Yes, In Virginia There is a (Bad?) Santa Claus

One of the topics in our Economics of Compassion course is domestic poverty, and one of the issues that we've always noted were the unintended consequences of assistance to low income families. One of the big problems is that as the parent(s) work more, they lose some of their existing assistance, so that the "effective marginal tax rate" is high, even though poor people pay almost none of the U.S. personal income tax. Doug wanted to discuss this issue more in the course this year, and then (thanks to Instapundit) I stumbled onto an actual estimate of these effects, in a blog by Thies. *

What this study estimates, is that for a family of 3 in Virginia, total income (earnings less taxes plus assistance programs) for a totally destitute family appears to be just above $30,000. A small amount of earned income raises that to about $40,000 per year. However, as the family increases its earnings, total income actually falls due to the loss of various government entitlement programs. The family doesn't get out of this government dependency trap (that is, they don't recover their lost income) until employment earnings surpass something around $50,000 per year.

Doug and I were staring at these numbers in amazement. The economic implications of this are staggering, but so are the ethical and moral implications. Look for us to ponder this and expand our thoughts in future posts.

*Disclosure: I always like to see and refer to original sources. The Thies page provides the technical details of the graphs. I found this original source by working backwards from Instapundit through blogs by TaxProf, Mankiew, and Kling.

Lies, Darn Lies, and Statistics

I attended a timely and constructive town-hall meeting on health insurance reform on Tuesday night, featuring several of my colleagues from the Department of Economics. I appreciate the time and effort that each of them put into their presentations. I found it interesting that many times, and across many of the various speakers, issues that I have blogged about here --- adverse selection, moral hazard, the historical accident of our employer-based health plans --- were discussed in the presentations.

As in any good debate, of course, and especially among economists, there were a lot of dueling statistics. I realized that I had long had on my “to do” list to go and look up some original source data on topics that I have read about through a lot of secondary discussion. So, I did that, and here are some facts and patterns I found interesting. These questions all address an obvious larger question : “What do we get in the U.S. for our higher per-capita spending on health care?"

1 ) The U.S. adult mortality rates are not impressive covering the entire adult life span. But, there is also a clear pattern that our performance improves with age. Conditional on a male reaching age 50, the U.S. is kind of in the middle of the pack. We still trail countries like Sweden, Spain, the U.K. France, and Canada, but our life expectancy surpasses several other European countries, including Germany, Austria, and Denmark. By age 65 American males surpass their counterparts in the U.K. and Canada, and if you are a 75 year old American male, you have about the longest life expectancy on earth. The position of the U.S. among women in lower, but the pattern is the same. [Source: “International Comparative Study of Mortality Tables for Pension Fund Retirees,” Cass Business School, U.K., data through 2001]. This corresponds to similar arguments from other data sources I have heard in the health care debate.

2 ) One thing the U.S. does relatively well is help people survive cancer. The U.S. is number 1 or 2 in survival rates for a variety of cancers. The other prominent leading country is Japan. [Source for this and the cancer statistics below: Coleman, et al. Lancet Oncology, 2008.]

3 ) Having some type of “universal access” health care system is not a sufficient condition for having bad cancer survival rates. France has an identical survival rate for women from colon cancer. Canada is not far behind on breast cancer. In addition to Japan, Australia ranks well. Jim Cobbe presented an alternative, aggregate cancer statistic that showed the U.S. slightly behind Australia in overall cancer mortality rates.

4 ) What does stand out in the world of universal access is the poor performance of Britain in cancer survival. In all four of the Lancet Oncology categories, the U.K. survival rates were markedly lower (often 15 percentage points lower, or a 15- 20 percent lower survival rate) than those of the U.S..

So what does this tell us about our current system? (By the way, the panelists uniformly agreed that our tying of health care to employment is a bizarre and inefficient historical artifact). One is that one cannot argue that any arbitrary universal access health care system will necessarily make our health outcomes worse than they are now, using mortality figures as a benchmark. Secondly, what we seem to do relatively well in terms of mortality is address health issues of middle and later age. This suggests that what we do less well is address health issues of young adults. Given that young adults are reported to be relatively less covered by health insurance in the U.S., it suggests that our system works best for the approximately 80 - 85 percent of our population (again, dueling statistics) that are insured, and this is consistent with the reports that the majority of Americans are satisfied with their current coverage, but are concerned for those who are uninsured.

Here are some unanswered questions that I still have.

1 ) The U.S. clearly has non-insurance issues that impact young adults. We do have much higher traffic fatality rates, for example, than most of Western Europe. One of my colleagues said that he didn’t think that was enough to explain the data. I wonder if there are any careful statistical controls for things such as traffic accidents and homicides.

2 ) Mortality is mortality, not quality of life. A lot of the discussion at the town hall meeting was over quality of life issues. One of my colleagues reports being able to obtain quasi-emergency glaucoma surgery in the U.K. only because he had U.S. insurance. He reported that he was told that if he had been a U.K. citizen on NHS, he would have been on a waiting list that would have accelerated his blindness by many years. That is a compelling story, but do we have any way of quantifying quality-of-life measures (beyond mortality statistics). The argument of my colleagues supporting more government involvement suggested that the mortality statistics told most of the story (U.S. higher spending = waste). The arguments of my colleagues who were relatively more opposed to government plans suggested that mortality and quality of life would tell different stories.

