Healthcare in America

Teaching about healthcare can be complex with all of the institutions and laws and agencies involved. The frustration is amplified by the fact that we know something is clearly wrong, clearly inefficient about the whole system.

How do we wrap our heads around it?

Here is a short video by economists at UMass Amherst as well as others (including an appearance by Jeffrey Sachs) which does a great job at getting at the facts in a clear manner. It's part of the Econ4 project: economics for the people, planet, and future. Check it out, share it (or this blog post) with your networks, and consider using it in your classroom:


The Bottom Line: Healthcare from Softbox on Vimeo.

new empirical research on unions and upward mobility

At various points during Anti-Mankiw's history we've devoted ourselves to a topic that is often completely ignored by the mainstream: institutions. And even when they are talked about, it's usually in the context of their distorting or enhancing effects on economic efficiency. Schooling, we are told, raises the productive potential of the individual by imparting on him or her the skills or signals conducive to success in the labor market. Unions, we are told, distort labor market equilibrium by artificially raising wages. No matter the story, you can bet that it has something to do, in the end, with economic efficiency. [Read this post which sums up Anti-Mankiw's view of the education debate with the mainstream quite well.]

Those devoted to a social economy approach, on the other hand, realize that mainstream economics' views about efficiency are overly simplified at best and downright biased at most. Boiling efficiency down to a simple, monetized concept of "welfare" in which outcomes are compared to an idealized market equilibrium is inappropriate when other social desiderata are relevant -- such as health, or stable living standards, or a sustainable environment. In the social economy approach, unions are signals of a stable society because collective bargaining can be used to counter employer power.

New state-level evidence from the U.S. presented by our colleague at UMass Eric Hoyt as well as CEPR senior economist John Schmitt shows that there is at least a weak positive relationship between union density and various measures of upward economic mobility (see the link for the details -- it's a short post and would be a great teaching resource in an intro-level course). Such evidence goes a long way in furthering the social economy approach to economics, in which economic mobility is dealt with in a concrete manner. While Mankiw may suggest time and again that education is the means by which economic opportunity is realized, neither the data nor the theory -- from a social-institutional standpoint -- validates his claim (at least, not as education is currently done in the U.S.!).

Hoyt and Schmitt, on the other hand, suggest an alternative institution for enhancing economic mobility and have the data to back it up.

the weaknesses of analogical reasoning

This article, shared recently by Marginal Revolution, got Anti-Mankiw's blood boiling, for all the wrong reasons. The core issue was the defense of mainstream economics through the use of particular analogies that we believe are fundamentally flawed.

As we explain elsewhere, analogies are often a deceptive way of explaining the core analytical framework of a concept, because an analogy between A and B is only as good as the likeness between A and B. It seems better to start off by explaining the core logical framework from within the language of economics, instead of alluding to its likeness to other sciences. Unfortunately, that is not the approach taken in Mankiw's textbook -- as early as chapter 2 he analogizes the study of "economic science" to physics.

What are the specific offenses that the article makes?

1. Saying that economics is like other sciences, such as medicine. As the article states,

"Galbraith’s and Varoufakis’s worry [that economics has become too mathematical] has been around for 20 years, says Grossman at Princeton. “It comes and goes. It particularly comes when economic times are hard, when it appears that the old way has let us down.” Did the old way let us down? “No,” he answers, “which is very different from saying we know everything. … I don’t think medicine has let us down because there are diseases we don’t know how to cure.”"

Economics is not like medical science. In medicine, all hypotheses go through rigorous empirical testing before they can be accepted by the field, and even at that point, caution is exercised when it comes to making generalizations. Also, in medicine, we don't have to make assumptions about how cells or molecules behave, while with people, making such assumptions is not only very important, but subject to a much wider menu of possible interpretations, often with dramatically different, and political, implications.

2. The idea that there is a "free market" in economics departments, so that graduate students can pick the ones that seem to be offering the most realistic version of economic theory out there. As the article states,

"Harald Uhlig, chair of the economics department at the University of Chicago, another of the No. 1-rated economics graduate schools in the U.S., offers a kind of a model of his own. In an e-mail, he writes: “Above all, I do not believe in central planning. What is true in private markets is true in PhD education as well: It is good to see different places try different approaches, to let the PhD students decide where they want to be educated, and to let the marketplace for future scientists decide what works and what does not. I am sure that if the new PhD program in Athens is successful and produces the top young economics researchers of the next generation, many other PhD programs will take notice.”

