could have survived had she been treated early enough.

Relatives reported she died as police were wheeling her out of the hospital after the officers they had asked to help Rodriguez arrested her instead on a parole violation. Sheriff’s Department spokesman Duane Allen said Wednesday that the investigation is ongoing.
The MLK ER was almost shut down a month or so ago, and the California Emergency Physician's ER group (where my wife works) picked up the contract at the last minute, keeping the ER open. After the lady died, the ER, and the whole hospital, may be closed down.

ERs are heavily regulated. They have to admit and treat all patients who walk in, regardless of ability or willingness to pay. Most ERs only have a small (~30%) successful bill rate. Triage in the ER is focused on people who have potentially life threatening conditions -- such as strokes and heart attacks. Non-lethal, but unpleasant conditions like broken arms wait. ERs cannot transfer patients to other hospitals. A recent law passed in California has made it illegal to discharge people to the street, even if they are homeless.

The consequence of all these regulations is that ERs become choked with "frequent fliers" -- who are often drug users who live on the street, and come into the ER repeatedly for more drugs, warmth, food, company, etc. If they are admitted to a bed, which they must be if they complain of "shooting pains in the left arm", they stay in the bed until the ER finds a shelter that will admit them that they can discharge them to, since they can no longer be discharged to the street. While they are in the waiting room, they take up attention and resources from other patients. While they are in a bed, no other patients can be admitted. While a nurse is trying to find a shelter for them, she cannot be treating patients. Frequent fliers tend not to stay in shelters. The only way and ER can deal with these regulations is to exist somewhere too far for high frequent flier populations to get to.

It's also extremely common for patients to call 911 from ER waiting rooms, and even when they are admitted and are in a bed. While the newspapers have played up this angle as if it's shocking and highlights the awfulness of this case, the truth is that patients call 911 all the time asking to be sent to a different hospital for a whole variety of reasons ("tired of waiting", "won't give me drugs", "don't like it here", etc.) They are routinely turned down as ambulances are for taking people to hospital, not shuttling people from hospital to hospital until they find one they like.

The case of Rodriguez is tragic, but it's also not surprising that someone coming in with nausea would be triaged down in a busy ER. It's also not surprising that a busy ER, filled with frequent fliers, would move through patients slowly. The call to 911 from the ER waiting room is common enough to not be worth mentioning at all.

From news reports, it sounds like the MLK ER, and maybe MLK itself, will be closed down. The consequence of this is that patients will have to be sent to hospitals further away. They are therefore more likely to die en-route, because they could not get care in time, or they will simply die at home (after deciding that the hospital was too far to get to). These events will probably not make the news, nor will MLK's population be better served.

Monday, June 25, 2007

Haircuts and leverage

I worked in the hedge fund industry when it imploded in 1998 -- Russia defaulted on the rouble, which most hedge funds had bet against. Some hedge funds were more levered than others, and they had to reduce their positions (sell into a falling market) to make their margin calls. Selling into a falling market drives prices down further, which can then, in a chain reaction, force less levered funds to unwind their positions, and so on and so forth.

Bear Stearns' hedge fund was bailed out in an effort to avoid just this sort of forced unwinding. We'll see if it's enough to dry up the liquidity that's been flooding the market.

Wednesday, June 20, 2007

Still not quite there

"Libertarian Paternalism" is an oxymoron (and a cute phrase) but it isn't that hard to understand. Tyler just misses
The "libertarian paternalism" movement (and, for that matter, the non-libertarian paternalist movement) tells us that more choices can make people worse off. Many of these same people also agitate for greater redistribution of wealth to the poor. Have you noticed the resulting tension?
Libertarian Paternalism does not try to restrict choice (which makes it Libertarian), it just tries to take more care in setting the best defaults (which makes it Paternalistic) since empirical evidence demonstrates, time and again, that defaults matter more than predicted by standard micro-models.

I would also point that regular Paternalism has no tension between redistributing wealth and reducing choices because it is very comfortable attaching strings to said redistributed wealth.

Wednesday, June 13, 2007

Baguette Protectionism?

This nice piece on the evolution of bread making in France details how the government has created a new classifaction for the authentic bakery:
Under the law of 1998, it became illegal for a “boulangerie” sign to be placed except where professionals had been “personally involved in the kneading of the dough, its fermentation and its shaping”. At no stage of production were the products to be “deep-frozen or frozen”. This law gave a huge boost to the baker as artisan.
I support clear labeling. Those who are looking for that personal touch can now go to a boulanger, and those who feel that the whole thing is an overpriced ripoff can (just as easily) avoid them. Like the "organic" label, I think this helps everyone.