3 ) Can we explain the wide variety of differences (at least in mortality) of other countries that have some type of universal coverage? I was really surprised at the wide variation among countries like Japan, Australia, France, the U.K. and Denmark. What can we learn about the specific type of universal coverage and its effects?

So, How Was Your Weekend, Mark OR Other Than That, How Did You Enjoy the Play Mrs. Lincoln?

On Saturday night, just about the time that lightning forced a delay in the FSU-Georgia Tech game, the last remaining electrical circuit inside of my heart fried and failed. I was in a condition known as complete heart block. This is the story of my next couple of days.

As you probably remember from junior high anatomy, the heart consists of four chambers: two atria and two ventricles. Inside of the atria is the electric power plant to run the heart’s beats. A “long distance” power lines runs to a station box at the top of the ventricles, followed by a local transmission line down the boundary of the ventricles, followed by wires out to the two houses on the block. One of those wires, to the right ventricle, had been broken for years without symptoms. In fact, it may be a side effect of keeping in shape through running. The right ventricle becomes a bad citizen and steals some electricity from the left ventricle. But sometime last week, something started to go very wrong. Like the single broken breaker that starts a blackout, first the left ventricle local wire failed, and by the time I went to urgent care on Saturday (when walking up just a few steps was making me dizzy), the transmission line down the ventricles was starting to fail. And, by the time Sue took me to the emergency room about 10 hours later, my heart was like one of the famous Northeast blackouts: Ontario Hydro (the atria) had completely decoupled from New York City (the ventricles).

The only reason I am around to tell you that the lights are back on is that the ventricles have a couple of old-fashioned, fire-em up emergency generators for just such situations. Just like those post-hurricane generators can run your fridge but maybe not much else, the ventricles can plod along on their emergency power….in my case at about 34 beats per minute. The fridge was running, but the AC, the pool pump and the outdoor lighting were shed load. My cardiologist said that if I were a religious person, I could marvel at God’s design in providing such an emergency back-up. No kidding. The backup power lasted long enough that the lights are back on; specifically, I am now the proud owner of a “St. Jude Medical” Hal 9000 (just kidding) computerized pacemaker. As Toby asked me, does this mean I can sell the iPod?

Many of you know that I am scared of flying. I often have nightmares about it. I am almost never in an actual plane crash in my dreams; instead I’m just stuck on a plane that is damaged and in distress, circling endlessly waiting to see whether we will ever land safely. I guess this is when I lived that dream, except that it was my own body I was stuck in, and I now know the elapsed time: almost exactly fifteen hours from hearing the diagnosis until I felt Dr. Cox throw the switch of the pacemaker, and I felt my heart spring back to life.

I have never experienced anything as humbling and scary as feeling my chest jerk from a malformed heartbeat, and then waiting two seconds to see if God was going to give me another one. You can go through several lines of the Lord’s Prayer in two seconds. The good news in this regards came from Dr. Cox at about 1:30 a.m. when she assured me that I was pretty stable because just about everything that could go wrong had already gone wrong.

The fact that I am here writing this is a miracle from God, working directly through his power and though his miracle providers….all of my friends and family who prayed for me, and that decentralized network of medical professionals from the factory in California to Capital Health, TMH, and Southern Medical Cardiology here in Tallahassee. Most amazing of them all is Sue, who never let me give up hope that the next heart beat would come. And then there are Addi and Toby, who each in their own way let me know how much they loved me. I will never forget that Addi brought me home made chocolate chip cookies at the hospital or that Doug sat with me twice during the long weekend. The members of Havana Presbyterian Church wrapped me in a prayer list that stretched across state lines. May God bless you all.

The Last Shall Be Made Even Laster

I always talk in my economics classes about the dangers of confusing correlation with causality. The problem is that with economic data, separating the two can take some time. For example, economic theory predicts that government programs that artificially hold up wages will exacerbate unemployment. But from what I can tell, it's really only after 70 some years that something approaching an empirical consensus has developed that yes, indeed, the Hoover and FDR programs to prop up wages were causal in the persistence of dismal employment numbers in the Great Depression, even after production had recovered in about 1935.

Fast forward to today. In the midst of the worst recession since the 1980s, the President and Congress enacted a 70 cent increase in the minimum wage effective in July. According to this morning's Wall Street Journal, before the fact economist David Neumark estimated the job loss from this increase would be about 300,00 jobs, and in fact 330,000 jobs held by teenagers have indeed disappeared since then. (I know that I made a mental note to track the jobs figures after the minimum wage kicked in.) Most startling in the Journal story is the report that over the same period the unemployment rate for black male teenagers skyrocketed from 39.2 percent to 50.4 percent, which is consistent with the estimations of economist David MacPherson, who pointed out to the class Doug and I taught that the relative winners from increases in the minimum wage tend to be more highly skilled, middle class, suburban part time workers.