Such a comment ignores the very real differences between top graduate programs and lower-ranked schools in terms of prestige -- something that often goes hand-in-hand with support for the status quo and getting top (influential) jobs, and refraining from any radical criticism of the current paradigm (which is what economics needs at this point).

The thing that concerns us most about these analogies is that, for the casual reader who doesn't know much about the field of economics, it is very easy to take these analogies for granted. Without any rigorous knowledge of the field, understanding is made easier by analogy.

But for those who have an advanced understanding of the field, the weakness of the analogical approach is clear. We are, indeed, actively promoting ignorance by taking such an approach, instead of being honest about our flaws and about the structure of graduate education.

politics and methodology: alternative teaching resources

"Pyramid of Capitalist System"

We at Anti-Mankiw are no strangers to the idea that politics shapes economists' theories about how the world works. Unlike Mankiw, who regularly asserts in his textbook an ideal-type of "observation, theory, observation" method of economic science, the fact of the matter is that how we view the world often shapes our evaluation of the facts of that world.

Perhaps in no other place in economic theory is this fact more true, and thus more dangerous, than in the Marxian vs. non-Marxian (or neoclassical) theory of distribution. When Marx argued that the source of all wealth is the laborer and that surplus value, or profits, were taken from the laborer by the capitalist, neoclassical economists replied with a theory of distribution asserting that capital earns its fare share of the output, too.

The neoclassical response in the late 1800s offered a new theory, or new way of looking at the world. This subsequently helped shape how all neoclassical economists thought about the source of profits: instead of seeing them as fundamentally sourced from workers, these economists saw capital and entrepreneurs simply getting their fair share of the pie -- represented by the marginal price of capital multiplied by the marginal physical product of capital, or the value added by capitalists to production. This victory was a major one for capitalists because it essentially legitimated their control/monopoly over the means of production, which is really the main role capitalists play.

No more explanation for all the profit was necessary! And the political consequences were indeed severe. For one, the neoclassical response to Marx came in the 1870s, when labor militancy across Western Europe and America was reacting to a rapidly growing capitalist power in politics and the workplace. And the political victory is felt even up to today: even when compensation starts to be outstripped by worker productivity as it did in the 1970s, neoclassical economists could simply ignore it because in their baseline model, workers get what they put in, and so does capital. The rest was just minor details.

Why do we mention this now? Because Fred Moseley from Mount Holyoke College has written an excellent introduction to the neoclassical theory of distribution as well as some ways to critique it for an introductory- or intermediate-level class. Find it here. We highly recommend checking it out and trying it out in your own classes!

advanced pedagogical techniques: introducing the topic of exploitation

"The Intimately Oppressed": How to talk about exploitation in the classroom

 A few years ago, in a conversation one of us had with a fellow graduate student, the issue came to surface of how to approach certain issues that have become a mainstay of the mainstream curriculum over time. We were specifically discussing the issue of how easy it is to fall into the so-called "markets in everything" trap -- whereby you start thinking about how markets for everything from organs to healthcare could solve most of the problems of social inefficiency. But the issue is much more general than that, and exposing that generality is the topic of this post.

So when one of us was discussing how to approach the "markets in everything" issue, which is really quite widespread among the blogosphere (particularly Marginal Revolution, which has made a type of blog series out of the idea... but Greg Mankiw is also guilty of perpetuating the idea, not surprisingly), our friend made the point that, why not start from the other direction, and work your way back? Instead of beginning with the idea that everything should be marketized, begin from the idea and theory that nothing should be marketized, and then ask what would qualify something to be marketized. That is to say, we should expose students' inherent repugnant feelings about a market for body parts or healthcare from the start, and then work backward from there, adding in markets as a qualification of the general argument that commodification should not exist. (In fact, if you think historically, this is actually the way in which the debate occurred -- we didn't start out with a fully marketized society and we only got there from peeling off various layers of social-institutional control!)

It's simple, and it works remarkably well. Furthermore, such a logic can be applied to other ideas which are not easily raised in the classroom, such as the issue of class or exploitation. By starting with certain ideas of exploitation that are more easily recognizable to students (such as the treatment of women in the workplace vs. men), it becomes easier to identify general principles of exploitation that may be applied to workers.