I really wrote that empire waists make everyone look bad. I was wrong -- they look very appropriate and fetching on pregnant women.

I also mistakenly maligned Chris Shipley of DEMO. I attributed a comment about Amp'd Mobile and the iPhone to her, when it was actually made by Keith Shaw in Chris's DEMOletter. My apologies, Chris. (Also, this shows once again how no one reads online).

Friday, June 08, 2007

Quick links

Finally, some quick links for the weekend:

1) This really bad post by economics professor Russell Roberts argues that setting up the US immigration system to prefer educated, english-speaking, young people is a bad idea. He equates this with sending out American citizens who make less than median income, are fat, etc.

This is nutty. There is a de facto quota system for US immigration today which prefers uneducated, desperate migrants and relatives (looking for jobs and/our welfare), and as a consequence, is unpopular with most Americans. Replacing this with a system that prefers able workers, looking to assimilate is a no-brainer.

Think of it the other way around -- suppose the US preferentially let in smart, educated, english-speaking workers, and some suggested that instead, the US should drop the education and english speaking requirements and instead let in relatives (no matter how productive they were, and what language they could speak) and encourage illegal immigration from Mexico. Would Russell Roberts think that was a good idea?

2) Great article on the economics of working in NYC. I used to live there and just returned from an extended trip. Empire waists seem to be in fashion, and they make everyone look bad. Also, Di Fara has been shut down, which is a crime as it really was the best pizza I've ever had. Health Inspection, Smealth Inspection! I'll take the risk. Most interesting articles?

- Life as a taxi cab. Check out those eye-watering prices for cab medallions. It's a fairly open secret that the cab medallion racket in NYC is a hugely profitble business, and a great example of government capture for the public choice theorists amongst us.

- The Macy's article is wrong. It states that the shop is profitable because it owns the building, and so pays no rent, but also suggests that the building could make more money if put to other uses. In actual fact, Macy's is destroying economic value, as the opportunity cost of running a retail store out of their building is higher than if they sold the building and pocketed the money.

3) Finally, this health care piece is just a good read. I think these geographic studies are a great way to get data on the quality of evidence based medicine. Best line:
Mrs. Clinton, Mr. Edwards and Mr. Obama have each called for the creation of a national institute to figure out which kinds of medical care actually work. This institute would sort through the scientific research on, say, spinal fusion and help people understand when it may make sense and when it’s likely to be just another big medical expense that doesn’t solve anything.

...Peter Orszag, the head of the Congressional Budget Office, has mentioned it when talking about the fiscal disaster that awaits if Medicare spending isn’t slowed. A number of Republican health care experts also favor some sort of cost-effectiveness institute. It’s another way to cut wasteful government spending.
I agree with the problem, but I'd love for someone to tell me about any government institution that has cut wasteful (popular) spending.

Simpler explanations

Maybe my understanding of what constitutes neoclassical economics is too crude, but I do not see why Crooked Timber of Marginal Revolution come up with such complicated "heterodox" reasons for the existence of economic profits ("surplus") in the economy.

Crooked Timber sets up the (non) problem here:
A large part of my interest in heterodox economics derives from one major problem with neoclassical economics. In my opinion, it’s a big enough embarrassment to the profession that somebody ought to have done something about it, and the fact that more or less nobody is interested in even trying is bad enough that I am prepared to overlook an awful lot of misbehaviour on the part of heterodox economists, because at least they are, in general, trying. I’m even prepared to tentatively advance this “anomaly” in neoclassical economics as being constitutive of the difference between orthodox and heterodox economics, as currently practiced.

The anomaly I’m talking about is that neoclassical economics, in both macro and micro forms, nearly invariably works on the basis of models in which there are no profits.
Marginal Revolution tackles this (non) problem by invoking Schumpeter, Mises, and Hayek:
Is the explanation for profits monopoly power? Not really. Or rather, the better way of phrasing it is that most profits are a return to innovation and entrepreneurship. Innovation and entrepreneurship typically bring some market power but disequilibrium monopoly has very different implications for policy than equilibrium monopoly.

Here's some intuition. Textbook neoclassical economics says profits and losses are zero. The standard monopoly story can explain profits but not losses. The return to entrepreneurship/dynamic economy/creative destruction story that I am telling can explain both profits and losses.

Thus Davies is correct, profits do suggest a role for heterodox economics but it's not the paleo-Keynesian/Marxist heterodoxy that gets the boost but the Austrian heterodoxy of Mises, Hayek and Schumpeter.
In my second or third intro-to-econ class at U Chicago, we were told that in a competitive equilibrium, price is set by the marginal firm (ie. the firm that has the highest marginal cost of production). If prices fall any further, that firm goes out of business because its marginal cost of production is now higher than the price it can charge, so it starts losing money of every widget it sells.
However, the marginal firm is just the worst firm in the market, there are lots of better firms as well, and all of those have (by definition) marginal costs below price, and so make (some) economic profits. I believe that this type of economic rent was called Ricardian rent, but I may be remembering wrong.