The reason I want to focus on the minimum wage issue is because there is probably no economic issue which is more unanimously and uncritically supported by the leadership of the Mainline Protestant denominations than increasing the minimum wage (and yes I am including single-payer health care). Are the economic effects I described above causal or just correlative? It may take decades to reach a consensus. But, given the predictions of economic theory and given that we are finally seeing some consensus from similar policies in the 1930s, let's consider, just for the moment, that all of the warnings about increasing the minimum wage and job losses among poor and minority workers might just have had some empirical traction. What is, therefore, the moral standing of the leaders of the mainline Protestant denominations in supporting economic policies that disproportionately hurt poor and minority workers?

It can't be from a lack of warning. Dissidents in the mainline denominations have criticized their leaders' captivation with leftish economic policies for years. I can only come up with three ideas, and in talking with Doug, he added a fourth:

1 ) Cognitive Dissonance. Perhaps denominational leaders so much want to believe that what they are doing "does justice" that they have moved beyond any consideration with contrary information as to the way the world actually works.

2 ) Ignorance of Rent Seeking in and by Organizations. It could be that denominational leaders so completely identify justice with the views of the leaders of special interests groups (such as labor unions) with whom they associate that they can't see what economists have seen for years: organized special interest groups do not necessarily represent the best interest of their own members. The possibility that labor union leaders would support minimum wage increases even if it cost low skilled workers their jobs has been known for years.

3 ) Utilitarianism. There are workers who benefit from the increase in the minimum wage. Those workers who keep their jobs and get a higher wage are better off because of the minimum wage increase. Perhaps the denominational leaders calculate that, on average, the wage gains outweigh the wage losses. I don't want to argue the broad philosophical merits of utilitarianism as a moral code here. But I think there are three problems with this idea as it relates to Christian views of justice. First, denominational leaders do not couch their arguments in favor of the minimum wage in utilitarian terms. Secondly, utilitarianism is often specifically rejected by the same leaders in other contexts. And, finally, Jesus' call to help the least among us is not a very utilitarian outlook.

4 ) [Doug's idea]. Modified Utilitarianism. The losers from the increase in the minimum wage are most likely to thereby fall into other parts of the government social safety net, which, if you are already predisposed to identifying government economic and social intervention as justice, may not be seen as such a bad thing.

Maybe many years from now we will find out that this correlation between the minimum wage increase and the dismal job figures is spurious. But, in the meantime, as an economist, I'd like to be able to have a dialog with Christian leaders who admit at least the possibility that there may be unintended consequences from their support of increases in the minimum wage (and other economic issues).

Writer's Block?

It's not because I haven't been thinking about the blog that nothing has appeared recently from me. Indeed, I have two topics that I have been trying for days to form into a post. One of those is the conundrum of the role of community in Christian life. There is no doubt that we are called to live in community. Many people much more able than I (such as Dietrich Bonhoeffer in Life Together) have written about Christians and community. In addition, it seems that the Christian response to losses in the advantages of community is a popular topic right now.

But, the problem is that Jesus rules out some of the most popular vehicles for forming community, such as social identity (the parable of the Good Samaritan) and private advantages to community building (see Mark 9:33-25). I have been stuck on what to write, and yesterday my Pastor, Bill Bess, preached a sermon on Mark 9 in which he discussed this same problem in the concept of a community without boundaries. So, I still haven't figured out this riddle, but I hope to return to it.

The second topic I've wanted to write about is the powerful and humbling passage from the lectionary two Sundays ago. Finally I've decided that there's no commentary that I can write that adds anything to the text itself, so I've just decided to repost it here (this is copied from the PCUSA lectionary service):

James 3:13-4:3, 7-8a

13Who is wise and understanding among you? Show by your good life that your works are done with gentleness born of wisdom. 14But if you have bitter envy and selfish ambition in your hearts, do not be boastful and false to the truth. 15Such wisdom does not come down from above, but is earthly, unspiritual, devilish. 16For where there is envy and selfish ambition, there will also be disorder and wickedness of every kind. 17But the wisdom from above is first pure, then peaceable, gentle, willing to yield, full of mercy and good fruits, without a trace of partiality or hypocrisy.18And a harvest of righteousness is sown in peace for those who make peace.

4:1Those conflicts and disputes among you, where do they come from? Do they not come from your cravings that are at war within you? 2You want something and do not have it; so you commit murder. And you covet something and cannot obtain it; so you engage in disputes and conflicts. You do not have, because you do not ask. 3You ask and do not receive, because you ask wrongly, in order to spend what you get on your pleasures.

7Submit yourselves therefore to God. Resist the devil, and he will flee from you. 8Draw near to God and he will draw near to you.

More on "Cash for Clunkers"

Over at "The Economists' Voice", two economists estimate that the net benefits to society of the cash for clunkers program is significantly negative, even after accounting for the reductions in carbon emissions. The details are here (warning: may require guest registration).

The "Man Who Fed the World" Has Passed Away

Anyone who wants to be "Wise as Serpents" in fighting starvation and poverty must surely honor the work of Norman Borlaug, "The Man Who Fed The World." Thanks to Powerline Blog for the tip on the link.