Talking about how women have traditionally been discriminated against in the workplace is a clear example of exploitation. Or talking about how, when they were first integrated into the industrial labor force in the early 1800s, they were pulled from both directions -- into the home because of preconceived notions of women's place in a private sphere; and out to work because of the need to make enough money to feed their children and support their family; all the while not being allowed to vote -- shows vividly how gender norms shape capitalism and employer behavior more generally. The continued persistence and use of racism after formal political freedom had been established by emancipation is another example of using the tools of race or gender to strike at ideas and issues of class exploitation.

Similar arguments can even be made for immigrants. Here is an example of how one of us has incorporated gender into a story of industrial capitalism. We have found that through doing so, it then becomes easier to talk about exploitation in the workplace more generally, because now students have seen how management policy has affected women workers. It is just a small step (really!) from that point to then talking about workers in general.

Sports Stars Versus Business "Stars"

Mankiw links to a Ken Rogoff piece that asks why people seem to have no problem with star athletes pay versus supposed star-CEOs and private business executives.   Mankiw, while not explicitly stating so, appears to agree with Mr. Rogoff. 

The argument is nonsensical for a few big reasons.  First, it assumes that people don’t think superstar athletes are overpaid.  Informal evidence suggests otherwise. Second, athletes are not generally paid millions for leading his or her own team’s failure. Third, athletes, while not always the pinnacle role models we wish them to be, have never contributed to the disintegration of an economy while simultaneously leading the perversion of our democracy -- controlling special interest lobby groups on one hand and begging for government bailouts on the other.

There are differences. Equating 'stars' in the sports industry to the top private sector businesses simply doesn't make sense.

we know what we're protesting

This Crimson article by Harvard undergraduates Rachel Sandalow-Ash and Gabriel H. Bayard from November 2011, addressing the fundamental issues underlying the Occupy Ec 10 movement, did not get nearly the amount of attention that it deserved. Published about a week after the walkout on Mankiw's class, very few sources on the walkout linked to it, instead choosing to focus on the open letter and Crimson editorial(s), which were good, but not very carefully articulated.

We think the exclusion of the Bayard-Sandalow-Ash piece is very unfortunate. The articles which Greg Mankiw chose to cite in this New York Times article "Know What You're Protesting" did not accurately portray the types of issues that most people who chose to walk out have with his course. It would have done more for discourse around the issue if Mankiw had actually spent time dealing with the substantive attacks, instead of largely arguing past the protesters.

For example, Mankiw chose to concentrate his Times article on the argument that economics is mostly a tool, not an ideology. In other words, Mankiw sees the standard introductory economics curriculum as introducing the student to a scientific framework in which students can approach any kind of problem related to public policy or current events. This is a very familiar argument to those of us who have taken an economics course or two -- the idea that we're equipping ourselves with tools to go out and change the world. Too bad those tools are stained with ideology. Let us explain

The issue which Sandalow-Ash and Bayard rightly point out is that the frameworks Mankiw presents are themselves value-laden and politically motivated. So while the efficiency-equity tradeoff seems to offer an analytical framework in which government intervention can be "objectively debated", underlying the framework is a market-centered approach that fails to point out how a more equal society, through promoting stability and long-run health, can help to promote efficiency. And though Mankiw goes to some length to present a consensus among mainstream economists about core issues such as the adverse effects of minimum wages and free trade in his book, both historical experience and a growing literature on these topics have already successfully taken on seemingly-unobjectionable tenets of neoclassical theory.

Overall, we strongly suggest you take a look at the piece by these two very intelligent and socially conscious Harvard students. This is where the Occupy movement's critique is truly located.

anti-mankiw links - or, the defense of manufactures

The other day Professor Mankiw linked to a piece by Christina Romer in the New York Times on why manufacturing should not be subsidized by government policy.

On one hand we can see why this might be a smart policy: manufacturing is past us, isn't it? The U.S. has increasingly moved into smarter, faster sectors of growth like technology, finance, and higher education. The last thing we would need, argue economists such as Romer and Mankiw, is a return to 60s-era economics.

