Will Discovers Baumol’s Cost Disease

“Baumol’s cost disease” is the phenomenon by which the wages of workers in jobs that have not experienced an increase in productivity increase in response to increases in wages of workers whose jobs have increased in productivity. William Baumol identified the phenomenon and analyzed it fifty years ago. George Will has apparently now discovered it:

Goldberg’s 1962 encounter with Baumol’s disease in the Met’s orchestra initiated thinking that led in 1965 to the National Endowment for the Arts (and, on the Great Society principle of no conceivable claimant left behind, the National Endowment for the Humanities). This elicited Moynihan’s corollary to Baumol’s theory: “Activities with Baumol’s disease migrate to the public sector.”

Moynihan, thinking that it would be “the undoing of modern government” if there was too much migration, worried especially about health care. In 1993, at a health-care hearing before the Senate Finance Committee, Chairman Moynihan received blank looks when he asked three medical deans what they could do about Baumol’s disease. So Moynihan elaborated: “Montefiore Hospital was founded in New York City in the 1880s. At that time, how long did it take for a professor of medicine to make his morning rounds, and how many interns would he take along with him?”

Dean: “Oh, about an hour; say 12 interns.”

Moynihan: “And today?”

Dean: “Got it!”

Two fields that are frequently thought to suffer from the cost disease are health care and education.

Whatever the case in those two fields, I think that Baumol’s original findings may be suspect. He originally studied musicians. I can’t help but think that he was looking at the wrong statistics.

In 1900 the population of the United States was around 76 million and the number of musicians and music teachers was more than 92,000. In 2014 the population of the United States was about 320 million and according to the Bureau of Labor Statistics the number of musicians was around 173,000. In other words although population of the country had increased more than four-fold the number of musicians had less than doubled. Throughout the 19th century and the early part of the 20th century the number of musicians increased with the population. Now that’s obviously not the case.

There are any number of reasons for that not the least of which is electronic reproduction. Today when people listen to music they don’t listen to live music; they listen to recordings.

I haven’t been able to discover what the average musician was paid in 1900. I’m confident that it was lower in real terms than today’s average $24/hour ($24/hour would have been about $.80/hour in 1900 and that wasn’t a bad wage). But here’s my question. Is that due to Baumol’s cost disease or because musicians are relatively scarcer today? How do you disaggregate the two?

0 comments

New York’s Steps Towards Single-Payer

The lower house of the New York legislature has passed a bill authorizing a single-payer plan for the state of New York. Via Modern Healthcare:

New York’s state Assembly passed a single-payer healthcare bill Tuesday that would provide universal coverage statewide. However, the bill faces a difficult path through the Republican-controlled state Senate, and economists have conflicting views on how it would affect spending and taxation.

The bill’s sponsor, Manhattan Democrat Richard Gottfried, said House Republicans’ passage of the American Health Care Act makes it more important that the state Legislature act to preserve affordable healthcare.

“As bad as things are today … what Washington is looking at doing to Medicaid and Medicare and private insurance is going to make it a lot worse,” he said.

The New York Health Act, which previously passed the Assembly three times but stalled in the Senate, would provide no-cost coverage to every New Yorker with no out-of-pocket costs and no network restrictions. It would be paid for through a progressive payroll tax and levies on non-earned income, such as capital gains. A 2015 analysis from Gerald Friedman, professor of economics at the University of Massachusetts at Amherst, showed a potential savings of $45 billion in the first year of implementation

There are some estimates that the plan would require a four-fold increase in New York’s state taxes. Given that the plan has been rejected by the New York Senate three times this certainly looks like posturing.

6 comments

Talking About Real Money

Kaiser Health News reports that UnitedHealth, a major managed health care company, is being charged by the Justice Department with fraud in the management of their Medicare Advantage programs:

The Justice Department on Tuesday accused giant insurer UnitedHealth Group of overcharging the federal government by more than $1 billion through its Medicare Advantage plans.

In a 79-page lawsuit filed in Los Angeles, the Justice Department alleged that the insurer made patients appear sicker than they were in order to collect higher Medicare payments than it deserved. The government said it had “conservatively estimated” that the company “knowingly and improperly avoided repaying Medicare” for more than a billion dollars over the course of the decade-long scheme.