So there you have it -- that mysterious bogey man "profits" explained, as well as other "weird facts" like variance in profitability within an industry,

The point is that bog standard classical economics has a perfectly good mechanism for profit (at around the observed levels) without having to reach into wacky. The heterodox crowd, on the right and the left, would be easier to take seriously if they didn't always go for the glamorous explanation.

Tuesday, June 05, 2007

Clueless in the Valley

One of the things that's struck me now that I live in Silicon Valley is how broadly out of touch the entire region is with how normal people use (and ignore) technology. This note by Chris Shipley of DEMO is a good example:
Meanwhile, Amp'd Mobile, a Los Angeles wireless phone company that marketed its phone and mobile entertainment services to young, hip consumers, filed for Chapter 11 bankruptcy last week. Amp'd Mobile had raised more than $360 million in funding from several investos (including MTV Networks and Universal Music Group), but found itself more than $100 million in debt, including $33 million owed to Verizon Wireless for using its network and $16.4 million to Motorola for cell phones.

While I'm not suggesting that Apple is in trouble with its iPhone launch, I think lessons can be learned for mobile phone companies about figuring out the types of applications and services customers want on their mobile phones, as well as the type of customers you need to reach. While they differ greatly, Apple and Amp'd Mobile are offering customers basically the same thing – multimedia entertainment offerings on a mobile device. (Emphasis mine)
Let's be clear about this -- the iPhone is not about the standard content-lead services that have marked data-intensive mobile phone services to date, such as music, movies, pictures, etc. All of these have struggled, whether offered by carriers, virtual networks, or handset manufacturers. First and foremost, the iPhone is a better phone, making it easy to connect and speak with your friends. It has voicemail that works, conference calling that works, inbound calling that works, etc. Any multimedia services are easily ignorable at worst, and gravy at best. The fact that Apple is the one creating a cell phone that works, instead of Nokia, or one of the carriers, highlights how poorly the telco industry understands customer needs.

My main concerns about the iPhone: reception, battery life, and voice quality, the three most important things (still) for cell phones.

Friday, June 01, 2007

TPM Cafe

I really struggle with this TPM Cafe piece on heterdox economics.

Firstly, and trust me I'm a professional, the website stinks. It's impossible for me to follow the thread of the conversation, Brad DeLong seems to be all quotes, text seems to get clipped at the margins, and it was very very hard for me to find a stable URL to link to the damn thing.

Secondly, there seem to be two areas of criticism: 1) the rational forward looking utility maximizer at the heart of classical economics, and 2) the profession does not allow in crazy ideas and thinkers.

Let's take our friend the utility maximizer first. Is this model a realistic representation of human behavior? Of course not -- real life is much more complex -- but as crazed right winger Paul Krugman points out, models take arguments that are vague, inconsistently applied, and implicit and make them precise, consistent, and explicit. The forward looking rational utility maximizer posits a human being that puts himself, his family, and his friends before strangers, and then takes this idea through to its logical conclusions. Some people may call this selfish behavior, and I think that's fair, but it is also human nature. Ignore it at your peril. If you want to take on the utility maximizer, I need you to take on this description of humanity as well.

Secondly, let's take the isue that the profession does not allow crazy thinkers. Looking at the Nobel Prize list, I see we have Kanehman, Smith, Akerlof, Spence, Stiglitz, and Sen, all of whom fall well outside the neoclassical paradigm. Also, please note we have the rest of the Academy -- from History to English -- which take positions that are well outside the mainstream of macroeconomic thought and focus almost exclusively on issues of inequality, power, gender, etc. Within the broader context of academic inquiry, it is the economics profession which is uniquely heterdox, not the other way around.

I mean, what do you make of comments like this one:
Climate change! This enormous elephant in the room is finally receiving some attention in the U.S.—even, at long, long, long last, from the Bush administration! ... We need economists who take these threats—and science!—seriously, and are willing to think and act more broadly in relation to this issue. I think contemporary economists are going to look really, really silly (and irresponsible) in any future retrospective, fiddling while Rome burns (and New Orleans floods).
Whatever your thoughts on climate change, the computer models that underpin it are not science because they do not generate hypothesis that can be falsified through empirical observation. If it's not falsifiable, it's not science. (Note -- yes, economics is not a science either).

Finally, one of Julie Nelson's colleagues at Tufts should explain to her that New Orleans was built below the waterline, which means that flooding is inevitable.