On the other hand, as Jeff Madrick observes in the NewDeal 2.0 blog, manufacturing is only seen as dead because we don't necessarily know what a smarter, leaner, and more efficient manufacturing sector might look like. What is the contradiction between smart technology and good manufacturing jobs? Once upon a time, there wasn't any such clash. But as competition for cheap labor and a variety of factors overwhelmed businesses in the 1970s, "low road" policies were inevitably taken which compromised quality for productivity and low wages. Finance, Madrick notes, took manufacturing's place as the key driver of growth -- and what has that gotten us in the last 40 years? High inequality and relatively stagnant growth and living standards.

Manufacturing -- potentially with a focus on green technologies at the frontier of certain frontiers of economics growth -- can itself become a hotbed of innovation. As Madrick notes, "Isn’t [manufacturing] where the scientists and engineers are? Don’t we learn and innovate by doing? One commentator recently said that those innovations are exploited by others, so it doesn’t matter. Really? Then maybe we should stop promoting R&D altogether." Research and development is key to a vibrant economy. There is no reason to halt our attempts at strengthening them.

A similar point regarding the potential dynamism and value added of the manufacturing sector can be found in the debate which took place in the Economist last summer between Ha-Joon Chang and Jagdish Bhagwati over this same issue. (Chang won the debate). Chang makes an interesting point in his rebuttal to Bhagwati's scepticism about "manufacturing fetishism" which we will end on, here:

Take the case of the Netherlands. Unbeknown to most people, it is world's third largest agricultural exporter, despite having little land (it has the world's fifth highest population density). This has been possible because the Dutch have "industrialised" agriculture by, for example, deploying hydroponic agriculture (growing plants in water) that uses computer-controlled feeding of high-quality chemicals—something that would not have been possible if the Netherlands did not have some of the world's most advanced chemical and electronics industries. In contrast, despite being the world's second most high-tech exporter (measured by the share of high-tech products in manufactured exports), the Philippines has only $2,000 per person income because it makes those products with other people's technologies.

Overall, we at Anti-Mankiw definitely think that the promotion of manufacturing could be an excellent way to revitalize the economy. How the government (or other branches of the state) does so is a different point -- but let's not relegate such an important source of a country's material wealth to the trashbin too quickly!

Branching out: Anti-Mankiw on Twitter and Facebook

If you have a Twitter account, Facebook, or both, be sure to head on over and "follow" or "like" us to receive updates as well as to check out news and blog articles that we're reading!

http://www.facebook.com/pages/Anti-Mankiw/218928821535584

https://twitter.com/#!/AntiMankiw

keeping your head above water: anti-mankiw links

If someone is being "overpaid" here, it surely isn't workers

There are multiple things wrong with Professor Mankiw's recent post about comparing public and private sector employees by compensation.

First of all, the title of the post, "Are federal government workers overpaid?" is misleading. We usually say that someone is overpaid when they are contributing less than they are being compensated. But the CBO report is examining compensation differentials, which is a different issue. The problem is complicated by the fact that public sector workers are engaged in activities (such as education or security) which have clear positive externalities on society, so it's even more difficult to talk about being over or underpaid. (Are the participants in the securitization of bad loans over or underpaid?) It's clear what Mankiw is actually trying to accomplish in his post, and we at Anti-Mankiw can assure you that it has nothing to do with accurately conveying economic research.

Second of all, the report is only for workers in the federal government. In this excellent report by John Schmitt at the Center for Economic Policy Research it was found that state and local government employees are actually paid less than their private sector counterparts, after controlling for observable characteristics (similar to the methodology in the CBO report).

Finally, if a dynamic analysis were performed (i.e., examining the trend of wages in each sector over the last 30 to 40 years), readers would quickly realize that there are more pressing issues at play here. The most important of which may be the fact that wages for both public and private employees have been stagnating since the 1970s. Sure, public employees may have been paid more (according to the study from which the above graph is pulled, however, even that is a contested issue), but the story is more like: private sector wages are falling behind as public sector wages struggle to keep above water. Comparing with the elite 1% over the same 30, 40 year period, you see the drastic explosion of inequality that is the main subject of public debate today. In short, Mankiw is really doing a disservice to the more pressing macroeconomic issues by choosing to focus on whether one sector is more compensated than the other.

Here is another, similar report on this issue ("Public and Private Sector Workers Are in This Together") which focuses on college graduates: http://vox-nova.com/2011/03/17/public-and-private-sector-workers-are-in-this-together/.