A billion here and a billion there and pretty soon you’re starting to talk about real money. $1 billion is not a negligible sum, even for UnitedHealth which accounts for about a third of all of those covered under Medicare Advantage plans.

It also makes me wonder about the other plans.

7 comments

Our Afghan Strategy

I want to commend Jeff Goodson’s article on our Afghan strategy at RealClearDefense to your attention. Here’s the paragraph that I think deserves the most attention:

Third, we can’t just walk out. The likelihood is far too high that Afghanistan would go the way of Iraq after the last administration naively pulled the plug there. That executive decision will cost us more in blood and treasure over the long haul than if we had stayed put, with far less salutary effect. We need a modest but robust long-term military presence in Afghanistan, and now is the time to secure that presence. The worst outcome would be wishing in retrospect that we had built and maintained that capability when we had the chance, and suffering the consequences for not having done so.

although this passage runs a close second:

There is nothing wrong with our existing strategic objective in Afghanistan. Preventing terrorists from using the country as a safe haven to attack the U.S. homeland is as appropriate an America first strategy today as it was when formulated—maybe more so, since twenty of the 61 U.S.-designated foreign terrorist organizations operate in the Af-Pak theatre. That is the largest concentration of terrorist groups anywhere, and neutralizing their ability to support the global jihad is critical to U.S. national security.

There is no wiring diagram for pursuing the Afghan sub-theatre of the war, but the best way to the stated end is what others have already proposed: an enduring partnership between our two countries, and the use of Afghanistan as an enduring platform for counterterrorism operations. These are military and security imperatives.

A negotiated settlement is a fine target to aim for, but it is not something that we should pursue either naively or as the primary objective. First, so long as the Taliban don’t recognize the legitimacy of the Afghan government there’s not much to talk about. Second, there’s not much incentive for the Taliban to negotiate unless the military momentum shifts decisively against them.

Third, it is unlikely that the Taliban would accept any government that does not operate under the Pashtun version of sharia law. Few Afghans are eager to return to stonings and public amputations, however, and kidnapping of their wives, daughters and little boys for use as sex slaves.

Let me address that passage first. I think he misstates our strategic objectives. For the last 15 years we have been pursuing a counter-insurgency strategy in Afghanistan. This:

Preventing terrorists from using the country as a safe haven to attack the U.S. homeland is as appropriate an America first strategy today as it was when formulated

makes it sound as though our strategy were one of counter-terrorism.

The question we need to consider is whether we can maintain a successful counter-terrorism strategy in Afghanistan without a viable Afghan government as a partner. I think the answer is obviously “yes” but it would require a commitment to remain in Afghanistan indefinitely. As would Mr. Goodson’s preferred counter-insurgency strategy.

My preferred strategy is for us to maintain what has been characterized as a “small, lethal force” in Afghanistan with the objectives of counter-terrorism and force protection. Basically, they would be there to prevent Al Qaeda, DAESH, or any other radical Islamist group with global ambitions from mounting a mass terrorist attack on us from Afghanistan. I just wish that our leadership had been preparing us for what we’d need to do for the last 15 years rather than articulating beautiful fantasies.

I think I understand the risks of withdrawal although Afghanistan is not Iraq and, contrary to what Mr. Goodson suggests, the risks are very different between the two cases. What are the risks of changing from a counter-insurgency to a counter-terrorism strategy?

3 comments

Our China Policy

At Strategika Gordon Chang lays out his bearish outline of considerations that should guide our policy with respect to China:

Beijing has, for instance, permitted Chinese entities to transfer semi-processed fissile material and components to North Korea for its nuclear weapons programs. North Korean missiles are full of Chinese parts and parts sourced through Chinese middlemen. China even looks like it gave Pyongyang the plans for a solid-fuel missile.

China’s leaders have permitted North Korean hackers to permanently base themselves on Chinese soil, where they have launched cyberattacks on the U.S., such as the 2014 assault on Sony Pictures Entertainment. Beijing has itself hacked American institutions such as newspapers, foundations, and advocacy groups, and it has taken for commercial purposes somewhere between $300 billion to $500 billion in intellectual property from American corporates each year.

China violated its September 2015 pledge not to militarize artificial islands in the South China Sea; refused to accept the July 2016 arbitration award in Philippines vs. China; threatened freedom of navigation on numerous occasions with dangerous intercepts of American vessels and aircraft; seized a U.S. Navy drone in international water in the South China Sea; and declared without consultation its East China Sea air-defense identification zone. Its warning to a B-1 bomber in March was phrased in such a way as to be tantamount to a claim of sovereignty to much of the East China Sea. Official state media has issued articles that imply all waters inside the infamous “nine-dash line” in the South China Sea are China’s, “blue national soil” as Beijing now calls it.

Beijing also wants to grab land. It regularly sends its troops deep into Indian-controlled territory with the intention of dismembering that country.

China, under the nationalist Xi Jinping, is engaging in increasingly predatory trade practices with the apparent goal of closing off its market to American and other companies. Of special concern are its Made in China 2025 initiative and the new Cybersecurity Law.

These are not random acts, unrepresentative of the regime’s conduct. They form a pattern of deteriorating behavior over a course of years. And these acts flow from similar ones in preceding decades, suggesting the aggressiveness is not just related to any one Chinese leader.

What should U. S. policy with respect to China be? I think I’ve already made my views clear. China has not lived up to its obligations in its international agreements; I don’t think that China is a good global citizen; I don’t think that China can be a good partner. That is particularly aggravated by the zero-sum strategy employed by the Chinese authorities. They clearly believe that it is only possible for China to win if the U. S. loses.

So, what should our policy be?

0 comments

Household Debt Reaches New High


Wall Street 24/7 reports that household debt has now reached levels higher than it was in 2007:

The Federal Reserve Bank of New York has released its Household Debt and Credit Report for the first quarter of 2017. While the economy has been recovering and while things feel better on the business front, there are some very troubling internal metrics when it comes to debt levels and delinquency rates.

According to the report, household debt has now reached an all-time high. Gains in mortgage debt, auto debt and student debt were all cited. This all-time high now stands at $12.73 trillion and was $149 billion higher than in the fourth quarter of 2016. What stands out here is that it is about $50 billion above the previous peak reached back in the third quarter of 2008 — right before the recession kicked into overdrive.

I think it’s fair to say that deleveraging has ended. Indeed, as the graph above illustrates, it ended in 2013. The good news, such as it is, is that bankruptcy notations and credit inquiries are both declining. Although that suggests there is no imminent red flag, it also tells us that all other things being equal we shouldn’t expect strong growth in the near future.

6 comments

Special Counsel Appointed

The Justice Department has named former FBI Director Robert S. Mueller as special counsel to oversee the Trump-Russia investigation.

New York Times

Robert Mueller III, who was named special counsel on Wednesday to oversee the Trump-Russia investigation, is charged with revealing the truth about suspicions that reach into the highest levels of the Trump campaign and White House.

Given the “unique circumstances” of the case, Deputy Attorney General Rod Rosenstein said in making the appointment, a special counsel “is necessary in order for the American people to have full confidence in the outcome” of the investigation.

Mr. Rosenstein is absolutely right, and he has done the nation a service in choosing Mr. Mueller, one of the few people with the experience, stature and reputation to see the job through. Mr. Mueller led the F.B.I. for 12 years under Presidents George W. Bush and Barack Obama. In 2004, he and Mr. Comey, then deputy attorney general, threatened to resign if President Bush allowed a domestic-surveillance program to continue without Justice Department approval.

Washington Post

This was an essential and reassuring step after a series of alarming developments. The first question for Mr. Mueller will be whether the Russian government meddled in the 2016 presidential election. The second question will be whether anyone in the Trump campaign colluded in the meddling. And the third question will be whether anyone in the administration, up to and including President Trump, illegally tried to interfere with investigations into the alleged meddling and collusion.

An independent inquiry is needed because of statements and actions by Mr. Trump that raised serious concern about executive interference. These include his reported request in January that then-FBI Director James B. Comey swear his loyalty to the president; his reported attempt a month later to persuade Mr. Comey to drop an investigation of Mr. Trump’s first national security adviser, who had to quit after he lied about the nature of his contacts with Russian officials; and his decision last week to fire Mr. Comey. Mr. Trump initially put forward false explanations for that firing but eventually admitted that he was motivated by his displeasure with the FBI’s investigation of alleged Russian interference.