Hardly a rosy picture -- for either public or private sector workers. Someone definitely seems to be overpaid here, but it's not workers!

An Obsession with Pigouvian Taxation ?

Mankiw is perhaps the most well-known supporter of Pigouvian taxation on retail gasoline (also known as a carbon tax).  As a review, recall that Pigouvian taxes are taxes enacted to solve for potential negative externalities in a market.  Gasoline consumption leads to more carbon emissions which leads to pollution, which is the negative externality.  This is a simple problem to solve if we just get a handful of smart economists to measure the societal cost/value of the externalities associated with gasoline, slap a tax on the 'bad' stuff to cover that cost, and voila: not only would the government increase it's tax revenue, but more importantly it would incentivize individuals to use less gasoline, thereby polluting less.  

Pigouvian taxes have been proposed for all sorts of things, and some have been enacted in states while others remain largely a theoretical possibility only: tax car crashes, tax irresponsible borrowing, tax fatty foods, tax alcohol and (Mankiw's most recent object of support), a tax on cigarettes. There is evidence that these taxes do indeed create some incentives to 'improve' behavior.  Nevertheless, many mainstream economists are so focused on Pigouvian taxation that it seems they have simply altered their message that "markets are generally good at what they do," to tack on: "... and where they aren't, we can easily make them work properly by either taxation or subsidies."

The focus on Pigouvian taxation, as particularly espoused by New Keynesian economists, may in fact divert attention away from market problems other than simple cases of measurable externalities.  After all, not everything can be solved with taxation policies.  Issues of broken institutions - particularly in the realm of education for example (see our previous post here) cannot be solved by simply slapping a tax on the behavior (in this case, institutions which do not grant the kind of "equality of opportunity" which they are supposed to in a democratic society).  Issues of institutional fairness, corporate cronyism, socio-economic mobility and opportunity, and other more structural issues, are not likely to be easily solved by imposing a tax to try to punish the behavior.  Finally, issues of unbalanced and asymmetric information in many markets (including credit markets) are not going to be easily solved with simple taxation.  

In cases where Pigouvian taxation may be appropriate, there are further concerns with implementation.  For example, there may be additional bureaucracy that comes with the new source of tax revenue.  As technologies change and societal costs change, so too would the taxation policies need to be updated.  Would we trust congress to be dynamic enough to change these rates accordingly.  And if not, what sorts of negative effects on private activity might that cause?  And even if our government were to support pigouvian taxation long-term, does this mean we could or should do away with certain regulations to maintain 'optimal' performance?

Additionally, it is not an easy thing to measure the societal costs of specific behavior that may contribute to pollution, or poor health, and so on. Assumptions are often made in coming up with a calculation of 'optimal' Pigouvian taxation - assumptions that may be wrong, or right only in present circumstances.  You simply can't take a message like this to a politician and expect them to enact legislation based on it:

Despite all the uncertainties in the quantification of externalities [from waste disposal], this study has pointed out that preliminary estimates of external costs and benefits can be established. Such estimates cannot be presented as exact values, but they can be used as decision support and as an instrument to explain the trade-offs that are implicitly made in political decisions. 

Coase (of Coase's theorem) pointed out that many externalities are reciprocal in nature:  i.e. a polluter causes harm to those in a given area through it's actions, but those in a given area cause harm by forcing (or making it costly for) the polluter to change their actions as opposed to, for example, leaving the area.  Some economists might argue that he was simplifying the issue, but even so the solution of what is 'optimal' then becomes even more complicated:

Nevertheless, there are grey areas and situations change.  Thus, it may be desirable to have a system of bilateral taxation

Finally, at the end of the day, there is a political component to deciding the merits of pigouvian taxation.  Economists often discount politics as something outside their purview (despite their own internal biases) but all the studies in the world cannot convince politicians who may have an ideological disagreement with the government picking and choosing what behaviors are 'good' and what behaviors are 'bad'.  

So, when taking consideration of measurement problems associated with externalities (and changes in a measured externality over time), political barriers, and ideological barriers to pigouvian policies, it becomes less clear how useful such policies can be the real world.  Pigouvian taxation, at the end of the day, certainly has its place.  But one hopes that that place is not a grand pedestal that outshines all other solutions to the problems of the day.