[…]

His job is not to inform the public or to pass judgment on actions that may have been unwise, inappropriate or unethical — but did not violate the law. That is why this appointment does not let Congress off the hook. The American public needs a full accounting of Russian interference in the 2016 election; of American cooperation in that meddling, if any; and of administration efforts to impede investigations into the meddling and collusion, if they took place. The House and Senate intelligence committees are working on aspects of all that, and those must continue. But a full accounting is likely to emerge only if Congress appoints a special commission like the one that investigated the 9/11 attacks. With the Trump administration having led the way, Congress too should act.

Wall Street Journal

The problem with special counsels, as we’ve learned time and again, is that they are by definition all but politically unaccountable. While technically Mr. Rosenstein could fire Mr. Mueller if he goes too far, the manner of his appointment and the subject he’s investigating make him de facto untouchable even if he becomes an abusive Javert like Patrick Fitzgerald during the George W. Bush Administration.

What the country really needs is a full accounting of how the Russians tried to influence the election and whether any Americans assisted them. That is fundamentally a counterintelligence investigation, but Mr. Mueller will be under pressure to bring criminal indictments of some kind to justify his existence. He’ll also no doubt bring on young attorneys who will savor the opportunity to make their reputation on such a high-profile investigation.

I think I agree most with the editors’ of the Washington Post’s take above. I welcome the appointment of a special counsel; it’s what I’ve wanted all along; I think the action should have been taken some time ago; it looks like Mr. Mueller is a good man for the job. I would also welcome the appointment of a special commission.

We’ll see where this takes us as events unfold.

4 comments

Richard Diamond, Private Detective

I quickly finished listening to the extant programs of the Philip Marlowe old-time radio program and moved on to Richard Diamond, Private Detective which I can only characterize as bizarre. The program starred Dick Powell.

As you may recall Dick Powell had two distinct screen personae. One was the happy-go-lucky song and dance man of 1930s Busby Berkeley movies, e.g. 42nd Street, Gold Diggers of 1933, but, unrecognized by many, Powell also turned in on of the very best portrayals of Philip Marlowe in the 1944 move, Murder, My Sweet.

Well, Richard Diamond had Powell giving us both of them. In the first 25 minutes of the program he’s the toughest of hard-boiled detectives in rough, even gruesome stories, sometimes verging into Mickey Spillane territory. Then in the last five minutes he goes over to his girlfriend’s, Helen Asher’s, apartment. Helen, played by the incomparable Virginia Gregg, presses him to sing and he does, usually a popular song from the 1920s or 1930s. The effect is a bit jarring.

There weren’t a lot of radio programs that translated successfully to television. The Benny program, Our Miss Brooks, Gunsmoke, a handful of others. Richard Diamond was one of them, running on television from 1957 to 1960, with David Janssen as Diamond and featuring, in its third season, the 22 year old Mary Tyler Moore as Sam AKA “Legs” (you only heard her voice and saw her legs or glimpses of her lips). Diamond on television bore little resemblance to the radio program.

0 comments

1 Million Years AD

The problem that I had with this article at Space.com and, presumably, the National Geographic Channel series it uses as its springboard on the human species in the far, far future is that is seem to presume Whig history.

In a million years will our species still exist? Will we be big-headed monstrosities? Will we have returned to non-reasoning brutes?

What makes them think that Homo erectus wasn’t Homo sapiens? And try explaining an office job to the Pirahã of Brazil.

I don’t believe that we can predict what we’ll be like 1,000 years in the future let alone a million.

1 comment

What Happens in Venezuela?

It doesn’t seem like things could get much worse in Venezuela. With a rate of inflation over 700%, relatively high unemployment rate, declining labor force participation rate, and lack of basic staples in the stores, you have to wonder how long it can go on.

But what will happen? Will Venezuela become an unarguable military dictatorship without even the trappings of democracy? Will it just dissolve into chaos? Is there a risk of that spreading?

I don’t know the answer to any of those questions but it really sounds bad there.

2 comments